Income-tax Appeal No. 451 of 2010 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH --- . 451 2010 Income Tax Appeal No of : 26 Date of decision th , 2010 October - , The Commissioner of Income Tax Patiala --- Appellant Versus / . ., M s Punjab Tractors Ltd , Phase IV Mohali --- Respondent : CORAM ’ . HON BLE MR JUSTICE ADARSH KUMAR GOEL ’ . HON BLE MR JUSTICE AJAY KUMAR MITTAL --- : Present . . , Mr Tejinder K Joshi Central Government , . Standing Counsel for the appellant --- , . AJAY KUMAR MITTAL J - . 451 This order will dispose of Income tax Appeal Nos 452 2010 and of as the question of law and facts is common in both Income-tax Appeal No. 451 of 2010 2 . - the appeals The facts have been noticed from Income tax Appeal . 451 2010. No of 260 - , This appeal under Section A of the Income tax Act 1961 ( ’ ) for short “the Act ” has been filed by the Revenue against the 20.11.2009, order dated passed by the Income Tax Appellate , ‘ ’, ( ) Tribunal Chandigarh Bench A Chandigarh in short “the Tribunal” . 270/ /2006 in ITA No Chandi in respect of the assessment year 2002-2003. , In short the facts of the case necessary for - adjudicating the present appeal are that the respondent assessee 2002-2003 filed its return for the assessment year declaring an . 1,20,63,57,898/- 31.10.2002 income of Rs on and subsequently 19.4.2004 . filed revised return on declaring same income of Rs 1,20,63,57,898/-. The case of the appellant came under scrutiny 143(3) and the assessment was completed under Section of the Act 30.3.2005 . 1,32,12,53,448/- vide order dated at an income of Rs wherein the assessing officer made certain additions vide order dated 30.3.2005 ( -1). Annexure A Income-tax Appeal No. 451 of 2010 3 The assessee filed appeal against the order of the . - ( ) { assessing officer The Commissioner of Income tax Appeals in ( ) } short “CIT A ” directed the assessing officer to admit the claim for ; , guest house expenses interest on loan to sister concern legal fees , for income tax matters incentive paid to dealers and deduction under 80 . Section HHC of the Act As regards the claim of deduction under 80- , ( ) Section IA the CIT A after following its own decision for the 1999-2000, assessment year directed the assessing officer to make the allocation on the basis of turnover as regards the items of . . common expenditure in the two units i e Swaraj Tractor Division ( ) ( ) STD and Swaraj Combine Division SCD vide order dated 30.1.2006, -2. Annexure A ( ), -2 The order of the CIT A Annexure A was challenged in - ( appeal by the Revenue before the Income tax Appellate Tribunal for ). ( ) short “the Tribunal” The Tribunal set aside the finding of the CIT A on the issue with regard to interest on loan to the sister concern and - directed the assessing officer to re compute the claim for deduction 80 under Section HHC in accordance with the ratio of law laid down in the judgment of the Gujarat High Court in . & CIT v Gasketes , Radiators Distributors (2006) 206 209 CTR and apex Court in CIT Income-tax Appeal No. 451 of 2010 4 . v Lakshmi Machine Works (2007) 290 667. ITR The order of CIT ( ) 80- A in respect of deduction under Section IA and incentive paid . to the dealers was upheld This is how the instant appeal has been preferred by the Revenue wherein the following substantial questions of law have been : claimed i) , In the facts and circumstances of the case whether the ITAT is legally justified in not sustaining the / 80- . disallowance of deduction u s IA of Rs 7,33,54,620/- made on the basis of difference in & , selling distribution expenses fixed cost and . . variable cost per unit between the two divisions i e & , STD SCD even when the assessee had failed to justify the same during the course of the assessment . proceedings ) ii , In the facts and circumstances of the case whether the ITAT is legally justified in holding that the ( ) variation in cost per unit tractor has been explained , by the assessee even when the assessee had failed Income-tax Appeal No. 451 of 2010 5 to substantiate its claim of expenses booked in the . tractor unit of Swaraj Combine Division iii) , In the facts and circumstances of the case whether the ITAT is legally justified in confirming the finding ( ) of the CIT A that the profits have been computed , during the year in a consistent manner ignoring that the principle of - res judicata is not applicable to the . income tax proceedings iv) , In the facts and circumstances of the case whether the ITAT is legally justified in not sustaining the / 80- , disallowance of deduction u s IA without ’ appreciating that in view of the assessee s failure to , lead the relevant evidences the AO was justified / 114 u s of the Indian Evidence Act to take an . adverse view v) , In the facts and circumstances of the case whether or not the mere shifting of profit from one unit to the other by making adjustments of the expenses / 80- booked and claiming deduction u s IA thereon is a colourable device to reduce the tax liability and as Income-tax Appeal No. 451 of 2010 6 such the case stands covered by the ratio of the ’ decision of the Hon ble Apex Court in the case of . . (154 148) ( ). Mc Dowell Ltd vs CTO ITR SC vi) , In the facts and circumstances of the case whether the ITAT is legally justified in confirming the order of ( ), . CIT A who had deleted the addition of Rs 1,81,72,000/- on account of incentive paid to the dealers ignoring that the assessee had failed to substantiate as to how much amount had been received from the dealers for the specific purpose . against which incentive had been paid to them , Also the assessee neither produced copies of agreements with the dealers necessitating such payments nor filed any evidence of such payments to the dealers and thus failed to prove that the expenditure was wholly and exclusively laid out for . the purposes of its business We have heard learned counsel for the appellant and . have perused the record Income-tax Appeal No. 451 of 2010 7 - Learned counsel for the appellant Revenue has very fairly . 1 5 submitted that questions Nos to claimed in this appeal above are - . 431 2010, the same as in Income tax Appeal No of which has been disposed of today where the said questions have been held not to , , , be substantial questions of law and therefore in view of that in the , present appeal also it is to be held that said questions are not . substantial questions arising for the consideration of this Court .6 , Adverting to question No claimed by the Revenue the ( ) Tribunal had held that the deletion which was made by the CIT A on , account of incentive paid to the dealers is in the nature of business , , . expenses and is thus admissible deduction The Tribunal while : holding the same had recorded the following finding “ We have heard the rival submissions and perused the . record The assessee is a State Government undertaking . carrying on the business of manufacturing of tractors The assessee for all tractor sales except government institution , . sale bills to respective dealers at dealer price The , dealers in turn sell the tractors at MRP thereby taking his . 99 profit margin The assessee claims that per cent of its . turn over is directly dealer sale with no commission The Income-tax Appeal No. 451 of 2010 8 government institution sale is routed through respective dealers region where the goods are sold on tender raters . and dealer is paid commission separately The said commission is added in the quotation and thus is not . debited to the profit and loss account of the company , , However because of tough market conditions during the year the assessee company promoted incentive scheme for its dealers to promote sales and to realize the sale . , proceeds The scheme was based on installation off takes and payment targets wherein incentive was paid on achieving cumulative month end sales over a certain . target and also meeting the payment targets During the . year under consideration the assessee paid a sum of Rs 1,81,72,000/- as incentive to dealers and claimed the . same as business expenditure Similar incentives to 1997-98 1998- dealers were paid in assessment years and 99 . , and were allowed However no incentive was paid in 1999-2000 2000-01. assessment years and From the , perusal of details of incentive paid to the dealers it transpires that the assessee had paid the said incentive to Income-tax Appeal No. 451 of 2010 9 186 355 dealers as against dealers concerned to the . assessee The said incentive was paid on achieving cumulative month end sales and for meeting billing . payment targets The assessee has filed the copy of - 2001 special incentive scheme April before us in which the policy of the company for paying incentive in respect . of different models of tractor is incorporated The scheme further provides that the special incentive would be given only on the receipt of payment for full value of model and . not part value The expenditure incurred by the assessee for achieving targets of its business are to be allowed as business expenditure in the hands of the assessee keeping into consideration the fact that the assessee is a state government undertaking and no pecuniary benefit is . derived by achieving higher targets of sale The theme formulated by the assessee was in respect of the targets being achieved over and above a benchmark established . , by the assessee company Accordingly in some cases the incentive was allowed for sale of two to three tractors . only The incentive paid to the dealers is in the nature of Income-tax Appeal No. 451 of 2010 10 business expenditure and hence no element of . advertisement In the absence of any evidence being brought on record by the Assessing Officer that the payments being made to the dealer were not genuine or the dealers had not made the sales of tractors in respect , of which it was allowed the incentives we confirm the ( ) order of CIT A in allowing the claim of the assessee in . entirety ” We have heard learned counsel for the appellant and . perused the record , From the perusal of the above we find that the Tribunal , had come to the conclusion that the assessee which is a Government Undertaking carrying on the business of manufacturing , . the tractors had produced the bills relating to all the dealers The incentive had to be given to the dealers so as to increase the sales to achieve over and above a benchmark established by the - . , assessee company In such a situation it could not be held that the incentive paid to the dealers was not the business expenditure of the . assessee Income-tax Appeal No. 451 of 2010 11 Learned counsel for the appellant submitted that this Court - should re appreciate the evidence and record a fresh conclusion on . , , - the basis thereof He however could not point out any mis reading - or mis appreciation of evidence which may impel this Court to , conclude that the findings recorded by the Tribunal were erroneous . or perverse in any manner , In view of the above we are of the opinion that no substantial questions of law proposed by the Revenue arise that may . attract attention of this Court for decision The appeals are . consequently dismissed ( ) AJAY KUMAR MITTAL JUDGE ( ) ADARSH KUMAR GOEL 26, 2010 October JUDGE * * rkmalik