Income-tax Appeal No. 453 of 2010 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH --- . 453 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 - . 453 This order will dispose of Income tax Appeal Nos 454 2010 and of as the question of law and facts is common in both Income-tax Appeal No. 453 of 2010 2 . - the appeals The facts have been noticed from Income tax Appeal . 453 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” . 594/ /2008 in ITA No Chandi in respect of the assessment year 2004-2005. Briefly stated the facts of the case are that the - 2004- respondent assessee filed its return for the assessment year 2005 1.11.2004, . 49,71,52,397/- on declaring an income of Rs and 20.3.2006 subsequently filed revised return on declaring same . 49,71,52,397/-. income of Rs The case of the appellant came under 143(3) scrutiny and the assessment was completed under Section of 29.12.2006 . the Act vide order dated at an income of Rs 54,54,96,270/- wherein the assessing officer made certain additions ( -1). as noticed in the order Annexure A , Aggrieved by the order of the assessing officer the . - ( ) assessee filed appeal The Commissioner of Income tax Appeals { ( ) } 29.4.2008, in short “CIT A ” disposed of appeal vide order dated Income-tax Appeal No. 453 of 2010 3 -2 Annexure A and directed the assessing officer to admit the claims on account of expenses of capital nature and deduction under 80 . Section HHC And as regards the addition on account of , disallowance of incentive paid to the dealers the same was directed to be allowed in cases where PAN of the dealer was provided by the . assessee Regarding addition on account of apportionment of 14 , expenses under Section A the same was upheld to the extent of . 25 80- Rs lacs only whereas the claim of deduction under Section IA arising out of mere shifting of profit from one unit to the other by . . making adjustments of the expenses booked i e between Swaraj , ( ), ( ) Tractor Division and Swaraj Combine Division SCD the CIT A . , partly decided the issue in favour of the assessee However as . 1,14,45,533/- regards the addition of Rs on account of , apportionment of expenses of SCD it was directed to be deleted by holding that only some heads of expenditure had been allocated in 90:10 the ratio of and the basis of apportionment of the remaining . ( ) expenses appeared to be reasonable The CIT A also directed the assessing officer to delete the addition on account of apportionment of interest in view of the fact that factual details that higher interest , had been charged to the exemption eligible unit furnished by the Income-tax Appeal No. 453 of 2010 4 - . assessee had remained un controverted ( ), -2 The order of the CIT A Annexure A was challenged in - ( appeal by the Revenue before the Income tax Appellate Tribunal for ). , 20.11.2009, short “the Tribunal” The Tribunal vide order dated -3, ( ) Annexure A 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 under Section 80 HHC in accordance with the ratio laid down in the judgment of the Gujarat High Court in . & , CIT v Gasketes Radiators Distributors (2006) 206 209 CTR and that of the Supreme Court in . CIT v Lakshmi Machine Works (2007) 290 667 ( ). ITR SC As regards the 14 addition on account of apportionment of expenses under Section A . 25 , which was upheld to the extent of Rs lacs was deleted by the , Tribunal whereas the addition on account of disallowance of incentive 80- paid to the dealers and the deduction under Section IA were deleted by the Tribunal by following the orders in the case of the 2002-03 present assessee itself relating to the assessment years and 2003-04. Income-tax Appeal No. 453 of 2010 5 This is how the instant appeal has been preferred by the Revenue claiming that the following substantial questions of law arise : for determination by this Court 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 1,16,44,973/- 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 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 Income-tax Appeal No. 453 of 2010 6 ( ) 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 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 Income-tax Appeal No. 453 of 2010 7 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 1,03,12,868/- 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 ) vii , In the facts and circumstances of the case whether the ITAT is legally justified in deleting the addition / made on account of apportionment of expenses u s 14 , A when the assessee failed to provide separate details of expenses relating to exempt income thus failing to discharge its onus that it had not incurred Income-tax Appeal No. 453 of 2010 8 operating and administrative expenses on investment ( ) made by it on which huge dividend exempt income . had been earned We have heard learned counsel for the appellant and . have perused the record - Learned counsel for the appellant Revenue has very fairly . 1 6 submitted that question Nos to claimed in this appeal are the - . 451 2010, same as in Income tax Appeal No of which has been , , disposed of today and therefore in view of that in the present appeal , also it is to be held that said questions are not substantial questions . of law for the consideration of this Court .7 , Adverting to question No claimed by the Revenue the Tribunal had directed the Assessing Officer to delete the disallowance . 25 14 . , of Rs lacs made under Section A of the Act While doing so 43 45 , : the Tribunal in paras to of its order held as under “43. , The question for adjudication is whether any 14 disallowance is warranted under Section A of the Act in a case where the assessee claims to have made the , investment in the shares of Indian Companies in the past years and the dividend income from which is claimed as Income-tax Appeal No. 453 of 2010 9 . exempt The claim of the assessee before the authorities below is that no part of the interest expenditure is attributable to the investments made in shares of Indian companies as the said investments were made in the . earlier years wherein no disallowance had been made Further the assessee claims that during the year under , consideration no expenditure is attributable to the earning . of dividend income From the perusal of the assessment , order we find that the claim of the assessee was to have made in investments in the shares from which dividend : income had arisen as under ( ) Investment In lacs Year of Investment Shimla 304.50 1985 SEL 68.65 1990 SAL 5.83 1980 IDBI 224.44 1995 44. ’ We find that similar issue arose before the Hon ble Punjab and Haryana High Court in CIT Vs Hero Cycles :- Ltd wherein it has been held as under Income-tax Appeal No. 453 of 2010 10 “ , In view of finding reproduced above it is clear that the expenditure on interest was set off against the income from interest and the investment in the share . and funds were out of dividend proceeds In view of , / 14 this finding of fact disallowance u s A was not . , , sustainable Whether in a given situation any expenditure was incurred which was to be , . disallowed is a question of fact The contention of the revenue that directly or indirectly some expenditure is always incurred which must be 14 disallowed under section A and the impact of expenditure so incurred cannot be allowed to be set off against the business income which may nullify 14 , . the mandate of section A can not be accepted / 14 Disallowance u s A requires finding of incurring of expenditure where it is found that for earning , exempted income no expenditure has been incurred 14 . disallowance under section A cannot stand In the , , present case finding on this aspect against the , . Revenue is not shown to be perverse Income-tax Appeal No. 453 of 2010 11 , . Consequently disallowance is not permissible We . 504 have taken this view earlier also in ITA No of 2008 ( - Commissioner of Income Tax Chandigarh II . / . , Vs M s Winsome Textile Industries Limited ) 25.8.2009, Chandigarh decided on wherein it was : observed as under “6. Contention raised on behalf of the assessee had made investment in shares out of its own , funds the assessee had taken loans on which interest was paid and all the money available , with the assessee was in common kitty as held by this Court in CIT Vs Abhishek , (2006) 286 1 , Industries Limited ITR and , 14 therefore disallowance under section A was . justified 7. . We do not find any merit in this submission Judgment of this Court in Abhishek Industries ( ) supra was on the issue of allowability of , interest paid on loans given to sister concerns . without interest It was held that deduction of Income-tax Appeal No. 453 of 2010 12 interest was permissible when loan was taken for business purpose and not for diverting the same to sister concern without having nexus . with the business Observations made therein . have to be read in that contest In the present , , case admittedly the assessee did not make . , any claim for exemption In such a situation 14 . section A could have no application ” 45. ’ In line with the ratio laid down by the Hon ble Punjab / . and Haryana High Court in CIT Vs M s Hero Cycles Ltd ( . 331 2009) 4, 2009 ITA No of order dated November and in view of the fact that the authorities below have failed to / point out any interest expenditure attributable to earning , / of dividend income during the year no disallowance u s 14 . , A of the Act is warranted Accordingly we direct the . 25 Assessing Officer to delete the disallowance of Rs 14 . . . lacs made under Section A of the I T Act ” We have heard learned counsel for the appellant and . perused the record Income-tax Appeal No. 453 of 2010 13 , From the perusal of the above we find that the Tribunal , 4, 2009 after relying upon a judgment of this Court dated November / . ( . 331 2009) in CIT Vs M s Hero Cycles Ltd ITA No of and having regard to the fact that the authorities below had failed to point out / any interest expenditure attributable to earning of dividend income , / 14 during the year held that no disallowance u s A of the Act was , warranted and accordingly directed the Assessing Officer to delete . 25 14 . . the disallowance of Rs lacs made under Section A of the I T . Act 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 the substantial questions of law proposed by the Revenue do not arise . that may attract attention of this Court for decision The appeals are . consequently dismissed Income-tax Appeal No. 453 of 2010 14 ( ) AJAY KUMAR MITTAL JUDGE ( ) ADARSH KUMAR GOEL 26, 2010 October JUDGE * * rkmalik