Income-tax Appeal No. 431 of 2010 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH --- . 431 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 260 - , This appeal under Section A of the Income tax Act 1961 ( ’ ) for short “the Act ” has been filed by the Revenue against the 24.9.2009, , order dated passed by the Income Tax Appellate Tribunal Income-tax Appeal No. 431 of 2010 2 ‘ ’, ( ) . Chandigarh Bench A Chandigarh in short “the Tribunal” in ITA No 269/ /2006 1999-2000. Chandi in respect of the assessment year , - In short the facts of the case are that the respondent 24.12.1999 1999- assessee filed its return on for the assessment year 2000 . 1,45,26,10,930/- declaring an income of Rs and subsequently 19.3.2001 . filed a revised return on declaring income of Rs 1,45,29,54,950/-. The case of the appellant came under scrutiny 143(3) and the assessment was completed under Section of the Act 31.1.2003 . 1,53,23,05,496/- vide order dated at an income of Rs wherein the assessing officer made the following additions vide order 31.1.2005 ( -1): dated Annexure A )i . 14,13,306/- Rs on account of disallowance of deduction 80 claimed under Section HHC ii) . 7,79,37,240/- Rs on account of disallowance of 80- deduction claimed under Section IA 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 80 deduction under Section HHC and as regards deduction under 80- , ( ) - Section IA the CIT A directed the assessing officer to re Income-tax Appeal No. 431 of 2010 3 , , compute the same holding that adjustment made in the fixed cost variable cost and selling and distribution expenses and allocation of finance charges could not be sustained and that so far as the items , . . of common expenditure in the two units i e Swaraj Tractor Division ( ) ( ) , STD and Swaraj Combine Division SCD were concerned . ( ), , allocation be made on the basis of the turnover The CIT A thus , disposed of the appeal in the manner indicated above vide order 27.1.2006, -2. dated 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 appeal preferred by the Revenue was 24.9.2009, -3. dismissed vide order dated Annexure A The Tribunal relied upon a decision of the apex Court in . CIT v Lakshmi Machine (2007) 290 667 ( ) Works ITR SC in respect of the issue concerning 80 deduction under Section HHC. 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 Income-tax Appeal No. 431 of 2010 4 / 80- . disallowance of deduction u s IA of Rs 5,12,77,884/- 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 ( ) 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 Income-tax Appeal No. 431 of 2010 5 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 We have heard learned counsel for the appellant and . have perused the record , The questions noticed above claimed to be the , - substantial questions of law by the Revenue are inter related and - dependent upon the fact whether the dis allowance of deduction Income-tax Appeal No. 431 of 2010 6 - , 80- claimed by the respondent assessee under Section IA of the Act ( ) by the assessing officer had been rightly reversed by the CIT A and . , the Tribunal The Tribunal on appreciation of evidence while ( ) 15 16 affirming the finding of the CIT A had recorded in paras and of , : its judgment as under “15. We have considered the rival submissions . - carefully The assessee is a multi division company as . , , , noted by us earlier It has three Divisions namely STD . / SED and SFD Earlier STD was eligible for deduction u s 80- / 80- IA and the period of claiming deduction u s IA , , already expired and during the year profits of STD are 80- . , not eligible for IA benefits SCD has two units Tractor Unit and Harvest Combine Unit and the profits of the / 80- . Tractor Unit of SCD are eligible for deduction u s IA It is also factually not in dispute that the assessee is maintaining separate books of account and costing records . , for each of the three Divisions As regards SCD separate costing records are also maintained for Tractor Unit and . the Harvest Combine Unit The profits computed in the Tractor Unit have been subject to scrutiny by the Income-tax Appeal No. 431 of 2010 7 . Assessing Officer He has compared the costing records . of the SCD and STD According to the Assessing Officer the cost per unit on tractor manufactured in SCD is lower than that in STD in relation to elements of selling and , . distributing expenses fixed cost and variable cost The details of such variation are enumerated in the . assessment order In view of the variation in the cost per , unit the Assessing Officer has adjusted the profits declared in the Tractor Unit of SCD which has resulted in / 80- . scaling down of deduction u s IA of the Act 16. , In this back ground we may observe that the Assessing Officer is competent to examine the method of accounting followed by the assessee to compute its . income The Assessing Officer is also competent to examine the reliability of the books of account maintained by the assessee so as to satisfy himself about the correctness or completeness of the accounts of the . assessee It is also well settled that where the Assessing Officer finds that the method of accounting adopted by the assessee is not regularly followed or where the method of Income-tax Appeal No. 431 of 2010 8 accounting adopted does not result in deduction of true , income the same can be rejected by the Assessing . , Officer In this view of the matter we find that in the , , , instant case there is no allegation much less a finding by the Assessing Officer that the accounts of the . assessee are incorrect or incomplete Even with regard to , the method of accounting employed by the assessee . there is no adverse finding by the Assessing Officer In , other words the books of account maintained by the assessee and the income declared thereon have not been . found to be unreliable by the Assessing Officer We say , so for the reason that the only allegation of the Assessing Officer is that the cost of production per unit in SCD Unit . , varies with that of the STD Unit Nevertheless there is no allegation by the Assessing Officer that there is any , expenditure booked in STD which otherwise pertains to . SCD There is also no allegation that any of the incomes . stated in SCD otherwise belongs to STD This means that , there is no instance of expenditure or income noted by the Assessing Officer which has been booked in the Income-tax Appeal No. 431 of 2010 9 . accounts of a wrong Division The difference in the cost of production between the two Divisions can only be an indicator but cannot be taken to mean that the assessee . has inflated its profits in one of the Divisions Nothing has been established by the Assessing Officer to say that the expenditure which was chargeable against the incomes of , . , SCD has not been so charged Therefore in our , considered opinion the adjustment made to the profits of the Tractor Unit of SCD is merely passed on conjectures . and surmises and is not factually supported Further , , more the variation in the cost per unit has been . explained by the assessee According to the assessee for , each of the Divisions profits are worked out after . considering actual expenses Only the expenses of common nature are apportioned between different , . Divisions on which there is no dispute The assessee , further pointed out that in the new unit it has used latest & technology and latest plan machinery which would show . lower per unit cost The assessee also pointed fallacies in the approach of the Assessing Officer whereby only those Income-tax Appeal No. 431 of 2010 10 elements of cost have been picked up which were lower in , , the new unit as compared to the older unit whereas the Assessing Officer overlooked the items of expenditure where the cost per unit in the new unit was higher as . compared to older unit All these explanations were before - ( ) , the Commissioner of Income tax A and on such basis , the points raised in the impugned Ground have been - ( ) decided by the Commissioner of Income tax A in favour . - ( ) of the assessee The Commissioner of Income tax A has also noted that the profits have been computed during , the year in a consistent manner as in the past and also in . . 2000-01 2001-02. the subsequent two A Y and To such explanations and the basis adopted by the Commissioner - ( ) , of Income tax A to decide the issue there is no . , negation from the side of the Revenue Thus in our view the variation in the cost noted by the Assessing Officer stands explained and such variation ipso facto cannot be / 80 a reason to scale down the deduction claimed u s IA of . the Act in relation to the Tractor Unit of SCD The , variation in some of the elements of cost could at best be Income-tax Appeal No. 431 of 2010 11 , an indicator to investigate further but no material has been established by the Revenue to show that the profits - . in Tractor Unit of SCD are in genuine On this aspect , also there is no controversy from the side of the . Revenue ” A perusal of the aforesaid finding would show that the Tribunal came to the conclusion that the assessee who was having three , , , , Units namely SED SFD and STD did not divert any income from , , one Unit to the other and therefore the Assessing Officer was not 80- . justified in disallowing the deductions under Section IA of the Act Learned counsel for the Revenue made strenuous efforts - to persuade this Court to re appreciate the evidence and record fresh . conclusion on the basis thereof But the counsel could not point out - - any mis reading or mis appreciation of evidence on the basis of ( ) which it could be recorded that the findings of CIT A as affirmed by , . the Tribunal were erroneous or perverse in any manner The view taken by the authorities below is plausible view based on appreciation . , , of evidence available on record No exception can therefore be . , , taken to said findings We therefore in exercise of our jurisdiction 260 - under Section A of the Act would not like to re appreciate the Income-tax Appeal No. 431 of 2010 12 evidence available on record as sought to be contended by the . learned counsel for the appellant , In view of the above we are of the opinion that the substantial questions of law proposed on behalf of the Revenue do not arise in this case that may attract attention of this Court for . . decision The appeal is consequently dismissed ( ) AJAY KUMAR MITTAL JUDGE ( ) ADARSH KUMAR GOEL 26, 2010 October JUDGE * * rkmalik