TMI Blog2012 (8) TMI 776X X X X Extracts X X X X X X X X Extracts X X X X ..... location of notional expenditure unless the facts of a particular case so warranted - in favour of assessee. Unaccounted expenses under the head making up charges - Held that:- As payments were made by account payee cheque on bills raised by the contractor/job workers and tax at source had also been deducted in respect of the aforesaid payments made for making up charges to the contractor/job workers, it is not necessary that in every case expenses are to be allowed only upon confirmation letters being filed from the recipients of the amounts - as the expenditure is backed by considerable evidence, including the registers maintained as per the requirement of the Central Excise Authorities the claim is to allowed - in favour of assessee. Change in the method of valuing closing stock - Held that:- Any change in the method of valuing closing stock was not done to undervalue profit and there was no mala-fide intention on the part of the respondent-assessee and the Accounting standard issued by the Institution of Chartered Accountants of India made it mandatory that the inventories should be valued at the lower of costs or the net realizable value - there is no need to change the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce the incidence of tax liability? Re Question (a) : 3) The respondent-assessee claimed deduction of Rs.4.16 crores for the assessment year 1997-98 being dividend income under Section 80M of the Act. The Assessing officer by his order dated 30/3/2000 held that in view of Section 80AA of the Act the deduction under Section 80M of the Act is to be allowed only on net dividend i.e. after deducting expenses incurred for earning dividend income. However, as the respondent-assessee had not claimed any expenses towards the earning of dividend income, the Assessing Officer estimated 10% of its gross dividend income as expenditure incurred for earning the same. He thus, restricted the deduction under Section-80M of the Act to only Rs.3.74 crores. 4) The Commissioner of Income Tax (Appeals) by an order dated 30/7/2003 allowed the respondent-assessee's appeal. It was held that as no expenditure had been incurred to earn the dividend income, the Assessing officer was not justified in estimating 10% of the dividend income as the expenditure incurred for earning the same. Therefore Assessing Officer was directed to allow deduction of dividend income to the extent of Rs.4.16Crores. 5) Bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 80M in the sum of Rs.15,58,646/-. The Income-tax Officer, however, deducted Rs.15,04,220/-, leaving an amount of only Rs.54,426/- as eligible for deduction under Section 80M holding that the major income of the bank fell under the head income from securities under sections 18, 19 and 20 of the Act as it stood at the relevant time. The Income-tax Officer held that section 20 contemplated deduction from interest on securities in the case of a banking company; that the respondent had earned income under the head Interest on securities which fell under section 18 and since section 20 contemplated the rule of proportionality of expenses and interest, the Income-tax Officer broadly lifted that rule and imported the same for computing the net eligible relief under section 80M. In that case, there was no dispute that the deduction under section 80M is to be based on the net dividend received. Even before us, there is no dispute in this regard. The Division Bench proceeded to answer the following question : Whether the Department was entitled to import the rule of proportionate expenditure and interest contemplated by section 20 of the Act as it then stood into section 80M of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able on net dividend arrived at after taking into account actual expenditure incurred for the purposes of earning such dividend unless the facts of a particular case warrant otherwise. Therefore, we answer the latter question in favour of the assessee-bank and against the Department. The provisions of Section 80HHC are entirely different from those of Section 80M and 80AA. There is no basis for importing the provisions of Section 80HHC with Section 80M. The same does not lead to a satisfactory computation of the net dividend under Section 80M. Therefore, question (a) as formulated is dismissed as it raises no substantial question of law. Re Question (b) :- 9) During the assessment year 1997-98 the respondent- assessee had claimed an amount of Rs.1.16 crores as expenses under the head making up charges. During the assessment proceeding the respondent assessee was asked to furnish confirmation letters from the persons to whom the payment was made for making up charges. The respondent-assessee could not furnish the confirmatory letters to the extent of Rs.88.97 lacs. Consequently, the Assessing officer disallowed the expenditure to the extent of Rs.88.97 lacs and added it to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing officer did not accept the explanation offered by the respondent-assessee for change in the method of valuing closing stock viz. accounting standard AS-2 required the closing stock to be valued at costs or market value whichever is lower. However, the Assessing officer held that change in method of valuation has been effected with an intent to evade tax and approximately Rs.6.17crores was added back to the declared income of the respondent-assessee. 14) The Commissioner of Income Tax (Appeals) allowed the respondent-assessee's appeal. It was held that the change in the method of valuing closing stock was not done to undervalue profit and there was no mala-fide intention on the part of the respondent-assessee. Consequently, the Assessing officer was directed to delete the addition of Rs.6.17 crores on account of valuation of closing stock. 15) The Tribunal upheld the finding of the Commissioner (Appeals). The Tribunal held that in view of the provisions of the Companies Act the respondent-assesseee is obliged to comply with the Accounting standard issued by the Institution of Chartered Accountants of India. The Accounting standard issued by the Institution of Chartered Acco ..... 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