TMI Blog2015 (4) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... with regard to expenses incurred to earn exempted income, then only he can invoke Rule 8D for working out the disallowance. Therefore, in our considered view, this issue requires a relook at the level of Assessing Officer. The same is restored to the file of the Assessing Officer for deciding de novo after providing an opportunity of being heard to the assessee. In the case of disallowance with regard to the administrative and other expenses being 0.5% of average value of investment, the assessee’s claim is that average value of investment taken by the Assessing Officer was ₹ 2,50,20,59,294/- instead of ₹ 41,88,44,725/- which is only 16.94% of the average value of investment taken by the Assessing Officer. Therefore, for this aspect also, we set aside the issue to the file of the Assessing Officer. The Assessing Officer shall decide both these disallowances after providing an opportunity of being heard to the assessee and considering the legal position on these issues. - Decided in favour of revenue for statistical purposes. Valuation of closing stock of sugar - CIT(A) deleted the addition - Held that:- The assessee is valuing closing stock on cost or net realizable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m Debtors and / or interest free funds available with the assessee and as such disallowance u/s 14A with respect to interest of ₹ 21,15,126/- deserves to be deleted. 1(d) That the ld. CIT(A) further erred in considering that the investments of ₹ 10.75 crores were capable of earning exempt income and had been made out of borrowed funds in total disregard of the facts and evidences on record. 1(e) That the ld. CIT(A) has erred in holding that the appellant has not raised any objection on invoking of Rule8D. 2. Tha the ld. CIT(A) has erred in sustaining disallowance of ₹ 11,321/- towards interest on late payment of TDS without appreciating that it an allowable expenditure. 3. That the appellant craves leave to add, amend, alter any grounds of appeal of appeal. 2.1. The ld. AR has stated that the Ground No.-2 raised in the CO is not being pressed, the same is accordingly dismissed. 3. Addressing the facts relatable to Ground No.-1 of the Revenue it is stated that the issue is coming from the earlier years and the facts are found addressed in the assessment order at page 3 para 5. For ready-reference, the same is reproduced hereunder:- During the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it satisfies the conditions set out in clause (ea) of Rule 4. Accordingly it was his submission that following the past history the claim cannot be allowed. Ld. AR on the other hand inviting attention to the assessment order and the impugned order submitted that no such case has been made out by the AO who has specifically taken cognizance only of the fact that the assessee according to the AO was not found to have invested the funds as per the prescribed Rules in a recognized Provident Fund during 2003-04 assessment year and consistently over the years this issue right upto 2007-08 assessment year has been decided in favour of the assessee and was not raised by the Revenue in its appeal filed before the ITAT in 2008-09 assessment year. Referring to the record it was pointed out that the issue was taken up by the Revenue and the order of the Tribunal was specifically challenged. Referring to the copy of the judgement dated 15.02.2011 filed it was pointed out that the Hon ble High Court decided the issue in assessee s favour and cognizance of this judgement has been taken note of by the CIT(A). Accordingly on facts it was his submission the issue is fully covered in assessee s fav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d inasmuch as order of the Assessing Officer on this account was reversed by the CIT(A). He further informs that no appeal is preferred by the Department against the aforesaid order. On this basis it is clear that no question of law arises in so far as proposed question no.1 is concerned. 6.2. In view of the above where admittedly no contrary evidence has been placed by the Revenue except half heated arguments devoid of facts, we find no infirmity in the impugned order where considering the past history the AO rejected the assessee s claim and the CIT(A), considering the facts on record relying upon the High Court s decision upto which stage the issue was settled allowed the claim of the assessee by rejecting the departmental plea. It is a matter of record that consistently the view on the issue has not been varied either by the Tribunal or by any Higher Forum in the intervening years. Accordingly being satisfied by the finding in the absence of any fact to the contrary the Ground raised is dismissed. 7. The facts relatable to the second issue are found discussed in paras 6 to 6.7 of the assessment order wherein considering the facts that the assessee had shown income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge 20 21 takes note of the fact that certain specific investments of ₹ 35 crores are brought forward investments of ₹ 10.75 crores as on 01.04.2003 and the balance of ₹ 24.25 crores had been redeemed in the last year. 9.1. A perusal of pages 15 to 21 of the Co-ordinate Bench would show that the following fact referred to by the CIT(A) in the impugned order have been taken into consideration:- I also find that the appellant had brought forward investments of ₹ 251,24,16,625 as on 1.4.2008. My Ld. Predecessor, while deciding the appeal for AY 2008-09, had held that, the following investments worth ₹ 35 crores were made in FY 2007-08 through mixed funds:- Date of Investment as per Bank Statement Amount of Investment (In Rs.) Investment Name 21.6.2007 14,00,00,000 Birla Mutual Fund 12.07.2007 14,00,00,000 J M Mutual Fund 20.07.2007 1,00,00,000 Optimix Mutual Fund 31.7.2007 3,00,00,000 (Out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicability of Rule 8D for the year under consideration. We would also like to state that Rule 8D of the Income-tax Rules, 1962 is mandatory by using the word shall in section 14A(2), the legislature made it mandatory for the Assessing Officer to determine the amount of expenditure incurred in relation to exempt income according to the prescribed method. Prior to insertion of Rule 8D of the Rules, the Assessing Officers were having discretion to determine expenditure on a reasonable and acceptable method of apportionment of expenditure between the exempt taxable income and exempt income. Now, the legislature has provided in Rules the method of apportionment of expenditure between the exempt income and taxable income, the Assessing Officer as well as the other statutory authorities under the Act are required to determine the amount of expenditure in relation to exempt income according to method prescribed in the Rules. However, the Assessing Officer can embark upon determination of amount of expenditure incurred in relation to the exempt income only if he records the finding that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee, on 1/4/2007 and 31/3/2008 Average Investments as calculated above : 250,20,59,294 0.5% X 250,20,59,294= 1,25,10,296 Total 5,11,00,925 The total disallowance on this account comes to ₹ 5,11,00,925/-. The same is therefore, being disallowed and added to the total income. From the submissions of assessee and from the orders of the revenue authorities, we find that the Assessing Officer has not considered all relevant facts on record and has also not verified the claim of the assessee with regard to the source of investment. To reach at the conclusion that he was not satisfied with the claim of assessee with regard to expenses incurred to earn exempted income, then only he can invoke Rule 8D for working out the disallowance. Therefore, in our considered view, this issue requires a relook at the level of Assessing Officer. The same is restored to the file of the Assessing Officer for deciding de novo after providing an opportunity of being heard to the assessee. 7.1 Similarly, in the case of disallowance with regard to the administrative and other expenses being 0.5% of aver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total 3,59,33,848 Further, the assessee has submitted that the value of closing stock has been taken as per cost or net realizable value whichever is lower. However, the valuation of closing stock on the basis of cost price amount to ₹ 3,59,33,484/-. After examining the facts of the case, it is observed that the assessee has changed its method of valuation of closing stock from Cost basis to Cost or net realizable price whichever is low. This change of accounting policy reduces the profitability of the assessee. This arbitrary change of method of valuation cannot be accepted on account of accounting norms. Besides, the Department is in appeal in the Delhi High Court in this matter. In view of above, the difference of ₹ 3,59,33,848/- is disallowed and added back to the total income of the assessee company. Penalty Proceedings u/s 271(1)(c ) of the I.T. Act are initiated on this point for furnishing inaccurate particulars of income. (emphasis in the present proceedings) 11. In appeal before the First Appellate Authority the issue it is seen is decided in assessee s fav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment order on which the Ld. Sr. DR placed heavy reliance has already been extracted herein above. Considering the same it is seen that the addition was made only to keep the issue alive as is borne out from the last para which takes cognizance of the fact that the AO made the addition as the issue was before the Hon ble High Court. In the light of this fact considering the finding of the CIT(A) which has also been extracted in the earlier part of this order as the Hon ble High Court s decision was available by then which view the record shows was followed by the Coordinate Bench in 2008-09 assessment year. We find the arguments of the Ld. Sr. DR as not maintainable on facts. For ready-reference the relevant extract from the said order of the Co-ordinate Bench with which we find ourselves in agreement is reproduced hereunder:- 13. In the ground no.3, the revenue has raised the deletion of addition of ₹ 10,79,68,722/- made on account of valuation of closing stock. 14. This issue has been decided by the CIT (A) in para 11 which read as under :- 11. Ground no 9 relates to addition of ₹ 10,79,68,722 to the value of closing stock of the appellant. During the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted. This is not the contention of the Revenue. The Assessing Officer in his reasoning has mentioned that the respondent assessee was receiving reimbursement of the loss on export from the sugar manufacturers and losses were reimbursed. Therefore, the respondent/assessee should compute the closing stock on cost basis i.e. Net realizable Value plus reimbursement, which is nothing but the cost price. 20. We have considered the said contention of the Revenue but are unable to agree with them for several reasons. The CIT (A) has granted the relief by relying on the decision of ITAT which has been confirmed by Hon'ble High Court. Therefore, in our considered view, there is no fault in the order of the CIT (A) and the same is sustained on this issue. This ground of revenue s appeal is dismissed. 13.1. In view of the above, we find no merit in the departmental ground. Respectfully following the Co-ordinate Bench on identical facts the departmental appeal is dismissed as the issue is fully covered in favour of the assessee. 14. In the result the appeal of the Revenue is partly allowed for statistical purposes and the assessee appeal of the assessee is allowed as Ground No.-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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