TMI Blog2016 (4) TMI 866X X X X Extracts X X X X X X X X Extracts X X X X ..... ed orders are dated 31-10-2013. The assessee has filed cross objections being CO Nos. 26 27/PN/2015 assailing the same orders of Commissioner of Income Tax (Appeals) for respective assessment years. Since, the issues involved in both the assessment years are identical, these appeals of the Revenue and the cross objections by the assessee are taken up together for adjudication. 2. The brief facts of the case as emanating from the records are: The assessee is a partner in M/s. Soham Engineering Sales and Service, a firm engaged in the business of trading and sale of pumps. The assessee is also a whole time Director in M/s. Soham Surface Coatings Private Limited, a company engaged in the business of supply and design of painting equipments. Apart from the above, the assessee is engaged in the business of trading in shares and securities in her personal capacity. The assessee filed her return of income for the respective assessment years declaring income from all sources. During the impugned orders the assessee valued the closing stock of shares at cost or market price , whichever is less. In the past, the assessee was valuing closing stock of shares at cost . The assessee cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the Assessing Officer had objected to the change of method of valuation in assessment year 2008-09. The Commissioner of Income Tax (Appeals) accepted the contentions of the assessee and reversed the findings of Assessing Officer. The Department carried the matter in appeal i.e. ITA No. 1673/PN/2012 to the Tribunal, the Tribunal vide order dated 10-03-2014 decided the issue in favour of the assessee and rejected the appeal of the Department. The ld. AR placed on record a copy of the order of the Co-ordinate Bench in ITA No. 1673/PN/2012 (supra). 3.1 The ld. AR further submitted that in cross objection, the assessee has assailed the findings of Commissioner of Income Tax (Appeals) in confirming the disallowance made u/s. 14A r.w. Rule 8D. It is an undisputed fact that the assessee is trading in shares. A perusal of the balance sheet for the impugned assessment years would show that the assessee has not purchased shares for investment purposes. Disallowance u/s. 14A can be made only on the shares which are held under investment portfolio. The ld. AR submitted that Hon'ble Karnataka High Court in the case of CCI Ltd. Vs. Joint Commissioner of Income Tax reported as 206 Taxma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the disallowance on account of understatement of closing stock of shares by change in method of valuation. The CIT(A) has erred in not considering the fact that accounting standard AS-2 is silent as far as valuation of shares and securities is concerned and the assessee should have followed the method of valuation consistently which has been followed by the assessee from the beginning. Accordingly, the order of CIT(A) be set aside and that of Assessing Officer be restored. On the other hand, learned Authorized Representative supported the order of CIT(A) and submitted that the Assessing Officer erred in adding ₹ 21,88,917/- on account of alleged understatement of closing stock of shares by change in method of valuation from at cost to at cost or market value whichever is lower. The Assessing Officer erred in not appreciating that the method of valuing stock at cost or market value whichever is lower is more appropriate and universally adopted as against valuation of stock / inventory at cost, Accounting Standard (AS-2) valuation of inventories also mandatorily provides that cost or market price whichever is lower is the correct method for valuing inventories. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ried to depend on two arguments i.e. the change has been made after following the earlier method consistently in the last many years and the change has been effected in a year in which there was a crash in the stock market. The stock market is subject to fluctuations and always depends on market conditions. Hence the crash cannot be considered as unusual or a once in many years phenomenon. The Assessing Officer was not justified in holding that the assessee has been following the old method consistently for many years because the activity of trade in shares and securities started only in A.Y. 2007-08. The same was immediately changed in the subsequent year on realizing that the earlier method was not proper and is not generally followed and accepted method of valuation. In view of this, the Assessing Officer was not justified in holding that the change has been made with the motive to lower the profit and not for adopting proper method of account. The method of valuing the closing stock at cost or market price whichever is lower is a proper method of accounting as held by the Hon ble Supreme Court in the case of Chinrup Sampatram Vs. CIT (1953) 24 ITR 481 (SC). The changes to this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssailed the findings of Commissioner of Income Tax (Appeals) in confirming the disallowance made u/s. 14A r.w. Rule 8D. It is an undisputed fact that the assessee is engaged in the business of trading of shares. Nothing has been brought on record by the Revenue to show that the assessee is also maintaining investment portfolio. The assessee has earned dividend income of ₹ 6,28,455/- in assessment year 2009-10 and ₹ 8,29,607/- in assessment year 2010-11. The said dividend income has been earned on the shares held by the assessee as stock-in-trade. The dividend income earned by the assessee is incidental to the business of trading in shares by the assessee. The Hon'ble Bombay High Court in the case of CIT Vs. India Advantage Securities Ltd. in Income Tax Appeal No. 1131 of 2013, decided on 13-04-2015 has upheld the order of Tribunal wherein it was held that no disallowance u/s. 14A r.w. Rule 8D can be made on shares held as stock-in-trade. 7. The Hon'ble Karnataka High Court in the case of CCI Ltd. Vs. Joint Commissioner of Income Tax (supra) has held that when no expenditure is incurred by the assessee in earning the dividend income no notional expenditure cou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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