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2013 (10) TMI 524 - AT - Income TaxDisallowance u/s 14A - Application to A.Y. prior to 2008-09 - Held that - High Court in the case of Godrej & Boyce Ltd. Mfg. Co. v. DCIT 2010 (8) TMI 77 - BOMBAY HIGH COURT has held that the provisions of Rule 8D cannot be applied to any assessment year prior to 2008-2009. Since the assessment year under consideration is prior to assessment year 2008-2009, as such Rule 8D cannot be invoked for the purposes of computing disallowance u/s 14A. We, therefore, vacate the orders of the lower authorities in this regard. The matter is accordingly sent back to the AO for working out the disallowance under this provision on some reasonable basis - Decided in favour of assessee. Valuation of closing stock - Under valuation of closing stock - Held that - there is no material on record to indicate the method of valuation of closing stock by the assessee. Since the assessee sold power units at the average rate of Rs.3.17 per unit, we are of the considered opinion that the same rate can be applied for valuing the closing stock on market value basis. The learned AR did not raise any objection to the sustenance of addition but requested that the same value of closing stock for this year should be directed to be adopted as a value of opening stock for the subsequent year. There can be no doubt on the proposition that the value of closing stock for one year has to be taken as the value of opening stock for the subsequent year. The assessee in this case valued stock at the rate of Rs.2.32 per unit by considering the purchase price of MSEDCL, whereas we have held that such closing stock should be valued at average sale price of Rs.3.17 per unit. It is quite natural that if the closing stock for the current year is held to be liable for valuation at Rs.3.17 per unit, then the opening stock for the next year should also be valued accordingly - Decided against assessee.
Issues:
1. Disallowance under section 14A read with Rule 8D 2. Under-valuation of closing stock of power units 3. Disallowance of management fee charged by Kotak Securities Limited 4. Credit for tax deducted at source Issue 1: Disallowance under section 14A read with Rule 8D The appeal concerned the disallowance of Rs.6.98 lakh under section 14A read with Rule 8D. The Assessing Officer applied Rule 8D to make the disallowance, which was upheld by the Commissioner of Income-tax (Appeals). However, the Tribunal noted that Rule 8D cannot be applied to assessment years prior to 2008-2009, as per the decision in Godrej & Boyce Ltd. Mfg. Co. v. DCIT. Therefore, the Tribunal vacated the lower authorities' orders and directed the Assessing Officer to compute the disallowance under a reasonable basis, as per the High Court's decision. Issue 2: Under-valuation of closing stock of power units The second ground of appeal was against the addition of Rs.20,29,706 due to the under-valuation of closing stock of power units. The assessee valued the remaining power units at a lower rate compared to the average sale rate. The Tribunal held that since the assessee sold units at a higher rate, the same rate should be applied for valuing the closing stock. The Tribunal also noted the principle that the closing stock of one year should be the opening stock of the subsequent year. Consequently, the Tribunal dismissed this ground of appeal. Issue 3: Disallowance of management fee charged by Kotak Securities Limited The third ground of appeal contested the disallowance of Rs.3.21 lakh as management fee charged by Kotak Securities Limited. The Tribunal referred to a precedent where a similar disallowance was upheld and decided to sustain the disallowance in this case as well. Issue 4: Credit for tax deducted at source The final ground of appeal related to the denial of credit for tax deducted at source claimed by the assessee. The Tribunal directed the Assessing Officer to verify the claim and allow credit for TDS certificates as per the law, providing the assessee with a reasonable opportunity to be heard. In conclusion, the appeal was partly allowed for statistical purposes, with specific directions provided for each issue raised in the appeal.
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