2012 (6) TMI 649 - AT - Income Tax

Addition on account of change in the method of valuation of closing stock - valuation of TV serials assessee, after first exploitation, has expended 90% and valued the closing stock @ 10%. After second exploitation, the assessee was valuing the TV serials @ nil - valuation is changed and the assessee has come to a conclusion that after the second exploitation, the valuation of the TV serial should be @ 3.33% - Held that - assessee is continuing to follow the same recognized method of accounting - What is changed is the value that has to be assigned to a particular product i.e., a news programme or TV serials subsequent to exploitation of the same - there is no such undervaluation and the assessee had undertaken a bonafide exercise the valuation of a news programmes done by the assessee subsequent to the first exploitation at nil is a bonafide valuation. - In favor of assessee. Disallowance made under section 14A stated by the appellant with evidence that the borrowed money has not been utilized for the purpose of the investment in shraes - ACIT had failed to prove that there was nexus between the borrowed money and the investment Held that - Disallowance made under section 14A, deleted and the ground raised by the assessee is allowed. Employees contribution of PF and employer s contribution to PF - payments were made before the due date of filing the return Held that - payments are not only before the close of accounting financial year but also much before the due date for filing the return of income - in the case of employees contribution towards provident fund, the same should be allowed even though it is paid beyond the grace period, if the same is paid before the time allowed for filing the return of income In favor of assessee.

Summary

Issues Involved:
1. Valuation of closing stock
2. Disallowance under section 14A
3. Disallowance of provident fund contributions
4. Deduction under section 80HHF
5. Interest calculated under sections 234B and 234C

Detailed Analysis:

1. Valuation of Closing Stock:
The primary issue is whether the change in the method of valuation of closing stock by the assessee was bonafide. The assessee, a media entertainment company, altered its valuation policy for news programmes from 2% after first exploitation to nil, citing industry practices and market conditions. This change was argued to be consistent with the policies of Zee Telefilms and NDTV Ltd. The Tribunal observed that the assessee's valuation method aligned with industry standards and was consistently followed in subsequent years. The Tribunal found no infirmity in the valuation method and deleted the addition of Rs. 2,14,16,107 made by the Assessing Officer (AO).

2. Disallowance under Section 14A:
The assessee contested the disallowance of Rs. 18,56,000 under section 14A, arguing that no borrowed funds were used for investments. The Tribunal noted that the assessee had non-interest bearing funds amounting to Rs. 90,47,73,000 and that the AO had incorrectly calculated the investment in shares. The Tribunal, relying on the Bombay High Court judgment in Reliance Utilities And Power Ltd., concluded that the investments were made from non-interest bearing funds and deleted the disallowance.

3. Disallowance of Provident Fund Contributions:
The assessee argued that provident fund contributions were made within the grace period or before the due date for filing the return. The Tribunal found that most payments were made within the grace period, and the remaining payments were made before the filing deadline. Citing the Mumbai Tribunal's decision in M/s. Pranavaditya Spinning Mills Ltd., the Tribunal allowed the assessee's claim and deleted the disallowance.

4. Deduction under Section 80HHF:
The assessee did not press this ground, and the Tribunal dismissed it as "not pressed."

5. Interest Calculated under Sections 234B and 234C:
This ground was deemed consequential. The Tribunal directed the AO to give consequential effect while re-computing the assessee's income.

Conclusion:
The Tribunal allowed the appeal in part, deleting the additions related to the valuation of closing stock and disallowance under section 14A and provident fund contributions. The ground regarding section 80HHF was dismissed as not pressed, and the issue of interest under sections 234B and 234C was directed to be addressed consequentially.