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TMI Blog2012 (8) TMI 776X X X X Extracts X X X X X X X X Extracts X X X X ..... nistrative expenses have been debited in the P & L account and therefore in terms of Section 80AA read with Section 80M deduction u/s. 80M is allowable only on the net dividend income and in the circumstances of the case, the A.O. had no other option but only to estimate the expenditure incurred on earning of dividend income? b) Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in allowing the expenditure of Rs.49,17,790/- made on account of making up charges, without appreciating the fact that the assessee failed to furnish the confirmations of parties to establish the genuineness of the expenses? c) Whether on the facts and in circumstances of the case the Tribunal was justified in law in accepting the change in the method of valuation of stock in trade, without appreciating the fact that change in accounting method of stock in trade from net realizable value to lower of cost or market price was undertaken without bringing on record any evidence warranting the change in methodology and was carried out to reduce the incidence of tax liability? Re Question (a) : 3) The respondent-assessee claimed deduction of Rs.4.16 crores for the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses incurred for the purpose of earning such dividend and not on estimated basis. She also placed reliance upon another order of this court in the matter of Commissioner of Income Tax Vs. City Finance India Ltd. In Income Tax Appeal No.6780 of 2010 dated 1/12/2011 wherein on a similar question being raised, this Court held that only expenses directly incurred to earn dividend income are to be reduced while computing deduction under Section 80M. 7) We find that question (a) is covered by the decision of this Court in the matter of Central Bank of India (Supra) and the City Finance Limited (supra). The aforesaid decisions are binding upon us. 8) Ms. Vasanti Patel's reliance upon the judgment of a Division Bench of this Court in Commissioner of Income Tax v. Central Bank of India (2003) 264 ITR 522, is well founded. It is pertinent to note that in the case before us, the Assessing Officer adopted the figure of 10% drawing an analogy from section 80HHC. In Commissioner of Income Tax v. Central Bank of India, the respondent had claimed relief under section 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/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onies borrowed for earning such income. The point to be noted is that deductions contemplated by section 80M referred to actual expenditure whereas, deductions contemplated by section 20(1) are estimated proportionate expenses and interest. Therefore, one cannot import deductions from interest on securities in the case of a banking company under section 20(1) into the deductions contemplated by section 80M. In the case of CIT Vs. United Collieries ltd. [1993] 203 ITR 857 the Calcutta High Court has held that the special deduction under section 80M is allowable on the net dividend which is arrived at after taking into account actual expenditure incurred by the assessee in earning the dividend income and that there was no scope for any estimate of expenditure being made and there was no scope for allocation of notional expenditure unless the facts of a particular case so warranted. In our view, section 20(1) contains a rule of proportionality of expenses and interest and that rule is based on estimation of expenditure whereas, section 80M is allowable on net dividend arrived at after taking into account actual expenditure incurred for the purposes of earning such dividend unless the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction in respect of the payments made for making up charges. 12) We find that the aforesaid finding of the Tribunal with regard to making up charges is a pure finding of fact. The Tribunal on the basis of the evidence before it has come to the conclusion that the amounts paid towards making up charges were genuine and allowed the expenses. It is not suggested by the revenue that the finding of the Tribunal is perverse or arbitrary. In the circumstances, the appeal with regard to question (b) is dismissed as it raises no substantial question of law. Re Question (c) :- 13) The respondent-assessee has been regularly following a method of valuing its closing stock on the basis of net realizable value. However, during the period relevant to the assessment year 1997-98 the respondent changed the method of valuation of its closing stock from net realizable value to cost or market price whichever is lower. As a consequence of change in method of valuing the closing stock the valuation of closing stock went down by Rs.6.17crores. The Assessing officer did not accept the explanation offered by the respondent-assessee for change in the method of valuing closing stock viz. accountin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er level, the Revenue normally does not seek to revise the valuation of earlier years. It neither seeks to raise additional assessments, nor does it admit relief under the "error or mistake" provisions. 3. it is not possible to define with precision what amounts to a change of basis. It is a convenience, both to the tax payer and to the Revenue, not to regard every change in the method of valuation as a change of basis. In particular, the Revenue encourages the view that change which involves no more than a greater degree of accuracy, or a refinement, should not be treated as a change of basis, whether the change results in a higher or a lower valuation. In such cases the new change valuation is applied at the end of the year without amendment of the opening valuation" (underlining ours)". This court while holding that there is no need to change the valuation of the opening stock for the year when there is change in value of the closing stock due to a change in the method. The Court observed as under: "Whenever there is a change in the method of valuation, there is bound to be some distortion in calculating the profit in the year in which change takes place. But if change ..... X X X X Extracts X X X X X X X X Extracts X X X X
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