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TMI Blog2016 (4) TMI 866X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 changed the method of valuation of stock in the period relevant to the assessment year 2008-09. During the course of scrutiny assessment proceedings the Assessing Officer made addition on account of understatement of closing stock of shares. The Assessing Officer held that the assessee has changed the method of valuing closing stock with the motive to take the benefit of crash in market price of the shares. The Assessing Officer rejected the method of valuing stock of shares adopted by the assessee and valued the stock 'at cost price' as was adopted by the assessee in the past. During the period relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Taxman 563 (Kar) has held that where the assessee has not retained shares with the intention of earning dividend income and the dividend income is incidental to his business of sale of shares, it cannot be said that the expenditure incurred in acquiring the shares has to be apportioned to the extent of dividend income and that should be disallowed from the deduction. In recent decision by the Pune Bench of the Tribunal in the case of Gopalchand Pruthviraj Malu Vs. Joint Commissioner of Income Tax reported as 44 CCH 137 (Pune-Trib.) it has been held that disallowance u/s. 14A cannot be made where the shares were not held as inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- 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 is entitled to make a bonafide change in method of valuation of stock and department should not reject such change in method of accounting especially if the change towards a more appropriate, correct and recognized method. Accordingly, the order of CIT(A) be upheld, pleaded on behalf of learned Authorized Representative. 4. After going through the rival submissions and material on record, we find that the assessee among other business ventures has also engaged herself in trading of shares and securities from A.Y. 2007-08 i.e. immediate preceding assessment year to the assessment under consideration with regard to addition in qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 method have only been rejected in cases where it was found that the purpose was other than to arrive at the proper method of accounting. The losses were incurred even in the subsequent years after the change of accounting. So far as the change of account is concerned, it is a settled fact that section 145 of I.T. Act deals with method of accounting and this section has been substituted by the Finance Act, 1995 w.e.f. 01.04.1997 and thereafter sec. 145(1) mandates that the income chargeable under the head business and profession or income from other sources has to be computed either under the cash method or mercantile system of accounting. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 could be deducted from the said income. The Hon'ble High Court further held that when the assessee has not retained shares with the intention of earning dividend and the dividend income is incidental to the business of sale of shares, no disallowance u/s. 14A of the Act is to be made. 8. Similar view has been taken by the Co-ordinate Bench of the Tribunal in the case of Gopalchand Pruthviraj Malu Vs. Joint Commissioner of Income Tax (supra). The relevant extract of the findings of the Tribunal are as under: "8. We have heard the submissions made by the representatives of both the sides and have perused the orders of the authorities below. We have al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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