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TMI Blog2024 (12) TMI 1054X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidering the fact that LIFO method was consistently upheld by this Tribunal from A.Y. 1982-83, consistent view which has been taken by the Tribunal is to accept the LIFO method. This is an accepted method for valuation of stock. The method has been regularly followed by the Assessee. This is not a case where the AO was not satisfied with the completeness of the accounts of the Assessee or where the method of accounting has not been regularly followed or does not comply with the accounting standards. This is not a case where the AO was not satisfied with the completeness of the accounts of the assessee or where the method of accounting has not been regularly followed or does not comply with the accounting standards. Respectfully following the earlier years order, the AO is not justified in applying FIFO method for valuation of inventory. Ground is allowed. Disallowance u/s. 14A r.w.r. 8D of the rules - assessee made suo moto disallowance in respect of the exempt income earned during the year under consideration - HELD THAT:- Disallowance under Rule 8D (2) (ii) was made without having regards to the accounts of the assessee for the year under consideration. The disallowance therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rior to August 2006 amounting to Rs. 1,391.26 crores ought to be excluded while computing the disallowance under Section 14A of the Act. 5. On the facts and in the circumstances of the case and in law, the Learned CIT (A) has erred in not relying on the auditor of the Appellant who, after due verification, have certified that the loans were used for the purposes for which they were obtained. 6. On the facts and in the circumstances of the case and in law, the Learned CIT (A) has failed to appreciate that interest paid on borrowed funds (i.e. working capital demand loan, buyers credit, etc. which are used for bridging temporary gaps in working capital requirements of the company) as well as interest paid on security deposits and dealers deposits should be excluded while computing the disallowance under Rule 8D since such interest expense is incurred by the Appellant in the course of normal business activities and not for making investments. 7. The assessee may be permitted to add, alter, amend or delete any of the grounds at the time of, or before the hearing. Department s Grounds: 1. Whether on the facts and in circumstances of the case and in law, the Ld. CIT(A) erred in allowing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidered the issue by observing as under: 23. The only issue raised by the revenue in this appeal is against the deletion of the disallowance of Rs. 50,64,781/- by the Ld. CIT(A) as made by the Ld.AO by disallowing software expenses relating to website portal as capital in nature. 24. The facts in brief are that the assessee is in the business of printing and publishing of newspapers and periodicals on various online additions of Times of India, Economic Times, Mahabharat Times, Navbharat Times as well as various portals viz. Property Times, Education Times, etc. The assessee incurred various expenses during the year in order to maintain its online portals. During the course of assessment proceedings, the Ld.AO called for the details of these expenses which was accordingly submitted. During the year the assessee incurred a total expenditure of Rs. 74,73,026/- being software application expenses incurred in relation to website/portals out of which Rs. 50,64,781/- was treated a capital expenditure by the Ld.AO and consequently disallowed on the ground that Rs. 50,64,781/- related to development of website yielding benefit of enduring nature. The details of the said expenditure is give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er directed that if on verification it is found that duty bearing stock has been fully consumed in the year, no addition should be made. 4. The attention of the Court has also been drawn to an affidavit filed by the Assessee on 15 July 2009 in a companion Income Tax Appeal No.1904/2009. The Affidavit states that in the Assessment Year 1982-83, the Tribunal had, by its order dated 23 October 1991, held that the change in the method of valuing the closing stock from FIFO to LIFO method was bona fide and accordingly, accepted the change. The Tribunal, by its order dated 8 October 1993, rejected an application filed under Section 256(1) which is accepted by the Revenue. Further, for Assessment Years 1983-84 and 1984-85, the Assessing Officer by his orders dated 4 March 1986 and 23 March 1987 accepted the value of the closing stock as per the LIFO method and the assessments were completed under Section 143(3). Those assessment orders have attained finality. For Assessment Years 1985-86 and 1986-87, the Revenue did not dispute the value of the closing stock adopted by the Respondent on the basis of the LIFO method. For Assessment Years 1987-88 to 1992-93, the Tribunal by its diverse orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bserved by Hon'ble High Court LIFO method is consistent approach adopted by assessee and has been accepted by the authorities in the past. Respectfully following the same we do not find any infirmity in view taken by Ld. CIT(A) and the same is upheld. 7.1. Considering the fact that the Ld. CIT(A) rely on the view of Hon'ble High Court in assessee s own case. On this issue we do not find any infirmity in the view taken by the Ld. CIT(A) and the same is upheld. Accordingly Ground No 2 raised by the revenue stands dismissed. Assessee s appeal 8. The only issue challenged by the assessee in its appeal is regarding the disallowance upheld by the Ld. CIT(A) u/s. 14A r.w.r. 8D of the rules. 8.1. The Ld.AR submitted that, the assessee earned exempt income being dividend from mutual funds/investment in shares amounting to Rs. 20,80,14,971/- and Long Term Capital Gain on sale of investment that was treated as exempt u/s. 10(38) of the act at Rs. 767,25,88,926/-. The Ld.AO called upon assessee to show cause as to why expenses towards earning of exempt income may not be disallowed as per section 14A r.w.r. 8D of the act. In response, it was submitted that, the assessee allocated sum of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Hon'ble Supreme Court in the case of Godrej Boyce Mfg. Co. Ltd. v. DCIT: 394 ITR 449, in this regard, are as under 37. We do not see how in the aforesaid fact situation a different view could have been taken for the Assessment Year 2002-2003. Sub-sections (2) and (3) of Section 14A of the Act read with Rule 8D of the Rules merely prescribe a formula for determination of expenditure incurred in relation to income which does not form part of the total income under the Act in a situation where the Assessing Officer is not satisfied with the claim of the assessee. Whether such determination is to be made on application of the formula prescribed under Rule 8D or in the best judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of Section 14A(2) and (3) read with Rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become applicable. (Emphasis Suppli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvoking Rule 8D of IT Rules. During the course of hearing it was contended on behalf of the Revenue that the Assessing Officer has recorded that the voluntary disallowance computed by the Appellant was not as per provision of Rule 8D of the IT Rules and the same constituted requisite satisfaction. We note that the aforesaid contention of the Revenue was rejected by the Hon'ble Bombay High Court in the case of Principal Commissioner of Income Tax-2 Vs. Bombay Stock Exchange Ltd: [2020] 113 taxmann.com 303 (Bombay) [15-10-2019] holding as under: 9. We note that it is evident from the extracted part of the assessment order referred to hereinabove that the Assessing Officer has come to the conclusion that the disallowance claimed by the Respondent was not consistent with Rule SD of the said Rules. It is only in view of the disallowances not being worked out as per Rule 8D of the Rules, that the Assessing Officer is not satisfied with the disallowance offered by the Respondent. This, to our mind, is putting the cart before the horse. The Assessing Officer must first record a conclusion that having regard to the accounts of the assessee, he is not satisfied with the disallowance offe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with Rule 8D would only arise once the Ld.AO is not satisfied of the suo moto disallowance made by the assessee having regards to the accounts of the assessee. The Ld.AR contended that once the assessee makes the suo moto disallowance tinkering can be made to the disallowance by the Ld.AO only after recording satisfaction that such a disallowance was not in consonance with the accounts of the assessee. He submitted that in present facts of the case the suo moto disallowance was tinkered by the Ld.AO merely by observing that it was not as per Rule 8 D, r.w.s. 14A of the act. He thus relied on the observations of Coordinate Bench in assessee s own case to support his argument. 8.6. On the contrary, the Ld.DR referred to the observations of the Ld.AO in para 11.1 of assessment order, wherein it is noted that the assessee admitted in the preceding assessment years for disallowance u/s. 14A to the extent of 1% of the dividend income earned. The Ld.DR relied on the following observations of the Ld. CIT(A) in support of the disallowance computed by the Ld.AO. 7.3 I have considered the facts of the case, submissions of the appellant and assessment order. It is an admitted fact that the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng from past many years. In fact to overcome such complications and differences Rule 8D was brought in statute and onus is on the appellant to establish with cash flows that there was no interest bearing funds employed for making the investments and there was no indirect expenses relatable to such investments. In the case of Reliance Utilities and Power Ltd cited by the appellant there was a clear finding of fact that that assessee had interest-free funds of its own which had been generated in the course of year. There is no such confirmed finding in the present case. 7.6 In view of above, I am of the considered view that Rule 8D is applicable for instant assessment year. As regards, correctness of the disallowance under Rules 8D, I am partly in agreement with the appellant that only the investments which have generated or could generate tax exempt income alone should be considered. The said figure of average investment according to the appellant is Rs. 2063.41 crores and the disallowance on the said basis comes to Rs. 44.90 crores (furnished by the appellant in annexure 25 during appellate proceedings). The disallowance is thus sustained to the extent of Rs. 44.90 crores subject t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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