Alka C. Gadgil, Pune V. Assistant Commissioner of Income-tax,

CO 27/PUN/2015

• Counselvise Citation: [2016] 123 COUNSELVISE.COM (IT) 2231 (ITAT-PUNE)
• Duration Of Justice: 6 month(s) 8 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 29-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 20-08-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HITENDRA NINAVE
• Keywords: Earning of tax free income
• Section: 14A; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , , !'#'' $ , % & BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NOS. 863 & 864/PN/2014 %' ( ')( / ASSESSMENT YEARS : 2009-10 & 2010-11 ASST. COMMISSIONER OF INCOME TAX, CIRCLE 11(2), PUNE ....... / APPELLANT ' / V/S. ALKA C. GADGIL, 481/B, ASHISH, SHREEKRUPA SOCIETY, PARVATI, PUNE 9 PAN : AAWPG2085P / RESPONDENT *+& / CO NOS. 26 & 27/PN/2015 %' ( ')( / ASSESSMENT YEARS : 2009-10 & 2010-11 ALKA C. GADGIL, 481/B, ASHISH, SHREEKRUPA SOCIETY, PARVATI, PUNE 9 PAN : AAWPG2085P ....... / APPELLANT ' / V/S. ASST. COMMISSIONER OF INCOME TAX, CIRCLE 11(2), PUNE / RESPONDENT ASSESSEE BY : SHRI NIKHIL PATHAK REVENUE BY : SHRI HITENDRA NINAVE / DATE OF HEARING : 29-12-2015 / DATE OF PRONOUNCEMENT : 29-02-2016 2 ITA NOS. 863 & 864/PN/2014 AND CO NOS. 26 & 27/PN/2015 , / ORDER PER VIKAS AWASTHY, JM : THESE TWO APPEALS HAVE BEEN FILED BY THE REVENUE AGAINST THE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS)-I, PUNE FOR THE ASSESSMENT YEARS 2009-10 AND 2010-11. BOTH THE IMPUG NED ORDERS ARE DATED 31-10-2013. THE ASSESSEE HAS FILED CROSS OBJ ECTIONS BEING CO NOS. 26 & 27/PN/2015 ASSAILING THE SAME ORDERS OF CO MMISSIONER OF INCOME TAX (APPEALS) FOR RESPECTIVE ASSESSMENT YEARS. SINCE, THE ISSUES INVOLVED IN BOTH THE ASSESSMENT YEARS ARE IDENTIC AL, THESE APPEALS OF THE REVENUE AND THE CROSS OBJECTIONS BY THE ASSESSEE ARE TAKEN UP TOGETHER FOR ADJUDICATION. 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM THE RE CORDS ARE: THE ASSESSEE IS A PARTNER IN M/S. SOHAM ENGINEERING SALES AND SERVICE, A FIRM ENGAGED IN THE BUSINESS OF TRADING AND SALE OF PUMPS . THE ASSESSEE IS ALSO A WHOLE TIME DIRECTOR IN M/S. SOHAM SURFAC E COATINGS PRIVATE LIMITED, A COMPANY ENGAGED IN THE BUSINESS OF SU PPLY AND DESIGN OF PAINTING EQUIPMENTS. APART FROM THE ABOVE, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND SECURIT IES IN HER PERSONAL CAPACITY. THE ASSESSEE FILED HER RETURN OF INCOME FOR THE RESPECTIVE ASSESSMENT YEARS DECLARING INCOME FROM ALL SOUR CES. DURING THE IMPUGNED ORDERS THE ASSESSEE VALUED THE CLOSING STO CK 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 T HE ASSESSMENT YEAR 2008-09. DURING THE COURSE OF SCRUTINY ASSESSME NT PROCEEDINGS 3 ITA NOS. 863 & 864/PN/2014 AND CO NOS. 26 & 27/PN/2015 THE ASSESSING OFFICER MADE ADDITION ON ACCOUNT OF UNDERSTA TEMENT OF CLOSING STOCK OF SHARES. THE ASSESSING OFFICER HELD THAT TH E 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 ADO PTED BY THE ASSESSEE AND VALUED THE STOCK AT COST PRICE AS WAS ADOPTED BY THE ASSESSEE IN THE PAST. DURING THE PERIOD RELEVANT TO THE ASSESSMEN T YEAR 2009-10, THE ASSESSEE EARNED DIVIDEND INCOME OF ` 6,28,455/- AND FOR THE PERIOD RELEVANT TO THE ASSESSMENT YEAR 2010-11, ` 8,29,607/-. HOWEVER, NO EXPENSES WERE CLAIMED BY THE ASSESSEE AGAIN ST THE AFORESAID INCOME EXEMPT FROM TAX. THE ASSESSING OFFICER INVO KED THE PROVISIONS OF SECTION 14A R.W. RULE 8D AND MADE DISALLOWANC E OF ` 22,738/- IN THE ASSESSMENT YEAR 2009-10 AND ` 1,20,750/- IN ASSESSMENT YEAR 2010-11. AGGRIEVED BY THE ASSESSMENT ORDERS, THE ASSESSEE PRE FERRED APPEALS BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) BY FOLLOWING THE ORDER OF HIS PREDECESSOR IN THE PRECEDING ASSESSMENT YEAR REVERSED THE FINDINGS OF THE ASSESSING OFFICER IN RESPECT OF METHOD OF VALUATION OF ST OCK OF SHARES. WHEREAS, IN RESPECT OF DISALLOWANCE MADE U/S. 14A R.W. RULE 8D, THE COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE FIN DINGS OF ASSESSING OFFICER. NOW BEFORE US THE REVENUE IS IN APPEAL AGAINST THE FINDING S OF COMMISSIONER OF INCOME TAX (APPEALS) IN ACCEPTING THE METHO D OF VALUATION OF STOCK OF SHARES ADOPTED BY THE ASSESSEE, AN D THE ASSESSEE HAS COME IN CROSS OBJECTION AGAINST THE DISALLOWANCE MADE U/S. 14A R.W. RULE 8D OF THE ACT. 4 ITA NOS. 863 & 864/PN/2014 AND CO NOS. 26 & 27/PN/2015 3. SHRI NIKHIL PATHAK APPEARING ON BEHALF OF THE ASSESSEE S UBMITTED AT THE OUTSET THAT THE METHOD OF VALUATION OF STOCK OF S HARES WAS CHANGED BY THE ASSESSEE IN THE FINANCIAL YEAR 2007-08. EARLIER, THE ASSESSEE WAS VALUING THE CLOSING STOCK AT COST. THEREAFT ER, THE ASSESSEE CHANGED THE METHOD OF VALUATION OF CLOSING STOCK TO COS T OR MARKET PRICE, WHICHEVER IS LESS. THE ASSESSEE HAS CHANGED THE METHOD OF VALUATION TO BRING IT IN LINE WITH ACCOUNTING STANDARD 2 AND THIS METHOD OF VALUATION IS UNIVERSALLY ACCEPTABLE. THE LD. AR SU BMITTED THAT THE ASSESSING OFFICER HAD OBJECTED TO THE CHANGE O F METHOD OF VALUATION IN ASSESSMENT YEAR 2008-09. THE COMMISSIONER O F INCOME TAX (APPEALS) ACCEPTED THE CONTENTIONS OF THE ASSESSEE A ND REVERSED THE FINDINGS OF ASSESSING OFFICER. THE DEPARTMENT CARRIED THE MA TTER IN APPEAL I.E. ITA NO. 1673/PN/2012 TO THE TRIBUNAL, THE TRIBU NAL VIDE ORDER DATED 10-03-2014 DECIDED THE ISSUE IN FAVOUR OF T HE ASSESSEE AND REJECTED THE APPEAL OF THE DEPARTMENT. THE LD. AR PLACED ON RECORD A COPY OF THE ORDER OF THE CO-ORDINATE BENCH IN ITA NO. 16 73/PN/2012 (SUPRA). 3.1 THE LD. AR FURTHER SUBMITTED THAT IN CROSS OBJECTION, T HE ASSESSEE HAS ASSAILED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APP EALS) 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 S HOW THAT THE ASSESSEE HAS NOT PURCHASED SHARES FOR INVESTMENT PURP OSES. DISALLOWANCE U/S. 14A CAN BE MADE ONLY ON THE SHARES WH ICH 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 5 ITA NOS. 863 & 864/PN/2014 AND CO NOS. 26 & 27/PN/2015 THE ASSESSEE HAS NOT RETAINED SHARES WITH THE INTENTION OF EARNING DIVIDEND INCOME AND THE DIVIDEND INCOME IS INCIDENTAL TO HIS B USINESS OF SALE OF SHARES, IT CANNOT BE SAID THAT THE EXPENDITURE INCURRED IN ACQUIRING THE SHARES HAS TO BE APPORTIONED TO THE EXT ENT OF DIVIDEND INCOME AND THAT SHOULD BE DISALLOWED FROM THE DEDUCTION. I N RECENT DECISION BY THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF GOPALCHAND PRUTHVIRAJ MALU VS. JOINT COMMISSIONER OF INCOME TAX REPOR TED 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 INVE STMENT AND DIVIDEND WAS RECEIVED BY THE ASSESSEE ON THE SHARES HE LD AS STOCK-IN- TRADE IN THE COURSE OF BUSINESS. 4. ON THE OTHER HAND SHRI HITENDRA NINAVE REPRESENTING THE DEPARTMENT SUBMITTED THAT THE COMMISSIONER OF INCOME TA X (APPEALS) HAS RIGHTLY UPHELD THE FINDINGS OF ASSESSING OFFICER IN RESPEC T OF DISALLOWANCE U/S. 14A R.W. RULE 8D. THE LD. DR SUBMITTED TH AT THE ASSESSEE HAS EARNED DIVIDEND INCOME WHICH IS EXEMPT FROM TAX DURING THE ASSESSMENT YEARS UNDER APPEAL. THE ASSESSEE HAS NOT MADE ANY DISALLOWANCE IN RESPECT OF SUCH EXEMPT INCOME EARNED. IN SO FAR AS THE ISSUE RAISED IN THE APPEAL BY THE DEPARTMENT, THE LD. DR A GREED THAT THE SIMILAR ISSUE WAS RAISED BY THE REVENUE IN ASSESSMENT YEAR 2008- 09. THE TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF THE ASSES SEE AND DISMISSED THE APPEAL OF THE DEPARTMENT. 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIE S BELOW. WE HAVE ALSO CONSIDERED THE DECISIONS ON WHICH THE LD. AR OF T HE ASSESSEE HAS PLACED RELIANCE IN SUPPORT OF HIS SUBMISSIONS. THE REV ENUE IN 6 ITA NOS. 863 & 864/PN/2014 AND CO NOS. 26 & 27/PN/2015 APPEALS FOR BOTH THE IMPUGNED ASSESSMENT YEARS HAS RAIS ED A SINGLE ISSUE WITH RESPECT TO METHOD OF VALUATION OF STOCK OF SHAR ES ADOPTED BY THE ASSESSEE. WE FIND THAT SIMILAR ISSUE WAS RAISED BY THE REVENUE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMEN T YEAR 2008-09. THE TRIBUNAL DISMISSED THE APPEAL OF THE REVENUE WITH THE FOLLOWING OBSERVATIONS: 3. THE MATTER WAS CARRIED BEFORE FIRST APPELLATE A UTHORITY, WHEREIN THE VARIOUS CONTENTIONS WERE RAISED ON BEHALF OF ASSESS EE AND HAVING CONSIDERED THE SAME, THE CIT(A) ALLOWED THE ASSESSE ES CLAIM. THE SAME HAS BEEN OPPOSED BEFORE US ON BEHALF OF REVENUE, IN TER ALIA SUBMITTED THAT THE CIT(A) HAS ERRED IN DELETING THE DISALLOWA NCE ON ACCOUNT OF UNDERSTATEMENT OF CLOSING STOCK OF SHARES BY CHANGE IN METHOD OF VALUATION. THE CIT(A) HAS ERRED IN NOT CONSIDERING THE FACT THAT ACCOUNTING STANDARD AS-2 IS SILENT AS FAR AS VALUAT ION OF SHARES AND SECURITIES IS CONCERNED AND THE ASSESSEE SHOULD HAV E FOLLOWED THE METHOD OF VALUATION CONSISTENTLY WHICH HAS BEEN FOL LOWED BY THE ASSESSEE FROM THE BEGINNING. ACCORDINGLY, THE ORDER OF CIT(A) BE SET ASIDE AND THAT OF ASSESSING OFFICER BE RESTORED. ON THE OTHER HAND, LEARNED AUTHORIZED REPRESENTATIVE SUPPORTED THE ORD ER OF CIT(A) AND SUBMITTED THAT THE ASSESSING OFFICER ERRED IN ADDIN G ` 21,88,917/- ON ACCOUNT OF ALLEGED UNDERSTATEMENT OF CLOSING STOCK OF SHARES BY CHANGE IN METHOD OF VALUATION FROM AT COST TO AT COST OR M ARKET VALUE WHICHEVER IS LOWER. THE ASSESSING OFFICER ERRED IN NOT APPREC IATING THAT THE METHOD OF VALUING STOCK AT COST OR MARKET VALUE WHICHEVER IS LOWER IS MORE APPROPRIATE AND UNIVERSALLY ADOPTED AS AGAINST VALU ATION OF STOCK / INVENTORY AT COST, ACCOUNTING STANDARD (AS-2) VALUA TION OF INVENTORIES ALSO MANDATORILY PROVIDES THAT COST OR MARKET PRICE WHICHEVER IS LOWER IS THE CORRECT METHOD FOR VALUING INVENTORIES. THE ASS ESSEE IS ENTITLED TO MAKE A BONAFIDE CHANGE IN METHOD OF VALUATION OF ST OCK AND DEPARTMENT SHOULD NOT REJECT SUCH CHANGE IN METHOD OF ACCOUNTI NG ESPECIALLY IF THE CHANGE TOWARDS A MORE APPROPRIATE, CORRECT AND RECO GNIZED METHOD. ACCORDINGLY, THE ORDER OF CIT(A) BE UPHELD, PLEADED ON BEHALF OF LEARNED AUTHORIZED REPRESENTATIVE. 4. AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND MA TERIAL ON RECORD, WE FIND THAT THE ASSESSEE AMONG OTHER BUSINESS VENTURE S HAS ALSO ENGAGED HERSELF IN TRADING OF SHARES AND SECURITIES FROM A. Y. 2007-08 I.E. 7 ITA NOS. 863 & 864/PN/2014 AND CO NOS. 26 & 27/PN/2015 IMMEDIATE PRECEDING ASSESSMENT YEAR TO THE ASSESSMEN T UNDER CONSIDERATION WITH REGARD TO ADDITION IN QUESTION. THE ASSESSEE HAS CLAIMED THAT THE ASSESSING OFFICER WITHOUT VERIFYIN G THE FACT HAS FORMED HIS OPINION FOR REJECTION OF THE VALUATION ADOPTED BY THE ASSESSEE. IT WAS CONTENDED THAT THE ACTIVITY OF TRADE IN SHARES AND SECURITIES STARTED IN IMMEDIATELY PRECEDING ASSESSMENT YEAR. THE CLOSING S TOCK IN THE SAME YEAR WAS VALUED AT 'COST' BUT AFTER REALIZING THAT THE PROPER AND MOST ACCEPTED METHOD OF VALUING THE CLOSING STOCK IS TO VALUE IT AT 'COST OR MARKET PRICE WHICHEVER IS LESS', IT WAS CONSIDERED PRUDENT AND PROPER TO FOLLOW THIS METHOD FROM THE YEAR UNDER CONSIDERATIO N. IT WAS THE STAND OF THE ASSESSEE THAT THIS METHOD IS UNIVERSALLY ACCEPT ED METHOD OF VALUING THE CLOSING STOCK, WHICH IS MANDATED BY AS-1, AS-2 AND AS-3. IN THESE FACTS AND CIRCUMSTANCES, THE CLAIM OF THE ASSESSEE HAS BEEN THAT THE CHANGE HAS BEEN MADE IN THE ASSESSMENT YEAR UNDER C ONSIDERATION AFTER NOTICING THE DEFICIENCY OF THE EARLIER METHOD IN A BONAFIDE MANNER AND THE CHANGED METHOD IS BEING FOLLOWED REGULARLY. THE CIT(A) FOUND IT UNDISPUTED THAT THE METHOD ADOPTED BY THE ASSESSEE IN THE ASSESSMENT UNDER CONSIDERATION HAS BEEN UNIVERSALLY ACKNOWLEDG ED TO BE A MORE PRUDENT AND REASONABLE METHOD OF VALUATION OF CLOSI NG STOCK AND EVEN THE ASSESSING OFFICER HAS NOT STATED IN THE ASSESSM ENT ORDER THAT THE CHANGED METHOD IS NOT A PROPER METHOD. THE REJECTIO N OF THE CHANGE IS PRIMARILY BASED ON THE ASSUMPTION THAT THE SAME HAS NOT BEEN DRIVEN BY BONAFIDE REASONS BECAUSE IT WAS STATED BY ASSESSING OFFICER TO HAVE BEEN DONE IN THE YEAR WHEN THE STOCK MARKET HAS CRA SHED AND THE CHANGE IN THE METHOD OF VALUATION OF CLOSING STOCK WAS RESULTING INTO A LOWERING OF PROFIT BY ` 21,88,917/-. FOR ARRIVING AT THIS CONCLUSION, THE ASSESSING OFFICER HAS BASICALLY TRIED TO DEPEND ON TWO ARGUMENTS I.E. THE CHANGE HAS BEEN MADE AFTER FOLLOWING THE EARLIER ME THOD CONSISTENTLY IN THE LAST MANY YEARS AND THE CHANGE HAS BEEN EFFECTE D IN A YEAR IN WHICH THERE WAS A CRASH IN THE STOCK MARKET. THE STOCK MA RKET IS SUBJECT TO FLUCTUATIONS AND ALWAYS DEPENDS ON MARKET CONDITION S. HENCE THE CRASH CANNOT BE CONSIDERED AS UNUSUAL OR A ONCE IN MANY Y EARS PHENOMENON. THE ASSESSING OFFICER WAS NOT JUSTIFIED IN HOLDING THAT THE ASSESSEE HAS BEEN FOLLOWING THE OLD METHOD CONSISTENTLY FOR MANY YEARS BECAUSE THE ACTIVITY OF TRADE IN SHARES AND SECURITIES STARTED ONLY IN A.Y. 2007-08. THE SAME WAS IMMEDIATELY CHANGED IN THE SUBSEQUENT YEAR ON REALIZING THAT THE EARLIER METHOD WAS NOT PROPER AND IS NOT G ENERALLY FOLLOWED AND ACCEPTED METHOD OF VALUATION. IN VIEW OF THIS, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN HOLDING THAT THE CHANGE HAS BEEN M ADE WITH THE MOTIVE TO LOWER THE PROFIT AND NOT FOR ADOPTING PROPER METHOD OF ACCOUNT. THE 8 ITA NOS. 863 & 864/PN/2014 AND CO NOS. 26 & 27/PN/2015 METHOD OF VALUING THE CLOSING STOCK AT COST OR MARK ET PRICE WHICHEVER IS LOWER IS A PROPER METHOD OF ACCOUNTING AS HELD BY T HE HONBLE SUPREME COURT IN THE CASE OF CHINRUP SAMPATRAM VS. CIT (195 3) 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 SUBS TITUTED 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 C OMPUTED EITHER UNDER THE CASH METHOD OR MERCANTILE SYSTEM OF ACCOUNTING. SUB-SECTION (2) MANDATES THE CENTRAL GOVERNMENT TO NOTIFY IN THE OF FICIAL GAZETTE, THE ACCOUNTING STANDARDS WHICH ARE MANDATORILY REQUIRED TO BE FOLLOWED BY ANY CLASS OF ASSESSEE OR IN RESPECT OF ANY CLASS OF INCOME. THE CENTRAL GOVERNMENT HAS SO FAR NOTIFIED ONLY AS-1 AND AS-2 A ND OTHER ACCOUNTING STANDARDS ISSUED BY THE INSTITUTE OF CHARTERED ACCO UNTANTS, HAS ONLY ADVISORY STATUS OF A TECHNICAL BODY. SO FAR AS ITS APPLICATION VIS-A-VIS INCOME TAX PROVISIONS ARE CONCERNED, THE METHOD OF VALUATION BY A PARTICULAR METHOD IS BASED ON COMMERCIAL CONSIDERAT ION. ANY METHOD WHICH CAN GIVE A PROPER COMPUTATION OF INCOME FOR T HE PREVIOUS YEAR AS PER I.T. LAW IS A GOOD METHOD. THE METHOD OF VALUIN G THE STOCK AT 'COST OR MARKET PRICE WHICHEVER IS LESS' HAS BEEN ACCEPTED B Y DIFFERENT JUDICIAL FORUMS AND SUCH CHANGE CAN BE REJECTED ONLY AFTER B RINGING ON RECORD THAT THE CHANGE IF MADE FROM ONE METHOD TO ANOTHER OF VALUING THE STOCK AT COST OR AT MARKET COST WHICHEVER IS LESS IS DRIV EN BY CONSIDERATIONS TO LOWER THE PROFIT ONLY. IN THE PRESENT CASE, THERE I S NOTHING ON RECORD TO SUGGEST THAT THE CHANGE WAS MADE BY THE ASSESSEE WI TH ANY SUCH MOTIVE AND THE FINDING GIVEN BY THE ASSESSING OFFIC ER TO THAT EFFECT WAS FOUND TO BE BASED ON ASSUMPTION ONLY. ACCORDINGLY, THE CIT(A) WAS JUSTIFIED IN REVERSING THE FINDING OF ASSESSING OFF ICER ON THE CLAIM OF ASSESSEE. THIS REASONED FACTUAL FINDING OF CIT(A) N EEDS NO INTERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. SINCE, THE LD. DR HAS NOT BEEN ABLE TO CONTROVERT THE FIND INGS OF THE CO-ORDINATE BENCH OF THE TRIBUNAL, WE DO NOT FIND ANY REASON TO 9 ITA NOS. 863 & 864/PN/2014 AND CO NOS. 26 & 27/PN/2015 TAKE A DIFFERENT VIEW. ACCORDINGLY, THE APPEALS OF THE REVE NUE ARE DISMISSED BEING DEVOID OF ANY MERIT. 6. IN CROSS OBJECTIONS, THE ASSESSEE HAS ASSAILED THE FIN DINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN CONFIRMING THE DISALLOW ANCE MADE U/S. 14A R.W. RULE 8D. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING OF SHARES. NOTHING H AS BEEN BROUGHT ON RECORD BY THE REVENUE TO SHOW THAT THE A SSESSEE IS ALSO MAINTAINING INVESTMENT PORTFOLIO. THE ASSESSEE HAS EARNED DIVIDEND INCOME OF ` 6,28,455/- IN ASSESSMENT YEAR 2009-10 AND ` 8,29,607/- IN ASSESSMENT YEAR 2010-11. THE SAID DIVIDEND INCOME HAS B EEN EARNED ON THE SHARES HELD BY THE ASSESSEE AS STOCK-IN-TRADE. THE DIVIDEND INCOME EARNED BY THE ASSESSEE IS INCIDENTAL TO THE BUSINE SS OF TRADING IN SHARES BY THE ASSESSEE. THE HON'BLE BOMBAY HIGH COU RT IN THE CASE OF CIT VS. INDIA ADVANTAGE SECURITIES LTD. IN INCOME TAX A PPEAL NO. 1131 OF 2013, DECIDED ON 13-04-2015 HAS UPHELD THE ORDE R 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 L TD. VS. JOINT COMMISSIONER OF INCOME TAX (SUPRA) HAS HELD THAT WHE N NO EXPENDITURE IS INCURRED BY THE ASSESSEE IN EARNING THE D IVIDEND INCOME NO NOTIONAL EXPENDITURE COULD BE DEDUCTED FROM THE SAID IN COME. 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 D ISALLOWANCE U/S. 14A OF THE ACT IS TO BE MADE. 10 ITA NOS. 863 & 864/PN/2014 AND CO NOS. 26 & 27/PN/2015 8. SIMILAR VIEW HAS BEEN TAKEN BY THE CO-ORDINATE BENCH O F 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 REPRE SENTATIVES OF BOTH THE SIDES AND HAVE PERUSED THE ORDERS OF THE A UTHORITIES BELOW. WE HAVE ALSO CONSIDERED THE DECISIONS ON WHICH THE LD. AR HAS PLACED RELIANCE. THE COMMON ISSUE IN BOTH THE APPEALS IS ADDITION U/S. 14A R.W. RULE 8D IN RESPECT OF DIVIDEND INCOME RECEIVED BY T HE ASSESSEE. THE ASSESSEE HAS RECEIVED DIVIDEND INCOME OF RS.2,21,78 2/- IN ASSESSMENT YEAR 2006-07 AND RS.3,27,585/- IN THE ASSESSMENT YE AR 2007-08. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE IS ENGAGED IN TRADING OF SHARES AND SECURITIES. AS PER THE CONTENTIONS OF THE ASSESSEE THE DIVIDEND WAS RECEIVED ON SHARES HELD AS STOCK-IN-TRADE. THE ASS ESSEE IS NOT MAINTAINING ANY INVESTMENT PORTFOLIO. THE REVENUE HAS NOT BEEN ABLE TO CONTROVERT THE SUBMISSIONS OF THE ASSESSEE. THE RE VENUE HAS NOT BEEN ABLE TO SHOW EITHER FROM BOOKS OF ACCOUNT OR FROM A NY OTHER DOCUMENT THAT THE ASSESSEE WAS HOLDING SHARES AS INVESTMENT. THE ASSESSEE HAD NOT RETAINED SHARES WITH THE INTENTION OF EARNING D IVIDEND INCOME. THE DIVIDEND INCOME EARNED BY ASSESSEE IS INCIDENTAL TO HIS BUSINESS OF TRADING IN SHARES AND SECURITIES. IN ABSENCE OF AN Y INVESTMENT PORTFOLIO, DISALLOWANCE U/S. 14A CANNOT BE MADE OUT. MOREOVER , IN VIEW OF THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT RENDERED IN T HE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. CIT REPORTED AS 328 ITR 81 (BOM.) THE PROVISIONS OF RULE 8D ARE NOT APPLICABLE IN THE IMPUGNED ASSES SMENT YEARS. THE HON'BLE HIGH COURT HAS HELD THAT THE PROVISIONS OF RULE 8D SHALL BE APPLICABLE FROM ASSESSMENT YEAR 2008-09. 9. IN THE PRESENT CASE, SINCE THE SHARES WERE NOT H ELD AS INVESTMENT AND DIVIDEND WAS RECEIVED BY THE ASSESSEE ON THE SH ARES HELD AS STOCK-IN-TRADE IN THE COURSE OF BUSINESS, THERE IS NO QUESTION OF MAKING DISALLOWANCE U/S. 14A OF THE ACT. SIMILAR VIEW HAS BEEN TAKEN BY THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF VI SHWESHWAR SAHAKARI BANK LTD. (SUPRA). ACCORDINGLY, THIS GROUND OF APP EAL OF THE ASSESSEE IN BOTH THE ASSESSMENT YEARS IS ALLOWED. 11 ITA NOS. 863 & 864/PN/2014 AND CO NOS. 26 & 27/PN/2015 9. THUS, IN VIEW OF THE FACTS OF THE CASE AND DECISION OF TH E HON'BLE JURISDICTIONAL HIGH COURT, WE DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION MADE U/S. 14A IN BOTH THE IMPUGNED ASSESSMENT Y EARS. ACCORDINGLY, THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE ALLOWED. 10. IN THE RESULT, THE APPEALS OF THE REVENUE ARE DISMISS ED AND CROSS OBJECTIONS FILED BY THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED ON MONDAY, THE 29 TH DAY OF FEBRUARY, 2016. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 29 TH FEBRUARY, 2016 RK ,-*%./#0#). / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ' () / THE CIT(A)-I, PUNE 4. ' / THE CIT-I, PUNE 5. !*+ %%,- , ,- , . ./0 , / DR, ITAT, B BENCH, PUNE. 6. + 1 23 / GUARD FILE. // ! % // TRUE COPY// #4 / BY ORDER, %5 ,0 / PRIVATE SECRETARY, ,- , / ITAT, PUNE