TaxTMI 
TaxTMI 
2017 (6) TMI 479
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....ut appreciating: - i. The advances were Inter-corporate Deposit (ICD) and interest bearing and same were refunded back on maturity. ii. The appellant company is the Public Listed Company and its subsidiary is also a company in which public are interested iii. Without Prejudice, the company giving ICD did not had any Restive on April 2007 to determine the amount of Deemed Dividend. The AO wrongly applied provisions even though the same is not applicable." 3. Briefly stated facts are that the AO noticed from the audit report of the assessee that it has received loan aggregate to Rs. 2,36,16,645/- from its subsidiary Balkrishna Paper Mills Ltd. The AO noted that the assessee company is registered shareholder in Balkrishna Paper Mills Ltd. is not a company in which public is substantial interested. The AO noted that the said loan in the nature of unsecured loan as certified in the audit report of Balkrishna Paper Mills Ltd. Therefore, according to AO, the provisions of section 2(22)(e) of the Act is clearly attracted. The assessee replied that this loan is Inter Corporate Deposits (ICD) and Inter Cooperate Deposits are different for loans and adva....
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....re of unsecured loan. The same was received from the subsidiary company Balkrishna Paper Mills Ltd in which obviously, the appellant has more than 10% of the voting power. And finally the said Balkrishna Paper Mills Ltd is not a company in which public are substantially interested. It is thus evident that all the conditions prescribed in section 2(22) (e) for treating the said loan received by the appellant as deemed dividend are satisfied. The addition made by the AO is therefore upheld." Aggrieved, now assessee is in appeal before us. 4. At the outset, the learned Counsel for the assessee stated that the very premise of the AO and CIT(A) that Balkrishna Paper Mills Ltd. which is 100% subsidiary of assessee company is a Private Ltd. Company which is not a company in which public is substantially interested and hence, in view of the amended provisions of the company's amendment Act 2000 w.e.f 13-12-2000, the assesse is to be considered as Public Ltd. Company. The learned Counsel for the assessee filed copies of the Companies Act 1956 (Pre amended) wherein, the definition of Private Ltd. and Public Ltd. Company is provided. The learned Counsel for the assessee also filed copie....
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....d as a private company but it became public company by virtue of the provisions of Section 3(iv)(c) of the companies Act. The learned Counsel for the assessee referred to the decision of this coordinate Bench on this very issue in the case of Merdith Traders (P) Ltd. v. Income Tax Officer (2011) 142 TTJ 0182. The learned Counsel for the assessee in view of the above clearly stated the facts are not in dispute and assessee is Public Ltd. Company and once assessee is a Public Ltd. Company the provisions of Section2 (22) (e) of the Act will not apply to the present case. On the other hand, departmental representative supported the orders of the lower authorities and fully relied on the order of CIT(A). 7. We have heard the rival contentions and gone through the facts and circumstances of the case. We find from the above provisions of the Companies Act 1956, the amended provisions, that the assessee taken inter corporate deposit from its subsidiary named Balkrishna Paper Mills Ltd. and AO assessed the same as deemed dividend under section 2(22) (e) of the Act. We find that in view of the amended provisions of Companies Act 1956, the assessee being a Public Ltd. Company has taken loa....
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.... and is tax neutral between two years and the formula adopted is permitted as per accounting policy." 11. Briefly stated facts that the AO during the course of assessment proceedings noticed that the assessee company has changed its method of accounting during the year as per note to accounts Para 1of Para iii wherein it is mentioned that due to implementation of ERP system the valuation of closing stock is lowered by an amount of Rs. 6,17,59,737/-. The AO was of the view that the new method adopted by the assessee is inconsistent with FIFO method of accounting and the method of valuation of closing stock regularly followed by the assessee till now. According to him, the valuation has been done by choosing the timings when the assessee has effected demerger of its undertaking and received substantial income by way of slump sale from the demerged units and reduce the profits. It has changed the method, the AO added back the lowering of value of the closing stock of Rs. 6,17,59,737/-. Aggrieved, assessee preferred the appeal before CIT(A) who confirmed the action of the AO by observing in Para 8.4, 8.12 & 8.13: - "8.4 I have considered the above submissions as well as the....
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....of valuation of stock, including the FIFO method. Therefore, the only reason for the appellant to depart from the FIFO method was to lower or rather offset its increased tax liability on account of de-merger of two of its undertakings by lowering the valuation of closing stock under the guise of implementing the new ERP system. There can be no other justification for the appellant to depart from the FIFO method, except to lower its income chargeable to tax and hence the tax burden or rather off-set the increased tax burden on account of de-merger of its undertakings. 8.13 The question is whether the revenue should be deprived of its legitimate tax in the year one for no valid reason whatsoever, on the part of the appellant just because the appellant promises that it will be paying higher taxes in the year two. In my opinion, the answer to this question cannot be in the affirmative. Therefore, since it is not correct on the part of the appellant to claim that under the ERP (SAP), the moving weighted average price method is the only method for valuation of goods, the change over from FIFO to the said method is not proved to be bona fide. Hence, in my opinion, the decision of....
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....e overhead expenses. The Tribunal has not dealt with this aspect, viz., the manner in which the closing stock has been valued in the present case. Therefore, the decision of the Supreme Court in the case CIT v. British Paints India Ltd. , is not attracted to the question before us for consideration. The decision of the Tribunal is on the footing that since the closing stick was valued by adopting a certain method, the same method should be adopted in valuing the opening stock. In other, words, the change in the method of valuation, according to the Tribunal, should commence with is to be adopted for valuing the opening stock of nay previous year by the new method which is to be adopted for valuing the closing stock as well. The assumption so made by the Tribunal appears to be contrary to the normally accepted accounting principles. Mr. Bhujale has drawn our attention to a booklet called "Valuation of stock and Work-in-Progress - Normally Accepted Accounting Principles" - brought out by Indian Merchants' Chamber Economic Research and Training Foundation and written by Shri G. P. Kapadia. At page 4 of this booklet there is a discussion about change from one valid basis to another....
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....y the Madras High Court in the case of CIT v. Carborundum Universal Ltd. . In the case before the Madras High Court also the valuation of opening stock had been done by the company on the basis of valuation for the closing stock to "direct cost", i.e., cost without overheads. This change in method was made bona fide and the assessee said that it would be adopting this method consistently in the future just as in the present case. The court in that case held : "The change was a bona fide one and was a permanent arrangement which was to be followed year after year, the change would have to be accepted notwithstanding the fact that during the assessment year in question, which was the first year when the change of method was brought about, a prejudice or detriment might be caused to the revenue, because the opening stock was valued at total cost while stock was valued at direct cost." 8. It said (head note): "If the assessee is called upon to apply the new method of valuation to the opening stock of the accounting year as well, the value of the closing stock of the year previous to the accounting year will also have to get altered which is result in a modifi....