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TMI Blog2016 (9) TMI 914X X X X Extracts X X X X X X X X Extracts X X X X ..... ndings, interest disallowance on notional basis is not justified. Hence, grounds of appeal of the assessee on this issue are allowed. Addition for provision for non moving stores - determination of book profit - Held that:- From submissions of ld. AR, the assessee had written off the value of non-moving stock as per the valuation policy of the company. This write off cannot be considered as unascertained liability for the purpose of section 115JB. The assessee has not submitted any valuation report before us, as the company has become sick and details of records are not traceable. Considering the facts of the case, we are in agreement with assessee that the stock will be valued at cost or market value, whichever is less. This is the recommended method of valuation. When the assessee had determined the realizable value of stock, the difference, has to be written off from the books. For the purpose of section 115JB, the book profit will be ascertained after making certain adjustments to the profit declared in the profit & loss. The adjustment involves the addition of certain unascertained liabilities. In the present case, the loss written off due to write off of stock cannot be te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowance on interest on ICDs ₹ 18,53,245/- e) Donations ₹ 4,600/- f) Provision for bad and doubtful debts ₹ 13,93,000/- 4. As seen from the grounds of appeal, the assessee contested against a), d) and f) of the said additions. 5. As regards ground No.2 pertaining to disallowance of depreciation on SAF of ₹ 8,93,31,644/-, the AO observed that the assets of the SAF plant have not been put to use during the assessment year under consideration, for the purpose of assessee's business. The 'use' must be during the relevant accounting year for the purpose of allowing the depreciation u/s 32 of the I.T. Act. The Assessing Officer also relied on judgment of Hon'ble High Court in various cases. During the assessment proceedings, assessee submitted that the assets of SAF are ready to use is carefully considered by the AO. The AO observed that it is pertinent to note that the assets of SAF were not actually put to use from 1996-97. Even though huge time lapsed from the date of putting the assets to trial runs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is amounts to utilization of borrowed funds for non-business purposes. The interest paid by the assessee on the borrowed funds which were utilized for non-business purposes cannot be allowed u/s 36(1)(vii) of the Act. The Assessing Officer relied on the Kerala High Court decision in the case of CIT Vs. Baby and Co. reported in 254 ITR 248 wherein it was held that so long as the advances are interest free, the AO is perfectly justified in disallowing the interest in proportion to the advances made. It was noticed that the assessee has paid interest on the borrowed funds at 14.5%. In view of the legal Position, the AO held that the assessee is liable for proportionate disallowance of interest on the inter-corporate deposits at 14.5% which works out to ₹ 18,53,245/-, which was disallowed and added to the total income. 12. On an appeal before the CIT(A), the assessee stated that the assessee provided deposit of ₹ 127.81 lakhs to Praga Tools Ltd., Hyderabad a Central Govt. PSU. The said deposit was made during the year 1992 and as per the terms of deposit the amount carry interest. However, as the said PSU became sick within the meaning of provisions of BIFR, interest is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the assessee has given interest free inter-corporate deposit by taking a loan bearing interest of 14.5%. The very fact that the deposits were made in the year 1992 with an agreement to receive interest, proves the intention of the appellant that the deposits were made with an objective to earn income in the form of interest thereon. 15.1 Ld. AR submitted that the matter is squarely covered in assessee's own case for the AY. 2001-02 and 2003-04 in the respective orders of the CIT (A) -IV under section 143(3) dated 28/04/2006 whereby he allowed assesses claim stating that, When the appellant company has made a conscious policy decision not to provide for interest on the said deposits which fact has also been taken into consideration by Comptroller and Auditor General, no adverse view can be taken by disallowing a portion of the interest liability of the appellant. In view of the above, therefore, the AO is not justified in disallowing interest payment. 16. Ld. DR, on the other hand, relied upon the order of the CIT(A). 17. Considered the submissions of the parties and perused the material facts on record as well as orders of revenue authorities. It is a fact that ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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