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TMI Blog2017 (5) TMI 418X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance u/sec.36(1)(iii) - Held that:- Assessing Officer has stated that interest attributable to the funds utilized for acquiring fixed assets has not been capitalized by the assessee and he further held that assessee has also not proved the fund flow statement. We further noticed that the Ld.CIT(A) held that the Assessing Officer had not identified capital borrowed for acquiring capital assets. We observed after perusal of the records that assessee had not furnished necessary break-up with the fund flow statement for reconciliation of funds used in acquiring capital assets. Therefore, we do not incline with the decision of Ld.CIT(A) and in the interest of justice we restore this matter to the file of the Assessing Officer to decide a fresh after examination of the relevant details furnished by the assessee and after providing due opportunity to the assessee. Undervaluation of closing stock - assessee has not included in the value of closing stock amount of tax, duty and cess etc. actually paid or incurred by the assessee to bring the goods to the place of its location - Held that:- As noticed the contentions of the Ld.Counsel that the assessee was paying excise duty at conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment proceedings the noticed that assessee has introduced credit of ₹ 2,73,51,600/- in the form of share capital. The Ld.AO observed that all those persons who contributed towards share capital were the close relatives or HUF of the assessee-company. Thereafter, Ld.AO asked the asessee to furnish name, addresses, PAN and confirmation letters from the parties who had contributed towards share capital in the assessee-company. Subsequently, Ld.AO noticed that in the bank accounts of the 13 parties as mentioned below, there was cash deposit in the bank account immediately before issuing of cheque in favour of assessee towards subscription of the share capital. Sr.No. Name of Share Allotee Amount Rs. 1 Manjuben Khemabhai Patel 50,000/- 2. Haribhai Ramabhai Patel 75,000/- 3. Narayanbhai Ramabhai Patel 75,000/- 4. Ravindrabhai Dhanjibhai Patel 75,000/- 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osits of ₹ 21,72,700/-.These cash deposits were made before making applications for allotment of shares. 5.3 The above facts clearly reveals that the persons from whom share capital was received are assessed to tax as their PA Numbers and copies of l.T.Returns were furnished during the assessment proceedings. In addition to this, copy of bank account from where these share capital was received was also furnished. In my considered view, these documents clearly established the identity, genuineness of transactions and creditworthiness of the creditor. This way the appellant has discharged the onus cast upon him by the provisions of Section 68 of the IT.Act. 5.4 It is a matter of record that the appellant has received share capital of ₹ 2,73,51,600/- during the year under consideration. Out of this receipt, the A.O. had made an addition of ₹ 21,72,7007-u/s.68 of the I.T.Act. It is clearly held by the Hon'ble Supreme Court in the case of Loveli Export Pvt. Ltd. 260 ITR 195 that in the case of share application money, to discharge onus of sec.68, the appellant has to establish the identity of the persons from whom share capital was received. In such case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions, interest can be capitalized, if the following conditions are fulfilled:- (i) Capital is borrowed for acquiring capital asset. (ii)Interest is paid in respect of capital borrowed. (iii)The acquisition of asset should be for the purpose of extension of an existing business or profession. (iv)Interest liability may or may not be capitalized. I have carefully considered the facts of the case. In the instant case the A.O. has not identified capital borrowed for acquiring or raising the capital work-in-progress. Since the A.O. has not identified the capital borrowed, accordingly the first condition as mentioned above is not fulfilled. Since the basic condition of proviso to section 36(1)(iii) is not fulfilled, accordingly in my considered view interest cannot be capitalized as per these provisions. It is also seen that the A.O. has capitalized interest on proportionate basis. Perusal of provisions of proviso to section 36(1)(iii), which has been discussed in detail above, reveals that these provisions does not provide for capitalization of interest on proportionate basis. In view of above facts, I am of the considered view that the A.O. has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osing stock which is part of accounting policy. The A.O. cannot change method of accounting regularly followed by the assessee without valid reasons. (b) Hon'ble Supreme Court in the case of Chainrup Sampatram (1953) reported on 24 ITR 481 has clearly arise out of valuation of closing stock and situs of its arising or accruing where the valuation is made and valuation of unsold stock is necessary part of the process of determining trading results but it can in no sense be regarded as source of such profit. (c) It is clearly held in the case of CIT v/s. Ahmedabad New Cotton Mills reported at 4 ITC 245 that when the opening and closing stock of business are both undervalued, if the method of alteration of both valuation is not adopted, it is perfectly plain that profits which is brought forward is not real one. In such cases, the real profits of a particular year cannot be ascertained by merely raising value of closing stock, not taking into consideration the similar valuation of opening stock. As per the ratio of this case, enhancing the value of closing stock without giving corresponding effect to the valuation of opening stock is not proper. (d) The app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een initiated to tax the unexplained cash deposit if any in the hand of the shareholders. Therefore, after considering the detailed findings of Ld.CIT(A), we do not find any reason to interfere in the order of Ld.CIT(A). 10. Regarding disallowance of interest made by the Ld.AO as per the provision of sec.36(1)(iii) as discussed above in the ground no.2 of the assessee, we noticed that the Assessing Officer has stated that interest attributable to the funds utilized for acquiring fixed assets has not been capitalized by the assessee and he further held that assessee has also not proved the fund flow statement. We further noticed that the Ld.CIT(A) held that the Assessing Officer had not identified capital borrowed for acquiring capital assets. We observed after perusal of the records that assessee had not furnished necessary break-up with the fund flow statement for reconciliation of funds used in acquiring capital assets. Therefore, we do not incline with the decision of Ld.CIT(A) and in the interest of justice we restore this matter to the file of the Assessing Officer to decide a fresh after examination of the relevant details furnished by the assessee and after providing due ..... 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