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TMI Blog2018 (1) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... g the income at Rs. 78,32,450/- and book profit at Rs. 14,85,672/-. 3. Aggrieved assessee preferred appeal before the Ld. CIT(A) against various additions and partly succeeded. 4. Aggrieved Revenue is now in appeal before the Tribunal raising three grounds of appeal. Ld. Departmental Representative supported the order of the Assessing Officer on all the three grounds and ld. Counsel strongly relied on the findings of the ld. CIT(A). 5. We have heard the rival contentions and perused the records placed before us. 6. In the first Ground of appeal, the Assessing Officer has raised the following grievance: "The ld.CIT(A) has erred in deleting the disallowance of Rs. 22,75,481/- u/s 14A despite the fact that the assessee has earned dividend income from shares and securities held as stock in trade and the same have been claimed as exempt." 7. Briefly facts relating to this issue are that at the close of year, assessee held closing stock of equity shares. Assessee also earned exempt income amounting to Rs. 5,91,946/-. Ld. AO applied the provision of section 14A and calculated the disallowance at Rs. 23,21,975/-. In appeal before first appellate authority, ld. CIT(A) appreciating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trading and the closing stock (inventory) as on 31st March is treated by A.O. as investment which is not true. (iii) Even if such inventory is considered as investment, the interest claimed in P&L a/c is for the purpose of business allowable u/s 36(1)(iii) of the Act. Further appellant's interest free funds are not considered by A.O. The appellant further contended relying on the decision of Hon'ble Gujarat High Court in the case of Hitachi Homes and Life Solution (supra) that such interest free fund are required to be considered. There is interest income of Rs. 13,80,822/- and A.O. disallowed claim of interest of Rs. 6,00,000/-hence only net interest expenses are required to be considered. (iv) As per ratio of Hon'ble ITAT Ahmedabad order in the case of Jivraj Tea Ltd. (supra) and Hon'ble ITAT Delhi order in the case of Sahara India Financial Corporation Ltd., disallowances u/s 14A of the Act cannot be more than exempted income. I am inclined with appellant that A.O. has considered incorrect income. Further, I am inclined with appellant that there are no investment in shares, securities or other such investment, income from which is exempt i.e. the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e advance given to M/s. Isha Investment. He further observed that assessee has used interest bearing funds for the purpose of giving the interest free loan to M/s. Isha Investment. Ld. CIT(A) deleted the addition as the alleged interest free loan to M/s. Isha Investment at Rs. 50,00,000/- was given during F.Y. 2008-09 and there was no new advance given during the year. 13. We find that assessee provided complete details about the nature of transaction, confirmation from M/s. Isha Investment and also all these details were directly received by the Assessing Officer from M/s. Isha Investment in compliance to notice issued u/s.133(6) of the Act. There was no such disallowance of interest in the preceding assessment year i.e. A.Y. 2009-10 when the alleged loan was actually advanced. 14. We therefore in the given facts and circumstances of the case find no reason to interfere in the findings of ld. CIT(A) and deleting the impugned addition of Rs. 6,00,000/- on account of disallowance of interest observing as follows: "(D) Ground No. 4 is against the disallowance of interest of Rs. 6,00,000/- on the ground that A.O. held that appellant extended interest free loan of Rs. 50 lac to M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,85,251/-." 17. In the course of assessment proceedings ld. Assessing Officer while examining the valuation of closing stock of equity shares held by the assessee, observed that for the purpose of valuing the closing stock "At cost or market price whichever is less", assessee has taken the market price as on 29.03.2010. Ld. AO accordingly re-calculated the valuation, taking the basis of market price as on 31.03.2010 thereby adding Rs. 5885251/- to the value of closing stock disclosed by the assessee. When the matter came up before the ld.CIT(A), assessee succeeded in getting this addition deleted as ld.CIT(A) observed that assessee being in the business of trading shares and securities, calculates the closing stock on the basis of value of shares and securities as on the last date of last settlement, which in this case was 29.03.2010. 18. We find substance in the findings of ld.CIT(A), as the books of accounts of assessee are audited u/s.44AB, method of closing stock is consistent with the preceding year and there is no variation. Further we also find that the last date of settlement was 29.03.2010 and the assessee has calculated the valuation of closing stock at Rs. 6,20,62,436 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit and loss account for the period ending 31.03.2010 under the head "significant Accounting policies" at point 6 in reference to "Inventories" mentioned that "Inventories are valued at market value as on cutoff date". It is also verifiable from the tax audit report in Form 3CA & Form 3CD dt. 19.08.10 in compliance of section 44AB of the Act at cl. 12(a) for "Method of valuation of closing stock employed in the previous year" it is mentioned that "Closing stock is valued at cost or market value whichever is lower". In reference to cl. 12(b), for details of deviation, if any, from the method of valuation prescribed u/s 145A and the effect there of on the profit or loss it is mentioned 'No'. It is therefore, the important issue one has to adjudicate is which method of accounting and results thereof has to be considered for Income tax Act proceedings. The answer is clearly the consistent method followed by tax auditor as per tax audit u/s 44AB of the Act. The appellant is permitted to follow any other type of accounting or method of valuation or within companies Act but as per Income tax Act section 145 and 145A of the Act, mercantile system of accounting and consistent method ..... X X X X Extracts X X X X X X X X Extracts X X X X
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