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2019 (9) TMI 1230 - ITAT AHMEDABADAddition on account of interest income treating the same as inextricably linked with the business and accordingly reduced from the cost of the project - HELD THAT:- If the AO was not satisfied about the utilization of the fund, then he should have treated the interest income and interest expenses in the similar fashion. In other words, the AO should have treated the interest income from other sources and against that interest expenses should have been allowed as expenses against the same as these are inextricably linked. But the AO has not done so. Accordingly, we are of the view that the AO erred in treating the interest expenses and income differently despite these are inextricably linked. Thus, we are of the view that once the AO has accepted the interest cost as part of the project then the same treatment needs to be given even to the interest income by adjusting the same against the part of the project cost as the interest expense and income are inextricably linked. Accordingly, we do not find any reason to disturb the finding of the ld. CIT-A. Regarding the interest income from GMDCL, we note that such income was earned by the assessee on the fixed deposits on the bank guarantee made in connection with the project awarded by GMDCL. This fact can be verified from the bank guarantee furnished by the Axis Bank Ltd on behalf of the assessee. There was also no allegation that such bank guarantee represents the circular transaction. Moreover, there was no defect pointed out by the authorities below in the bank guarantee furnished by the assessee. Accordingly, we disagree with the finding of the learned CIT (A). Hence the ground filed by the assessee in its CO is allowed. Ground of appeal of Revenue is dismissed and the ground filed by the assessee in its CO is allowed. Addition on account of CENVAT Credit - contention of the assessee by observing that as per the provisions of section 145A of the Act the assessee is liable to include the amount of duty, cess, tax etc in the amount of purchases, sales and the closing stock - CIT(A) deleted the addition made by the Assessing Officer by observing that the assessee has been following its method of valuation consistently and there was no dissatisfaction of the Assessing Officer about the correctness/completeness of the books of accounts of the assessee - HELD THAT:- we note that the assessee has been recording its transactions of purchase, sales, and valuation of inventories, net of CENVAT consistently. Thus, if the inventory of closing stock is enhanced by the amount of CENVAT credit attributable to it, then the amount of corresponding purchases should also be increased by the said amount which will result in tax neutral exercise. Thus, in our considered view, the Assessing Officer erred in enhancing the value of the closing stock without giving effect to the purchases. See GUJARAT GAS COMPANY LTD. AND 1 [2017 (2) TMI 649 - GUJARAT HIGH COURT]. There is no ambiguity that the assessee has been following the exclusive method of accounting. In view of the above, we concur with the view of the Ld. CIT(A) and accordingly decline to interfere in his order.
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