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2016 (9) TMI 914 - AT - Income TaxDisallowance of proportionate interest - making advance to the sick company - Held that:- It is a fact that assessee has lent advances to a company, which has become sick as per the BIFR norms subsequently. It is outside the control of the assessee company and as per prudence, the interest and advances are unrealizable. The interest being revenue in nature not provided in the books. From the record, it is not established there is a link between the advance made and funds borrowed by the assessee. In absence of such information, we also hold that they are distinct transaction and cannot be considered for any comparison. As interest is not recoverable in fact and only the realizable income alone can be brought to books. Hence, the assessee has actually incurred interest expenses, which cannot be disturbed with the above said unrealizable interest income. When the AO has not brought anything on record to show that the actual borrowings were made only for the purpose of making advance to the sick company, in absence of such findings, 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 termed as unascertained liabilities. The adjustment made by the AO to determine book profit u/s 115JB is not proper. Hence, the ground raised by the AO on this issue is allowed.
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