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2016 (11) TMI 288 - AT - Income TaxInterest paid on loans taken - whether amount should be capitalized and added to the value of the closing stock of the assessee or not? - Held that:- We are of the considered opinion that the AO was wrong in changing the method of valuation of closing stock. This method is being followed by the assessee, year after year and has been accepted by the Revenue. Loading of interest cost to closing stock is definitely changing the method of valuation of stock. Interest expenditure incurred on loans used for acquiring current assets, which includes closing stock, is allowable u/s 36(1)(iii). Respectfully following the propositions laid down by the Hon’ble Bombay High Court in the case of Lokhandwala Constructions [2003 (1) TMI 93 - BOMBAY High Court ] to the facts of this case, we direct the AO to exclude the interest incurred on loans from the valuation of closing stock and allow the same as deduction u/s 36(1)(iii) of the Act. Grants received from Government of Uttar Pradesh - Held that:- The amounts received by the assessee from Government of UP cannot be taxed as income of the assessee. The AO is directed to exclude the same from the taxable income of the assessee. See case of Lucknow Development Authority, Gomti Nagar, Lucknow [2013 (9) TMI 570 - ALLAHABAD HIGH COURT] Ad hoc disallowance of 56% of the development expenses - Held that:- When the matter was taken up before the first appellate authority, the same was dismissed without addressing the contention of the assessee that no reason whatsoever was mentioned in the assessment order for making this disallowance. As the AO has failed to give any reason whatsoever, for disallowing 56% of the development expenses, and as the ld.CIT(A) failed to address this issue, the disallowance in question is hereby deleted and this ground of the assessee is allowed.
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