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2022 (10) TMI 25 - AT - Income TaxDisallowance of interest u/s 36(1)(iii) on the ground that the interest bearing funds had been diverted for the purpose of making loans and advances to the sister concerns or related parties - AO was of the opinion that the appellant company had diverted the interest bearing funds for the purpose of advancing interest free loans to the promoters and directors or related parties, therefore, the AO had resorted to the proportionate disallowance of interest u/s 36(1)(iii) - HELD THAT:- We find from material on record that the interest free funds available with the appellant company as on 31.03.2012 stood at Rs.55,08,18,101/- as against the interest free loans made to related parties at Rs.24,34,86,276/-. Therefore, the presumption has to be drawn that the interest free loans were made out of the interest free funds in terms of the law laid down in the case of CIT vs. Prem Heavy Engg. Works (P.) Ltd. [2005 (4) TMI 32 - ALLAHABAD HIGH COURT] and case of CIT vs. Tin Box Co. [2002 (11) TMI 75 - DELHI HIGH COURT] - Thus, once the presumption is drawn that the appellant made interest free loans to the related parties, no disallowance of interest u/s 36(1)(iii) is warranted. We direct the Assessing Officer to delete the addition made u/s 36(1)(iii) of the Act. Accordingly, the grounds of appeal no.2 and 3 filed by the appellant stand allowed. Exclusion of a sum shown in the Profit & Loss Account as part of sales, offered to tax, on the ground that this income does not belong to the appellant - HELD THAT:- Keeping in view the principle that no income can be taxed, even if the income was offered to tax by mistake, the additional ground of appeal is admitted. However, we remand this additional ground of appeal to the file of the Assessing Officer with the direction that the same may be deleted in the hands of the appellant on due verification, it is found that the same income was offered to tax in the hands of Mr. Kruti Jain and income had not accrued to the appellant. Thus, the additional ground of appeal filed by the assessee stands partly allowed. Addition on account of difference in valuation of closing stock - HELD THAT:- The value of advance given for purchase of land was never claimed as deduction. There is no bar under law to correct the state of affairs to real picture. The Hon’ble Supreme Court in the case of CIT vs. British Paints India Ltd. [1990 (12) TMI 2 - SUPREME COURT] held that there is no estoppel on the part of the Assessing Officer to follow the method in the earlier years and further held that it is not only the right but duty of the Assessing Officer to consider whether or not books of account disclosed true state of accounts and correct income can be deduced therefrom. Therefore, the action of the Assessing Officer by bringing to tax the amount by altering the valuation of the closing stock alone is against the settled principle of law and accounting principles. We are of the considered opinion that there is neither suppression of income nor distortion of chargeable taxable income for the year under consideration on account of omission to include the value of advance given to purchase of land as a part of closing inventory for the reason stated above. We reverse the findings of the lower authorities on this issue and direct the AO to delete the addition on account of alleged difference valuation of closing stock - Decided in favour of assessee.
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