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2008 (9) TMI 399 - AT - Income TaxDisallowance of interest and administrative expenses u/s 14A - Valuation of Closing Stock - Computation of book profits u/s 115JB. Disallowance of interest and administrative expenses u/s 14A - claimed exemption u/s 10(33) - CIT(A) deleted the expenditure incurred for earning dividend income u/s 14A - HELD THAT:- We are of the view that the order of the ld CIT(A) is to be upheld on this issue. These investments were made in the earlier years and not during the year under consideration. The assessee is having sufficient own funds and also interest-bearing funds. In the absence of any evidence to show that the assessee had made the investment during the year under consideration out of interest-bearing funds, we have no reason to disturb the order of the learned first appellate authority on this point. The appeal by the Revenue, hence, on this ground fails and it is dismissed. Valuation of Closing Stock - CIT(A) in directed the AO to make adjustments in the opening stock when addition is made on account of unutilized portion of Cenvat to the closing stock - assessee was following exclusive method for accounting duty and was forced to adopt an increased valuation in its closing stock on account of application of s. 145A - HELD THAT:- Sec. 145A, mandates that the changes on account of adjustments mentioned therein have to be given effect on purchase, sale of goods and inventory. Therefore, in our opinion, the decision of the Hon'ble Delhi High Court in the case of Mahavir Aluminium Ltd. [2007 (11) TMI 41 - HIGH COURT OF DELHI] would be squarely applicable on the facts. The Hon'ble Delhi High Court was dealing with application of s. 145A and clearly held that when on account of application of that section a change is per se forced upon the assessee in the valuation of its closing stock, a corresponding adjustment in opening stock has to be carried out for consistency - Therefore, following the decision of the Hon'ble Delhi High Court, we are of the opinion that the learned CIT(A) was justified in directing the AO to make corresponding adjustments in the opening inventory also. Appeal of the Revenue on ground No. 2 therefore stands dismissed. Computation of book profits u/s 115JB - assessee is aggrieved that learned CIT(A) approved the decision of the AO that assessee's book profits for the purpose of computing MAT liability under s. 115JB of the Act need not be reduced by Rs. 5,62,27,445, which according to the assessee was brought forward losses of the amalgamating company - HELD THAT:- There is no discussion in the assessment order nor in the order of the learned CIT(A) as to whether balance considered by the assessee as unabsorbed loss remaining after giving effect to amalgamation, which it deducted from its net profit, comprised of unabsorbed depreciation or unabsorbed business loss. There is also no finding whether there was any unabsorbed depreciation at all - The Explanation (iii) to sub-s. (2) of s. 115JB clearly debars any such deduction if unabsorbed depreciation is nil. Hence, though the assessee is eligible for set off based on the revised accounts, it is necessary to verify whether the claim has been correctly made - Therefore, we set aside the orders of the learned CIT(A) as well as the AO regarding the computation of book profits of the assessee u/s 115JB and direct the AO to consider assessee's claim for deduction of loss of the amalgamating company remaining unabsorbed to the extent allowed by Expln. (iii) to sub-s. (2) of s. 115JB. Ground number one of the assessee is allowed for statistical purposes. In the result, appeal of the assessee is partly allowed for statistical purposes.
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