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2018 (2) TMI 508

Head Note:
Disallowance of diminution in value of closing stock - method of valuation of closing stock of quoted shares - Held that:- We find that the assessee had placed reliance on the said CA’s certificate and had accordingly valued its closing stock by adopting the breakup value per share as on 31.03.2004, as it was lower than cost of the unquoted shares. We also find from the accounting policy of the assessee company which are part of the audited financial statements and from point 1C enclosed in page 32 of the paper book on the accounting policy followed for ‘stock-in-trade’.

We also find that the assessee has been consistently following this method of valuation of closing stock of unquoted shares without any deviation thereon as has been categorically mentioned by the Ld. CIT(A) in his order, which remained uncontroverted by the Revenue before us. No justifiable reason to interfere in the order of the Ld. CIT(A) in this regard and hence, we do not find any infirmity in the order of the CIT(A) with regard to the issue. Accordingly, grounds raised by the Revenue are dismissed.

Disallowance of interest paid on loan taken for purchase of shares of Ganpati Sugar Industries Ltd., which was part and parcel of the stock-in-trade - Held that:- The assessee is engaged in the business of dealing in shares. It is not in dispute that the assessee is already holding 11,30,000 shares of M/s Ganpati Sugar Industries Limited and which is part and parcel of its stock-in-trade of the trading business. Hence, it could be safely concluded that the additional investment which was made by the assessee out of borrowed funds were also made only for the purpose of business. AO had observed in the assessment order that the assessee has been allotted by M/s Ganpati Sugar Industries Limited by converting the share application money into share capital in assessment year 2005-06. In any case, once the borrowing has been accepted as being used for business purposes in the year of borrowing, then any interest paid thereon in subsequent years cannot be the subject matter of disallowance as the closing balance of borrowings at the end of earlier year would become the opening balance of borrowings at the beginning of this year. Department cannot take different stand during the year under appeal when they had accepted the borrowing being used for business purposes in the earlier year. This ratio has been laid down in the case of CIT vs. Sridev Enterprices (1991 (1) TMI 52 - KARNATAKA High Court). - Decided against revenue.


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