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ITO, Ward-13 (1) , Kolkata Versus M/s Abhinand Investment Ltd. And Vice-Versa

2018 (2) TMI 508 - ITAT KOLKATA

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 CAs 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 .....

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he 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 tr .....

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, 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 .....

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T(A)-23/Wd-3(4)/14-15 dated 04.03.2016 against the order passed by the ITO, Ward-3(2), Kolkata[ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short the Act ) dated 23.11.2006 for the Assessment Year 2004-05. 2. The only issue involved in the appeal of the Revenue is as to whether the Ld. CIT(A) was justified in deleting the disallowance of diminution in value of closing stock of ₹ 30,76,750/-, in the facts and circumstances of the case. 3. The brief facts of this .....

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₹ 40,750/-. The Ld. AO from the profit and loss account of the assessee noticed that the assessee had incurred net loss of ₹ 35,22,062/-. He further noticed that the said loss had apparently arose due to diminution in value of closing stock of shares as on 31.03.2004. The assessee had the closing stock of shares comprising of both quoted as well as unquoted shares. In respect of quoted shares, the assessee had valued the closing stock at the lower of cost or market price. In respect .....

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arising due to diminution in value of closing stock of unquoted shares in the assessment. However, the Ld. AO observed in the assessment order that the diminution in value of closing stock of quoted share is allowable. 4. Before the first appellate authority, the assessee contended that the finding given by the Ld. AO has no basis in view of the specific provisions contained in section 145A of the Act which states that notwithstanding anything to the contrary contained in Section 145, the valuat .....

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dispute over the period and over the fact that the assessee has been consistently valuing its closing stock of shares at the lower of cost or market value in case of quoted shares and at lower of cost or break up value in respect of unquoted shares. The assessee further placed reliance on the decisions of Hon'ble Supreme Court in the case of i) CIT vs. British Paints India Limited reported in [1991]88 ITR 44 (S C) ii) Chainrup Sampatram vs. CIT reported in [1953] 24 ITR 481 (S C) The assess .....

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ave accepted the valuation of unquoted shares also at lower cost or breakup value which was done as per the mandate provided in RBI prudential norms vide its notification dated 31.01.1998. It was further pleaded that Chartered Accountant in his report had categorically mentioned that there was no change in the method of valuation of closing stock adopted by the assessee during the year as compared to earlier years. 5. The Ld. CIT(A) appreciated the contentions of the assessee and granted relief .....

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od regularly employed is to be followed, as that there is no dispute over the fact that assessee s method of valuation of stock has been, lower of cost and market value whichever is lower and that the assessee company has regularly followed the same method of valuation of stock all along in the past. That the said method has been regularly followed by the appellant-company has also been certified by the Chartered Accountants, as it appears from the records. In the said situation, and considering .....

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of ₹ 30,76,750/- made by the AO without appreciating the facts that unquoted shares and quoted shares are different in nature and in all spheres, they are treated in different ways and diminutive value of shares in stock is only allowable in cases of quoted shares this is not allowable. 3. That the appellant craves leave to add, to amend any of these grounds before or at the time of hearing. 7. We have heard the rival submissions. We find that the Assessing Officer has accepted the method .....

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value its unquoted shares as under: Unquoted equity shares in the nature of current investments shall be valued at cost or breakup value, whichever is lower. However, NBFCs may substitute fair value for the breakup value of the shares, if considered necessary. Where the balance sheet of the investee company is not available for two years, such shares shall be valued at one Rupee only. The assessee in the instant case has clearly followed the mandate prescribed by the Reserve Bank of India in its .....

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ind 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 , the assessee had reported as under: Current Investments are classified as Stock of Shares under Current Assets. Quoted equity shares are valued at lower of cost and market value and unquoted equity shares are valued at lower of cost & breakup value in accordance with prudential .....

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the Ld. CIT(A) with regard to the issue. Accordingly, grounds raised by the Revenue are dismissed. 8. Now let us come to Cross Objections raised by the assessee. 9. The only issue raised by the assessee in its cross objections is as to whether the Ld. CIT(A) was justified in upholding the disallowance of interest of ₹ 5,31,000/- paid on loan taken for purchase of shares of Ganpati Sugar Industries Ltd., which was part and parcel of the stock-in-trade, in the facts and circumstances of the .....

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ing the year under appeal also. The amount advanced towards share application money in Ganpati Sugar Industries Limited were also lying as on 31.03.2004 and shares were indeed allotted to the assessee in the said company in assessment year 2005-06 i.e. in the next assessment year. The assessee paid interest on its borrowings to the tune of ₹ 15,70,914/-. The Ld. AO observed that borrowed funds utilized for the purpose of advancing monies towards share application monies is not made for bus .....

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business by the assessee. It was further pleaded that the said advance was made to further increase the investment of the assessee in the said company in addition to the existing investment of 11,30,000 shares already held by the assessee in the said company. The Ld. CIT(A) however did not heed to the contentions of the assessee and proceeded to uphold the disallowance made by the Ld. AO in this regard. Aggrieved, the Assessee is in appeal before us on the following grounds: 1. For that on the f .....

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have been allowed as part of business expenditure u/s 36(1)(iii) of the I.T. Act, 1961. 3. For that the appellant craves to put in additional ground before or at the time of hearing of appeal. 11. We have heard the rival submissions. It is not in dispute that the borrowings were made by the assessee in the earlier years. It is not in dispute that such borrowed funds to the tune of ₹ 90 lacs. were used by the assessee for making advance towards share application money in M/s Ganpati Sugar .....

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