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TMI Blog2019 (4) TMI 1281X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 3,34,926/- made in the assessment order. 2. In law and in the facts and circumstances of the appellant's case, the ''Ld.CIT(A) has erred in upholding the disallowing of interest expenditure of Rs. 16,83,923/- made by the Assessing Officer being the interest on C.C. A/c on the ground that the assessee would have deferred interest-bearing funds toward interest-free advances/loans/investment. 3. In law and in the facts and circumstances of the appellant's case, the ''Ld.CIT(A) has erred in upholding the addition of Rs. 39,15,600/- made by the ''Ld.Assessing Officer for the alleged difference in the value of stock of ship as per the bank statement and the stock of ship as per the audited Annual Accounts. 4. In law and in the facts and circumstances of the appellant's case the ''Ld.CIT(A) has erred in upholding the addition of Rs. 5,55,720/- made by the Assessing Officer on account of difference in the figure of book debts as on the close of year given in the statement to the bank, and the amount of book debts as reflected in the Balance Sheet. 5. The appellant craves leave to add, alter, amend and/or withdraw any of the ground or grounds ei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18% 10. Dharmik J. Vanani 15% 7.1 There were many more parties to whom interest @15%/18% and 12% have been paid. Therefore it is reasonable to conclude that the prevailing market interest rate must be 15% per annum. Accordingly the ld. CIT-A restricted the disallowance to 3% in place of 6% amounting to Rs. 1,67,463/- only. 8. Being aggrieved by the order of the Ld.CIT (A) assessee is in appeal before us. The ld. AR before us filed a paper book running from pages 1 to 98 and reiterated the submissions as made before the learned CIT (A). On the contrary, the ld. DR before us vehemently supported the order of authorities below. 9. We have heard the rival contentions and perused the materials available on record. The issue in the instant case relates to the payment of interest on the borrowed fund by the assessee at the rate of 18% per annum. As per the AO prevailing market rate of interest is at the rate of 12% per annum on the borrowed fund which was paid to the non-related parties whereas the related parties were paid interest @ 18% Per Annum on the borrowed fund. Since the assessee has made the payment of interest to the related parties at a higher rate of interest, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure can be considered only from this limited angle for the purpose of determining whether in fact amount was spent or not." 12.1 We also find support and guidance from the order of this tribunal in case of Omkarmal Gaurishanker reported in 39 TTJ 223 wherein it was held as under: "Considering the ever-increasing inflation, the interest rate of 24% allowed by the assessee on the unsecured deposits received from various relatives by no stretch of imagination could be treated as unreasonable or excessive. The ITO was directed to allow deduction in respect of the entire amount of interest expenditure incurred by the assessee". 13. We also note that there were certain non-related parties to whom the assessee has paid interest on the borrowed fund at the rate of 18% per annum. Therefore it is incorrect to hold that the assessee has paid an excessive rate of interest to the related parties. Thus it is transpired from the order of lower authorities that the assessee in most of the cases has paid interest at a higher rate to the related parties. But it is also an undisputed fact that there were very few unrelated parties to whom the interest has been paid at the rate of 18% per annum. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e regarding advance payment of US$ 3,50,000/- In view of the above, the interest for January 2010 to March 2010 is of Rs. 16,83,923/- (i.e., 683393 + 1045530/-) which was disallowed and added back to the total income of the assessee. 19. Aggrieved assessee preferred an appeal before the Ld.CIT (A). The assessee before the Ld.CIT(A) submitted that there was no diversion of fund as presumed by the AO. As such it is apparent from annual accounts for the year under consideration that there a meager increase in the investment and loans & advances, i.e. Investment increased by 60000/-, loans and advances increased by 7,51,420 only, other advance in the form of deposit viz telephone security TDS etc. 20. During the year debtors increased by Rs. 4,91,16,862/- which shows ship sold but cash of the appellant was blocked with the debtors, net fixed assets also increased by Rs. 53,24,118/- and an increased amount of Rs. 4,22,93,734/- was also lying in the bank account to be used in the following AY as compared to PY, and current liability also decreased by Rs. 3,78,30,679/- as compared to PY. Thus in this way, the whole amount of sale proceeds utilized for business. 21. The assessee furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it reserves, surplus and current account deposits were higher than the investment in tax-free securities, it would have to be presumed that investment made by the Assessee would be out of the interest-free funds available with Assessee and no disallowance was warranted u/s 14A." 25.2 Similarly, we also find support from the judgment of Hon'ble Gujarat High Court in the case of UTI Bank Ltd. reported in 32 Taxmann.com 370 where the headnote reads as under : "If there are sufficient interest free funds to meet tax free investments, they are presumed to be made from interest free funds and not loaned funds and no disallowance can be made under section 14A". In view of the above proposition, we hold that no disallowance of interest expense claimed by the assessee can be made on account of investments as discussed above. Hence, we reverse the order of the authorities below. The AO is directed to delete the addition made by him. Hence the ground of appeal of the assessee is allowed. 26. The third issue raised by the assessee in ground no 3 is that the Ld.CIT (A) erred in confirming the addition made by the AO of Rs. 39,15,600/- on account of the difference in the value of the stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proportionate effect in closing stock which is also not verifiable from any of the records as it was without any supporting evidence, no balance sheet, profit & loss account or FE gain account submitted by the assessee to verify the same. In view of the same addition made by AO is found correct and justified. 34. Being aggrieved by the order of the Ld.CIT (A) assessee is in appeal before us. 35. The ld. AR before us submitted that that there is no difference in the quantity of the stock. As such the difference was arising on account of valuation of closing stock. Thus there cannot be any addition to the total income of the assessee on account of valuation difference. 36. On the contrary, the ld. DR before us vehemently supported the order of authorities below. 37. We have heard the rival contentions and perused the materials available on record. The issue in the instant case relates to the difference in the amount of closing stock declared to the bank viz a viz recorded in the books of accounts. It was explained that the difference is arising on account of the higher value of stock declared to the bank to avail the higher amount of cash credit facility from the bank. 37.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that there is a minor difference in the value of debtors shown in the statement given to bank and books of accounts. Such a difference was noticed while conducting the audit after furnishing the debtor statement to the bankers. As such there was some change effected in the grouping and some balance of certain parties also underwent some changes. So the difference is appearing as observed by the AO. However, the AO rejected the contention of the assessee by observing that no reconciliation statement was filed by assessee together with the individual ledger account of the parties whose group head in the books of account has been changed as well as no substantial evidence established by the assessee to substantiate its claim. In view of the above, the difference was disallowed and added to the total income of the assessee 41. Aggrieved assessee preferred an appeal before the Ld.CIT (A). The assessee before the L.d CIT (A) submitted that there was an outstanding amount of Rs. 5,55,720/- from the party named quality casting industries which has been written off during the year and resulting difference of Rs. 5,55,720/-. The assessee in support of its claimed filed the copy of the a ..... 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