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TMI Blog2012 (7) TMI 1117X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) in respect of the following two issues: a) Disallowance of proportionate interest paid on borrowed capital. b) Valuation of closing stock of 'rejected quality' of kernels. 3. The facts relating to the above said issues are stated in brief. The assessee is engaged in the business of processing and export of cashew kernels. The assessment for the assessment year 2007-08 was completed by the Assessing Officer by making an addition of ₹ 15,58,820/- on account of disallowance of interest relating to funds diverted for non-business purposes and ₹ 8,71,680/- on account of difference in valuation of the closing stock. The Ld. CIT(A) partly allowed the appeal filed by the assessee. Hence, both the parties are in appeal before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer accepted the contentions of the assessee with regard to bank guarantee deposit of ₹ 14 lakhs stated above. He, however, treated the balance amount of ₹ 1.63 crore as diversion of interest bearing funds for non-business purposes. Accordingly, he worked out interest relating to funds so diverted at ₹ 15,58,820/- and disallowed the same. In the appellate proceedings, the Ld. CIT(A) held that the following payments/investments are for business purposes: a) South Indian Bank FD ₹ 59,43,822/- b) South Indian Bank FD Jamal ₹ 1,68,831/ c) South Indian Bank shares ₹ 8,68,000/- The Ld. CIT(A) upheld the order of the Assessing Officer in respect of funds diverted to Quilon Medial Trust - ₹ 10 la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o pay interest at a higher rate, unless there is some business compulsion for doing so. It is also well established principle that the tax authorities cannot sit on the chair of the businessman and dictate the manner of carrying on the business. Further, in our view, the question of diversion of funds shall arise only if money was taken away from the concern of the assessee and was given to another concern for non-business purposes without charging interest at reasonable rates. This is not so in the instant case. Hence, we do not find any infirmity in the decision of the Ld. CIT(A) in holding that the funds deposited in the South Indian Bank in the form of deposits and shares are for business purposes. 7. With regard to the gift of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e re-consideration. Accordingly, we set aside the order of the Ld. CIT(A) on this issue and restore the same to the file of the Assessing Officer for examination of the matter afresh in accordance with law. The assessee is also directed to furnish the details that may be called upon by the Assessing Officer in this regard. The order of the Ld. CIT(A) is accordingly modified. 9. Both the parties relied upon various case laws in support of their respective contentions. Since, we have decided the issues on facts, we do not find it necessary to discuss about those case laws. 10. The next issue relates to the valuation of rejected quality of kernels. The Ao noticed that the assessee has valued closing stock of "rejected quality kernels" at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kgs. @ ₹ 6/- per kg. As the bulk of rejection kernels were sold in interstate Market, the rejection kernels were valued at ₹ 4.41 per kg. against the average price of ₹ 4 per kg. which was the value realized in interstate Market for the rejection kernels. These facts were placed before the Joint commissioner, who did not accept the contentions of the appellant and adopted ₹ 6/- as realizable value for the rejection kernels which resulted in an addition of ₹ 8,71,680/- to the total income returned by the appellant During the asst. year 2006-07, the assessment u/s. 143(3) was completed enhancing the value of closing stock to the extent of ₹ 5,35,811/- which was the value of rejection kernels valued at ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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