TMI Blog2012 (7) TMI 1117X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing 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 us assailing the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 58,50,000/- Total 1,77,40,353/- 5. The assessee contended that deposits made in the bank and also the purchase of shares were connected with the business activities of the assessee. She further submitted that the she has given the gift to A.S Cashews, the concern belonging to the husband of the assessee and also the amounts Quilon medical trust and Travancore realtors from out of her capital. The Assessing 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 purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... funds does not arise at all, as the assessee has stated the purpose of making the deposits and purchasing the shares. It is further to be noticed that these deposits have been made by the assessee in her name/concern s name and the said deposits have been disclosed in the assessee s books of accounts. In the instant case, there may be many reasons for the assessee to park funds in the form of deposits with the Bank, from whom she has obtained loans. It is a known fact that a prudent businessman will not normally make deposits in the Bank which usually fetches lower interest, by using the loan funds on which he is liable to pay interest at a higher rate, unless there is some business compulsion for doing so. It is also well established prin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer not to treat the same as diversion of funds. 8. With regard to the amounts of ₹ 10 lakhs and ₹ 25 lakhs given to Quilon Medical Trust and Travancore Realtors respectively, we find that the assessee did not explain the purpose for which they were given. The assessee simply claims that these amounts have been given out of capital account. Neither the Assessing Officer nor the assessee has furnished the details for establishing the nexus between the capital/Bank loans and the above stated payments. Accordingly, we are of the view that the issue of diversion of funds in respect of these amounts require re-consideration. Accordingly, we set aside the order of the Ld. CIT(A) on this issue and restore the same to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that:- The appellant had valued rejection kernels at ₹ 4.41 per kg, which was the realizable value as on 31.3.2007. The rejection kernels had a market only outside the Kerala State and the average price obtained for rejection kernels in the interstate market was only ₹ 3.70 per kg. The quantity sold in the interstate market during the relevant previous year was ₹ 82,771/- per kg., whereas the rejection kernels sold in local market was only ₹ 2803.20 during the year. Out of this quantity 1443 kgs were sold for a price of ₹ 4 per kg. There was only one sale in local market on 17.3.2007 of 200 kgs. @ ₹ 6/- per kg. As the bulk of rejection kernels were sold in interstate Market, the rejection kern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... els have been sold @ ₹ 4/- per kg. Hence the valuation on an average sale would come to ₹ 5/- per kg. This rate seems quite reasonable in view of the fact that last year the value adopted was ₹ 4.50/- per kg. Accordingly, I direct that value rejected kernels be adopted at ₹ 5 per kg. instead of ₹ 6 per kg. as adopted in the assessment order. This ground of the appellant is partly allowed . We have carefully considered the decision of the Ld. CIT(A) and find that the first appellate authority has taken a conscious decision by duly considering the relevant details. Hence, we are inclined to accept the view taken by the Ld. CIT(A) on this issue and accordingly, uphold his order on this issue. 15. In the resu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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