Tribunal remits disallowance issue under Income Tax Act, deletes under-valuation, dismisses interest addition.

The Tribunal remitted the issue of disallowance under section 36(1)(iii) of the Income Tax Act back to the Assessing Officer for a fresh decision. The under-valuation of closing stock in the real estate business was found to lack a valid basis for comparison and was deleted. The addition for interest accrued on FDRs was dismissed as it was not pressed during the hearing. The appeal was partly allowed and partly allowed for statistical purposes.

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Issues Involved:
1. Disallowance under section 36(1)(iii) of the Income Tax Act.
2. Under-valuation of closing stock.
3. Addition for interest accrued on FDRs.

Issue 1: Disallowance under section 36(1)(iii) of the Income Tax Act:
The appeal contested the assessment under section 143(3) of the Income Tax Act, 1961 for the assessment year 2009-10. The first issue was regarding the disallowance under section 36(1)(iii) of the Act. The Assessing Officer disallowed interest on borrowed capital due to interest-free advances made by the assessee to relatives and an associate concern. The disallowance was confirmed in the first appeal based on lack of commercial expediency. However, the Tribunal observed that the assessee had not provided the necessary information to substantiate the claim of sufficient interest-free capital to fund the advances. The matter was remitted to the AO for a fresh decision based on factual findings and material evidence.

Issue 2: Under-valuation of closing stock:
The second issue involved the under-valuation of closing stock in the real estate business. The AO inferred under-valuation for one of the projects based on location and cost variations among projects. The Tribunal found the AO's inference unfounded as the project in question was located on the outskirts, where land prices are lower. The Tribunal noted discrepancies in project sanction dates and emphasized the lack of a valid basis for comparison. The Tribunal criticized the CIT(A) for misdirection and lack of factual findings. The Tribunal held that the onus to establish under-valuation was on the Revenue, which failed to do so. The addition was deemed baseless and deleted, directing the use of closing stock as per the assessee's final accounts for the following year.

Issue 3: Addition for interest accrued on FDRs:
The third issue pertained to an addition for interest accrued on FDRs not returned. The amount was not pressed by the counsel during the hearing and was dismissed accordingly.

In conclusion, the Tribunal remitted the first issue back to the AO for a fresh decision based on factual findings. The second issue of under-valuation of closing stock was decided in favor of the assessee, with the addition being deleted due to lack of valid grounds. The third issue related to interest accrued on FDRs was dismissed as not pressed. The appeal was partly allowed and partly allowed for statistical purposes.

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