Prescribed valuation for unquoted shares cannot be rejected on general doubts without identified defects or a sustainable alternative value.

Accrued interest on inter-corporate deposits was treated as taxable under the mercantile system where no new facts or documentary material displaced the finding of accrual. Disallowance of expenditure linked to LLP investment was sustained on the earlier-year reasoning. The alleged non-genuine loan receipts issue requires fresh adjudication after examining the status and effect of Special CBI Court proceedings. Capital losses on sale of unquoted shares remained allowable because the book-value valuation under the prescribed method was not shown to contain specific defects and no alternative valuation was determined. The short-term loss followed the same reasoning as the long-term loss.

---

---

Issues: (i) Whether interest accrued on inter-corporate deposits was taxable notwithstanding the asserted uncertainty of recovery; (ii) Whether disallowance in relation to investment in an LLP under section 14A read with rule 8D was sustainable; (iii) Whether deletion of the addition for alleged non-genuine loan receipts under section 68 required reconsideration in light of proceedings before the Special CBI Court; (iv) Whether long-term capital loss on sale of unquoted shares could be disallowed by rejecting the independent valuer's book-value valuation without identifying discrepancies or obtaining a valuation; (v) Whether short-term capital loss on sale of the same shares was allowable.

Issue (i): Whether interest accrued on inter-corporate deposits was taxable notwithstanding the asserted uncertainty of recovery.

Analysis: The assessee followed the mercantile system and had advanced funds to related entities at interest. The appellate findings that the interest had accrued were not rebutted by any new facts or documentary material. The Tribunal found no reason to depart from those findings.

Conclusion: The addition for accrued interest was sustained against the assessee.

Issue (ii): Whether disallowance in relation to investment in an LLP under section 14A read with rule 8D was sustainable.

Analysis: The disallowance followed an identical disallowance in an earlier assessment year, and no fresh material was produced to displace the appellate findings.

Conclusion: The disallowance under section 14A read with rule 8D was sustained against the assessee.

Issue (iii): Whether deletion of the addition for alleged non-genuine loan receipts under section 68 required reconsideration in light of proceedings before the Special CBI Court.

Analysis: The deletion proceeded on absence of evidence that the loans were kickbacks, but the appellate order did not sufficiently examine the status and effect of the proceedings before the Special CBI Court concerning the alleged fund diversion. Determination of that issue was considered necessary before deciding the genuineness of the loan receipts.

Conclusion: The section 68 issue was restored for fresh de novo adjudication without any expression on its merits.

Issue (iv): Whether long-term capital loss on sale of unquoted shares could be disallowed by rejecting the independent valuer's book-value valuation without identifying discrepancies or obtaining a valuation.

Analysis: The independent valuation adopted the book-value method prescribed under rule 11UA read with section 50CA. The Assessing Officer identified no specific defect in the valuation report and did not determine an alternative value through a valuation reference. The Tribunal accepted that the valuation could not be rejected on general remarks concerning the source of information used by the valuer.

Conclusion: Deletion of the disallowance of long-term capital loss was upheld in favour of the assessee.

Issue (v): Whether short-term capital loss on sale of the same shares was allowable.

Analysis: The short-term loss arose from the same share-sale transaction and was disallowed solely by following the reasoning applied to the long-term loss. Since the basis for allowing the long-term loss was sustained, no independent basis remained to disallow the short-term loss.

Conclusion: Deletion of the disallowance of short-term capital loss was upheld in favour of the assessee.

Final Conclusion: The additions relating to accrued interest and expenditure connected with LLP investment remain sustained; the capital-loss claims remain allowable; and the alleged non-genuine loan receipts require fresh examination by the first appellate authority.

Ratio Decidendi: A valuation made under a prescribed method for unquoted shares cannot be rejected on general doubts without identifying specific defects or determining a legally sustainable alternative value.

---