This appeal filed by assessee is directed against order of CIT(A)-XXII, dt. 21st May, 2001 at Mumbai, and arises out of assessment completed under s. 143(3) of IT Act, 1961. relevant assessment year is 1997-98. We have heard both sides and have also perused materials placed on record and applicable legal provisions. assessee has raised multiple grounds in this appeal which are independent in nature, therefore, we deal with them one by one. Ground Nos. 1 and 2 deal with common issue of disallowance of sum of Rs. 53,073 out of ad hoc expenses and depreciation on motor car on account of personal use of same. Briefly stated, facts in this case are that assessee claimed vehicle expenses at Rs. 1,62,957 and depreciation at Rs. 1,55,479. AO disallowed 1/6th of same for reason that no log book was maintained and personal use of motor car could not be ruled out. On appeal, learned CIT(A) held that possibility of personal user of motor car of assessee could not be ruled out and provisions of s. 38(2) of Act were clearly applicable. learned CIT(A) also rejected contention of assessee that after merger of motor car in block assets, no partial disallowance could be made on account of depreciation on ground that concept of block assets was only for purpose of calculation of depreciation allowance on consolidated basis and for no other purposes. learned CIT(A) accordingly confirmed action of AO. learned counsel appearing on behalf of assessee reiterated submissions made before Revenue authorities. learned Departmental Representative, on other hand, kly supported orders of Revenue authorities. We have considered submissions of both sides, material on record and orders of authorities below. Admittedly, assessee has not maintained log book. possibility of personal user of car cannot be ruled out. In case of Gulati Saree Centre vs. Asstt. CIT (2000) 66 TTJ (Chd)(SB) 286: (1999) 71 ITD 73 (Chd.)(SB), (Tribunal, Chandigarh Bench), Tribunal held that even after incorporation of concept of block of assets, provisions of s. 38(2) were applicable and AO was empowered to restrict depreciation to fare part thereof having regard to user of asset for purposes of business. In this view of matter, we hold that orders of Revenue authorities are correct in law. As far as proportion of disallowance for personal use is concerned, we find that Revenue authorities have made reasonable proportionate disallowance @ 1/6th of total expenses including depreciation. Accordingly, we decline to interfere in matter. Thus, both these grounds of assessee are rejected. Ground Nos. 3 and 4 are in respect of confirmation of disallowance of interest on borrowed funds of non-business purposes. Briefly stated, facts in this regard are that AO noted that there was debit balance in account of M/s Mayur M. Kothari (HUF) amounting to Rs. 2,58,77,150 in books of account of assessee on account of share transactions on behalf of HUF. opening balance in aforesaid account was Rs. 5.59 crores approximately. AO also noted that assessee was having borrowed loans and did not charge any interest from HUF. assessee replied that he was having business transactions with his HUF and, therefore, same should be treated as debtor. AO was of opinion that it was colourable transaction whereby assessee was diverting his profits to HUF because with respect to other clients, assessee got payments received as per settlement carried out by stock exchange. Accordingly, AO held that it was reasonable to disallow interest @ 24 per cent which was rate of interest being charged by creditors of assessee. AO further held that transactions were also hit by provisions of s. 40A(2) of Act out of interest on basis of periods for which various amounts were due to assessee by his HUF. Accordingly, AO disallowed sum of Rs. 71,60,717. Aggrieved by decision of AO, assessee preferred appeal before learned CIT(A). In appellate proceedings, assessee contended that AO s finding regarding assessee was either transferring shares or his own AO s finding regarding assessee was either transferring shares or his own profit to HUF were not correct. It was also contended that debit balance in account of HUF had substantially came down and HUF filed its return of income independently. assessee further contended that average rate of interest on borrowed funds was 19 per cent and not 24 per cent per annum. It was also contended that amount outstanding in HUF account was in nature of business debt and assessee did not charge any interest from any of sundry debtors nor paid interest to its sundry creditors. It was also contended that provisions of s. 40A(2) of Act were not applicable as no interest was paid to persons as referred therein. It was also contended that if debit balance in account of HUF was treated as loan, no part of interest paid on borrowed funds could be disallowed under s. 36(1)(iii) of Act as interest-bearing funds were used for business purposes only. It was further contended that assessee had its own capital far exceeding loans taken, therefore, no part of interest-bearing funds would be attributed towards debit balance in HUF account. learned CIT(A) after considering submissions made by assessee, upheld action of AO in principle and directed him to verify average rate of interest on borrowed funds and modify, if necessary, amount of disallowance. learned CIT(A) s findings are reproduced below: "I have considered submissions made. It is seen from copies of account of M/s Mayur M. Kothari (HUF) standing in books of appellant since financial year 1994-95 that as on 31st March, 1995, 31st March, 1996 and 31st March, 1997, HUF had debit balances in books of appellant of Rs. 4.78 crores, 5.59 crores and 2.59 crores, respectively. Over years, appellant was purchasing and selling shares on behalf of his HUF. purchases made had been debited to account of HUF and sales credited. Thus, debit balance in account of HUF represented unpaid purchase consideration of shares, over and above sales made. No payment was ever received from HUF in respect of such unpaid dues. Further balance sheet of appellant as on 31st March, 1997 discloses investment of Rs. 21.60 crores in shares on his own account, apart from debt due from HUF, apart from investment in shares on his own account. appellant as on 31st March, 1997 had borrowed funds to tune of Rs. 521.75 lakhs and had paid interest of Rs. 1,11,79,680 on such borrowed funds. On scrutiny of balance sheet of appellant as on 31st March, 1997, it has to be concluded that appellant had utilized his borrowed funds to substantial extent to purchase shares on behalf of his HUF. It is also seen that out of total sundry debtors of Rs. 293.66 lakhs, Rs. 258.77 lakhs were due from HUF alone. It is true that provisions of s. 40A(2) are not strictly applicable in present case, as appellant had not claimed any deduction in respect of any excessive and unreasonable payment made by appellant to any person referred to in s. 40A(2)(b), but it cannot be denied that appellant had utilized major portion of his borrowed funds to purchase shares on behalf of HUF. In such situation, it cannot be said that appellant had utilized his borrowed funds for purpose of business and as such interest paid on funds borrowed for purpose of business, but utilized for purpose of purchase of shares for HUF, would not be allowable as deduction under s. 36(1)(iii). One may refer in this regard to decision of that Supreme Court in case of Madhav Prasad Jatia vs. CIT (1979) 10 CTR (SC) 375: (1979) 118 ITR 200 (SC) and decision of Bombay High Court in case of Kishinchand Chellaram vs. CIT (1980) 19 CTR (Bom) 360: (1980) 114 ITR 654 (Bom). However, other contention of appellant that average rate of interest paid by appellant on borrowed funds during previous year was lesser than rate of 24 per cent adopted by AO would need consideration. On prima facie examination of balance sheet of appellant, it is seen that outstanding loan as on 31st March, 1997 was Rs. 521.75 lakhs and total interest paid during previous year on borrowed funds was Rs. 111.80 lakhs approximately. above figures prima facie givesrise to average rate of interest of 21.43 per cent per annum which however is approximate figure. AO may give another opportunity to appellant to prove average rate of interest of borrowal of funds and modify, if necessary, amount of disallowance after reconsideration of such claim. disallowance made by AO is in any case upheld in principle. ground is accordingly disposed." Still aggrieved, assessee is in appeal before us. learned counsel appearing on behalf of assessee contended that learned counsel appearing on behalf of assessee contended that there was continuous reduction in outstanding amount in HUF account and in earlier years no such disallowance was ever made, therefore, there was no reason to make such disallowance in year under consideration. It was l s o strenuously argued that assessee had sufficient interest-free funds, therefore, no disallowance could be made. learned counsel further pleaded that provisions of s. 40A(2) were not at all applicable. learned counsel also referred to relevant pages of paper book to show that Mayur M. Kothari (HUF) was independently assessed to tax, therefore, transactions of sale n d purchase of shares were real and genuine and it was only business debtor, therefore, there was no question of any disallowance of interest on borrowed funds. learned Departmental Representative, on other hand, contended that HUF account was given different treatment as compared to other business customers and there was no payment received in respect of transactions executed by assessee on behalf of HUF. learned Departmental Representative also contended that learned CIT(A) had given categorical finding that assessee had utilized his borrowed funds to substantial extent to purchase shares on behalf of his HUF. It was also contended that provisions of s. 40A(2)(b) were not directly applicable to this case. He further placed reliance on following judicial decisions to contend that interest on borrowed funds was allowable under s. 36(1)(iii) only when it was used for business purposes of assessee and in this case funds were blocked in transactions on behalf of HUF where no interest was charged, therefore, it was fit case for disallowance: (i) Hon ble Madras High Court in case of Mir Mohd. Ali vs. CIT (1960) 38 ITR 413 (Mad). (ii) Hon ble Madras High Court in case of CIT vs. India Silk House (1984) 41 CTR (Mad) 210: (1985) 152 ITR 79 (Mad). (iii) Hon ble Madras High Court in case of CIT vs. Sujanni Textiles (P) Ltd. (1998) 147 CTR (Mad) 417: (1997) 225 ITR 560 (Mad). (iv) Hon ble Bombay High Court in case of Phaltan Sugar Works Ltd. vs. CIT (1995) 127 CTR (Bom) 359: (1994) 208 ITR 989 (Bom). (v) Hon ble Mysore High Court in case of CIT vs. United Breweries (1973) 89 ITR 17 (Mys). (vi) Hon ble Madras High Court in case of Milapchand R. Shah & Ors. vs. CIT (1965) 58 ITR 525 (Mad). (vii) Hon ble Bombay High Court in case of CIT vs. Doctor & Co. (1989) 80 CTR (Bom) 174: (1989) 180 ITR 627 (Bom). (viii) Hon ble Allahabad High Court in case of Saraya Sugar Mills (P) Ltd. vs. CIT (1992) 108 CTR (All) 1: (1993) 201 ITR 711 (All). (ix) Hon ble Allahabad High Court in case of Marolia & Sons vs. CIT (1979) 8 CTR (All) 170: (1981) 129 ITR 475 (All). (x) Hon ble Supreme Court in case of Madhav Prasad Jatia vs. CIT (1979) 10 CTR (SC) 375: (1979) 118 ITR 200 (SC). (xi) Hon ble Delhi High Court in case of R. Dalmia (Decd.) vs. CIT (1981) 24 CTR (Del) 16: (1982) 133 ITR 169 (Del). (xii) Hon ble Delhi High Court in case of CIT vs. Motor General Finance Ltd. (2002) 173 CTR (Del) 123: (2002) 254 ITR 449 (Del). (xiii) Hon ble Madras High Court in case of K. Somasundaram & Bros. vs. CIT (1999) 153 CTR (Mad) 153: (1999) 238 ITR 939 (Mad). (xiv) Hon ble Allahabad High Court in case of CIT vs. Saraya Sugar Mills (P) Ltd. vs. CIT (2000) 246 ITR 509 (All). (xv) Hon ble Madras High Court in case of CIT vs. Indian Express (Madurai) Ltd. (2001) 165 CTR (Mad) 456: (2001) 251 ITR 741 (Mad). (xvi) S.A. Builders Ltd. vs. CIT (2004) 269 ITR 535 (P&H). It was also contended that each year was separate year and claim of allowability of interest under s. 36(1)(iii) was to be looked into on basis of facts this year, therefore, it was immaterial that no such disallowance was made earlier. It was also contended that mere availability of interest-free funds was not sufficient and nexus between interest-free funds and interest-free advances/business debts was necessary to justify claim of assessee. We have considered submissions of both sides, material on record and orders of authorities below. Admittedly, assessee is share broker. assessee has also undertaken multiple share transactions on behalf of his HUF. modus operandi of assessee in relation to this account is that sale proceeds are credited and purchases made on behalf of HUF are debited in this account. In financial year 1994-95, outstanding debit balance in this account was Rs. 4.78 crores which has been reduced to Rs. 2.59 crores. From perusal of order of learned CIT(A), it is observed that CIT(A) has considered figures bearing in balance sheet as on 31st March, 1997 to arrive at conclusion that borrowed funds were utilized to purchase shares on behalf of HUF whereas figures appearing on same date in HUF account are lower of outstanding balance appearing at end of two previous financial years. learned CIT(A) has also observed that out of total sundry debtors of Rs. 293.66 lakhs, Rs. 258.77 lakhs were due from HUF alone. Whereas assessee has contended that amount outstanding in HUF account is of earlier years and same has emanated from interest-free funds owned by assessee, however, no material has been placed on record in support of this claim. It is settled judicial principle that any expenditure (including interest on borrowed funds) is allowable only when it is incurred for purposes of business. It is also settled judicial principle that res judicata is not applicable to income-tax proceedings. assessing authorities are empowered to look into claim of assessee in each year of assessment and there is no prohibition in law which debars them in doing so. Having stated so, only aspect which assessing authority is required to take into consideration in taking different view in respect of any claim is that such different view should be based upon proper analysis of facts of that particular year. Therefore, contention of assessee that no disallowance would be made in this year because no such disallowance was made earlier is rejected. assessee further contended that there was substantial reduction in outstanding amount in HUF account, but that fact by itself does not lead to any conclusion unless it is shown that amount outstanding was out of interest- free funds. It is also settled judicial proposition that assessee has to approve nexus between interest-free funds and deployment thereof and there is no presumption in law that availability of interest-free funds would be attributable to interest-free advances/business debts which yield no interest income to assessee. onus to prove claim of allowability of expenditure lies on assessee. We are also of view that it is not necessary that for considering disallowance under s. 36(1)(iii), there must always be interest- free loan and advance if assessee has employed interest-bearing funds by way of giving perpetual credit facility to closely related entity without charging any interest, then such transaction can also be looked into for purposes of allowance of interest under s. 36(1)(iii) of Act. assessee is admittedly not paid any interest to relative as specified in s. 40A(2) of Act, therefore, provisions of that section are not applicable to present case. It is observed that learned CIT(A) has confirmed order of AO based upon figures of financial year 1996-97 only. However, this account is running account continuing from earlier years, therefore, ultimate source has to be looked into. In this view of matter, we are of considered opinion that matter requires re-examination of factual position with regard to utilization of interest- free funds towards outstanding balances in HUF account to arrive at proper conclusion. Therefore, we remand back issue to file of learned CIT(A) to decide issue afresh in accordance with law and our observations given hereinabove after giving adequate opportunity of being heard to both sides. Thus, these grounds of assessee stand allowed for statistical purposes. Ground Nos. 5 to 9 are in respect of treatment of short-term capital loss and long-term capital loss as business loss. learned counsel appearing on behalf of assessee pointed out that alternative pleading was raised before learned CIT(A) which was mentioned in ground No. 10 of appeal before Tribunal wherein assessee requested for valuation of closing stock as on 31st March, 1998 at cost of market value which was lower if loss on shares sold was treated as business loss. learned counsel further contended that he was pressing only this contention and if same was accepted, then ground Nos. 5 to 9 could be treated as not pressed. learned Departmental Representative could not controvert contentions of assessee, however, he preferred to rely on orders of Revenue authorities. We have considered submissions of both sides, material on record and orders of authorities below. It is accepted accounting principle that stock- in-trade has to be valued at cost or market price, whichever is lower. Since assessee treated shares as investments, therefore, same were valued at cost. In view of acceptance shown by assessee for treating loss on share transactions as business loss as held by Revenue authorities, in our considered opinion, stock-in-trade of unsold shares should be valued at cost or market price, whichever is less. Correspondingly, opening stock of next year should also be modified. However, market value of such stock-in- trade requires verification, therefore, we restore this issue to file of AO to modify value of closing stock in terms of directions given as above. In result, ground Nos. 5 to 9 stand dismissed and ground No. 10 stands allowed for statistical purposes. In result, appeal filed by assessee stands partly allowed. *** MAYUR M. KOTHARI v. JOINT COMMISSIONER OF INCOME TAX