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The High Court set aside the ITAT's order and remitted the matter back to the respondent for passing fresh orders. This was done in light of a CBDT circular accepting that disallowances under certain sections enhance profits, making Chapter VI-A deductions admissible on the enhanced profit.
The High Court held that declaring inflated stock figures to a bank for higher credit amounts to commercial immorality and cannot be countenanced in law. The Assessing Authority was justified in making the addition to taxable income based on the statement furnished to the bank.