Tribunal held that exempt income is not only from the equity shares kept as stock-in-trade but also from interest received on bonds. The same has been invested in compliance of the Reserve Bank of India (RBI) Rules. But once exempt income is earned, then interest for corresponding borrowing would be liable for disallowance. Thus, the assessee is required to demonstrate not only investment in shares had been out of interest free funds but investment in Bonds was also made out interest free own funds. Accordingly  the matter restored to the file of AO for deciding a fresh.   Tribunal also held that the assessee was at liberty to value its stock at cost or market value, whichever was lower in accordance with the consistent method of accounting and such reduction if any, in value of the shares held as stock-in-trade would be allowed. But if such a provision is made outside the trading account (only in computation of income) it may not be allowable. In the facts of the case, it was not clear whether the provision for diminution in the value of stock-in-trade had been made out of the trading account or within the trading account. Therefore, the issue was remitted to the Assessing Officer for verifying the facts from the books of account and other records of the assessee and decide the issue afresh in accordance with law.( AY.2012-13)