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2019 (5) TMI 635 - HC - Income TaxRevision by CIT u/s 263 - issue on revision directed are disallowance u/s 14A ; undervaluation of the closing stocks; interest on borrowed funds w.r.to interest free loan to its sister concerns; and commission on sales - CIT also directed that AO is free to examine any other issues which have not been covered in this order except those issues which have already been considered and decided by the CIT (A) - The ITAT held that it was incumbent upon the CIT to have shown as to how the assessment order was prejudicial to the interest of the Revenue and this had to be done on the basis of an assessment of the material on objective criteria and quashed the revision - HELD THAT:- Disallowance under Section 14A - A substantial portion of the borrowings stood repaid in the preceding year out of internal accruals. The question that had to be answered was whether the Assessee had made any investment out of the borrowed funds in the AY in question i.e. 2000-01. On this specific aspect, the ITAT found that there is merit in the Assessee’s contention that “all its present borrowings” were for ‘earmarked purposes’ and “none of them was for investment in shares”. The ITAT also followed the rule of consistency after noticing that in the previous years and in the immediate succeeding AY 2001-02, no disallowance was made u/s 14A. Disallowance of interest expenditure - The ITAT importantly found that the AO did examine this issue. By a letter dated 14th January, 2003, he had called for the relevant information from the Assessee and the Assessee had filed such information with the AO. The secured loans were indeed earmarked and could not be utilized for making investments or advancing further loans. Further, the Assessee had its own interest free funds of ₹ 209.74 crore which could easily take care of the investment in the shares of ₹ 67.22 crore, apart from lending funds at lower rates to the subsidiaries. In the circumstances, the Court concurs with the view expressed by the ITAT that this issue did not require to be revisited u/s 263 Valuation of stock - The ITAT found that approach of the CIT and that its conclusion that there was an error in valuation of closing stock was neither correct nor justified. Point No.8 of Schedule 22 of the Assessee’s balance sheet contained the disclosure in this regard and this change was consistent with the accounting standards prescribed by the ICAI. On this aspect also, the view taken by the ITAT appears to be justified and does not call for interference. Commission on sales - ITAT found that it had to be inquired into by the AO. He had obtained a written explanation on non reduction of TDS on commission payment to non-resident parties. The ITAT found nothing unusual about the commission payment. Importantly, this was not a case where the AO had not made any inquiry. For all of the aforementioned reasons, the Court finds that the impugned order of the ITAT suffers from no legal infirmities, requiring any interference - decided in favour of the Assessee
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