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2021 (8) TMI 601 - AT - Income TaxRevision u/s 263 - valuation of closing stock, non increasing of closing stock by proportionate other direct expenses & contravention of provisions of Section 40A(3) of the Act by purchasing land and cash - HELD THAT:- As specific queries were raised towards the difference in the closing stock valuation and the AO did not disturb the closing stock after making several rounds of enquiry. Pertinently, the law does not require to stretch enquiries and verification to an extent which may tantamount to oppression and harassment of a taxpayer. The assessee has offered explanation for difference in the valuation on account of apportionment towards internal road and garden etc. which represented cost of project and thus represented as an outgo which could not have been included in the closing stock. The explanation appears plausible. Assessee that similar method of valuation have been adopted in the earlier years as well as in the subsequent assessment years and there is no departure in the valuation of closing stock as certified by the statutory auditors of the company year after year as mandated in law. The tabulated statement showing comparison of closing stock year after year vouches the claim of the assessee on consistency of method of valuation and tax neutrality. In these circumstances, the action of the AO in accepting the closing stock cannot be blamed as erroneous by a two line show cause notice on the issue. The alleged under valuation of closing stock is a tax neutral exercise when seen over a longer horizon and thus, in effect, not prejudicial to the interest of the Revenue per se. Section 263 of the Act calls for existence of both the pre-requisites, namely; (i) order under revision should be erroneous as well as (ii) prejudicial to the interest of the Revenue. Both the conditions must coexist simultaneously. Also every loss of the Revenue as a consequence of an order of the AO cannot necessarily be treated as pre-judicial to the interest of the Revenue. In the instant case, the AO after examining the issue has taken a view which is plausible. This apart, the Revenue cannot be said to be prejudiced in a Revenue neutral exercise. Thus, none of the conditions required for invocation of Section 263 of the Act are fulfilled. Thus, the exercise of jurisdiction in respect of first point of the issue is not justified when tested on the touchstone of Section 263 of the Act. The findings of the CIT on this score is thus set aside and cancelled. The second limb of the show cause notice is rendered infructuous as fairly submitted on behalf of the assessee and therefore not determined. As regards the purchase of land in cash and alleged contravention of provisions of Section 40A(3) of the Act, we find merit in the case made out on behalf of the assessee. The land parcels purchased are stated to have been registered and documented. Therefore, the parties are identifiable and genuineness of transaction is established. The provisions of Section 40A(3) of the Act have been read down by the Hon'ble Jurisdictional High Court in R.P. Real Estate Pvt. Ltd. [2016 (3) TMI 1303 - CHHATTISGARH HIGH COURT] in such a situation. Hence, the action of the AO in not applying Section 40A(3) of the Act being consistent with the observations of the Hon'ble Jurisdictional High Court cannot be termed as 'erroneous' per se. Consequently, the directions of the CIT on the third limb of the show cause notice is also set aside and quashed.
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