TMI Blog2019 (5) TMI 635X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmissioner of Income Tax ( CIT ) decided to exercise the jurisdiction under Section 263 of the Act and issued a show cause notice ( SCN ) dated 30th January, 2004 to the Assessee. The issues on which the SCN was issued were as follows: (i) Allocations of expenses under Section 14A for the exempt dividend under section 10(33) of the Act. (ii) Allowability of payments under Section 43B. (iii) Undervaluation of closing stock. (iv) Bad debts written off. (v) The nexus of the borrowed funds and payments of interest thereon with the money advanced as loan. (vi) Commission on sales. 6. By the impugned order dated 23rd March, 2004, the CIT held the assessment made by the AO to be not erroneous and, therefore, not requiring revision in respect of the following issues: (a) Allowing of the payments under Section 43-B of the Act; and (b) Bad debts written off. 7. However, in respect of the following issues, the CIT held the order of the AO to be erroneous and prejudicial to the interests of the Revenue: (i) Exemption under Section 10 (33) in respect of dividend and inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per the whims and fancies of the authorities, the CIT could not have formed an opinion whether certain investment could be termed as bad . The Assessee s act of declaration of interest income of ₹ 12.94 crore on monies advanced to Hexa Securities could therefore not said to be prejudicial to the interest of the Revenue. The submission of the Assessee that all loans were earmarked and could not be utilized for investment or giving loans, was accepted. The ITAT also accepted the plea of the Assessee that it had interest free funds of ₹ 209.74 crore, which would take care of the investment in shares to the extent of ₹ 67.22 crore, and interest free lending of funds at lower rates. 12. As regards the issue under Section 43-B of the Act, it was noted that CIT himself had clearly stated that the assessment order in this regard could not be said to be erroneous or prejudicial, as was the case of bad debts. 13. The ITAT then dealt with the issue of valuation of closing stocks and noticed that the Assessee had made changes in the method of valuation consistent with the accounting standards prescribed by the ICAI. Therefore, no prejudice was caused t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... although the Assessee maintained that it used such borrowings for other business purposes also and investment to the extent of ₹ 67.22 crore was utilized out of such borrowed funds. 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 under Section 14-A of the Act. 17. Having heard the learned counsel for the parties and having examined the record carefully, this Court is not persuaded to come to a conclusion different from the one reached by the ITAT, which purely turned on facts. Indeed the CIT appears to have proceeded on surmises that the investment in shares was out of borrowed funds of the Assessee when plainly it w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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