Tribunal overturns disallowance of interest, deems reassessment invalid, and allows assessee's appeal.

The Tribunal allowed the Revenue's Miscellaneous Application, recalling its order dismissing the appeal due to low tax effect. Reassessment proceedings initiated based on audit objections were deemed invalid, leading to their quashing. Disallowance of interest on borrowed funds was overturned, as advances to sister concerns were found to be on commercial grounds. Ultimately, the Revenue's appeal was dismissed, and the assessee's appeal was allowed.

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Issues Involved:
1. Recall of Tribunal's order dismissing the Revenue's appeal due to low tax effect.
2. Validity of reassessment proceedings initiated based on audit objections.
3. Disallowance of interest on borrowed funds due to interest-free advances to sister concerns.

Summary:

1. Recall of Tribunal's Order:
The Revenue filed a Miscellaneous Application to recall the Tribunal's order in ITA No.265/Hyd/2013, which dismissed the Revenue's appeal due to low tax effect. The Revenue argued that the case falls under the exceptional category as per section 10(C) of CBDT Circular No.03/2018 dt.11.07.2018 because the reopening was based on audit objections. The Tribunal acknowledged the mistake and recalled its order, fixing the appeal for hearing immediately. The Miscellaneous Application filed by the Revenue was allowed.

2. Validity of Reassessment Proceedings:
The reassessment was initiated by the Assessing Officer based on audit objections, which claimed that the assessee had advanced interest-free loans to a sister concern while paying interest on borrowed funds. The Tribunal noted that reassessment proceedings based on audit objections are not valid. Citing Supreme Court and High Court decisions, the Tribunal held that the opinion of the internal audit party does not constitute "information" under section 147 of the Act. Consequently, the reassessment proceedings were quashed.

3. Disallowance of Interest on Borrowed Funds:
The Assessing Officer disallowed Rs.66,95,640/- as interest on borrowed funds because the assessee had advanced interest-free loans to its sister concern. The CIT(A) deleted the addition, citing judgments from the Supreme Court and Delhi High Court, which held that advances to sister concerns on commercial expediency are allowable. The Tribunal upheld the CIT(A)'s decision, noting that the advances were made on commercial grounds and there was no diversion of funds.

Conclusion:
The Tribunal allowed the Miscellaneous Application filed by the Revenue, quashed the reassessment proceedings initiated based on audit objections, and upheld the CIT(A)'s deletion of the disallowed interest. Consequently, the appeal filed by the Revenue was dismissed, and the appeal filed by the assessee was allowed.

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