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2021 (6) TMI 980 - AT - Income TaxDisallowance of claim of shortage of inventory - assessee explained before the A.O. that the shortage of inventory has been found when the physical inventory of apparels & accessories was verified by the auditors with the book stock in various show rooms/warehouses located all over India - HELD THAT:- As noticed there are shortages as well as excess stocks and the net amount of difference resulted in shortage of stock - We notice from the report that the physical inventory has been taken in all stores and warehouses and the difference between physical stock and book stock has been noticed meticulously in respect of each item of apparel and the accessory. Thus, it is not a single case of theft, as presumed by the AO, which may warrant filing of FIR. The shortage noticed is as low as ₹ 68/-. CIT(A) has also appreciated that the retail trade is prone to such pilferages, shoplifting etc., resulting in such kind of shortages of stock - we are of the view that there is no reason to suspect the claim of the assessee. Accordingly, we are of the view that there is no reason to restrict the disallowance to 50% as done by Ld. CIT(A). In our view, in the facts and circumstances of the case and also considering the detailed report of shortages of stock, the entire claim of the assessee should have been allowed as deduction. Accordingly, we set aside the order passed by Ld. CIT(A) and direct the A.O. to delete the disallowance relating to shortage of inventory. Disallowance of expenditure relating to exceptional items - HELD THAT:- As we notice that the assessee has not furnished explanation/details before the A.O. and the ld. CIT(A) has also not admitted the explanations furnished by the assessee, meaning thereby, no tax authority has examined the details relating to the claim. Hence, in the interest of natural justice, we are of the view that the assessee should be provided with one more opportunity to properly explain its case. Accordingly, we set aside the order passed by ld. CIT(A) on this issue and restore the same to the file of the A.O. for examining it afresh by duly considering the information and explanations that may be furnished by the assessee. After affording adequate opportunity of being heard, the A.O. may take appropriate decision in accordance with law. Disallowance of franchisee fees - CIT-A deleted the addition - HELD THAT:- As decided in own case [2020 (9) TMI 1190 - TMI BANGALORE] that when the payment made by the assessee to a company was in the nature of license fees which constitute an item of allowable expenditure in the computation of profit and gains and it cannot be a capital expenditure. In our opinion, the findings and reasons given by the CIT(Appeals) to allow the claim of the expenses in regard to franchisee on the Agreement entered by the assessee is a revenue expenditure and it cannot be construed as a capital expenditure. Hence the appeal of revenue is dismissed.
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