TMI Blog2016 (6) TMI 1229X X X X Extracts X X X X X X X X Extracts X X X X ..... diture - Held that:- As rightly contended by the Ld.counsel for the assessee, the HR&CE Department intervened and they directed the assessee to pay donation to various temples. In fact, the donations were paid to various temples as directed by HR&CE Department. Subsequently, the HR&CE Department directed the Executive Officers of the respective temples to execute lease deed in favour of the assessee. Therefore, it is obvious that the assessee paid money to the legal heirs of the erstwhile tenants of HR&CE Department and obtained registered sale deed. To regularize the lease deed, the assessee in fact paid another sum of ₹ 1 Crore to various temples as donation. This Tribunal is of the considered opinion that the payment of donation has to be necessarily treated as revenue in nature. Moreover, the land in question cannot be used for any other purpose other than the business. The assessee cannot put up any permanent structure over the land. In those circumstances, this Tribunal is of the considered opinion that the donation given to various tenants as per the direction of HR&CE Department has to be treated as revenue in nature in the hands of the assessee-firm. This Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 874/Mds/2014 - - - Dated:- 1-6-2016 - N. R. S. Ganesan (Judicial Member) And A. Mohan Alankamony (Accountant Member) For the Assessee : R. Vijayaraghavan, Advocate For the Revenue : Pathlavath Peerya, CIT ORDER N. R. S. Ganesan (Judicial Member) The assessee s appeals for assessment years 2007-08, 2008-09 2009-10 and the Revenue s appeal for the assessment year 2009-10 are directed against the respective orders of the Commissioner of Income Tax (Appeals), Central-I, Chennai. Since common issue arises for consideration in all these appeals, we heard these appeals together and disposing of the same by this common order. 2. The first common issue arises for consideration is with regard to valuation of closing stock. 3. Sh. R. Vijayaraghavan, the Ld.counsel for the assessee, submitted that the assessee is valuing the closing stock at cost or realizable value, whichever is less, when the substantial portion of the old stock was lying as on 31st March of relevant assessment year. After examining the market condition and the quality of the old stock, the assessee estimates the realizable value on the market in respect of the old stock. The estimation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of time in the business cannot be just brushed aside by the Assessing Officer and determine value of closing stock. According to the Ld. counsel, unless the stocks were sold within four years period, the realizable value would be very less than the cost price. Therefore, in order to avoid pilferage, the old stocks were valued at a price of ₹ 100/-. The Ld.counsel further submitted that the assessee is the right person to value the material remains unsold during the end of the financial year. Therefore, the Assessing Officer cannot just ignore the valuation made by the assessee based upon the experience in the business. 5. On the contrary, Sh. Pathlavath Peerya, the Ld. Departmental Representative, submitted that there was search in the premises of the assessee on 17.02.2009. During the course of search operation, the closing stock valued as per the books of account as on 17.02.2009 was ₹ 20,15,05,458/-. However, the physical inventory for stock was found to be less as compared to the stock as per books of account to the extent of ₹ 1,27,64,281/- for the assessment year 2009-10. The managing partner Shri Shiva Kumar was examined by the Assessing Officer. He ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hey are in the retail business of textiles and readymade dress. Over a period of time, the technology and fashion are changing and the model of the dress material is also fast changing. If the assessee could not sell the product within 2-3 years, then in the fourth year there cannot be any value for the products at all. The assessee claimed before the authorities that in the second year, the value of the property was taken at 50% of stock and in third year, it was taken at 25% of stock. The assessee also explained before the Assessing Officer that they are valuing regularly cost or market value, which is less, as per the method approved by the law. From the material available on record, it appears that the assessee has categorized the stock into various categories, such as slow moving item, non-moving item, etc. The percentage of provision made at 25%, 50% and 100% on notional basis was adopted by the assessee for the purpose of valuing the closing stock. From the orders of the authorities below it appears that silk sarees constitute major segment. At the end of the third year, if the silk sarees could not be sold, the same was valued at ₹ 100/- being the realizable market va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, no such material is available on record. Therefore, this Tribunal is of the considered opinion that the Assessing Officer cannot doubt the value made by the assessee. The CIT(Appeals) has confirmed the order of the Assessing Officer on the ground that the assessee agreed for difference on closing stock valuation at the time of search and post search proceeding. However, by a letter dated 10.08.2009, the assessee explained before the Assessing Officer that there was an error in the physical inventory of stocks taken by the Revenue authorities. The assessee specifically claimed that specific bynumbers inventorised as part of year end stock was not included in the inventory taken on the date of search. The stock which was lying unsold with specific by-numbers was also not included in the stock taken on the date of search. So, the assessee s claim before the authorities below that the stocks lying unsold on the date of search was not taken into consideration by the Revenue authorities. In fact, the Assessing Officer has observed as follows at page 16 of his order:- .There is no inventory of individual break up of physical stock identified with reference to by-numbers made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of the landed property agreed for transfer of tenancy in favour of the assessee, the Hindu Religious and Charitable Endowment Department intervened claiming that the tenants have no right to transfer the tenancy right in favour of the assessee. The Ld.counsel further submitted that the HR CE Department further clarified that the assessee has to pay donation to the extent of ₹ 1 Crore to various temples for taking the property on lease. Having left with no other way, for the purpose of business of the assessee, the assessee has paid a sum of ₹ 1 Crore for acquiring the lease holding right over the property. According to the Ld. counsel, the assessee, in fact, paid the amount as directed by the HR CE Department for acquiring the tenancy right. Accordingly, the lease holding right was transferred in favour of the assessee by lease agreements dated 09.06.2008. 10. The Ld.counsel for the assessee further submitted that the amount paid to various temples in the form of donation was on the direction of HR CE Department for acquiring the lease holding right over the landed property. According to the Ld. counsel, the assessee is not acquiring any title over the property. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed document dated 04.07.2007. According to the Ld. counsel, in fact, the lease holding right was transferred in favour of Shri K. Mahesh. After getting respective deeds from the legal heirs of the tenants, the said Shri Mahesh also negotiated with HR CE Department in order to regularize the lease and consent to make donation to various temples. According to the Ld. D.R., the lease rentals are to be paid in advance to temples. According to the Ld. D.R., the lease was obtained only by Shri Mahesh, partner of the assessee-firm and not by the assessee-firm itself. Therefore, the payment made by the assessee as donation to various temples cannot be allowed as business expenditure. Moreover, the tenancy right over the immovable property has to be construed as immovable property acquired by the assessee. Even if it is paid for acquisition of lease right over the immovable property, that has to be necessarily treated as capital in nature. Therefore, according to the Ld. D.R., the CIT(Appeals) has rightly confirmed the addition made by the Assessing Officer treating the payment made by the assessee as capital in nature. 12. We have considered the rival submissions on either side and peru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... racted at page 13 of the impugned order of the CIT(Appeals). One of the conditions is that the assessee should not sub-lease the land and assessee should use the land only for business. It is also a condition that no permanent structure could be erected. Even the temporary structure was to be erected only with approval. From the above, it is obvious that the assessee cannot use the land other than parking area for customers. The assessee cannot construct any permanent structure on the land. At the best, the assessee can make temporary structure after obtaining necessary approval from HR CE Department. The assessee has already paid the respective amounts to the legal heirs of the erstwhile tenants. The dispute is with regard to sum of ₹ 1 Crore paid to the temples as donation. This Tribunal is of the considered opinion that the payment of ₹ 1 Crore as donation to various temples, as directed by the HR CE Department, is only to regularize the lease obtained from respective legal heirs of erstwhile tenants of HR CE Department. This payment of ₹ 1 Crore to various temples as donation is not for acquiring any interest over the immovable property. As it is clear from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tock, namely, cost or market price whichever is less, the Assessing Officer cannot value the closing stock at cost price. The fashion and design are changing very fast in textile industry. Therefore, if the assessee cannot sell the product in the shop within two years, the same cannot be sold at cost price. The assessee has to necessarily clear the stock by giving discount. When the very old stock are available, the same cannot be sold even after three years. The Ld.counsel further submitted that the entire stock could be identified by by-numbers given by the assessee. The Assessing Officer, even though claims that an inventory was taken at the time of search, he confesses in the assessment order that it is not possible to verify the items with specific by-numbers. According to the Ld. counsel, the difference was due to valuation of stock remain unsold for two/three years on the net realizable value estimated by the assessee. Therefore, the Assessing Officer has no justification for making any addition. 16. On the contrary, Sh. Pathlavath Peerya, the Ld. Departmental Representative, submitted that the value of inventory, during the course of search operation, was taken at ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de as deficient stock. The Revenue claims that this difference in the stock could have arisen due to sale of goods outside the books of account. However, the assessee claims that these are items with specific identification numbers and it was not taken for the closing stock valuation by the Revenue authorities during the course of search operation. The assessee has given all the details of stock with specific identification numbers. It is not in dispute that the assessee is having specific identification/by-numbers to identify each and every item which was exhibited for sale in the show room. The Assessing Officer himself claims in the remand report that due to various factors, the list given by the assessee could not be verified. It is not the case of the Revenue that the details given by the assessee could not be verified because of any deficiency or negligence on the part of the assessee. The other factors, which prevented the Assessing Officer to go through the details given by the assessee, cannot be a reason for making any addition. This Tribunal is of the considered opinion that the assessee s claim that certain inventories, which are identified with by-numbers, could not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e claim of the assessee. 22. We have considered the rival submissions on either side and perused the relevant material available on record. It is not in dispute that the assessee took the building on lease and incurred expenditure on temporary wooden structure, false ceiling, flooring, painting, etc. The assessee claimed the same as revenue expenditure. The CIT(Appeals) by placing reliance on the order of this Tribunal in the assessee's own case for assessment year 2003- 04 and the judgment of Madras High Court in Hari Vignesh Motors Pvt. Ltd. (supra), allowed the claim of the assessee. The only contention of the Revenue now before this Tribunal is that in view of Explanation 1 to Section 32 of the Act, the expenditure has to be capitalized and the assessee is entitled for depreciation. 23. We have carefully gone through the nature of expenditure incurred by the assessee. It is not in dispute that the assessee incurred the expenditure for interior decoration, temporary wooden partition, flooring, etc. An identical issue was examined by the Kerala High Court in Joyallukas India Pvt. Ltd. v. ACIT (2016) 282 CTR 0551. The Kerala High Court found that the expenditure incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X
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