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TMI Blog2016 (8) TMI 1526X X X X Extracts X X X X X X X X Extracts X X X X ..... & Sons u/s 132 of the Act on 18.2.2009. Several incriminating material pertaining to the assessee was found and seized. The ld. Counsel further submitted that the assessee valued the closing stock at the cost or market/realizable value whichever is less. This method was followed regularly. The assessee in fact, valuing the closing stock which could not be sold for years together either at 25% or 50% of the cost. This being the market/realizable value. The ld. Counsel further submitted that before the date of search, the assessee has filed the return of income on the basis of the audit report. Since the return was filed on the basis of the audit report, the same cannot be so lightly rejected unless there is a contrary material available on record. In the absence of any material to suggest that the valuation made by the assessee is not correct, according to the ld. Counsel, the Assessing Officer is not justified in disallowing the claim of the assessee. Depending upon the goods remain unsold, the assessee estimated the realizable value as market value on the basis of its experience in the business. This cannot be doubted by the Assessing Officer. The ld. Counsel further submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mained unsold for one year, the assessee estimated the realizable value at 25% of the cost and the if the same was remained unsold for two years, the asse estimated the realizable value at 50% of the cost. In case the stock remained unsold for more than three years, the assessee estimated the same at Rs. 100/- or the net realizable value whichever is less. It is not in dispute that the assessee is engaged in the business of readymade garments and textiles. Admittedly, fashion in textile is changing day by day in the textile industry and the assessee is required to keep the stock in tune with the changing fashion and technology. If the fashion is changed old fashion may not be liked by the customers who are coming to the showroom. In fact, this Tribunal has observed as follows in the case of M/s Rm. K.Visvanatha Pillai & Sons (supra): "10. We have considered the rival submissions on either side and also perused the material available on record. The assessee admittedly engaged in the retail business of textile at Chennai and Tirunelveli. The assessee is valuing the closing stock depending upon the stock which remains unsold. The case of the assessee is that if the stock remai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Since the assessee has taken the net realizable value for valuing the closing stock, the Assessing Officer is not justified in making the addition. It is also not in dispute that the assessee has offered for taxation the difference between the actual sale price and the net realizable value estimated by the assessee for valuation of closing stock. Therefore, the Revenue cannot have any grievance on the method of valuation adopted by the assessee. In view of the above, we are unable to uphold the orders of the lower authorities and accordingly, the same are set aside. The Assessing Officer is directed to delete the disallowance to the extent of Rs. 1,23,66,170/- for assessment year 2007-08, Rs. 2,36,95,104/- for assessment year 2008-09 and Rs. 1,88,75,698/- for assessment year 2009-10." 6. This Tribunal has deleted similar addition made by the Assessing Officer towards valuation of closing stock. 7. We have gone through the decision of another Bench of this Tribunal in the case of Shri N. Viswanath (supra). This Tribunal disbelieved the claim of the assessee on the ground that the reduction of value method was not followed year by year. This Tribunal found that there is no consis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer. 12. We have considered the rival submissions on either side and also perused the material available on record. The contribution was made to gratuity fund of LIC. It is not in dispute that the amount paid cannot be got back by the assessee. In other words, the money has gone out of the hands irrecoverably. Therefore, as held by the Apex Court in the case of Textool Company Ltd.(supra), the claim made by the assessee is allowable since admittedly, the payment was made by the assessee. Therefore, the orders of the lower authorities are set aside and the addition made by the Assessing Officer to the extent of Rs. 3,08,477/- for assessment year 2007-08, Rs. 1,35,136/- for assessment year 2008-09 and Rs. 2,28,948/- for assessment year 2009-10 is deleted. 13. The next common issue of assessee's appeals for assessment years 2008-09 and 2009-10 is with regard to disallowance of depreciation on additions to fixed assets. 14. Shri R. Vijayaraghavan, ld. Counsel for the assessee submitted that during the year under consideration the assessee claimed depreciation on the addition to fixed assets. For assessment year 2008-09, the total addition as per depreciation table ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 373/- for assessment year 2009-10 is deleted. 17. In the assessee's appeal for assessment year 2008-09, the next issue is with regard to addition of Rs. 1,11,30,290/- on account of purchases included in closing stock but not accounted. 18. Shri R. Vijayaraghavan, ld. Counsel for the assessee submitted that the purchases made during the year were received by the assessee and the same were also taken into consideration for valuation of closing stock on the basis of physical verification of the stocks. However, the assessee has not received the original invoices from the vendors. Therefore, the same was not accounted in the purchase account as on 31.3.2008. After receipt of invoices from the vendors, the same were accounted in the subsequent year. When the assessee came to know this defect, a revised return was filed immediately including the entire purchases made in the assessment year 2008-09. Consequently, the purchases accounted for assessment year 2009-10 were also reduced. The Assessing Officer rejected the claim of the assessee for both the assessment years. According to the ld. Counsel, when the assessee physically received the goods in assessment year 2008-09 and rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the considered opinion that the Assessing Officer is not justified in rejecting the claim of the assessee on the basis of the gross profit ratio. Gross profit cannot be a fixed figure for every year. The gross profit may vary depending upon various circumstances. When the assessee was maintaining books of account, this Tribunal is of the considered opinion that the gross profit reflected in the books of account has to be taken into consideration. If the gross profit goes down after considering the purchases to the extent of Rs. 1,11,30,290/-, this Tribunal is of the considered opinion that merely because the gross profit gone down, that cannot be a reason for making the addition. It is normal practice in textile business that the goods will be dispatched immediately on placing orders and the invoices will be set subsequently. When the assessee received the invoices subsequently, the same ought to have been entered in the books of account during the year under consideration. Unfortunately, that was not done. However, after realizing the mistake, the assessee has recorded the same in the books of account and filed a revised return. Consequently, the assessee has also made a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25. On the contrary, Shri P. Radhakrishnan, ld. DR submitted that the assessee has made claim by way of lease commitment charges to the extent of Rs. 1 crore in the name of seven temples. According to the ld. DR, the Assessing Officer, after verification of the books of account, fund that the assessee has paid Rs. 20 lakhs to M/s Arulmigu Parasakthi Educational Society, Kutralam, as donation. The assessee clarified before the Assessing Officer that the payment of lease commitment charges was as per the direction of the HR&CE. The assessee also clarified that originally the payments were made by the assessee-firm. The assessee has also clarified before the Assessing Officer that the payment was made for the purpose of getting the lease of the land adjacent to the assessee's showroom at Tirunelveli, therefore, the lease commitment charges are for business purposes. Referring to the assessment order the ld. DR pointed out 69.2 cents of land belongs to various temples and it was under the cultivation of one Shri Gopal. On the demise of Shri Gopal, his legal heirs transferred the tenancy rights over the land in favour of Shri K. Mahesh, who is the partner of the assessee-f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assessee-firm made the payments in the form of donation as per the direction of HR&CE for obtaining the lease hold lands. Even though initially the lease deed was executed by Shri K. Mahesh and the legal heirs of the erstwhile tenants, the lease was subsequently taken from the temples directly consequent to the order of the HR&CE Department. Therefore, this Tribunal is of the considered opinion that the lease commitment charges which was disclosed as donation in the books of account is for the purpose of obtaining lease holding interest of the land in question. Since the donation was made as per the direction of HR&CE for the purpose of obtaining lease of the land for business purpose, this Tribunal is of the considered opinion that the payment is revenue in nature. Therefore, the orders of the lower authorities are set aside and the Assessing Officer is directed to delete the addition made towards lease commitment charges to the extent of Rs. 14,58,362/-. 28. In view of the above order of this Tribunal, the entire amount of Rs. 20,00,000/- and the donation of Rs. 6,00,366/- has to be allowed as revenue expenditure. Accordingly, the orders of the lower au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examined during the course of search operation. He admitted that there was an error in the valuation of some of the products. Therefore, the deficient stock found during the course of search operation was treated as unaccounted sales outside the books of account. The investment made by the assessee for purchasing the stock sold outside the books was treated as unexplained investment in the stock. Therefore, the Assessing Officer made addition of Rs. 21,05,178/- towards unrecorded sales and Rs. 39,43,833/- as unexplained investment. 32. We have considered the rival submissions on either side and also perused the material available on record. From the order of the CIT(A) it appears that the CIT(A) called for the remand report from the Assessing Officer. Further, it appears that the assessee requested for the copies of the details of the physical inventory taken by the search party for verification and reconciliation. This was apparently not provided to the assessee. It is not in dispute that stock of the assessee can be identified by unique number provided. Therefore, when the assessee purchases an item from the date of purchase till the date of sale, it can be tracked through the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the building has to be capitalized and the assessee at the best is entitled for depreciation. Referring to Explanation 1 sec. 32 of the Act, the ld. DR submitted that the assessee at the best can claim depreciation and definitely it cannot be allowed as revenue expenditure. Therefore, the CIT(A) is not justified in allowing the claim of the assessee. 35. On the contrary, Shri R. Vijayaraghavan, ld. Counsel for the assessee submitted that the assessee has taken the building on lease for the purpose of establishing a new showroom. The assessee incurred expenditure in interior decoration, flooring and other miscellaneous work. The expenditure incurred by the assessee was claimed as revenue expenditure. The CIT(A) by placing reliance on the order of this Tribunal in I.T.A.No.1460 & 2164/Mds/2007 in assessee's own case for assessment year 2003-04, allowed the claim of the assessee. The CIT(A) has also placed his reliance on the judgment of the Madras High Curt in Hari Vignesh Motors Pvt. Ltd, 282 ITR 338. The ld. Counsel submitted that similar issue came up before this Tribunal in the case of assessee's group concerns, M/s Rm.K. Visvanatha Pillai & Sons(supra) and M/s Rm. K.V. Textiles ..... X X X X Extracts X X X X X X X X Extracts X X X X
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