TMI Blog2016 (8) TMI 1526X X X X Extracts X X X X X X X X Extracts X X X X ..... nging fashion and technology. If the fashion is changed old fashion may not be liked by the customers who are coming to the showroom. 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 consistency method followed by the assessee for valuing the closing stock. This Tribunal has not taken into consideration the change in fashion and technology in the textile industry. The method of valuation adopted by the assessee continuously for years together was also not brought to the notice of the Bench. When the nature of business and change of fashion were not considered, this Tribunal is of the considered opinion that the finding of the Tribunal in the case of Shri N. Viswanath [ 2015 (9) TMI 907 - ITAT CHENNAI] may not be applicable to the facts of this case. In the case of M/s Rm. K. Visvanatha Pillai Sons, this Tribunal examined the facts elaborately with regard to the nature of the business and the method of accounting followed by the assessee and found that the assessee has rightly valued the closing stock. Therefore, by following the order of this Tribunal in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 ₹ 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 claim in assessment year 2009-10 to reduce the so called purchases which were wrongly entered. When this is the position, this Tribunal is of the considered opinion that the Assessing Officer ought to have accepted the revised return filed by the assessee. In view of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of assessee s group concern, M/s Rm. K. Visvanatha Pillai Sons [ 2016 (6) TMI 1415 - ITAT CHENNAI] found that the similar expenditure is revenue in nature. Assessee appeal allowed. - I.T.A.Nos.1766, 1767 & 1768/Mds/2014, I.T.A.No.1879/Mds/2014 - - - Dated:- 5-8-2016 - SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER For The Assessee : Shri R. Vijayaraghavan, Advocate For The Department : Shri P. Radhakrishnan, JCIT ORDER PER N.R.S.GANESAN, JUDICIAL MEMBER The assessee filed appeals for assessment years 2007-08, 2008-09 and 2009-10 against the respective orders of the Commissioner of Income-tax (Appeals), Chennai. The Revenue has also filed appeal for assessment year 2009-10. Since common issue arises for consideration in all the appeals, we heard them together and disposing of the same by this common order. 2. The first common issue involved in all the assessee s appeals is with regard to valuation of closing stock. 3. Shri R. Vijayaraghavan, ld. Counsel for the assessee submitted that the assessee is engaged in the business of textiles. There was a search operation in the business premises of M/s RmKV ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by all the firms of the assessee-company group trading in different product line like silk sarees, readymade garments, suiting, shirting, matching blouses, hosieries etc. When the product range was so wide, the parameter adopted by the assessee for valuing the stock cannot be considered to be representing the realizable value. The claim of the assessee that silk sarees would fetch only Rs. 100/- at the end of the three years is not convincing. Placing reliance on the order of this Tribunal in I.T.A.Nos.1769 to 1772/Mds/2014 dated 28.8.2015 in the case of Shri N. Viswanath, the ld. DR submitted that this Tribunal found that the valuation made by the assessee is not correct. Therefore, according to the ld. DR, the CIT(A) has rightly confirmed the addition made by the Assessing Officer in all the three years. 5. We have considered the rival submissions on either side and also perused the material available on record. This Bench of the Tribunal in the case of M/s Rm.K. Visvanatha Pillai Sons (supra) has examined this issue elaborately and found that the assessee was valuing the closing stock at the cost or realizable value whichever is less regularly. If the stock was remained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years. Therefore, the assessee has to necessarily value the stock if it remains unsold for more than three years at the net realizable value or a value which could be estimated on adhoc basis. In this case, the assessee has estimated the same at Rs. 100/- or net realizable value in respect of the stocks which remains to be unsold for more than three years. The Assessing Officer has also found that it is not possible to identify the goods remained unsold in the showroom of the assessee. The fact remains that each and every product of the assessee was allotted by-number and it can be identified with reference to the by-number. Therefore, if the Revenue authorities wanted to identify the goods remained unsold for more than one year, two years or three years as the case may be, it can be verified and identified by referring to by-numbers. Hence, the Assessing Officer cannot doubt the valuation made by the assessee. This Tribunal is of the considered opinion that in view of the nature of business undertaken by the assessee and the change of fashion year by year, the goods remain unsold needs to be valued either at cost or net realizable value whichever is lower. Since the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appeals of the assessee is with regard to disallowance of contribution towards LIC gratuity fund. 10. Shri R. Vijayaraghavan, ld. Counsel for the assessee submitted tha the assessee contributed to LIC gratuity fund which was not approved by the CIT during the year under consideration. Placing reliance on the judgment of the Apex Court in the case of M/s Textool Company Ltd in Civil Appeal No.447 of 2003, dated 9.9.2009, the ld. Counsel submitted that when the money gone out of the hands of the assessee irrecoverably, the claim of the assessee has to be allowed even though the LIC gratuity fund was not approved by the CIT. Similar view was taken by this Tribunal in the case of M/s Rm. K. Visvanatha Pillai Sons (supra). 11. On the contrary, Shri P. Radhakrishnan, ld. DR submitted that the LIC gratuity fund, to which the assessee has contribution was not approved by the CIT during the year under consideration. For the purpose of allowing the claim of the assessee, the assessee has to necessarily obtain the approval of the CIT. Since the CIT has not granted approved during the year under consideration, the CIT(A) has rightly confirmed the disallowance made by the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on on the addition to plant and machinery. The assessee claimed before the Assessing Officer that plant and machinery to the extent of Rs. 40,29,712/- was added. Air Conditioner to the extent of Rs. 3,93,356/- was also added to the existing block of asset. Electrical equipment to the extent of Rs. 13,406/- was also included in the block of asset during the year under consideration. The Assessing Officer disallowed the claim of the assessee @ 7.5% on the addition of Rs. 44,36,474/-. When the assessee filed the details of the plant and machinery, this Tribunal is of the considered opinion that there is no reason for disallowing the claim of depreciation. It is not in dispute that the plant and machinery, air conditioner, electrical equipment are eligible for depreciation. The assessee claimed depreciation only @ 7.5%. The rate of depreciation claimed by the assessee is not in dispute. In those circumstances, disallowing the claim of the assessee is not justified. Accordingly, the orders of the lower authorities are set aside and the addition made by the Assessing Officer for assessment year 2008-09 to the extent of Rs. 3,32,736/- and Rs. 4,10,373/- for assessment year 2009-10 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he books of account and the return originally filed. The assessee now claims that the invoices towards purchases to the extent of Rs. 1,11,30,290/- were received in the subsequent assessment year and it was recorded for the assessment year 2009-10. Since the entry was made in assessment year 2009-10, the same was not entered in assessment year 2008-09 initially. Therefore, it is obvious that there was an omission to record the purchases during the year under consideration even though physically goods were received by the assessee. This Tribunal is of the considered opinion that when the assessee has purchased the goods and received the same during the year under consideration, the same ought to have been entered in the books of account during the year under consideration. Realizing the mistake, the assessee has filed a revised return including the purchases of Rs. 1,11,30,290/-. The CIT(A) rejected the assessee s plea on the basis of the reduction in gross profit rate. When the assessee has entered the purchases in the books of account and placed material evidence for receipt of goods physically, this Tribunal is of the considered opinion that the Assessing Officer is not justifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lease commitment charges of Hindu Religious Charitable Endowment Department (HR CE). The same was disallowed by the Assessing Officer on the ground that it is a donation. According to the ld. Counsel, the payment was made to various temples as directed by the HR CE for the purpose of obtaining a land adjacent to the business premises of the assessee. The ld. Counsel further submitted that the vacant land adjacent to the assessee s premises was taken on lease by the assessee for using the same as car park. If the land was not taken on lease, the assessee s business would have affected very badly, therefore, the acquisition of lease holding right over the land was for the business interest of the assessee. Merely because the payment was shown as donation in the books of account, according to the ld. Counsel, the same cannot be disallowed. The ld. Counsel submitted that similar issue was decided by this Tribunal in the case of M/s Rm. K. Visvanatha Pillai Sons (supra) and the addition made by the Assessing Officer was deleted. Therefore, the said order may be followed in the present case also. 25. On the contrary, Shri P. Radhakrishnan, ld. DR submitted that the assessee has ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal has decided the issue by observing as under: 43. We have considered the rival submissions on either side and also perused the material available on record. It is not in dispute that the land in question belongs to various temples which are under the control of HR CE. After death of the original tenants, one Shri K. Mahesh, who is the partner of the assessee-firm obtained lease of the abovesiad agricultural lands. However, HR CE has challenged the correctness of the lease deed executed by the legal heirs of the erstwhile tenants. From the material available on recrd, it appears that the assessee approached HR CE again and on payment of donation to various temples, the HR CE agreed to give the land on lease to the assessee-firm. HR CE by an order dated 31.5.2008 directed Shri K. Mahesh, partner of the assessee-firm, to pay donation to various temples. Accordingly, donations were paid from the account of the assessee-firm and after receiving donation by the respective temples, the Executive Officer executed the lease deed in favour of Shri K. Mahesh. Therefore, it is obvious that the assessee-firm made the payments in the form of donation as per the direction of HR CE for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the Assessing Officer that the advantage of assigning by-numbers to each and every product is to identify the journey of the goods from the date of purchase till it was finally sold. Therefore, the inventory prepared by the search party suffers from various infirmities. The discrepancy pointed out by the Assessing Officer is not correct. The ld. Counsel further submitted that the assessee requested the copy of the inventory taken by the Revenue authorities before passing the assessment order. However, this was not provided to the assessee and without giving any opportunity, the Assessing Officer passed the assessment order. 31. On the contrary, Shri P. Radhakrishanan , ld. DR submitted that during the course of search operation, the Revenue authorities took physical inventory of the stock found in the business premises at Chennai and Tirunelveli. The inventory was compared with the books of account and found variance in the inventory as per the books of account and physical inventory taken by the Revenue authorities. The Managing Partner, Shri Shiva Kumar was also examined during the course of search operation. He admitted that there was an error in the valuation of some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee in a detailed manner and an opportunity shall be given to the assessee to explain how the method works. However, without considering all these factors, the Assessing Officer simply came to the conclusion that there was a discrepancy. This Tribunal is of the considered opinion that the discrepancy was due to stocks remain unsold for more than one year and the assessee valued the same at the net realizable value or cost whichever is less, therefore, the CIT(A) is not justified in confirming the addition made by the Assessing Officer. Accordingly, the orders of the lower authorities are set aside and the Assessing Officer is directed to delete the addition. 33. Now, coming to Revenue s appeal I.T.A.No.1879/Mds/2014 for assessment year 2009-10, the only issue arises for consideration is disallowance of Rs. 1,15,73,736/- towards renovation of the building. 34. Shri P. Radhakrishnan, ld. DR submitted that the assessee claimed expenditure incurred in the building taken on lease. According to the ld. DR, the expenditure incurred by the assessee in renovation/repair of the building has to be capitalized and the assessee at the best is entitled for depreciation. Referri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y considered by this Tribunal in the assessee s own case for assessment year 2002-03 when the assessee challenged the order of the Administrative Commissioner u/s 263 of the Act. This Tribunal found that the similar expenditure can be allowed as revenue in nature. Since the Coordinate Bench has already opined that the expenditure is revenue expenditure and merely because the Revenue s appeal against the order of this Tribunal is pending before the High Court, this Bench cannot take a different view. Moreover, the Kerala High Court in the case of Joy Alukkas India Pvt. Ltd vs ACIT, 282 CTR 551, had an occasion to consider an identical issue. In the case before the Kerala High Court the assessee took a premises on lease and incurred expenditure for renovation. The object of the assessee was to establish a showroom in the course of its business activity. The Kerala High Court, after considering the relevant case laws on the subject, found that the similar expenditure is revenue in nature. In view of the above, this Tribunal do not find any reason to interfere with the order of the lower authority. Accordingly, the same is confirmed. 37. Similar view was also taken in the case of M ..... X X X X Extracts X X X X X X X X Extracts X X X X
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