TMI Blog2021 (6) TMI 980X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the revenue first. The only issue urged by the revenue relates to the deletion of disallowance of franchisee fee. The assessee claimed a sum of ₹ 2,50,42,421/- under the head Franchisee fees . The assessee submitted that it is dealing with garments of various brand and accordingly obtained exclusive franchisee rights from them. It was submitted that the franchisee fees is paid as a percentage of sales turnover of the relevant branded merchandise sold by the assessee, as per the relevant agreement entered with them. It was also submitted that these brand holders have not transferred any business or commercial rights with enduring benefits to the assessee. Accordingly, it was submitted that the expenses claimed by the assessee is revenue in nature and deductible. The A.O did not agree with the contentions of the assessee and accordingly disallowed the above said amount. 6. The Ld. CIT(A) observed that the franchisers have not transferred any rights in the trade market or any other I.P. to the assessee. Further, he noticed that the assessee has neither obtained any new asset nor acquired any right, which are freely transferable. He also noticed that the usage of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are in the nature of day to day operations of the assessee's business. Being so, the CIT(Appeals) justified in allowing the expenditure as revenue expenditure. This position is fortified with the decision in the case of Jonas Woodhead Sons Ltd. Vs.CIT 224 ITR 342 wherein it has been held that - The Courts have applied different tests like starting of a new business on the basis of technical know-how received from the foreign firm, exclusive right of the company to use the patent or trademark which it receives from the foreign firm, the payments made by the company to the foreign firm whether a definite one or dependent upon certain contingencies, right to use the technical know-how of production or the activity even after the completion of the agreement, obtaining enduring benefit for a considerable part on account of the technical information received from a foreign firm, payment whether made once for all or in different instalments co-relatable to the percentage of gross turnover of the product to ultimately find out whether the expenditure or payment thus made makes an accretion to the capital asset and after the Court comes to the conclusion that it does so t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses 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. 9. We notice that the view expressed by Ld CIT(A) is consistent with the view taken by the coordinate bench in AT 2008-09. Accordingly, we do not find any infirmity in the decision rendered by Ld. CIT(A) on this issue. 10. In the cross objection, the assessee is supporting the decision rendered by Ld. CIT(A) on this issue. Since we have upheld the view taken by Ld. CIT(A) on this issue, the cross objection filed by the assessee shall become infructuous. 11. We shall now take up the appeal filed by the assessee. The first issue relates to disallowance of ₹ 1,15,83,476/- relating to claim of shortage of inventory. The 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. It was noticed that there was shortage of inventory in many items and there was excess inventory in some of the it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e entire report of the shortages store-wise, apparel-wise, accessories-wise have been furnished to the A.O. and the same is placed from page nos.307 to 765 of the paper book. Accordingly, he submitted that the A.O. was not correct in mentioning that the assessee has not furnished the details. The Ld. A.R. invited our attention to the above said pages to buttress his point that stock taking has been done meticulously and the shortages/excess stock has been noticed in respect of each item of apparel/accessories. 15. We also notice from the report that there are shortages as well as excess stocks and the net amount of difference resulted in shortage of stock, which was valued at ₹ 115.83 lakhs. 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/-. The Ld CIT(A) has also appreciated that the retail trade is prone to such pilferages, shoplifting etc., r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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