Best Choice, CHENNAI V. DCIT, CHENNAI

ITA 1099/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7927 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2017
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 22-04-2016
• Court: TRIBUNAL
• Department Lawyers: PATHLAVATH PEERYA
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure
• Section: 32; 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , ! ' . #$ , % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ ITA NO. 1093/MDS/2016 / ASSESSMENT YEAR : 2010-11 M/S. VISWAMS, 176F, TRIVANDRUM ROAD, TIRUNELVELI-627 003. PAN AADFV5601A ( /APPELLANT) V. THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-I(1), CHENNAI. ( /RESPONDENT) ./ ITA NO. 1094/MDS/2016 / ASSESSMENT YEAR : 2010-11 M/S. AREMKAY, 176F, TRIVANDRUM ROAD, TIRUNELVELI-627 003. PAN AAHFA9459J ( /APPELLANT) V. THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-I(1), CHENNAI. ( /RESPONDENT) ./ ITA NO. 1095/MDS/2016 / ASSESSMENT YEAR : 2010-11 M/S. RM.K.V.TEXTILES, THE DEPUTY COMMISSIONER OF 176F, TRIVANDRUM ROAD, V. INCOME-TAX, TIRUNELVELI-627 003. CENTRAL CIRCLE-1(1), PAN AABFR1308P CHENNAI. ( /APPELLANT) ( /RESPONDENT) - - ITA 1093 TO 1099/M/16 & 1451/M/16 2 ./ITA NO. 1096/MDS/2016 /ASSESSMENT YEAR : 2010-11 SHRI K.V.NELLAIYAPPAN, PROP: RMKV ENTERPRISES, 176F, TRIVANDRUM ROAD, TIRUNELVELI 627 003. PAN AAJPN8275H ( /APPELLANT) V. THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-I(1), CHENNAI. ( /RESPONDENT) ./ITA NOS. 1097 & 1098/MDS/2016 /ASSESSMENT YEARS : 2010-11 & 2011-12 M/S. RM K.VISWANATHA PILLAI & SONS, 176F, TRIVANDRUM ROAD, TIRUNELVELI-627 003. PAN AABFR1307C ( /APPELLANT) V. THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-I(1), CHENNAI. ( /RESPONDENT) ./ITA NO. 1451/MDS/2016 /ASSESSMENT YEAR : 2011-12 THE DEPUTY COMMISSIONER OF INCOME-TAX, C.C. (1)(1), CHENNAI. ( /APPELLANT) V. M/S. RM K.VISWANATHA PILLAI & SONS, TIRUNELVELI. ( /RESPONDENT) AND ./ITA NO. 1099/MDS/2016 /ASSESSMENT YEAR : 2010-11 M/S. BEST CHOICE, 176F, TRIVANDRUM ROAD, TIRUNELVELI-627 003. PAN AAHFB7067M ( /APPELLANT) V. THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-IV(1), CHENNAI. ( /RESPONDENT) ASSESSEES BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE DEPARTMENT BY : SHRI PATHLAVATH PEERYA, CIT - - ITA 1093 TO 1099/M/16 & 1451/M/16 3 / DATE OF HEARING : 10.11.2016 / DATE OF PRONOUNCEMENT: 08.02.2017 ( / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THESE APPEALS BY DIFFERENT ASSESSES AND BY THE REVENUE ARE DIRECTED AGAINST DIFFERENT ORDERS OF TH E COMMISSIONER OF INCOME-TAX(APPEALS) FOR THE ASSESSM ENT YEARS 2010-11 AND 2011-12. SINCE, THE ISSUES INVOLVED IN THESE APPEALS ARE COMMON, THEY ARE CLUBBED TOGETHER, HEAR D TOGETHER AND DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE FIRST COMMON GROUND IN ALL THE ASSESSES APP EAL IS WITH REGARD TO ADDITION WITH REFERENCE TO VALUATION OF CLOSING STOCK. 3. THE FACTS OF THE CASE AS NARRATED IN ITA NO.1097/MDS/2016 FOR THE A.Y. 2010-11 ARE THAT THE ASSESSEE IS VALUING THE CLOSING STOCK SUBJECT TO A PROVISION AN D COMMENCING FROM THE ACCOUNTING YEAR ENDED 31.3.2006 RELEVANT T O THE A.Y. 2006-07, THERE HAS BEEN A CHANGE IN THE METHOD OF V ALUATION OF - - ITA 1093 TO 1099/M/16 & 1451/M/16 4 CLOSING STOCK. THE STOCK SHOWN AT COST AS PER BOOK S WAS SUBJECT TO A PROVISION WHICH WAS CALCULATED AT A FIXED PERC ENTAGE ON THE STOCK AS PER THE FINANCIAL ACCOUNTS. THROUGH THE P ROVES OF AGEING, THE STOCK WAS IDENTIFIED WITH THE RELEVANT YEAR OF PURCHASE AND PROVISION WAS MADE AT INCREASING PERCE NTAGES DEPENDING UPON THE YEAR OF PURCHASE. 3.1 THE METHOD OF VALUATION ADOPTED FOR VALUING THE STOCK IS AS UNDER : PARTICULARS PROVISION PERCENTAGE AY 09-10 PROVISION PERCENTAGE AY 08-09 PROVISION PERCENTAGE AY 07-08 PROVISION PERCENTAGE AY 06-07 PROVISION FOR UNSOLD STOCK OUT OF PURCHASES OF CURRENT YEAR (YO) NIL NIL NIL NIL PROVISION FOR UNSOLD STOCK OUT OF PURCHASES OF ONE YEAR BEFORE CURRENT YEAR (Y1) 25% 50% 25% 50% PROVISION FOR UNSOLD STOCK OUT OF PURCHASES OF TWO YEARS BEFORE CURRENT YEAR (Y 2) 50% 50% 50% 50% PROVISION FOR UNSOLD STOCK OUT OF PURCHASES OF THREE YEARS BEFORE CURRENT (Y 3) ACTUAL COST OR 100 WHICH- EVER IS LOWER ACTUAL COST OR 100 WHICH- EVER IS LOWER ACTUAL COST OR 100 WHICH- EVER IS LOWER ACTUAL COST OR 100 WHICH- EVER IS LOWER 3.2 IT IS OBSERVED FROM THE PROVISION MADE AS ABOVE THAT THE PROVISION MADE BY THE ASSESSEE IS VARIED FROM YEAR TO YEAR. DURING THE COURSE OF ASSESSMENT PROCEEDINGS OF A.Y. 2010-11, - - ITA 1093 TO 1099/M/16 & 1451/M/16 5 THE ASSESSEE WAS ASKED TO FURNISH THE BASIS AND THE DETAILS OF PROVIDES MADE, AS IN THE LAST YEAR AS UNDER : TO JUSTIFY AS TO HOW THE STOCKS WERE IDENTIFIED AS EITHER AS SLOW MOVING OR NON-MOVING TO JUSTIFY THAT THE PROVISION MADE WHICH IS AT A F IXED PERCENTAGE WOULD REFLECT THE REALIZABLE VALUE OF TH E GOODS UNSOLD TO JUSTIFY THAT THE PROVISION MADE IS NOT EXCESSIV E TO SUBSTANTIATE THAT THE ASSESSEE HAS NOT RESORTED TO POSTPONING THE TAX LIABILITY THROUGH THE PROCESS OF ADHOC PROVISION. 3.3 THE PROVISION MADE WAS JUSTIFIED ON THE GROUND THAT THROUGH THE PROCESS OF AGEING, THE STOCKS WERE IDEN TIFIED TO THE YEAR OF PURCHASE AND THEY WERE AS EITHER SLOW MOVIN G OR NON- MOVING AND THE VALUATION WAS DONE BY EFFECTING RED UCTION ON THE BASIS OF FIXED PERCENTAGES AS POINTED ABOVE. ON TH E BASIS OF THE SAMPLE DATA, THE PROVISION MADE WAS JUSTIFIED BY SH OWING THE ACTUAL SALE PRICE WHEN SUCH GOODS WERE SOLD IN THE SUBSEQUENT YEARS AT LOSS. HOWEVER, THE PROVISION MADE WAS DIS ALLOWED BY THE ASSESSING OFFICER FOLLOWING THE EARLIER ORDER F OR THE ASSESSMENT YEAR 2009-10. AGAINST THIS, THE ASSESS EE WENT IN APPEAL BEFORE THE CIT(APPEALS), WHO DISMISSED THE A PPEAL OF THE - - ITA 1093 TO 1099/M/16 & 1451/M/16 6 ASSESSEE FOLLOWING THE EARLIER ORDER OF THE TRIBUNA L IN ITA NOS. 1769 TO 1772/MDS/2014, ITA NOS.1872 & 1873/MDS/201 4, ITA NOS.1773 TO 1776/MDS/2014, ITA NOS.1875 & 1876/MDS /2014, ITA NOS.1777 TO 1780/MDS/2014 AND ITA NOS.1877 & 1878/MDS/2014 DATED 28.8.2015 IN ASSESSEES OWN GRO UP AND REPRODUCED THE RELEVANT PORTION OF THE TRIBUNAL ORD ER, WHICH READS AS UNDER : WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE HAS VALUED THE UNSOLD STOCK BY DISCOUNTING PURCHASE PRICE AT FIXED PERCENTAGE CONSIDERING THE AGE OF THE STOCK. HOWEVER, THIS METHOD OF REDUCTION IS NOT FOLLOWING YEAR BY YEAR. FOR EXAMPLE, AS SEEN FROM THE ABOVE TABLE, IN THE ASSESSMENT YEAR 2009-10, THE ASSESSEE ADOPTED THE REDUCTION OF VALUE OF PURCHASE PRICE AT 25%, WHEN THE STOCK IS ONE YEAR OLD. HOWEVER, FOR THE ASSESSMENT YEAR 2008-09, IT WAS 50%, FOR THE ASSESSMENT YEAR 2007-08 AGAIN 25% AND FOR THE ASSESSMENT YEAR 2006-07, THE SAME WAS 50%. THERE IS NO EXPLANATION FOR SUCH KIND OF ARBITRARY REDUCTION OF EITHER 25% OR 50%. THERE IS NO CONSISTENCY IN THE METHOD FOLLOWED BY THE ASSESSEE FOR VALUING THE CLOSING STOCK. THE CLOSING STOCK IS TO BE VALUED AT MARKET PRICE OR COST WHICHEVER IS LESS AND THAT SHOULD BE CONSISTENT FROM YEAR TO YEAR. T HE ASSESSEE IS NOT DISPUTED THAT IT HAS BEEN FOLLOWED THE SAME METHOD. HOWEVER, CONSEQUENT TO SEARCH ACTION, THE ASSESSEE WANTED TO CHANGE THE METHOD OF STOCK VALUATION FOR THE FIRST TIME, WHICH IS NOTHIN G BUT AN AFTER-THOUGHT SO AS TO REDUCE THE INCOME WHICH CANNOT BE PERMITTED AT THIS POINT OF TIME. - - ITA 1093 TO 1099/M/16 & 1451/M/16 7 ACCORDINGLY, THIS GROUND IN ALL THESE APPEALS IS REJECTED. AGGRIEVED, THE ASSESSEES ARE IN APPEALS BEFORE US. 4. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD. ADMITTEDLY, THIS ISSUE WAS CONSIDERED A ND DECIDED AGAINST THE ASSESSEE, IN ITA NOS.1773 TO 1776/MDS/2 014 IN THE CASE OF M/S. AREMKAY AND ADDITION MADE BY THE ASSES SING OFFICER ON THIS ISSUE WAS SUSTAINED. ACCORDINGLY, THIS ISSUE IS DECIDED AGAINST THE ASSESSEE AND IN FAVOUR OF THE R EVENUE IN ALL THESE APPEALS. 4.1 HOWEVER, THE LD. AR, SUBMITTED THAT THIS ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL I N ITA NOS. 1781 TO 1783/MDS/14 VIDE ITS ORDER DATED 1.6.2016, IN THE CASE OF M/S. RMKV TEXTILES. THIS ORDER WAS DELIVERED B Y THE TRIBUNAL WITHOUT TAKING NOTE OF THE EARLIER ORDER OF THE TRI BUNAL IN ITA NOS.1773 TO 1776MDS/14 DATED 28.8.2015. AS SUCH, W E ARE DECLINED TO COMMENT ANYTHING ON THE RELIANCE PLACED BY THE LD. AR. ACCORDINGLY, THIS GROUND OF APPEALS BY THE ASS ESSEE IS DISMISSED. - - ITA 1093 TO 1099/M/16 & 1451/M/16 8 5. NEXT GROUND COMMON GROUND IN ALL THE ASSESSES A PPEAL IS WITH REGARD TO DISALLOWANCE OF PAYMENT OF DONATI ON. 6. THE FACTS OF THE CASE AS NARRATED ON THIS ISSUE IN ITA NO.1097/MDS/2016 FOR THE A.Y. 2010-11 ARE THAT THE MEMO OF INCOME SHOWS THAT THE ASSESSEE ADDED BACK 1,80,050/- BY WAY OF DONATION DEBITED TO THE PROFIT AND LOSS ACCO UNT. WHILE VERIFYING THE BOOKS OF ACCOUNTS, THE ASSESSING OFFI CER OBSERVED THAT OUT OF THE TOTAL DONATION OF 5,23,230/- PAID BY THE RMKV GROUP CONCERNS, AN AMOUNT OF 2,98,765/- IS DEBITED IN THE ASSESSEES BOOKS, WHICH IS AS UNDER : DONATION CHENNAI 2,41,133/- TIRUNELVELI 57,632/- TOTAL 2,98,765/- HOWEVER, THE ASSESSEE HAS ADDED BACK ONLY 14,500/- AND THE BALANCE AMOUNT OF 1,41,313/- IS DISALLOWED BY THE AO. AGGRIEVED, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(APPEALS), WHO CONFIRMED THE FINDING OF THE AO. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. - - ITA 1093 TO 1099/M/16 & 1451/M/16 9 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. IT IS TO BE NOTED THAT ANY EXPENDITUR E INCURRED TO EARN THE INCOME IS ALLOWABLE, BUT THE ASSESSEE STAT ES THAT IT IS UNAVOIDABLE EXPENSES TO CARRY OUT BUSINESS. IF THE ASSESSEES WANT TO DO ANY CHARITY IT IS THEIR WISH TO DO SO AN D CANNOT BE TREATED AS EXPENDITURE IN THE COURSE OF BUSINESS, A S THERE IS NO BUSINESS EXIGENCY ESTABLISHED AND ALSO THESE CANNOT BE TREATED EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AS SPECIFIED IN SEC.37(1) OF THE ACT. MANY TIMES THES E DONATIONS ARE MADE SO AS TO MAINTAIN SOCIAL STATUS RATHER THA N BUSINESS NECESSITY. THEREFORE, WE ARE OF THE OPINION THAT T HE LOWER AUTHORITIES ARE JUSTIFIED IN DISMISSING THIS GROUND OF APPEAL. 8. NEXT COMMON GROUND RAISED BY THE ASSESSEE IN ITA NOS.1097 & 1098/MDS/2016 FOR THE AYS 2010-11 AND 2 011-12 IS WITH REGARD TO DISALLOWANCE OF CLAIM OF EXPENDITURE RELATING TO REPAIRS. 9. THE FACTS OF THE CASE AS IN ASSESSMENT YEAR 2010 -11 ARE THAT DURING THE YEAR, THE ASSESSEE HAS CLAIMED EXPE NDITURE BY WAY OF REPAIRS TO MACHINERY, BUILDING AND OTHER REP AIRS. IN THIS - - ITA 1093 TO 1099/M/16 & 1451/M/16 10 CONNECTION, THE ASSESSEE WAS ASKED TO FURNISH DETAI LED BREAK-UP AND THE CORRESPONDING BILLS IN RESPECT OF EXPENDITU RE EXCEEDING 1 LAKH. FROM THE BREAK-UP FURNISHED, THE AO OBSER VED THAT SOME OF THE EXPENDITURE ARE DIRECTLY INCURRED BY TH E ASSESSEE AND MAJOR AMOUNTS ARE INCURRED BY THE FLAG-SHIP FIR M M/S. RMKV ET SONS, WHICH ARE IN-TURN ALLOCATED TO THE GROUP C ONCERNS BASED ON FLOOR SPACE OCCUPIED IN THE CHENNAI AND TIRUNELV ELI COMPLEX. AS CALLED FOR, THE ASSESSEE PRODUCED BILLS/INVOICE S IN CONNECTION WITH REPAIRS. HOWEVER, THE AO OBSERVED THAT THE AS SESSEE COULD NOT PRODUCE THE NECESSARY BILLS IN RESPECT OF THE F OLLOWING ITEMS : SL. NO. NAME OF THE PARTY AMOUNT INCURRED BY RMKV ET SONS ( ) AMOUNT INCURRED DIRECTLY ( ) TIRUNELVE LI 1. RAJESH ELECTRONICS 3,41,871 2. SMART INTERIOR PVT. LTD. 22,55,725 3. E-JEEVA PAINTER 58,00,096 4. SRI HARITA GLASS ET PLYWOODS 4,50,727 5. SELVAN SOUNDS 11,98,880 TOTAL 1,00,47,299 CHENNAI 1. RMKV COMPUTASK PVT. LTD. 9,00,000 2. JAPAN MANNEQUIN COMPANY 3,16,463 3. OHO PRODUCTIONS 4,73,000 TOTAL 16,89,463 9.1 THE ASSESSEE REQUESTED FOR SOME MORE TIME TO PR ODUCE THE BILLS SAYING THAT SINCE THE BILLS RELATING TO T IRUNELVELI COMPLEX ARE NOT MAINTAINED IN CHENNAI AND THE SAME HAVE TO BE RECEIVED - - ITA 1093 TO 1099/M/16 & 1451/M/16 11 FROM TIRUNELVELI AND ALSO THAT SINCE THE CHENNAI ST AFF ARE ENGAGED IN STOCK TAKING AT PRESENT, IT IS TAKING MO RE TIME TO LOCATE THE BILLS. HOWEVER, THE AO COULD NOT GRANT FURTHER TIME, AT THIS STAGE, THE SAME ARE DISALLOWED AS IT COULD NOT BE VERIFIED AS TO WHETHER THE EXPENDITURE INCURRED IS REVENUE OR C APITAL IN NATURE. THE TOTAL DISALLOWANCE WORKS OUT TO 1,17,36,762/- AND IT IS PROPORTIONALLY ALLOCATED TO DIFFERENT CONCERN S AS BELOW : CHENNAI COMPLEX S.NO. NAME OF THE ENTITY FLOOR SPACE OCCUPIED (IN SQ.FT.) % AGE EXPENDITURE APPORTIONED 1 M/S. RMKV & SONS 14500 41.67% 7,03,999 TIRUNELVELI COMPLEX S.NO. NAME OF THE ENTITY FLOOR SPACE OCCUPIED (IN SQ.FT.) % AGE EXPENDITURE APPORTIONED 1 M/S. RMKV & SONS 19620 21.43% 21,53,136 THEREFORE, IN THE ABSENCE OF BILLS, THE AO DISALLOW ED AN AMOUNT OF 28,56,685/-. AGGRIEVED, THE ASSESSEE WENT IN APPE AL BEFORE THE CIT(APPEALS). 10. ON APPEAL, THE CIT(APPEALS) OBSERVED THAT THE A SSESSEE IS A LEADING TEXTILE TRADER IN TAMILNADU HAVING SHO PS AT VARIOUS PLACES. DURING THE YEAR UNDER APPEAL, THE ASSESSEE HAS CLAIMED - - ITA 1093 TO 1099/M/16 & 1451/M/16 12 EXPENDITURE BY WAY OF REPAIRS ON MACHINERY, BUILDIN G AND OTHER REPAIRS. FURTHER, THE CIT(APPEALS) OBSERVED THAT S OME OF THE REPAIRS ARE DIRECTLY INCURRED BY EACH ENTITY OF THI S GROUP AND MOST OF THE REPAIRS ARE INCURRED BY FLAGSHIP FIRM R.M.K. V. & SONS, WHICH ARE IN TURN ALLOCATED TO THE GROUP CONCERNS B ASED ON THE FLOOR SPACE OCCUPIED IN CHENNAI, TIRUNELVELI. IN THE COURSE OF APPELLATE PROCEEDINGS, THE ASSESSEE FILED FRESH EVI DENCE IN THE FORM OF BILLS FOR THE FOLLOWING ITEMS: SL. NO. NAME OF THE PARTY AMOUNT INCURRED BY RMKV ET SONS ( ) AMOUNT INCURRED DIRECTLY ( ) TIRUNELVE LI 1. RAJESH ELECTRICALS 3,41,871 - 2. SMART INTERIOR PVT. LTD. 22,55,725 - 3. E-JEEVA PAINTER 58,00,096 - 4. SRI HARITA GLASS ET PLYWOODS 4,50,727 - 5. SELVAN SOUNDS 11,98,880 - TOTAL 1,00,47,299 CHENNAI 1. RMKV COMPUTASK PVT. LTD. 9,00,000 2. JAPAN MANNEQUIN COMPANY 3,16,463 3. OHO PRODUCTIONS 4,73,000 TOTAL 16,89,463 10.1 AFTER CALLING FOR THE REMAND REPORT, THE CIT(A PPEALS) ALLOWED THE EXPENDITURE WHICH ARE SUPPORTED BY THE BILLS AND VOUCHERS AND DISALLOWED THE PART OF THE EXPENDITURE WHICH ARE NOT SUPPORTED BY THE BILLS AND VOUCHERS. AGAINST T HIS, THE ASSESSEE IS IN APPEAL BEFORE US. - - ITA 1093 TO 1099/M/16 & 1451/M/16 13 11. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MA TERIAL ON RECORD. AT THE TIME OF HEARING, THE LD.AR PLEAD ED THAT AN OPPORTUNITY MAY BE GIVEN TO THE ASSESSEE TO PRODUCE THE BILLS AND VOUCHERS. ACCORDINGLY, WE REMIT THIS ISSUE TO THE FILE OF THE AO FOR FRESH CONSIDERATION. 12. THE ASSESSEE HAS RAISED THE FOLLOWING ADDITIONA L GROUNDS 1. THE EXPENDITURE OF 1,90,69,018/- INCURRED ON THE LEASE HOLD PROPERTY AT COIMBATORE DURING THE PERIOD ENDED 31.03.2010 IS RIGHTLY ALLOWABLE AS REVENUE EXPENDITURE IN THIS ASSESSMENT YEAR, AS CONCLUDED B Y THE ASSESSING OFFICER HIMSELF IN HIS ORDER FOR THE ASSESSMENT YEAR 2011-12. 2. THE EXPENDITURE OF 2,66,52,936/- INCURRED IN THE LEASE HOLD PROPERTY AT TIRUNELVELI, DURING THE PERI OD ENDED 31.03.2010 IS RIGHTLY ALLOWABLE AS REVENUE EXPENDITURE IN THIS ASSESSMENT YEAR, AS CONCLUDED B Y THE ASSESSING OFFICER IN THE ASSESSMENT FOR THE ASSESSMENT YEAR 2011-12. 13. THE ASSESSEE FILED PETITION FOR ADDITIONAL GRO UND STATING THAT DUE TO INADVERTENCE, THE ASSESSEE FAILED TO FI LE THIS ADDITIONAL GROUND WHILE FILING THE APPEAL AND PLACE D RELIANCE ON THE JUDGMENT OF DELHI HIGH COURT IN THE CASE OF M .K. YASHWANT SINGH (231 ITR 145)[DEL] AND THE JUDGMENT OF THE SU PREME - - ITA 1093 TO 1099/M/16 & 1451/M/16 14 COURT IN THE CASE OF NATIONAL THERMAL, POWER CO. LT D. [229 ITR 383] (SC) AND PRAYED THAT THESE ADDITIONAL GROUNDS TO BE ADMITTED AND TO BE DECIDED ON MERITS. 14. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN OUR OPINION, THE ISSUE RELATING TO A DDITIONAL GROUND, IS PURELY A LEGAL ISSUE, WHICH GOES TO THE ROOT OF THE MATTER AND THE ISSUE IS ALREADY COVERED BY THE EARLIER ORDER O F THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.1875/MDS/14 FOR THE AY 2008- 09, WHEREIN THE TRIBUNAL HELD IN PARA 22 & 23 AS FO LLOWS: 22. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIAL ON RECORD. SIMILAR ISSUE WAS CONSIDERED BY THE TRI BUNAL IN ITA NO.1384/MDS/13 DATED 29.5.2016, WHEREIN THE TRIBUNA L HAS HELD AS FOLLOWS : 7. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. IN THE PRESENT CASE, THE ASSESSEE HAS TAKEN THE BUILDI NG ON LEASEHOLD ON WHICH THE ASSESSEE CARRIED ON INTERIOR WORK AND CLAIMED AS REVENUE EXPENDITURE. THE SAME WAS REJECTED BY THE CIT(A). THE LD. DR CONTENDED THAT T HE ASSESSEE MADE NEW ADDITION THE LEASED BUILDING AND IT IS NOT THE CASE OF RENOVATION OF THE LEASED BUILDING O R IMPROVEMENT OF THE LEASED BUILDING AS IN THE CASE O F JOY ALUKKAS PVT. LTD., CITED SUPRA AS HELD BY THE KERAL A HIGH COURT. FOR SETTLING THE CONTROVERSY, WE HAVE TO GO THROUGH THE EXPLANATION 1 TO SEC. 32(1) OF THE ACT WHICH WA S INSERTED BY THE TAXATION LAWS (AMENDMENT AND MISCELLANEOUS PROVISIONS) ACT, 1986 WITH EFFECT FROM 1.4.1988 WHI CH DEALS WITH THE SITUATION WHERE THE EXPENDITURE HAS BEEN I NCURRED BY THE ASSESSEE ON CONSTRUCTION OF ANY STRUCTURE ON - - ITA 1093 TO 1099/M/16 & 1451/M/16 15 LEASEHOLD PREMISES. THE EXPLANATION 1 IS REPRODUCED HEREWITH BELOW: EXPLANATION 1. WHERE THE BUSINESS OR PROFESSION IS CARRIED ON IN A BUILDING NOT OWNED BY HIM BUT IN RESPECT OF WHICH THE ASSESSEE HOLDS A LEASE OR OTHER RIGHT OF OCCUPANCY AND ANY CAPITAL EXPENDITURE IS INCURRED BY THE ASSESSEE FOR THE PURPOSES OF BUSINESS OR PROFESSION ON THE CONSTRUCT ION OF ANY STRUCTURE OR DOING OF ANY WORK IN OR IN RELATIO N TO, AND BY WAY OF RENOVATION OR EXTENSION OF IMPROVEMENT TO, B UILDING THEN, THE PROVISIONS OF THIS CLAUSE SHALL APPLY AS IF THE SAID STRUCTURE OR WORK IS A BUILDING OWNED BY THE ASSESS EE. 8. TO FALL WITHIN THE AMBIT OF EXPLANATION 1 QUES TIONS WHICH ARE TO BE ANSWERED ARE: (I) WHETHER THE ASSESSEE IS CARRYING ON BUSINESS OR PROFESSION IN A LEASED BUILDING OR OTHE R RIGHTS OF OCCUPANCY? (II) WHETHER THE ASSESSEE HAS INCURRED ANY CAPITAL EXPENDITURE FOR THE PURPOSE OF BUSINESS ON THE CONSTRUCTION OF ANY STRUCTURE OR DOING OF ANY WORK IN OR IN RELATION TO AND BY WAY OF RENOVATION OR EXTENSIO N OR IMPROVEMENT IN THE BUILDING. 9. IF THE ANSWER TO THE AFOREMENTIONED QUESTION S IS IN AFFIRMATIVE, THE ASSESSEE FALLS WITHIN THE PURVIEW OF EXPLANATION 1 TO SEC. 32(1). IN THE INSTANT CASE, I T IS AN ADMITTED FACT THAT THE ASSESSEE HAS TAKEN BUILDING ON LEASE FOR SETTING UP OF BAKERY. IT IS ALSO UNDISPUTED THA T THE ASSESSEE HAS CARRIED ON INTERIOR WORK IN THE LEASED BUILDING. THESE INTERIOR DECORATION WORKS CARRIED OUT BY THE ASSESSEE IF PUT ON TO THE TEST OF EXPLANATION 1 WOULD SHOW THAT THE CONSTRUCTION MADE BY THE ASSESSEE ON THE LEASED OUT PREMISES WOULD AMOUNT TO CAPITAL EXPENDITURE. THE ASSESSEE IN ORDER TO SUPPORT HIS CASE HAS RELIED ON THE JUDGMENT OF THE MADRAS HIGH COURT IN THE CASE OF T VS LEAN LOGISTICS LTD. (SUPRA). IN THE SAID CASE, THE ASSES SEE HAD - - ITA 1093 TO 1099/M/16 & 1451/M/16 16 CONSTRUCTED A BUILDING ON THE LEASED LAND FOR THE B USINESS ADVANTAGE. THE COURT HELD THAT THE ENTIRE COST OF CONSTRUCTION IS ADMISSIBLE AS REVENUE EXPENDITURE. EXPLANATION 1 CATEGORICALLY STATES THAT THE BUSINES S OR PROFESSION IS CARRIED ON IN A LEASED BUILDING AND N OT ON LAND. THE HIGH COURT IN PARA 4.4 OF THE JUDGMENT FURTHER HELD AS UNDER:- 4.4 WHAT CONSTITUTES A CAPITAL EXPENDITURE AND WHA T DOES NOT, TO ATTRACT EXPLN. 1 TO SECTION 32(1) OF T HE ACT DEPENDS UPON THE CONSTRUCTION OF ANY STRUCTURE OR DOING ANY WORK OR IN RELATION TO AND BY WAY OF RENOVATION, EXTENSION OR IMPROVEMENT TO THE BUILDIN G WHICH IS PUT UP IN A BUILDING TAKEN ON LEASE BY HIM FOR CARRYING ON HIS BUSINESS AND PROFESSION OF THE ASSESSEE, BUT NOT IN A CASE OF CONSTRUCTION OF ANY STRUCTURE OR DOING ANY WORK OR RELATION TO WHERE SUCH BUILDING IS PUT UP/CONSTRUCTED FOR THE PURPOSE OF BUSINESS OR THE PROFESSION OF THE ASSESSEE IN A LAND TAKEN ON LEASE BY THE ASSESSEE. 10. THUS IT IS CLEAR THAT THE RATIO LAID DOWN B Y THE MADRAS HIGH COURT IN THE SAID JUDGMENT DOES NOT SUPPORT TH E CASE OF THE ASSESSEE. 11. IN THE PRESENT CASE, THE ASSESSEE HAS TAKEN BUILDING ON LEASE AND MADE CERTAIN INTERIOR DECORATION. IT I S THE CASE THAT THE ASSESSE HAS BEAUTIFIED THE LEASED BUILDING . THE HIGH COURT HAS FURTHER HELD IN THE AFORESAID CASE T HAT THE LANGUAGE EMPLOYED IN A STATUTE IS THE DETERMINATIVE FACTOR OF THE LEGISLATIVE INTENT AND EVEN ASSUMING THERE IS A DEFECT OR ANY OMISSION IN THE WORDS USED IN THE LEGISLATURE, THE COURT CANNOT CORRECT OR MAKE UP THE DEFICIENCY, ESPECIALL Y WHEN A LITERAL READING THEREOF PRODUCES AN INTELLIGIBLE RE SULT AN ANY DEPARTURE FROM THE LITERAL RULE WOULD REALLY BE AME NDING THE LAW IN THE GARB OF INTERPRETATION, WHICH IS NOT PER MISSIBLE AND WHICH WOULD BE DESTRUCTIVE OF JUDICIAL DISCIPLINE. 12. THE SUPREME COURT OF INDIA IN THE CASE OF MADRAS - - ITA 1093 TO 1099/M/16 & 1451/M/16 17 AUTO SERVICE (P) LTD., 233 ITR 468 WHILE DEALING WI TH A SIMILAR CONTROVERSY HAS OBSERVED AS UNDER: 5 IN ORDER TO DECIDE WHETHER THIS EXPENDITURE IS REVENUE EXPENDITURE OR CAPITAL EXPENDITURE, ONE HAS TO LOOK AT THE EXPENDITURE FROM A COMMERCIAL POINT OF VIEW. WHAT ADVANTAGE DID THE ASSESSEE GET BY CONSTRUCTING A BUILDING WHICH BELONGED TO SOMEBODY ELSE AND SPENDING MONEY FOR SUCH RECONSTRUCTION? THE ASSESSEE GOT A LONG LEASE OF A NEWLY CONSTRUCTE D BUILDING SUITABLE TO ITS OWN BUSINESS AT A VERY CONCESSIONAL RENT. THE EXPENDITURE THEREFORE, WAS MADE IN ORDER TO SECURE A LONG LEASE OF NEW AND MOR E SUITABLE BUSINESS PREMISES AT A LOWER RENT. IN OTHE R WORDS, THE ASSESSEE MADE SUBSTANTIAL SAVINGS IN IN MONTHLY RENT FOR A PERIOD OF 39 YEARS BY EXPENDING THESE AMOUNTS. THE SAVING IN EXPENDITURE WAS A SAVING IN REVENUE EXPENDITURE IN THE FORM OF RENT. WHATEVER SUBSTITUTES FOR REVENUE EXPENDITURE SHOULD NORMALLY BE CONSIDERED AS REVENUE EXPENDITURE. MOREOVER, ASSESSEE IN THE PRESENT CASE DID NOT GET ANY CAPITAL ASSET BY SPENDING THE SAID AMOUNTS. THE ASSESSEE THEREFORE COULD NOT HAVE CLAIMED ANY DEPRECIATION. LOOKING TO THE NATURE OF THE ADVANTAG E WHICH THE ASSESSEE OBTAINED IN A COMMERCIAL SENSE, THE EXPENDITURE APPEARS TO BE REVENUE EXPENDITURE. 13. THEREAFTER, THE APEX COURT REFERRING TO SEVER AL CASES DECIDED HELD AS UNDER: 11.ALL THESE CASES HAVE LOOKED UPON EXPENDITURE WHICH DID BRING ABOUT SOME KIND OF AN ENDURING BENEFIT TO THE COMPANY AS A REVENUE EXPENDITURE WHEN THE EXPENDITURE DID NOT BRING INTO EXISTENCE ANY CAPITAL ASSET FOR THE COMPANY. THE ASSET WHICH WAS CREATED BELONGED TO SOMEBODY ELSE AND THE COMPANY DERIVED AN ENDURING BUSINESS ADVANTAGE BY EXPENDING THE AMOUNT. IN ALL THESE CASES, THE EXPENSES HAVE BEEN LOOKED UPON AS HAVING BEEN - - ITA 1093 TO 1099/M/16 & 1451/M/16 18 MADE FOR THE PURPOSE OF CONDUCTING THE BUSINESS OF THE ASSESSEE MORE PROFITABLY OR MORE SUCCESSFULLY. IN THE PRESENT CASE ALSO SINCE THE ASSET CREATED BY SPENDING THE SAID AMOUNTS DID NOT BELONG TO THE ASSESSEE BUT THE ASSESSEE GOT THE BUSINESS ADVANTAGE OF USING MODERN PREMISES AT A LOW RENT, THUS SAVING CONSIDERABLE REVENUE EXPENDITURE FOR THE NEXT 39 YEARS, BOTH THE TRIBUNAL AS WELL AS THE HIGH COURT HAVE RIGHTLY COME TO THE CONCLUSION THAT THE EXPENDITURE SHOULD BE LOOKED UPON AS REVENUE EXPENDITURE. 14. FROM THE ABOVE JUDGMENT, WE CAN CONCLUDE THAT IT IS ESSENTIAL THAT THE EXPENDITURE INCURRED ON THE CONS TRUCTION OF ANY STRUCTURE ON THE LEASED PREMISES SHOULD RESULT IN ENDURING BENEFIT. THAT ANY EXPENDITURE INCURRED FOR CIVIL WORK BY A LESSEE IN RESPECT OF THE LEASE PREMISES, WITHOUT ANY FURTHER PROOF CANNOT BE SAID TO BE CAPITAL EXPE NDITURE OR REVENUE EXPENDITURE. IN ORDER TO FIND OUT THE NATU RE OF EXPENDITURE, IT IS NECESSARY TO FIND OUT THE NATURE OF CONSTRUCTION PUT UP, THE PURPOSE OF CONSTRUCTION/RE NOVATION AND THE USE TO WHICH THE CONSTRUCTION PUT UP AND AL SO IF IT IS A CASE OF REPAIR, REPLACEMENT, ADDITION OR IMPROVEM ENT HAS TO BE GONE INTO. IT IS ONLY ON THE AFORESAID MATER IAL, KEEPING IN MIND THE PRINCIPLES ENUNCIATED IN THE JUDGMENTS BY THE SUPREME COURT AND KEEPING IN MIND SECTION 37 AND SE CTION 32 OF THE ACT, THAT ONE HAS TO DETERMINE WHETHER TH E EXPENDITURE IS REVENUE EXPENDITURE OR CAPITAL EXPEN DITURE. WHAT WOULD APPLY TO CIVIL WORK EQUALLY APPLIES TO E LECTRICAL WORK OR INTERIOR DECORATION. THE ASSESSEE HAD NOT STATED THE NATURE OF CIVIL WORKS CONSTRUCTED, THE NATURE O F INTERIOR DECORATION MADE TO THE LEASEHOLD PREMISES AND ALSO THE NATURE OF ELECTRICAL WORK UNDERTAKEN. IN THE ABSEN CE OF THAT MATERIAL AND WITHOUT PROPER APPLICATION OF MIND, TH E ASSESSING AUTHORITY PROCEEDED ON THE FOOTING THAT T HE EXPENDITURE CONSTITUTED CAPITAL EXPENDITURE. 15. IN VIEW OF THE ABOVE, WE REMIT THE ISSUE I N DISPUTE TO AO TO CONSIDER WHETHER THE EXPENDITURE IS REVENUE O R - - ITA 1093 TO 1099/M/16 & 1451/M/16 19 CAPITAL IN NATURE AND DECIDE AFRESH. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF TH E TRIBUNAL, WE REMIT THIS ISSUE TO THE AO FOR FRESH CONSIDERATI ON. 23. IN THE RESULT, THE APPEALS OF THE REVENUE IN I TA NOS.1875 TO 1878/MDS/2014 ARE PARTLY ALLOWED FOR ST ATISTICAL PURPOSES. IN VIEW OF THE ABOVE ORDER OF THE TRIBUNAL, WE ARE ADMITTING THE ADDITIONAL GROUNDS AND SINCE THE FACTS ARE SIMILAR, WE ARE REMITTING THIS ISSUE TO THE FILE OF THE AO FOR FRES H CONSIDERATION ON SIMILAR LINE. 15. THE FIRST GROUND RAISED BY THE REVENUE IN ITA NO.1451/MDS/2016 IS THAT THE CIT(APPEALS) ERRED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE OF INT EREST OF 18,83,128/- U/S.40A(2)(A) OF THE ACT. THIS GROUND OF APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 16. THE FACTS OF THE CASE ARE THAT THE ASSESSEE CL AIMED EXPENDITURE BY WAY OF INTEREST PAYABLE TO THE PERSO NS U/S.40A(2)(B) OF THE ACT AS MENTIONED IN THE TAX AU DIT REPORT WHEREIN IT WAS MENTIONED THAT INTEREST PAID TO THE SE PERSONS AT 18%. THE ASSESSEE HAS ALSO ADVANCED LOANS TO THE P ARTNERS AND HAD COLLECTED INTEREST ONLY @ 13%. THE ASSESSE E HAD ALSO - - ITA 1093 TO 1099/M/16 & 1451/M/16 20 AVAILED TERM LOAN FROM INDIAN OVERSEAS BANK AND TH E INTEREST PAID THEREON WAS ONLY 13%. IN VIEW OF THE FACTS, T HE INTEREST 18% PAID TO THE PERSONS CONSIDERED AS EXCESSIVE AN D CALLS FOR DISALLOWANCE. ACCORDINGLY, THE INTEREST PAID IN EX CESS OF 13% IS DISALLOWED BY THE AO. AGAINST THIS, THE ASSESSEE W ENT IN APPEAL BEFORE THE CIT(APPEALS). 17. ON APPEAL, THE CIT(APPEALS) OBSERVED THAT THE A SSESSEE FIRM HAS PAID INTEREST TO THE RELATIVES @ 18% PER A NNUM. WHEREAS, ACCORDING TO THE AO, THE ASSESSEE HAD AVAI LED BANK LOANS FOR WHICH INTEREST PAID IS 13%. INVOKING THE PROVISIONS OF SEC.40A(2)(B) OF THE ACT, THE AO PROCEEDED TO DISAL LOW 5% AS EXCESSIVE. BEFORE THE CIT(APPEALS), THE ARGUMENT O F THE LD. AR WAS THAT THE AO HAD DISALLOWED INTEREST PAYMENT OVE R 13% PER ANNUM HOLDING THE SAME TO BE EXCESSIVE IN NATURE AN D NOT ON PAR WITH INTEREST PAID ON BANKS LOANS AND INTEREST COLLECTED ON AMOUNT LENT TO PARTNERS WITHOUT CONSIDERING THE FLE XIBILITY IN SUCH A BORROWING FROM THE FAMILY MEMBERS WHICH SHOULD CO MMAND A PREMIUM IN THE INTEREST RATES. TO REITERATE THE HA SSLE FREE BORROWINGS, IN THE SENSE, NO SECURITY IS CALLED FOR AND FUNDS ARE - - ITA 1093 TO 1099/M/16 & 1451/M/16 21 AVAILABLE FOR INDEFINITE PERIOD AND NO STIFF CONDIT IONS EXIST RELATING TO REPAYMENT OF PRINCIPAL AND INTEREST AND MOST OF FAMILY MEMBERS TO WHOM THESE INTEREST ARE PAID ARE ASSESSE D TO TAX AT THE MAXIMUM RATE AND HENCE, THIS IS NOT A CASE OF E VASION OF TAX. IN SHORT, ACCORDING TO THE LD. AR, THERE IS NO LOSS TO THE REVENUE AND DISALLOWANCE IS UNWARRANTED. THE CIT(APPEALS) OBSERVED THAT THERE IS A FORCE IN ASSESSEES ARGUMENT AND AL L THE INTEREST RECIPIENTS, WHO ARE RELATIVES ARE ASSESSED TO TAX AT MAXIMUM RATES. ACCORDINGLY, THE CIT(APPEALS) DIRECTED THE AO TO DELETE THE ADDITION. AGAINST THIS, THE REVENUE IS IN APPE AL BEFORE US. 18. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THE PRESENT CASE, THE ASSESSEE PAID INTEREST TO THE PERSONS SPECIFIED IN SEC.40A(2)(B) OF THE ACT AT 18 % PER ANNUM AS AGAINST THE PAYMENT OF INTEREST TO BANKS AND PAR TNERS AT 13% PER ANNUM. ACCORDING TO AO, PAYMENT OF INTEREST TO THE SPECIFIED PERSONS U/S.40A(2)(B) OF THE ACT IS IN EX CESS OF 5% PER ANNUM AND HE DISALLOWED THE EXCESS PAYMENT BY INVOK ING THE PROVISIONS OF THE SECTION 40A(2)(B) OF THE ACT. IN OUR OPINION, FOR AVAILING THE LOANS FROM THE BANKS, ASSESSEE HAS TO GIVE MAIN - - ITA 1093 TO 1099/M/16 & 1451/M/16 22 SECURITY AS WELL AS COLLATERAL SECURITY AND HAS TO EXECUTE VARIOUS LOANS DOCUMENTS AND THIRD PARTY GUARANTEE ALSO. TH E PROCEDURES INVOLVED IN AVAILING LOANS FROM THE BANK S ARE VERY CUMBERSOME. WHILE GRANTING THE BANK LOAN, THEY WIL L SEE THE VARIOUS FACTORS LIKE TURNOVER OF THE ASSESSEE, SEC URITY, MARKETING CONDITIONS, CREDIT WORTHINESS OF THE PARTIES ETC. A ND IT TAKES LONG TIME TO GET A LOAN FROM BANKS. THE BANK IS ALSO CH ARGING COMPOUND INTEREST METHOD. CONSIDERING THIS, ASSESS EE AVAILED, WHEN IT IS REQUIRED AN URGENT AMOUNT, LOANS FROM SP ECIFIED PERSONS AND WHICH MADE THE ASSESSEE TO PAY RATE OF INTEREST @ 18% PER ANNUM AND WHICH IS WITHOUT EXECUTING ANY DO CUMENTS AND ASSESSEE IS ABLE TO GET MONEY AT CALL. BEING S O, THERE IS VARIATION OF 5%, WHICH IS HIGHER THAN THE BANK RATE OF INTEREST CANNOT BE FOUND THAT EXCESSIVE OR UNREASONABLE AS C OMPARED TO THE PREVAILING MARKETING CONDITIONS. ANY MARKET, PR OVIDE BORROWINGS INTEREST RANGING FROM 30 TO 36%, AS SUCH IN OUR OPINION, THE INTEREST PAID BY THE ASSESSEE TO SPECI FIED PERSONS U/S.40A(2)(B) OF THE ACT IS VERY REASONABLE AND THE SAME TO BE ALLOWED. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF - - ITA 1093 TO 1099/M/16 & 1451/M/16 23 THE CIT(APPEALS) IN ALLOWING THE CLAIM OF ASSESSEE . HENCE, THIS GROUND OF APPEAL BY REVENUE IS DISMISSED. 19. THE NEXT GROUND IN REVENUES APPEAL IS THAT THE CIT(APPEALS) ERRED IN DIRECTING THE ASSESSING OFFIC ER TO DELETE THE DISALLOWANCE IN RESPECT OF CLAIM OF BONUS REDEM PTION OF 1,99,32,784/-. 20. THE FACTS OF THE ISSUE ARE THAT THE ASSESSEE CL AIMED AN AMOUNT OF 37,16,963/- UNDER THE HEAD BUSINESS REDEMPTION EXPENSES IN THE BREAK-UP FOR MISC. EXPENSES. FURT HER, AN AMOUNT OF 1.99 CRORES WAS ALSO CLAIMED UNDER THE HEAD HOSPITALITY AND UNDER THE SUB-HEAD BONUS REDEMPT ION EXPENSES. IT WAS POINTED OUT DURING THE COURSE OF ASSESSMENT, AS TO WHY THE ASSESSEE HAS CHOSEN TO CLAIM SIMILAR EXPENDITURE UNDER TWO DIFFERENT HEADS, THE ASSESSEE SUBMITTED V IDE ITS REPLY DATED 17.3.2014 AS FOLLOWS : I. THAT THE ASSESSEE FLOATED A SCHEME, AS A PART OF BUSINESS STRATEGY TO ENCOURAGE THE CUSTOMERS TO MAKE PURCHAS ES FREQUENTLY, ACCORDING TO WHICH, A CUSTOMER WHO MAKE S A PURCHASE OF 100 AND ABOVE IS ELIGIBLE FOR A DISCOUNT OF 1% - - ITA 1093 TO 1099/M/16 & 1451/M/16 24 IN THE NEXT PURCHASE AND SO ON, AND WHEN THE CUSTOM ER MAKES SUBSEQUENT PURCHASES THE DISCOUNT DUE TO THEM OF 1% OF PREVIOUS PURCHASE IS ALLOWED AGAINST THE SAME AND THE BALANCE ONLY WILL BE COLLECTED. II. THAT THE DISCOUNTS ACTUALLY ALLOWED UNDER THE S CHEME DURING THE YEAR WERE TREATED AS BONUS REDEMPTION EXPENSES WHICH WAS DEBITED UNDER THE HEAD MISCELL ANEOUS EXPENSES. III. THAT IN RESPECT OF THE UN-AVAILED DISCOUNTS, T HE ASSESSEE TREATED IT AS ACCRUED LIABILITY AND THE SAME WAS DE BITED UNDER THE HEAD HOSPITALITY EXPENSES. 20.1 ACCORDING TO THE AO, THE ACTUAL DISCOUNT ALLOW ED TO THE CUSTOMERS DURING THE YEAR AND DEBITED UNDER THE HEA D MISCELLANEOUS EXPENSES IS CERTAINLY AN ALLOWABLE EXPENDITURE, BUT THE SECOND PART OF BONUS REDEMPTION EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD HOSPITA LITY EXPENSES TOWARDS ACCRUED LIABILITY IS NOT ALLOWABLE FOR THE REASON THAT THERE IS NO ACCRUED LIABILITY BUT IT IS ONLY A CONTINGENT LIABILITY. ACCORDINGLY, THE ASSESSEE WAS REQUESTED TO FURNISH ITS EXPLANATION AS TO WHY THE PROVISION MADE FOR ACCRUE D LIABILITY SHOULD NOT BE DISALLOWED AS CONTINGENT LIABILITY. THE ASSESSEE VIDE ITS REPLY DATED 24.3.2014 SUBMITTED AS UNDER: - - ITA 1093 TO 1099/M/16 & 1451/M/16 25 I) THAT THE MINUTE A CUSTOMER MAKES A PURCHASE OF 100 AND ABOVE IS ELIGIBLE FOR DISCOUNT OF 1% OF THE SAM E FROM THE NEXT PURCHASE FROM THE NEXT DAY. II) SUCH A FACILITY CAN BE AVAILED BY THE CUSTOMER IN ANY TIME IN FUTURE. III) AS THE MANAGEMENT IS BOUND BY THE COMMITMENT I N RESPECT OF PAST PURCHASES. IT IS A DEFINITE LIABIL ITY AND CONSEQUENTLY A DEDUCTIBLE EXPENDITURE. IV) THE DISCOUNT COMMITMENT TO CUSTOMERS IS SCIENTI FICALLY ASSESSED V) IT IS LIKE A CHEQUE ALREADY ISSUED TO THE CUSTOM ER PENDING REALIZATION. 20.2 ACCORDING TO THE AO, THE ACCRUED LIABILITY OF 1.99 CRORES WHICH WAS DEBITED TO THE PROFIT AND LOSS ACCOUNT AN D WHICH DEPENDS UPON NEXT VISIT BY THE CUSTOMER IN FUTURE W HICH IS UNCERTAIN, IS NOT AN ALLOWABLE DEDUCTION FROM THE P ROFITS OF THE CURRENT YEAR AND THE ASSESSEE IS FREE TO CLAIM SUCH LIABILITY IN FUTURE AS AN WHEN THE CUSTOMER VISITS FOR THE NEXT TIME IN FUTURE. ACCORDINGLY, THE AO DISALLOWED AN AMOUNT OF 1.99 CRS. AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. A GGRIEVE D, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(APPEALS). 21. THE CIT(APPEALS) OBSERVED THAT WHILE DISALLOWIN G THE CLAIM OF THE ASSESSEE, THE AO OBSERVED AS UNDER : - - ITA 1093 TO 1099/M/16 & 1451/M/16 26 IN THE SCHEME OF THE THINGS, ACCRUAL OF LIABILITY TO PAY DISCOUNT HAS TO BE RECKONED WITH REFERENCE TO THE A CTUAL VISIT BY THE CUSTOMER IN A GIVEN YEAR BUT NOT WITH REFERE NCE TO THE PROBABLE VISIT BY HIM IN FUTURE. IN OTHER WORDS, W HATEVER DISCOUNT WHICH WAS AVAILED BY THE CUSTOMERS DURING THE RELEVANT PREVIOUS YEAR THAT ALONE IS ADMISSIBLE AS EXPENDITURE. MOST IMPORTANTLY, THERE IS NO CONTRACTUAL COMPULSIO N FOR THE CUSTOMER TO MAKE PURCHASE IN FUTURE. IT IS PURELY OPTIONAL. HENCE, PROVIDING FOR ANTICIPATED LIABILITY IN THE P RESENT YEAR WHICH IS DEPENDENT UPON OPTION OF THE CUSTOMER AND UNCERTAIN FUTURE VISIT BY THE CUSTOMER IS NOT CORRE CT AND ACCEPTABLE. IN VIEW OF THE FOREGOING DISCUSSION, THE SAID ACCRU ED LIABILITY OF 1.99 CRORES WHICH WAS DEBITED TO THE PROFIT AND LOS S ACCOUNT AND WHICH DEPENDS UPON NEXT VISIT BY THE CU STOMER IN FUTURE WHICH IS UNCERTAIN, IS NOT AN ALLOWABLE D EDUCTION FROM THE PROFITS OF THE CURRENT YEAR. THE ASSESSEE IS FREE TO CLAIM SUCH LIABILITY IN FUTURE AS AN WHEN THE CUSTO MER VISITS HIM FOR THE NEXT TIME IN FUTURE. ACCORDINGLY, AN A MOUNT OF 1.99 CRS. IS HEREBY DISALLOWED AND ADDED BACK TO TH E TOTAL INCOME. 21.1 AFTER CONSIDERING THE FINDING OF THE AO AND TH E EXPLANATION GIVEN BY THE ASSESSEE ABOUT THE DEDUCTI BILITY OF THE PROVISION MADE TOWARDS BONUS CARD, THE CIT(APPEALS) OBSERVED THAT THE CRITERIA FOR ALLOWING DEDUCTION ON ACCOUN T OF A PROVISION IS THAT THE LIABILITY TO INCUR THE EXPENDITURE WHIC H IS CLAIMED BY WAY OF A PROVISION SHOULD BE CERTAIN AND SECONDLY Q UANTIFICATION OF SUCH A LIABILITY SHOULD BE SCIENTIFIC/REASONABLE . ACCORDING TO - - ITA 1093 TO 1099/M/16 & 1451/M/16 27 THE CIT(APPEALS), AS PER THE TERMS OF ISSUE OF LOYA LITY CARDS, THE ACCUMULATION OF POINTS, THE CUSTOMERS WERE FREE TO ENCASH IN SUBSEQUENT PURCHASES. THE ASSESSEE IS LEGALLY BOUN D TO PROVIDE EQUIVALENT OF REWARD POINTS IN CASH OR KIND . THE LOYALITY POINTS ARE GIVEN IN THE FORM OF DISCOUNT IN THE SUB SEQUENT PURCHASES. ACCORDING TO THE CIT(APPEALS), THE FACT THAT THE CUSTOMERS DID NOT VISIT THE SHOP FOR SUBSEQUENT PUR CHASES WILL NOT MAKE THE CLAIM FOR SUCH A CLAIM AS ACCRUED LIAB ILITY. THE LIABILITY OF THE ASSESSEE IN SO FAR AS ACCUMULATED POINTS ARE CONSIDERED AS CERTAIN AND HE DIRECTED THE AO TO DEL ETE THE ADDITION. AGAINST THIS, THE REVENUE IS IN APPEAL B EFORE US. 22. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE LD.A.R STRONGLY PLACED RELIANCE ON THE JUDGEMENTS OF SUPREME COURT IN THE CASE OF ROTORK CONTROLS INDIA P. LTD VS. CIT REPORTED IN [2009] 31 4 ITR 62 (SC) AND IN THE CASE OF BHARAT EARTH MOVERS VS. CIT IN [2000] 245 ITR 428 (SC). IN THE PRESENT CASE, THE ASSESSE E BEING A RETAILER IN TEXTILE GOODS, FLOATED SCHEME OF GIVING 1% DISCOUNT, WHICH MAKES A PURCHASE OF ` 100/- AND ABOVE, HE IS ELIGIBLE FOR - - ITA 1093 TO 1099/M/16 & 1451/M/16 28 DISCOUNT OF 1% IN THE NEXT PURCHASE. THE FLOATED SC HEME IS AS FOLLOWS:- I) THAT THE MINUTE A CUSTOMER MAKES A PURCHASE OF 100 AND ABOVE IS ELIGIBLE FOR DISCOUNT OF 1% OF THE SAM E FROM THE NEXT PURCHASE FROM THE NEXT DAY. II) SUCH A FACILITY CAN BE AVAILED BY THE CUSTOMER IN ANY TIME IN FUTURE. AS PER THE ABOVE SCHEME, THE ASSESSEE MADE A CLAIM OF ` 1,99,32,784/-. IN OUR OPINION, THERE IS AN ACCRUAL OF LIABILITY IN THE ACCOUNTING YEAR UNDER CONSIDERATION, THOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AND DISCHARGED IN A SUBSEQUEN T ASSESSMENT YEAR. IN OTHER WORDS, INCURRING OF LIAB ILITY IS A CERTAIN, THE SAME IS NOT A CONTINGENT LIABILITY. B UT IT IS A LIABILITY IN PRAESENTI, THOUGH IT MAY HAVE TO BE DISCHARGED AT A FUTURE DATE. THE FACT OF DISCHARGED AT A LATER DATE DOES NOT MAK E ANY DIFFERENCE IN COMING TO THE CONCLUSION THAT THE LIA BILITY AS ARISING IN THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR UN DER CONSIDERATION. THE CASES RELIED BY THE ASSESSEES COUNSEL CITED SUPRA, THE SUPREME COURT POINTED OUT THAT IF SUCH A LIABILITY CAN BE WORKED OUT ON A SCIENTIFIC BASIS, THE AMOUNT SO DETERMINED HAS TO BE ALLOWED IN COMPUTING THE INCOME. IN THE PRESENT CASE, - - ITA 1093 TO 1099/M/16 & 1451/M/16 29 THE AO HAS RAISED THE POINT THAT THE ASSESSEE HAS R ECEIVED THE VALUE OF FIRST PURCHASE AND DISCOUNT OF 1% WOULD BE GIVEN ONLY TO A SUBSEQUENT PURCHASE AND THE LIABILITY ACCRUES ONL Y ON WHEN THE CUSTOMER VISITS FOR SECOND TIME AND ONLY AT THA T POINT OF TIME, WHEN THE CUSTOMERS VISITS THE SECOND TIME AND MAKES A PURCHASE, THE DISCOUNT ON SECOND PURCHASE ACCRUES T O THE ASSESSEE. IN THIS CONTENTION, WE DO NOT FIND ANY M ERIT, THE ASSESSEE HAS PROVIDED THE LIABILITY AS SOON AS THE FIRST CUSTOMER MADE FIRST PURCHASE, 1% OF THE FIRST PURCHASE VALUE AND LIABILITY TO GIVE DISCOUNT TO THE CUSTOMER ACCRUED AS SOON AS THE FIRST PURCHASE WAS MADE. THE ONLY PASSING OF DISCOUNT TO THE CUSTOMERS IS ONLY AT SECOND PURCHASE. THE ASSESSEE IS LEGALLY BOUND TO PASS THE REWARD OR DISCOUNT TO THE CUSTOME R AS SOON AS THE FIRST PURCHASE WAS MADE AND IF THE CUSTOMER DOE S NOT MAKE CLAIM FOR SUCH A DISCOUNT, THE ACCRUAL LIABILITY NO T STOPPED, THE ASSESSEE IS BOUND TO HONOUR ITS CLAIM. BEING SO, T HE QUANTIFICATION OF SUCH LIABILITY IS ALREADY DETERMI NED. THERE IS NO DISPUTE REGARDING QUANTIFICATION OF SUCH LIABILITY. IN SUCH CIRCUMSTANCES, THE RATIO LAID DOWN BY SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS VS. CIT (SUPRA) IS DIRECTLY APPLICABLE TO - - ITA 1093 TO 1099/M/16 & 1451/M/16 30 THE FACTS OF THE PRESENT CASE. ACCORDINGLY, WE HAVE NO HESITATION IN CONFIRMING THE ORDER OF THE CIT(APPEALS) ON THI S ISSUE. HENCE, THIS GROUND OF REVENUE STANDS DISMISSED. 23. IN THE RESULT, THE ALL THE APPEALS OF ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APP EAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON 08 TH FEBRUARY, 2017 AT CHENNAI. SD/- SD/- ( ! . ' #$% ) ( & ' ( ) ) ( DUVVURU RL REDDY ) (CHANDRA POOJARI) 6 78 /JUDICIAL MEMBER # 78/ACCOUNTANT MEMBER  /CHENNAI, B7 /DATED, THE 08 TH FEBRUARY, 2017. K S SUNDARAM 7#C DE F#E /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. G () /CIT(A) 4. G /CIT 5. EHI J /DR 6. I% K /GF.