Rm.K.Visvanatha Pillai & Sons, CHENNAI V. DCIT, CHENNAI

ITA 1786/CHNY/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9095 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 28-03-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 20-06-2014
• Court: TRIBUNAL
• Department Lawyers: PATHLAVATH PEERYA
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Unexplained investment; Capital asset; Revision of order; Depreciation; Business expenditure; Block assessment; Revenue expenditure
• Section: 143(3); 153A; 80G; 32; 37; 263; 132

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI . . . , . !' , # $ % [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ] ./ I.T.A.NOS.1784, 1785, 1786 & 1787/MDS/2014 / ASSESSMENT YEARS : 2006-07, 2007-08, 2008-09 A ND 2009-10 M/S RM. K. VISVANATHA PILLAI & SONS 176F, TRIVANDRUM ROAD TIRUNELVELI 627 003 VS. THE DY. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE IV(1) CHENNAI [PAN AABFR 1307 C ] ( &' / APPELLANT) ( ()&' /RESPONDENT) ./ I.T.A.NOS.1880 & 1881/MDS/2014 / ASSESSMENT YEARS : 2008-09 AND 2009-10 THE DY. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE IV(1) CHENNAI VS. M/S RM. K. VISVANATHA PILLAI & SONS 176F, TRIVANDRUM ROAD TIRUNELVELI 627 003 ( &' / APPELLANT) ( ()&' /RESPONDENT) ASSESSEE BY : SHRI R. VIJAYARAGHAVA N , ADVOCATE DEPARTMENT BY : SHRI PATHLAVATH PEERYA, CIT / DATE OF HEARING : 31 - 03 - 2016 / DATE OF PRONOUNCEMENT : 01 - 06 - 2016 / O R D E R PER N.R.S.GANESAN, JUDICIAL MEMBER ALL THE APPEALS OF THE ASSESSEE FOR ASSESSMENT Y EARS 2006- 07, 2007-08, 2008-09 AND 2009-10 AND THE APPEALS OF THE REVENUE FOR ITA NO. 1784/14 ETC. :- 2 -: ASSESSMENT YEARS 2008-09 AND 2009-10 ARE DIRECTED A GAINST THE RESPECTIVE ORDERS OF THE COMMISSIONER OF INCOME-TA X (APPEALS), CHENNAI. SINCE COMMON ISSUE ARISES FOR CONSIDERATIO N IN ALL THE APPEALS, WE HEARD THEM TOGETHER AND DISPOSING OF SAME BY THIS COMMON ORDER. 2. LET US FIRST TAKE UP ASSESSEES APPEAL I.T.A.NO.187 4/MDS/ 2014 FOR ASSESSMENT YEAR 2006-07. 3. SHRI R. VIJAYARAGHAVAN, LD. COUNSEL FOR THE ASSESS EE SUBMITTED THAT THE ASSESSEE FILED THE RETURN OF IN COME IN THE REGULAR COURSE ON 31.10.2006 AND THE ASSESSMENT U/S 143(3) OF THE ACT WAS COMPLETED ON 31.12.2008. SUBSEQUENTLY, THERE WAS A SEARCH OPERATION U/S 132 OF THE ACT ON 18.3.2009 AND THE ASSESSEE FILED THE RETURN OF INCOME ON 19.4.2010 CONSEQUENT TO THE NOT ICE ISSUED U/S 153A OF THE ACT. ACCORDING TO THE LD. COUNSEL, NO MATERIAL WAS FOUND DURING THE COURSE OF SEARCH OPERATION. THE ENTIRE ADDITION WAS MADE ON THE BASIS OF THE MATERIAL COLLECTED BY THE ASSES SING OFFICER SUBSEQUENT TO THE SEARCH OPERATION MORE PARTICULARL Y, DURING THE COURSE OF ASSESSMENT PROCEEDINGS. ACCORDING TO THE LD. COUNSEL, SINCE NO ASSESSMENT PROCEEDINGS WAS PENDING ON THE DATE O F THE SEARCH ON 18.2.2009, THE COMPLETED ASSESSMENT ON THE DATE OF SEARCH CANNOT BE REOPENED FOR THE PURPOSE OF MAKING ADDITION FOR THE BLOCK PERIOD. IF AT ITA NO. 1784/14 ETC. :- 3 -: ALL, ANY MATERIAL WAS FOUND DURING THE COURSE OF SE ARCH OPERATION, THE ASSESSING OFFICER HAS TO CONFINE HIMSELF ONLY IN RE SPECT OF THE MATERIAL FOUND DURING THE COURSE OF SEARCH OPERATION AND THE ASSESSING AUTHORITY HAS NO JURISDICTION TO REOPEN THE ASSESSM ENT COMPLETED ON THE DATE OF THE SEARCH. IN THE ABSENCE OF ANY MATE RIAL, THE ENTIRE ASSESSMENT MADE BY THE ASSESSING OFFICER IS NOT JUS TIFIED. 4. ON THE CONTRARY, SHRI PATHLAVATH PEERYA, LD. DR SUB MITTED THAT EVEN THOUGH NO MATERIAL WAS FOUND DURING THE C OURSE OF SEARCH OPERATION, THE ASSESSING OFFICER CAN FRAME THE ASS ESSMENT FOR THE BLOCK PERIOD ON THE BASIS OF THE MATERIAL AVAILABLE ON RECORD. THE LD. DR CLARIFIED THAT NO MATERIAL WAS FOUND DURING THE COURSE OF SEARCH OPERATION FOR THE YEAR UNDER CONSIDERATION. THEREF ORE, THE ASSESSING OFFICER HAS RIGHTLY FRAMED ASSESSMENT FOR THE BLOCK PERIOD CONSEQUENT TO THE RETURN FILED BY THE ASSESSEE U/S 153A OF T HE ACT. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. IT I S NOT IN DISPUTE THAT NO INCRIMINATING MATERIAL WAS FOUND DURING THE COUR SE OF SEARCH OPERATION. SEC. 153A OF THE ACT CLEARLY SAYS THAT ALL PENDING ASSESSMENT PROCEEDINGS ON THE DATE OF THE SEARCH WO ULD ABATE AND THE ASSESSING OFFICER HAS TO PASS A COMPREHENSIVE A SSESSMENT ORDER U/S 153A OF THE ACT INCLUDING ALL INCOMES DISCLOSED IN THE RETURN OF ITA NO. 1784/14 ETC. :- 4 -: INCOME FILED IN THE REGULAR COURSE. IN THE CASE BE FORE US, THE ASSESSEE HAS FILED THE RETURN OF INCOME IN THE REGU LAR COURSE BEFORE THE DATE OF SEARCH AND THE ASSESSING OFFICER COMPLE TED THE ASSESSMENT U/S 143(3) OF THE ACT BY DETERMINING TH E TOTAL INCOME AT ` 8,97,69,861/-. THEREFORE, ON THE DATE OF SEARCH ON 18.2.2009, NO ASSESSMENT PROCEEDING WAS PENDING FOR THE ASSESSMEN T YEAR 2006-07. THE QUESTION ARISES FOR CONSIDERATION IS WHEN NO AS SESSMENT PROCEEDING WAS PENDING ON THE DATE OF SEARCH, CAN T HE ASSESSING OFFICER FRAME THE ASSESSMENT U/S 153A OF THE ACT I N THE ABSENCE OF ANY MATERIAL FOUND DURING THE COURSE OF SEARCH OPER ATION? THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT IN THE A BSENCE OF ANY SEARCH MATERIAL, NO ASSESSMENT CAN BE MADE FOR THE BLOCK P ERIOD IN RESPECT OF THE INCOME DISCLOSED BEFORE THE DATE OF SEARCH AND THE ASSESSMENT WAS ALREADY COMPLETED. THEREFORE, IN VIEW OF THE LA NGUAGE EMPLOYED BY THE PARLIAMENT IN SEC. 153A OF THE ACT, THE ASSE SSING OFFICER HAS TO CONFINE HIMSELF ONLY TO THE MATERIAL FOUND DURING T HE COURSE OF SEARCH OPERAION. THEREFORE, WHEN THE ASSESSMENT PROCEEDIN G WAS COMPLETED BEFORE THE DATE OF SEARCH, THE ASSESSING OFFICER HA S NO JURISDICTION TO FRAME BLOCK ASSESSMENT U/S 153A OF THE ACT IN THE ABSENCE OF ANY MATERIAL FOUND DURING THE COURSE OF SEARCH OPERATIO N. IN VIEW OF THE ABOVE, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ENTIRE ADDITION MADE BY THE ASSESSING OFFICER IS DELETED. ITA NO. 1784/14 ETC. :- 5 -: 6. IN THE RESULT, THE ASSESSEES APPEAL I.T.A.NO.1784 /MDS/2014 IS ALLOWED. 7. NOW, COMING TO THE ASSESSEES APPEALS FOR ASSESSM ENT YEARS 2007-08, 2008-09 AND 2009-10, THE FIRST COMM ON ISSUE ARISES FOR CONSIDERATION IS VALUATION OF CLOSING STOCK. 8. SHRI R. VIJAYARAGHAVAN, LD. COUNSEL SUBMITTED THAT DURING THE COURSE OF SEARCH OPERATION, THE REVENUE AUTHORI TIES FOUND THAT THE REPORTED CLOSING STOCK WAS LESS THAN THE CLOSING ST OCK AS PER THE BOOKS OF ACCOUNT. ACCORDING TO THE LD. COUNSEL, THE ASS ESSEE WAS VALUING THE CLOSING STOCK AS PER THE METHOD REGULARLY FOLLO WING I.E COST OR REALIZABLE MARKET VALUE WHICHEVER IS LOWER. THE A SSESSEE HAS NOT CHANGED THE METHOD OF VALUATION OF CLOSING STOCK DU RING THE YEARS UNDER CONSIDERATION. ACCORDING TO THE LD. COUNSEL, IN THE BUSINESS OF TEXTILE, THE UNSOLD STOCK FOR MORE THAN TWO YEARS H AS NO VALUE AT ALL. ACCORDING TO THE LD. COUNSEL, THE STOCK OF THE ASS ESSEE CAN BE IDENTIFIED INDIVIDUALLY BY BY-NUMBER. THE ASSESSE E WAS VALUING THE UNSOLD STOCK WHICH REMAINS FOR MORE THAN ONE YEAR A T 25% OF THE COST OF THE STOCK OR THE NET REALIZABLE VALUE IN THE MAR KET WHICHEVER IS LESS. SIMILARLY, IF THE STOCK REMAINS UNSOLD FOR MORE THA N TWO YEARS, THE SAME WAS VALUED AT 50% OF THE COST OR THE NET REALI ZABLE VALUE WHICHEVER IS LESS. IF THE STOCK REMAINS UNSOLD FOR MORE THAN THREE ITA NO. 1784/14 ETC. :- 6 -: YEARS, THE SAME WAS VALUED AT ` 100/- OR THE NET REALIZABLE VALUE WHICHEVER IS LESS. IN VIEW OF THE CHANGING FASHION IN THE TEXTILE INDUSTRY, THE ASSESSEE HAS TO NATURALLY KEEP THE S TOCKS AS PER THE DESIRE OF THE CUSTOMERS, THEREFORE, THE UNSOLD STOC K HAS TO BE CLEARED AT THE NET REALIZABLE VALUE. THIS WAS EXPLAINED BE FORE THE LOWER AUTHORITIES. HOWEVER, THE SAME WAS NOT CONSIDERED. WHENEVER THE STOCKS WERE SOLD, THE SAME WAS DECLARED TO THE DEPA RTMENT AND TAXES WERE PAID. THE ASSESSING OFFICER HAS ALSO DOUBTED THE METHOD OF VALUATION FOLLOWED BY THE ASSESSEE. ACCORDING TO THE LD. COUNSEL, IT IS A VALUATION AS PER THE MARKET CONDITION IN THE TEXT ILE INDUSTRY, THEREFORE, THE ASSESSING OFFICER CANNOT DOUBT THE V ALUATION MADE BY THE ASSESSEE. 9. ON THE CONTRARY, SHRI PATHLAVATH PEERYA, LD. DEPART MENTAL REPRESENTATIVE SUBMITTED THAT DURING THE COURSE OF SEARCH OPERATION, THE REVENUE AUTHORITIES FOUND THAT THE FINANCIAL ST ATEMENT FILED ALONGWITH THE RETURN OF INCOME WHICH CONTAINS THE D ETAILS OF CLOSING STOCK WAS LESS THAN THE DETAILS OF THE CLOSING STOC K AS PER THE BOOKS OF ACCOUNT. THEREFORE, THE ASSESSEE WAS ASKED TO RECO NCILE THE DIFFERENCE BETWEEN THE CLOSING STOCK FOUND IN THE A NNEXURES TO THE FINANCIAL STATEMENT FILED ALONGWITH THE RETURN OF I NCOME AND THE BOOKS OF ACCOUNT. THE ASSESSEE EXPLAINED BEFORE THE ASS ESSING OFFICER THAT ITA NO. 1784/14 ETC. :- 7 -: THE VALUE OF THE CLOSING STOCK AS PER THE ANNEXURES TO THE FINANCIAL STATEMENT WAS AFTER DEDUCTING THE PROVISION WHICH W AS CALCULATED AT THE FIXED PERCENTAGE ON THE VALUE OF THE STOCKS AS PER THE BOOKS OF ACCOUNT. THOUGH THE UNSOLD STOCK SAID TO BE REMAI NED FOR YEARS TOGETHER, THE SAME COULD NOT BE IDENTIFIED, THEREFO RE, ADHOC ESTIMATE MADE BY THE ASSESSEE FOR VALUING THE CLOSING STOCK CANNOT BE JUSTIFIED. MAJOR PORTION OF THE STOCK FOUND WERE SOLD IN THE S UBSEQUENT YEARS, THEREFORE, IT IS NOT CORRECT TO SAY THAT THE STOCKS WERE REMAINED UNSOLD FOR YEARS TOGETHER. THE METHOD OF VALUATION OF CLO SING STOCK @ 25%, 50% OF AT ` 100/- DEPENDING UPON THE YEAR OF THE UNSOLD STOCK IS NOT REFLECTING THE REALIZABLE MARKET VALUE. WHEN THE ASSESSEE WAS DEALING IN WIDE RANGE OF PRODUCTS, THE PARAMETER AD OPTED BY THE ASSESSEE FOR VALUING THE CLOSING STOCK CANNOT BE SA ID TO BE REFLECTING THE CORRECT REALIZABLE VALUE. SINCE THE ASSESSEE COULD NOT SUBSTANTIATE THE PROVISION MADE FOR REALIZABLE VALUE OF THE GOOD S REMAINED UNSOLD AT THE END OF THE RELEVANT ASSESSMENT YEAR, THE ASS ESSING OFFICER HAS DISALLOWED THE CLAIM OF THE ASSESSEE. THEREFORE, THE CIT(A) HAS RIGHTLY CONFIRMED THE DISALLOWANCE MADE BY THE ASS ESSING OFFICER. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. TH E ASSESSEE ADMITTEDLY ENGAGED IN THE RETAIL BUSINESS OF TEXTIL E AT CHENNAI AND ITA NO. 1784/14 ETC. :- 8 -: TIRUNELVELI. THE ASSESSEE IS VALUING THE CLOSING STOCK DEPENDING UPON THE STOCK WHICH REMAINS UNSOLD. THE CASE OF THE A SSESSEE IS THAT IF THE STOCK REMAINS UNSOLD FOR ONE YEAR, THE SAME WAS VALUED @ 25% OF THE COST OR THE NET REALIZABLE VALUE WHICHEVER IS L ESS. SIMILARLY, IF THE STOCK REMAINS UNSOLD FOR MORE THAN TWO YEARS, THE S AME WAS VALUED @ 50% OF THE COST OR THE NET REALIZABLE VALUE WHICHEV ER IS LESS. IN CASE THE STOCKS REMAINS UNSOLD FOR MORE THAN THREE YEARS , THE ASSESSEE IS VALUING AT ` 100/- OR THE NET REALIZABLE VALUE WHICHEVER IS LES S. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF READYMADE GA RMENTS AND OTHER TEXTILE PRODUCTS. IT IS NOT IN DISPUTE THAT THE FA SHION IS CHANGING VERY FAST AND THE ASSESSEE HAS TO STOCK THE LATEST FASH ION TEXTILES SO AS TO MEET THE EXPECTATION OF THE CUSTOMERS. THE ONLY OB JECTION OF THE REVENUE APPEARS TO BE THAT THE ASSESSEE IS VALUING THE SILK SAREES AT ` 100/-. THE LOWER AUTHORITIES HAVE NOT CLASSIFIED THE NATURE OF THE SILK SAREES. THE SILK PRODUCT CONTAINS VARIOUS VARIETIE S. SOME OF THE SILK SAREES MAY CONTAIN PURE ZARI AND SOME OF THE SILK S AREES MAY CONTAIN ARTIFICIAL ZARI. APART FROM PURE SILK, ART SILK AL SO AVAILABLE IN THE MARKET, HENCE, THE VALUATION MAY DIFFER FROM PRODUCT TO PRO DUCT. THE SILK SAREES MANUFACTURED IN ONE PARTICULAR YEAR MAY NOT BE LIKED BY THE PEOPLE AFTER THREE OR FOUR YEARS. THEREFORE, THE ASSESSEE HAS TO NECESSARILY VALUE THE STOCK IF IT REMAINS UNSOLD FO R MORE THAN THREE YEARS AT THE NET REALIZABLE VALUE OR A VALUE WHICH COULD BE ESTIMATED ITA NO. 1784/14 ETC. :- 9 -: ON ADHOC BASIS. IN THIS CASE, THE ASSESSEE HAS ES TIMATED THE SAME AT ` 100/- OR NET REALIZABLE VALUE IN RESPECT OF THE ST OCKS WHICH REMAINS TO BE UNSOLD FOR MORE THAN THREE YEARS. THE ASSESS ING OFFICER HAS ALSO FOUND THAT IT IS NOT POSSIBLE TO IDENTIFY THE GOODS REMAINED UNSOLD IN THE SHOWROOM OF THE ASSESSEE. THE FACT REMAINS TH AT EACH AND EVERY PRODUCT OF THE ASSESSEE WAS ALLOTTED BY-NUMBER AND IT CAN BE IDENTIFIED WITH REFERENCE TO THE BY-NUMBER. THEREF ORE, IF THE REVENUE AUTHORITIES WANTED TO IDENTIFY THE GOODS REMAINED U NSOLD 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 B Y 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 TAKEN THE NET REALIZABLE VALUE FOR VALUING THE CLOSING ST OCK, THE ASSESSING OFFICER IS NOT JUSTIFIED IN MAKING THE ADDITION. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE HAS OFFERED FOR TAXATION THE DIF FERENCE BETWEEN THE ACTUAL SALE PRICE AND THE NET REALIZABLE VALUE EST IMATED BY THE ASSESSEE FOR VALUATION OF CLOSING STOCK. THEREFORE , THE REVENUE CANNOT HAVE ANY GRIEVANCE ON THE METHOD OF VALUATION ADOPT ED BY THE ASSESSEE. IN VIEW OF THE ABOVE, WE ARE UNABLE TO U PHOLD THE ORDERS OF ITA NO. 1784/14 ETC. :- 10 -: THE LOWER AUTHORITIES AND ACCORDINGLY, THE SAME ARE SET ASIDE. THE ASSESSING OFFICER IS DIRECTED TO DELETE THE DISALLO WANCE TO THE EXTENT OF ` 1,23,66,170/- FOR ASSESSMENT YEAR 2007-08, ` 2,36,95,104/- FOR ASSESSMENT YEAR 2008-09 AND ` 1,88,75,698/- FOR ASSESSMENT YEAR 2009-10. 11. THE NEXT COMMON ISSUE FOR ASSESSMENT YEARS 2007-08 TO 2009-10 IS WITH REGARD TO DISALLOWANCE U/S 40A(2)( A) OF THE ACT. 12. SHRI R. VIJAYARAGHAVAN, LD. COUNSEL FOR THE ASSESSE E SUBMITTED THAT THE ASSESSEE CLAIMED PAYMENT OF INT EREST @ 18% TO THE SPECIFIED PERSONS PROVIDED U/S 40A(2)(B) OF TH E ACT. THE ASSESSEE HAS ALSO MADE ADVANCES TO PARTNERS AND COL LECTED INTEREST ONLY @ 13%. THE ASSESSEE HAS ALSO AVAILED LOAN FR OM INDIAN OVERSEAS BANK AND PAID INTEREST @ 13%. THE ASSESSI NG OFFICER AFTER CONSIDERING THE ABOVE FACTS, FOUND THAT THE PAYMENT OF INTEREST AT 18% TO THE SPECIFIED PERSONS ARE EXCESSIVE. ACCORD INGLY, HE RESTRICTED THE INTEREST PAYMENT TO 13%. ACCORDING TO THE LD. COUNSEL, THE LOANS RECEIVED FROM THE SPECIFIED PERSONS ARE UNSECURED L OANS AND INTEREST ON UNSECURED LOANS IN THE MARKET DURING THE RELEVAN T ASSESSMENT YEAR WAS 20 TO 24%. WHAT WAS PAID BY THE ASSESSEE IS O NLY 18%. THEREFORE, THE ASSESSING OFFICER IS NOT JUSTIFIED I N DISALLOWING THE CLAIM OF THE ASSESSEE. THE LD. COUNSEL FURTHER SUBMITTE D THAT THE LOAN WAS ITA NO. 1784/14 ETC. :- 11 -: BORROWED LONG TIME BACK AND THE AGREED INTEREST WAS PAID DURING THE YEAR UNDER CONSIDERATION ALSO. ACCORDING TO THE LD . COUNSEL, IT IS FOR THE BUSINESSMAN TO DECIDE THE NATURE OF THE BORROWA L AND THE RATE OF INTEREST AND NOT FOR THE ASSESSING OFFICER TO DICTA TE TERMS TO THE ASSESSEE AT WHAT RATE OF INTEREST THE ASSESSEE HA S TO BORROW LOAN. THEREFORE, THE ASSESSING OFFICER IS NOT JUSTIFIED IN RESTRICTING THE PAYMENT OF INTEREST AT 13%. 13. ON THE CONTRARY, SHRI PATHLAVATH PEERYA, LD. DR SUB MITTED THAT THE ASSESSEE HAS PAID INTEREST ON THE BORROWE D LOAN FROM THE BANK ONLY AT 13%. THE ASSESSEE HAS ALSO ADVANCED LOAN TO THE PARTNERS AND RECEIVED INTEREST ONLY AT 13%, THEREFO RE, THERE IS NO JUSTIFICATION FOR MAKING PAYMENT OF INTEREST @ 18% TO THE SPECIFIED PERSONS U/S 40A(2)(B) OF THE ACT. THE EXCESS PAYM ENT OVER AND ABOVE 13% IS NOT FOR BUSINESS PURPOSE, THEREFORE, T HE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE CLAIM OF THE AS SESSEE. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE CLAIMED BEFORE THE TRIBUNAL THAT LOAN WAS BORROWED LONG AGO AND THE INTEREST WAS PAID AS PER THE TERMS AND CONDITIONS AGREED. I T IS NOT IN DISPUTE THAT THE LOAN IS AN UNSECURED ONE. WHEN THE ASSES SEE HAS RECEIVED LOAN WITHOUT OFFERING ANY SECURITY, NATURALLY, THE RATE OF INTEREST WOULD ITA NO. 1784/14 ETC. :- 12 -: BE HIGHER THAN THE SECURED LOAN. THE MARKET RATE O F INTEREST DURING THE RELEVANT ASSESSMENT YEAR WAS 20 TO 24%. THIS C LAIM OF THE ASSESSEE IS NOT IN DISPUTE. THE ASSESSEE ADMITTED LY PAID INTEREST ONLY @ 18%. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDE RED OPINION THAT WHEN THE ASSESSEE HAS PAID INTEREST LESS THAN THE MARKET RATE OF INTEREST FOR THE UNSECURED LOAN, THE ASSESSING OFFI CER IS NOT JUSTIFIED IN RESTRICTING THE INTEREST TO 13%. IN OTHER WORDS, T HE ASSESSING OFFICER IS NOT JUSTIFIED IN RESTRICTING THE PAYMENT OF INTE REST TO 13%. THEREFORE, THIS TRIBUNAL IS UNABLE TO UPHOLD THE OR DERS OF THE LOWER AUTHORITIES AND ACCORDINGLY THE SAME ARE SET ASIDE. THE ASSESSING OFFICER IS DIRECTED TO DELETE THE DISALLOWANCE OF I NTEREST U/S 40A(2)(A) OF THE ACT TO THE EXTENT OF ` 11,35,635/- FOR ASSESSMENT YEAR 2007-08, ` 13,43,291/- FOR ASSESSMENT YEAR 2008-09 AND ` 15,21,950/- FOR ASSESSMENT YEAR 2009-10. 15. THE NEXT COMMON ISSUE FOR ASSESSMENT YEARS 2007-08 TO 2009-10 IS WITH REGARD TO DISALLOWANCE OF CONTRIBU TION TO LIC GRATUITY FUND. 16. SHRI R. VIJAYARAGHAVAN, LD. COUNSEL FOR THE ASSESSE E SUBMITTED THAT THE ASSESSEE HAS CONTRIBUTED TOWARDS LIC GRATUITY FUND OF THE EMPLOYEES. HOWEVER, THE ASSESSING OFFI CER DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE FUND WAS NOT APPROVED ITA NO. 1784/14 ETC. :- 13 -: BY THE PRESCRIBED AUTHORITY. PLACING RELIANCE ON T HE JUDGMENT OF THE APEX COURT IN CIVIL APPEAL NO.447 OF 2003 DATED 9.9 .2009 IN THE CASE OF M/S TEXTOOL COMPANY LTD., THE LD. COUNSEL SUBMIT TED THAT AS PER THE SCHEME OF ARRANGEMENT, THE PAYMENT WAS MADE TO LIC AND MONEY HAS GONE OUT OF THE HANDS OF THE ASSESSEE. THEREFORE, EVEN THOUGH THE GRATUITY FUND WAS NOT APPROVED BY THE PRESCRIBED AU THORITY, THE SUPREME COURT FOUND THAT THE PAYMENT HAS TO BE ALLO WED. EVEN OTHERWISE, ACCORDING TO THE LD. COUNSEL, THE PAYMEN T MADE BY THE ASSESSEE IS ONLY FOR THE PURPOSE OF BUSINESS, THERE FORE, IT HAS TO BE ALLOWED U/S 37 OF THE ACT. 17. ON THE CONTRARY, SHRI PATHLAVATH PEERYA, LD. DR SUB MITTED THAT FOR THE PURPOSE OF CLAIMING DEDUCTION IN RESPE CT OF THE CONTRIBUTION MADE TO LIC GRATUITY FUND, THE FUND HA S TO BE APPROVED BY THE CIT. IN THIS CASE, THE CIT(A) HAS RIGHTLY C ONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 18. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS MADE CONTRIBUTION TO LIC GRATUITY FUND. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE HAS ALREADY PAID THE MONEY AND THE PAYMENT HAS GONE OUT OF THE HANDS OF THE ASSESSEE. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE JUDG MENT OF THE APEX ITA NO. 1784/14 ETC. :- 14 -: COURT IN TEXTOOL COMPANY LTD.(SUPRA) IS SQUARELY AP PLICABLE TO THE FACTS OF THE CASE. WHEN THE MONEY HAS GONE OUT OF THE HANDS OF THE ASSESSEE, THIS TRIBUNAL IS OF THE CONSIDERED OPINI ON THAT THE SAME HAS TO BE ALLOWED EVEN THOUGH THE LIC GRATUITY FUND WAS NOT APPROVED BY THE CONCERNED CIT IN VIEW OF THE JUDGMENT OF THE AP EX COURT IN TEXTOOL COMPANY LTD.(SUPRA). IN VIEW OF THE ABOVE DISCUSSION, WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND THE A SSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION TOWARDS CONTRIBUTIO N TO LIC GRATUITY FUNDS TO THE EXTENT OF ` 2,34,433/- FOR ASSESSMENT YEAR 2007-08, ` 2,01,384/- FOR ASSESSMENT YEAR 2008-09 AND ` 1,00,000/- FOR ASSESSMENT YEAR 2009-10. 19. THE NEXT GROUND OF ASSESSEES APPEAL FOR ASSESSMEN T YEAR 2007-08 IS WITH REGARD TO DISALLOWANCE OF DONATION TO THE EXTENT OF ` 54,700/-. 20. SHRI R. VIJAYARAGHAVAN, LD. COUNSEL FOR THE ASSESSE E SUBMITTED THAT THE ASSESSEE CLAIMED DONATION OF ` 1,09,400/-. HOWEVER, THE ASSESSING OFFICER WITHOUT ANY REASON R ESTRICTED THE SAME TO 50% OF THE CLAIM. ACCORDING TO THE LD. COUNSEL, WHEN THE ASSESSEE HAS IN FACT GIVEN DONATION FOR BUSINESS PURPOSE, TH ERE IS NO REASON FOR RESTRICTING THE CLAIM OF THE ASSESSEE. ITA NO. 1784/14 ETC. :- 15 -: 21. ON THE CONTRARY, SHRI PATHLAVATH PEERYA, LD. DR SUB MITTED THAT THE ASSESSEE CLAIMED DEDUCTION U/S 80G TO TH E EXTENT OF ` 1,09,400/-. THE ASSESSEE HAS NOT PRODUCED ANY REC EIPTS BEFORE THE ASSESSING OFFICER FOR CLAIMING DEDUCTION UN 80G. T HEREFORE, THE ASSESSING OFFICER RESTRICTED THE CLAIM TO ` 54,700/-. IN THE ABSENCE OF ANY RECEIPTS PRODUCED BY THE ASSESSEE, THE ASSESSI NG OFFICER HAS RIGHTLY RESTRICTED THE SAME TO 50%. 22. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. AD MITTEDLY, THE ASSESSEE HAS NOT PRODUCED THE ORIGINAL RECEIPTS BEF ORE THE ASSESSING OFFICER FOR SCRUTINY. WHEN THE ASSESSEE HAS NOT P RODUCED THE ORIGINAL RECEIPTS FOR MAKING CLAIM U/S 80G OF THE ACT, THI S TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ASSESSING OFFICER HAS R IGHTLY DISALLOWED PART OF THE CLAIM. THIS TRIBUNAL DO NOT FIND ANY R EASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY. ACCORDINGLY , THE SAME IS CONFIRMED. 23. IN THE RESULT, THE ASSESSEES APPEAL I.T.A.NO.1785 /MDS/2014 FOR ASSESSMENT YEAR 2007-08 IS PARTLY ALLOWED. 24. IN ASSESSMENT YEAR 2008-09, THE ASSESSEE HAS RAIS ED A GROUND WITH REGARD TO DISALLOWANCE OF POOJA EXPEN SES OF ` 5,19,217/-. ITA NO. 1784/14 ETC. :- 16 -: 25. SHRI R. VIJAYARAGHAVAN, LD. COUNSEL FOR THE ASSESS EE SUBMITTED THAT THE ASSESSEE HAS PURCHASED FLOWERS, DECORATIVE ITEMS INCENSE STICKS ETC FOR POOJA. ACCORDING TO THE LD. COUNSEL, IT IS THE BELIEF OF THE ASSESSEE THAT TO START HIS BUSINESS BY DOING POOJA BY GARLANDING GOD ALMIGHTY. THEREFORE, THIS EXPENDITU RE HAS TO BE TREATED AS BUSINESS EXPENDITURE. ACCORDING TO THE LD. COUNSEL, THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESS EE WITHOUT ANY REASON. 26. ON THE CONTRARY, SHRI PATHLAVATH PEERYA, LD. DR SUB MITTED THAT FOR EARLIER ASSESSMENT YEAR ALSO, POOJA EXPEND ITURE DEBITED IN THE BOOKS OF ACCOUNT WAS DISALLOWED. THEREFORE, THE SA ME WAS DISALLOWED FOR THE YEAR UNDER CONSIDERATION ALSO. 27. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE EXPENDITURE INCURRED BY THE ASSESSEE IS NOT IN DISPUTE. IT IS THE BELIEF OF EACH INDIVIDUAL TO GARLAND GOD ALMIGHTY AND START HIS BU SINESS. IF THE ASSESSEE INCURRED EXPENDITURE FOR FLOWERS, INCENSE STICKS, DECORATIVE ITEMS ETC. FOR DOING POOJA, THIS TRIBUNAL IS OF TH E CONSIDERED OPINION THAT THE SAME IS FOR BUSINESS PURPOSE. HENCE, THE ASSESSING OFFICER IS NOT JUSTIFIED IN DISALLOWING THE CLAIM OF THE ASSE SSEE. WHEN THE ASSESSEE STARTS ITS BUSINESS BY PERFORMING POOJA, THIS TRIBUNAL IS OF ITA NO. 1784/14 ETC. :- 17 -: THE CONSIDERED OPINION THAT THE EXPENDITURE INCURRE D FOR PERFORMING POOJA IS FOR BUSINESS PURPOSE, THEREFORE, THE SAME HAS TO BE ALLOWED WHILE COMPUTING THE TOTAL INCOME. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION MADE OF ` 5,19,217/-. 28. THE ASSESSEE HAS ALSO RAISED A GROUND IN ITS APPEA L FOR ASSESSMENT YEAR 2008-09 WITH REGARD TO THE DISALLO WANCE TOWARDS REPAIRS CONFIRMED BY THE CIT(A) TO THE EXTENT OF ` 65,71,729/-. 29. SHRI R. VIJAYARAGHAVAN, LD. COUNSEL FOR THE ASSESSE E SUBMITTED THAT THE ASSESSEE HAS TAKEN A BUILDING O N LEASE. THE BUILDING AS SUCH CANNOT BE USED FOR BUSINESS OF THE ASSESSEE. THE AMBIENCE OF THE BUILDING HAS TO BE CHANGED. IT HAS TO BE MADE FIT FOR ESTABLISHING A SHOWROOM. THE ASSESSEE IS NOT THE OWNER OF THE BUILDING. WHATEVER EXPENDITURE INCURRED BY THE AS SESSEE WAS ONLY FOR THE PURPOSE OF EXPANSION OF THE EXISTING BUSINESS. PLACING RELIANCE ON THE JUDGMENT OF THE MADRAS HIGH COURT IN THE CASE O F CIT VS TVS LEAN LOGISTICS LTD IN T.C.(A) NOS.876 AND 877 OF 2009 AN D THE JUDGMENT OF THE APEX COURT IN CIT VS MADRAS AUTO SERVICE (P) LT D, 233 ITR 468, THE LD. COUNSEL SUBMITTED THAT WHEN THE ASSESSEE INCURRED EXPENDITURE ON THE LEASED PREMISES FOR THE PURPOSE OF EXPANSION OF THE BUSINESS, THE SAME HAS TO BE ALLOWED AS REVENUE EXPENDITURE. ITA NO. 1784/14 ETC. :- 18 -: THE EXPENDITURE INCURRED BY THE ASSESSEE DOES NOT RESULT IN ESTABLISHMENT OF CAPITAL ASSET. AFTER EXPIRY OF TH E LEASE PERIOD, THE ASSESSEE HAS TO LEAVE THE BUILDING AS SUCH AND THE ASSESSEE MAY NOT GET BACK ANYTHING. REFERRING TO THE NATURE OF THE EXPENDITURE INCURRED BY THE ASSESSEE, THE LD. COUNSEL SUBMITTED THAT TH E MAJOR EXPENSES WERE TOWARDS CHANGE OF FLOORING, FALSE CEILING, LIG HTING AND OTHER SIMILAR STRUCTURE WHICH ARE TEMPORARY IN NATURE. TH EREFORE, THE CIT(A) HAS RIGHTLY FOUND THAT THE EXPENDITURE INCURRED BY THE ASSESSEE HAS TO BE ALLOWED AS REVENUE EXPENDITURE. 30. NOW COMING TO THE ASSESSEES CLAIM OF ` 64,58,309/-, SHRI R. VIJAYARAGHAVAN, LD. COUNSEL FOR THE ASSESSEE SUB MITTED THAT THE ASSESSEE CLAIMED EXPENDITURE OF ` 64,58,309/- TOWARDS REPAIR. THE ASSESSEE HAS FILED SUPPORTING MATERIAL BEFORE THE C IT(A). IN FACT, THE CIT(A) CALLED FOR THE REMAND REPORT WITH REGARD TO THE EXPENDITURE OF ` 64,58,309/-. THE ASSESSING OFFICER VERIFIED THE RE PORT AND FOUND THAT THE CLAIM MADE BY THE ASSESSEE IS CORRECT. INSPIT E OF THE FINDING OF THE ASSESSING OFFICER IN THE REMAND REPORT, THE CIT (A) DISALLOWED THE CLAIM OF THE ASSESSEE. ACCORDING TO THE LD. COUNS EL, SINCE THE ASSESSING OFFICER FOUND THAT THE CLAIM IS CORRECT, THERE CANNOT BE ANY DISALLOWANCE. ITA NO. 1784/14 ETC. :- 19 -: 31. ON THE CONTRARY, SHRI PATHLAVATH PEERYA, LD. DR SUB MITTED THAT THE ASSESSEE HAS NOT PRODUCED ANY MATERIAL EV IDENCE TO SUPPORT THE CLAIM OF ` 64,58,309/- TOWARDS REPAIR. THEREFORE, THE CIT(A) , AFTER CONSIDERING THE MATERIAL AVAILABLE ON RECORD, FOUND THAT THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE REPAIR EXPENDITU RE TO THE EXTENT OF ` 64,58,309/-. 32. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. IT APPEARS FROM THE ASSESSMENT ORDER THAT THE ASSESSEE HAS NOT PRODUCE D ANY MATERIAL TO SUPPORT THE CLAIM OF EXPENDITURE TOWARDS REPAIR. H OWEVER, THE ASSESSEE FILED CERTAIN BILLS AND VOUCHERS BEFORE TH E CIT(A) AND THE CIT(A) CALLED FOR THE REMAND REPORT FROM THE ASSESS ING OFFICER. THE ASSESSING OFFICER, AFTER VERIFYING THE MATERIAL FIL ED BY THE ASSESSEE, FOUND THAT THE CLAIM MADE BY THE ASSESSEE IS CORRE CT EXCEPT TO THE EXTENT OF ` 64,54,309/-. WHEN THE ASSESSING OFFICER FOUND TH AT THE CLAIM MADE BY THE ASSESSEE IS CORRECT, THIS TRIBUNA L IS OF THE CONSIDERED OPINION THAT THE CIT(A) HAS RIGHTLY CONF IRMED THE ORDER OF THE ASSESSING OFFICER. IN THE ABSENCE OF ANY OTHER MATERIAL AVAILABLE ON RECORD TO PROVE THE GENUINENESS OF THE CLAIM TO THE EXTENT OF ` 64,54,309/-, THIS TRIBUNAL IS OF THE CONSIDERED OP INION THAT THE CIT(A) HAS RIGHTLY CONFIRMED THE ORDER OF THE ASSESSING OF FICER. THIS TRIBUNAL ITA NO. 1784/14 ETC. :- 20 -: DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). ACCORDINGLY, THE SAME IS CONFIRMED. 33. NOW COMING TO REVENUES APPEALS I.T.A.NO.1880 & 1881/MDS/2014 FOR ASSESSMENT YEAR 2008-09 AND 2009- 10, THE ONLY ISSUE ARISES FOR CONSIDERATION IS WITH REGARD TO EX PENDITURE CLAIMED BY THE ASSESSEE FOR RENOVATION OF THE SHOWROOM. 34. SHRI PATHLAVATH PEERYA, LD. DR SUBMITTED THAT THE ASSESSEE HAS CLAIMED AN EXPENDITURE OF ` 5,01,46,573/-. THE ASSESSEE HAS ALSO CLAIMED OTHER REPAIRS TO THE EXTENT OF ` 1,01,28,525/-. THE ASSESSEE HAS CLASSIFIED THE EXPENDITURE OF ` 4,65,41,339/- UNDER THE HEAD REPAIRS TO MACHINERY AND THE BALANCE OF ` 72,64,490/- WAS CLASSIFIED UNDER THE HEAD OTHER REPAIRS. ACCORDING TO THE L D. DR, THE ASSESSEE TOOK A PREMISES ON LEASE FOR A PERIOD OF 20 YEARS F ROM 19 TH OCTOBER 2007. AFTER TAKING THE PROPERTY ON LEASE, THE ASS ESSEE INCURRED EXPENDITURE FOR RENOVATION. THE CLAIM OF THE ASSE SSEE BEFORE THE LOWER AUTHORITIES WAS THAT THE BUILDING WAS ALTERED AND REMODELLED SO AS TO MAKE IT A SHOWROOM AT TIRUNELVELI. THE ASSE SSEE CLAIMED THE ENTIRE EXPENDITURE AS REVENUE EXPENDITURE. HOWEVER , THE ASSESSING OFFICER FOUND THAT EVEN THOUGH THE EXPENDITURE WAS INCURRED FOR RENOVATION OF THE LEASED PREMISES, IN VIEW OF EXPLA NATION 1 TO SEC. 32 OF THE ACT, THE EXPENDITURE INCURRED BY THE ASSESS EE HAS TO BE ITA NO. 1784/14 ETC. :- 21 -: CAPITALIZED AND THE ASSESSEE AT THE BEST CAN CLAIM DEPRECIATION. THE ASSESSEE CLAIMED BEFORE THE ASSESSING OFFICER THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS TO BE ALLOWED U/S 30 OF THE ACT. REFERRING TO SEC. 32 OF THE ACT, MORE PARTICULARLY EXPLANATIO N 1, THE LD. DR SUBMITTED THAT THE EXPENDITURE INCURRED BY THE ASS ESSEE ON THE BUILDING ARE PERMANENT IN NATURE, THEREFORE, THE PE RMANENT EXPENDITURE FOR CREATING A CAPITAL ASSET CANNOT BE CONSTRUED AS REVENUE EXPENDITURE. REFERRING TO THE JUDGMENT OF THE APEX COURT IN BALLIMAL NAVAL KISHORE AND ANR VS CIT, 224 ITR 414, THE LD. DR SUBMITTED THAT WHAT CAN BE ALLOWED AS REVENUE EXPEN DITURE IS ONLY REPAIR TO THE BUILDING. IN THIS CASE, NO EXPENDITU RE WAS INCURRED FOR REPAIR. THE EXPENDITURE WAS INCURRED FOR RENOVATIO N OF BUILDING TO ESTABLISH A SHOWROOM. ACCORDING TO THE LD. DR, THE SHOWROOM IS A CAPITAL ASSET FOR THE PURPOSE OF CARRYING OUT THE B USINESS. THEREFORE, THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE CL AIM OF THE ASSESSEE. REFERRING TO THE ORDER OF THE CIT(A), THE LD. DR SU BMITTED THAT AN IDENTICAL ISSUE CAME UP BEFORE THIS TRIBUNAL FOR TH E ASSESSMENT YEAR 2003-04 IN THE ASSESSEES OWN CASE AND THIS TRIBUN AL BY PLACING RELIANCE ON THE JUDGMENT OF THE MADRAS HIGH COURT I N CIT VS HARI VIGNESH MOTORS P. LTD, 282 ITR 338, FOUND THAT SIMI LAR EXPENDITURE HAS TO BE ALLOWED AS REVENUE EXPENDITURE. THE DEPARTME NT HAS NOT ACCEPTED THE DECISION OF THIS TRIBUNAL AND THE APPE AL FILED BEFORE THE ITA NO. 1784/14 ETC. :- 22 -: HIGH COURT IS PENDING. THEREFORE, TO KEEP THE MATT ER ALIVE, THE REVENUE HAS FILED THE PRESENT APPEAL. 35. ON THE CONTRARY, SHRI R. VIJAYARAGHAVAN, LD. COUNSE L FOR THE ASSESSEE SUBMITTED THAT EVEN THOUGH THE ASSESSING O FFICER DISALLOWED A SUM OF ` 24,31,275/- TOWARDS THE CLAIM OF REPAIR TO THE BUI LDING AND MACHINERY, THE CIT(A), BY PLACING RELIANCE ON THE O RDER OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 200 -304, DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. NOW THE RE VENUE HAS FILED APPEAL ONLY WITH REGARD TO THE CLAIM OF REPAIRS TO THE EXTENT OF ` 1,36,77,865/- AND NOT THE ENTIRE DELETION MADE BY T HE CIT(A). 36. REFERRING TO SEC. 32(A)(I) OF THE ACT , THE LD. COU NSEL SUBMITTED THAT DEPRECIATION CAN BE ALLOWED IN CASE THE EXPENDITURE IS INCURRED FOR ESTABLISHING A CAPITAL ASSET. ACCORDI NG TO THE LD. COUNSEL, IN THIS CASE, THE ASSESSEE IS ENGAGED IN THE EXIST ING TEXTILE BUSINESS. IN ORDER TO EXPAND THE BUSINESS OF THE ASSESSEE, T HE ASSESSEE INTENDED TO ESTABLISH ANOTHER SHOWROOM IN THE LEASE D PREMISES. THE BUILDING TAKEN ON LEASE HAS TO BE MADE READY FOR US ING THE SAME AS SHOWROOM. THEREFORE, THE CIT(A) HAS RIGHTLY FOUND THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS REVENUE IN NATURE. ITA NO. 1784/14 ETC. :- 23 -: 37. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. ADMI TTEDLY, THE EXPENDITURE WAS INCURRED FOR EXPANSION OF THE EXIST ING BUSINESS. IN THE COURSE OF BUSINESS ACTIVITY, THE ASSESSEE INTENDED TO ESTABLISH ANOTHER SHOWROOM IN THE LEASED PREMISES, THEREFORE, THE PRE MISES WAS TAKEN ON LEASE FOR A PERIOD OF 20 YEARS AND THE ASSESSEE INCURRED EXPENDITURE FOR MAKING THE BUILDING FIT FOR ESTABLI SHING A SHOWROOM. THE QUESTION ARISES FOR CONSIDERATION IS WHETHER TH E ASSESSEE CAN CLAIM THE EXPENDITURE AS REVENUE IN NATURE? THIS I SSUE WAS SPECIFICALLY CONSIDERED BY THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2002-03 WHEN THE ASSESSEE CHALLENGED THE ORDE R OF THE ADMINISTRATIVE COMMISSIONER U/S 263 OF THE ACT. T HIS TRIBUNAL FOUND THAT THE SIMILAR EXPENDITURE CAN BE ALLOWED AS REVE NUE IN NATURE. SINCE THE CO-ORDINATE 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 HI GH 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 CA SE BEFORE THE KERALA HIGH COURT THE ASSESSEE TOOK A PREMISES ON LEASE A ND INCURRED EXPENDITURE FOR RENOVATION. THE OBJECT OF THE ASSE SSEE WAS TO ESTABLISH A SHOWROOM IN THE COURSE OF ITS BUSINESS ACTIVITY. THE KERALA ITA NO. 1784/14 ETC. :- 24 -: HIGH COURT, AFTER CONSIDERING THE RELEVANT CASE LAW S ON THE SUBJECT, FOUND THAT THE SIMILAR EXPENDITURE IS REVENUE IN NA TURE. IN VIEW OF THE ABOVE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTE RFERE WITH THE ORDER OF THE LOWER AUTHORITY. ACCORDINGLY, THE SAME IS C ONFIRMED. 38. IN THE RESULT, THE REVENUES APPEALS I.T.A.NO.1880 & 1881/ MDS/23014 ARE DISMISSED. 39. THE NEXT ISSUE IN ASSESSEES APPEAL FOR ASSESSMENT YEAR 2009-10 IS WITH REGARD TO DISALLOWANCE OF LEASE COM MITMENT CHARGES AND DONATIONS. 40. SHRI R. VIJAYARAGHAVAN, LD. COUNSEL FOR THE ASSESSE E SUBMITTED THAT THE ASSESSEE HAS PAID LEASE COMMITM ENT CHARGES TO 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 PAYMEN T WAS MADE TO VARIOUS TEMPLES AS DIRECTED BY HR&CE FOR THE PURPOS E OF OBTAINING A LAND ADJACENT TO THE BUSINESS PREMISES OF THE ASSE SSEE. THE LD. COUNSEL FURTHER SUBMITTED THAT THE VACANT LAND ADJA CENT TO THE ASSESSEES PREMISES WAS TAKEN ON LEASE BY THE ASS ESSEE FOR USING THE SAME AS CAR PARK. IF THE LAND WAS NOT TAKEN ON LEA SE, THE ASSESSEES BUSINESS WOULD HAVE AFFECTED VERY BADLY, THEREFORE, THE ACQUISITION OF ITA NO. 1784/14 ETC. :- 25 -: THE LEASEHOLDING RIGHT OVER THE LAND WAS FOR THE BU SINESS INTEREST OF THE ASSESSEE. THEREFORE, THE PAYMENT MADE BY THE ASSESSEE IS FOR TAKING THE LAND ON LEASE. MERELY BECAUSE THE SAME WAS SHOWN AS DONATION IN THE BOOKS OF ACCOUNT, ACCORDING TO THE LD. COUNSEL, THE SAME CANNOT BE DISALLOWED. 41. ON THE CONTRARY, SHRI PATHLAVATH PEERYA, THE LD. DR SUBMITTED THAT THE ASSESSEE HAS MADE CLAIM BY WAY OF LEASE COMMITMENT CHARGES TO THE EXTENT OF ` 1 CRORE IN THE NAME OF SIX INSTITUTIONS. ACCORDING TO THE LD. DR, THE ASSESSI NG OFFICER, AFTER VERIFICATION OF BOOKS OF ACCOUNT, FOUND THAT THE A SSESSEE HAS PAID ` 30 LAKHS TO TEMPLES AS DONATION. THE ASSESSEE CLARIF IED BEFORE THE ASSESSING OFFICER THAT THE PAYMENT OF LEASE COMMITM ENT CHARGES WAS MADE AS PER THE DIRECTION OF THE COMMISSIONER, HR&C E, CHENNAI. THE ASSESSEE ALSO CLARIFIED THAT ORIGINALLY THE PAYMENT S WERE MADE BY THE INDIVIDUAL PARTNERS. SUBSEQUENTLY, THE SAME WAS RE IMBURSED BY THE ASSESSEE-FIRM. THE ASSESSEE HAS ALSO CLARIFIED BE FORE THE ASSESSING OFFICER THAT THE PAYMENT WAS MADE FOR THE PURPOSE O F GETTING THE LEASE OF THE LAND ADJACENT TO THE ASSESSEES SHOWR OOM AT TIRUNELVELI, THEREFORE, THE LEASE COMMITMENT CHARGES ARE FOR BUS INESS PURPOSES. REFERRING TO THE ASSESSMENT ORDER THE LD. DR POINTE D OUT 69.2 CENTS OF LAND BELONGS TO VARIOUS TEMPLES AND IT WAS UNDER TH E CULTIVATION OF ONE ITA NO. 1784/14 ETC. :- 26 -: 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-FIRM FOR A CONSIDERATION O F ` 2,43,000/-. THE ACTUAL CONSIDERATION PAID BY SHRI K. MAHESH WAS ` 10,50,000/- FOR WHICH EVIDENCE WAS FOUND DURING THE COURSE OF SEARC H OPERATION. THE DOCUMENT EXECUTED BY THE LEGAL HEIRS OF SHRI GOPAL CLEARLY INDICATES THAT THE LAND WAS LET OUT TO SHRI K. MAHESH IN HIS INDIVIDUAL CAPACITY, THEREFORE, THE PAYMENT OF LEASE COMMITMENT CHARGES CLAIMED BY THE ASSESSEE CANNOT BE ALLOWED. 42. SIMILARLY, 82 CENTS OF LAND WAS UNDER CULTIVATION OF ONE SHRI VELU. ON HIS DEMISE, HIS LEGAL HEIRS EXECUTED A LE ASE DEED IN FAVOUR OF SHRI K. MAHESH FOR A CONSIDERATION OF ` 35 LAKHS. EVEN THOUGH THE CONSIDERATION FOR LEASE WAS PAID BY THE ASSESSEE-F IRM FROM ITS BANK ACCOUNT, THE PAYMENT WAS IN FACT DEBITED IN THE CUR RENT ACCOUNT OF SHRI K. MAHESH IN THE BOOKS OF ACCOUNT AS ADVANCE O F MONEY. THEREFORE, FOR ALL PRACTICAL PURPOSES, THE LEASEHOL D LAND HAS TO BE TREATED AS INDIVIDUAL LAND OF THE ASSESSEE. HENCE , THE LEASE COMMITMENT CHARGES CANNOT BE ALLOWED AS BUSINESS EX PENDITURE WHILE COMPUTING THE TAXABLE INCOME. 43. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT ITA NO. 1784/14 ETC. :- 27 -: THE LAND IN QUESTION BELONGS TO VARIOUS TEMPLES WHI CH ARE UNDER THE CONTROL OF HR&CE. AFTER DEATH OF THE ORIGINAL TENA NTS, ONE SHRI K. MAHESH, WHO IS THE PARTNER OF THE ASSESSEE-FIRM OB TAINED LEASE OF THE ABOVESIAD AGRICULTURAL LANDS. HOWEVER, HR&CE HAS C HALLENGED 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 PA YMENT OF DONATION TO VARIOUS TEMPLES, THE HR&CE AGREED TO GI VE THE LAND ON LEASE TO THE ASSESSEE-FIRM. HR&CE BY AN ORDER D ATED 31.5.2008 DIRECTED SHRI K. MAHESH, PARTNER OF THE ASSESSEE-F IRM, TO PAY DONATION TO VARIOUS TEMPLES. ACCORDINGLY, DONATIONS WERE PA ID FROM THE ACCOUNT OF THE ASSESSEE-FIRM AND AFTER RECEIVING DONATION BY THE RESPECTIVE TEMPLES, THE EXECUTIVE OFFICER EXECUTED THE LEASE D EED 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 DIR ECTION OF HR&CE FOR OBTAINING THE LEASE HOLD LANDS. EVEN THOUGH IN ITIALLY 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. T HEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE LEAS E COMMITMENT CHARGES WHICH WAS DISCLOSED AS DONATION IN THE BOOK S OF ACCOUNT IS FOR THE PURPOSE OF OBTAINING LEASE HOLDING INTEREST OF THE LAND IN QUESTION. ITA NO. 1784/14 ETC. :- 28 -: 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 PAYM ENT IS REVENUE IN NATURE. THEREFORE, THE ORDERS OF THE LOWER AUTHORI TIES ARE SET ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION MADE TOWARDS LEASE COMMITMENT CHARGES TO THE EXTENT OF ` 14,58,362/-. 44. THE NEXT ISSUE IN ASSESSEES APPEAL FOR ASSESSMENT YEAR 2009-10 IS WITH REGARD TO ADDITION TOWARDS STOCK DI SCREPANCY OF ` 60,49,011/-. 45. SHRI R. VIJAYARAGHAVAN, LD. COUNSEL FOR THE ASSESSE E SUBMITTED THAT THE ASSESSEE EXPLAINED BEFORE THE R EVENUE AUTHORITIES DURING THE COURSE OF SEARCH OPERATION THE METHODOL OGY OF STOCK TAKING BY THE ASSESSEES GROUP OF CONCERNS. REFERRING TO THE ASSESSMENT ORDER, THE LD. COUNSEL SUBMITTED THAT GOODS PURCHA SED CAN BE TRACKED THROUGH THE SYSTEM OF BY NUMBERS TILL THE SAME ARE FINALLY SOLD BY THE ASSESSEE. THE LD. COUNSEL FURTHER SUBMITTED THAT TH E ASSESSEE EXPLAINED BEFORE THE ASSESSING OFFICER THAT SOME OF THE OLD GOODS PURCHASED PRIOR TO THE DATE OF SEARCH AND LYING IN STOCK ON THE DATE OF SEARCH WERE SOLD SUBSEQUENTLY. HOWEVER, THE SAME W AS NOT REFLECTED IN THE LIST OF INVENTORY TAKEN BY THE SEARCH PARTY. SIMILARLY, SOME OF THE ITEMS WHICH WERE PURCHASED PRIOR TO THE DATE OF SEARCH AND SOLD ITA NO. 1784/14 ETC. :- 29 -: DURING THE INTERVENING PERIOD BEFORE THE DATE OF SE ARCH, WERE TAKEN BY THE ASSESSEE AS CLOSING STOCK AS ON 31.3.2009. TH IS WAS OMITTED BY THE SEARCH PARTY IN THE INVENTORY TAKEN BY THEM. T HE ASSESSEE HAS ALSO EXPLAINED BEFORE THE ASSESSING OFFICER THAT TH E ADVANTAGE OF ASSIGNING BY-NUMBERS TO EACH AND EVERY PRODUCT IS T O IDENTIFY THE JOURNEY OF THE GOODS FROM THE DATE OF PURCHASE TILL IT WAS FINALLY SOLD. THEREFORE, THE INVENTORY PREPARED BY THE SEARCH PAR TY IS SUFFERED FROM VARIOUS INFIRMITIES. THE DISCREPANCY POINTED OUT B Y THE ASSESSING OFFICER IS NOT CORRECT. THE LD. COUNSEL FURTHER SU BMITTED THAT THE ASSESSEE REQUESTED THE COPY OF THE INVENTORY TAKEN BY THE REVENUE AUTHORITIES BEFORE PASSING THE ASSESSMENT ORDER. H OWEVER, THIS WAS NOT PROVIDED TO THE ASSESSEE AND WITHOUT GIVING AN Y OPPORTUNITY, THE ASSESSING OFFICER PASSED THE ASSESSMENT ORDER. 46. ON THE CONTRARY, SHRI PATHLAVATH PEERYA, LD. DR SUB MITTED THAT DURING THE COURSE OF SEARCH OPERATION, THE REV ENUE AUTHORITIES TOOK PHYSICAL INVENTORY OF THE STOCK FOUND IN THE B USINESS PREMISES AT CHENNAI AND TIRUNELVELI. THE INVENTORY WAS COMPARE D WITH THE BOOKS OF ACCOUNT AND FOUND VARIANCE IN THE INVENTORY AS P ER THE BOOKS OF ACCOUNT AND PHYSICAL INVENTORY TAKEN BY THE REVENUE AUTHORITIES. THE MANAGING PARTNER, SHRI SHIVA KUMAR WAS ALSO EXAMINE D DURING THE COURSE OF SEARCH OPERATION. HE ADMITTED THAT THERE WAS AN ERROR IN THE ITA NO. 1784/14 ETC. :- 30 -: VALUATION OF SOME OF THE PRODUCTS. THEREFORE, THE DEFICIENT STOCK FOUND DURING THE COURSE OF SEARCH OPERATION WAS TRE ATED AS UNREFLECTED 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 ` 21,05,178/- TOWARDS UNRECORDED SALES AND ` 39,43,833/- AS UNEXPLAINED INVESTMENT. 47. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. FRO M THE ORDER OF THE CIT(A) IT APPEARS THAT THE CIT(A) CALLED FOR THE RE MAND REPORT FROM THE ASSESSING OFFICER. FURTHER, IT APPEARS FURTHER THA T THE ASSESSEE REQUESTED FOR THE COPIES OF THE DETAILS OF THE PHYS ICAL INVENTORY TAKEN BY THE SEARCH PARTY FOR VERIFICATION AND RECONCILIA TION. THIS WAS APPARENTLY NOT PROVIDED TO THE ASSESSEE. IT IS NO T 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 T HROUGH THE SYSTEM AND CAN BE IDENTIFIED HOW THE PRODUCT TRAVELLED FROM ON E PLACE TO ANOTHER TILL IT WAS FINALLY DISPOSED OF BY SALE OR OTHERWIS E. THE ASSESSING OFFICER APPEARS TO HAVE FOUND THAT THE ITEMS COULD NOT BE VERIFIED DUE TO VARIOUS FACTORS. THE ASSESSING OFFICER HAS NOT POINTED OUT ANY ITA NO. 1784/14 ETC. :- 31 -: SINGLE FACT WHICH PREVENTED HIM FROM VERIFYING OR T RACKING THE SYSTEM TO FIND OUT HOW THE STOCK PURCHASED BY THE ASSESSE E TRAVELLED FROM THE DATE OF PURCHASE TILL THE DATE OF SALE. MOREOV ER THE UNSOLD STOCK FOR MORE THAN ONE YEAR, TWO YEARS AND THREE YEARS A S THE CASE MAY BE, IS AVAILABLE IN THE STOCK WHICH WAS NOT REFLECT ED IN THE PHYSICAL INVENTORY TAKEN BY THE REVENUE AUTHORITIES. THE AS SESSING OFFICER HIMSELF ADMITS THAT HE COULD NOT IDENTIFY THE STOCK WITH REFERENCE TO BY-NUMBER PROVIDED BY THE ASSESSEE. IF THE ASSESS ING OFFICER COULD NOT IDENTIFY THE STOCK WITH REFERENCE TO BY-NUMBER ALLOTTED BY THE ASSESSEE, THIS TRIBUNAL IS OF THE CONSIDERED OPINI ON THAT THE METHOD OF TAKING INVENTORY BY THE REVENUE MAY NOT REFLECT THE CORRECT POSITION OF CLOSING STOCK. WHEN THE ASSESSEE IS MAINTAINING S TOCKS SYSTEMATICALLY BY ALLOCATING BY-NUMBER AND ALSO PROVIDING A SYSTEM OF TRACKING THROUGH THE COMPUTER, THIS TRIBUNAL IS OF THE CONS IDERED OPINION THAT THE AUTHORITIES BELOW OUGHT TO HAVE EXAMINED THE ME THOD ADOPTED BY THE ASSESSEE IN A DETAILED MANNER AND AN OPPORTUNI TY SHALL BE GIVEN TO THE ASSESSEE TO EXPLAIN HOW THE METHOD WORKS. HOWEVER, WITHOUT CONSIDERING ALL THESE FACTORS, THE ASSESSING OFFICE R SIMPLY CAME TO THE CONCLUSION THAT THERE WAS A DISCREPANCY. THIS TRI BUNAL IS OF THE CONSIDERED OPINION THAT THE DISCREPANCY WAS DUE TO STOCKS REMAIN UNSOLD FOR MORE THAN ONE YEAR AND THE ASSESSEE VAL UED THE SAME AT THE NET REALIZABLE VALUE OR COST WHICHEVER IS LESS, THEREFORE, THE ITA NO. 1784/14 ETC. :- 32 -: CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE ADDITION MADE BY THE ASSESSING OFFICER. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHO RITIES ARE SET ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION. 48. IN THE RESULT, THE ASSESSEES APPEAL FOR ASSESSMEN T YEAR 2009-10 IS ALLOWED. 49. TO SUM UP, THE ASSESSEES APPEALS I.T.A.NO.1784 AND 1787/MDS/2014 ARE ALLOWED AND I.T.A.NO.1785 & 1786/ MDS/2014 ARE PARTLY ALLOWED. THE REVENUES APPEALS I.T.A.NO.1880 AND 1881/MDS/2014 ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST JUNE, 2016, AT CHENNAI. SD/- SD/- ( . !' ) (A. MOHAN ALANKAMONY) # / ACCOUNTANT MEMBER ( . . . ) ) (N.R.S. GANESAN) / JUDICIAL MEMBER / CHENNAI ! / DATED: 1 ST JUNE, 2016 RD !' # $% &% / COPY TO: 1 . '( / APPELLANT 4. ) / CIT 2. #*'( / RESPONDENT 5. %+, # - / DR 3. ) () / CIT(A) 6. ,/ 0 / GF