DCIT, CHENNAI V. Rm.K.V.Textiles, Tirunelveli

ITA 1874/CHNY/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9101 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 28-03-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 01-07-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PATHLAVATH PEERYA
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure
• Section: 32; 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 ./ ITA NOS.1781, 1782 & 1783/MDS/2014 ( )( / ASSESSMENT YEARS : 2007-08, 2008-09 & 2009-10 M/S RM.K.V. TEXTILES, C/O M/S SUBBARAYA AIYAR, PADMANABHAN & RAMAMANI, ADVOCATES, NEW NO.75A (OLD NO.105A), DR. RADHAKRISHNAN SALAI, MYLAPORE, CHENNAI - 600 004. PAN : AABFR 1308 P V. THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE IV(1), CHENNAI - 600 034. (+,/ APPELLANT) (-.+,/ RESPONDENT) ./ ITA NO.1874/MDS/2014 ( )( / ASSESSMENT YEAR : 2009-10 THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE IV(1), CHENNAI - 600 034. V. M/S RM.K.V. TEXTILES, NO.176-F, TRIVANDRUM ROAD, TIRUNELVELI, TAMIL NADU 627 003. (+,/ APPELLANT) (-.+,/ RESPONDENT) (/0 1 2 /ASSESSEE BY : SH. R. VIJAYARAGHAVAN, ADVOCATE 3 1 2 /REVENUE BY : SH. PATHLAVATH PEERYA, CIT 4 1 0% / DATE OF HEARING : 31.03.2016 5') 1 0% / DATE OF PRONOUNCEMENT : 01.06.2016 2 I.T.A. NOS.1781 TO 1783/MDS/14 I.T.A. NO.1874/MDS/14 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THE ASSESSEES APPEALS FOR ASSESSMENT YEARS 2007 -08, 2008-09 & 2009-10 AND THE REVENUES APPEAL FOR THE ASSESSMENT YEAR 2009-10 ARE DIRECTED AGAINST THE RESPECTIVE OR DERS OF THE COMMISSIONER OF INCOME TAX (APPEALS), CENTRAL-I, CH ENNAI. SINCE COMMON ISSUE ARISES FOR CONSIDERATION IN ALL THESE APPEALS, WE HEARD THESE APPEALS TOGETHER AND DISPOSING OF THE S AME BY THIS COMMON ORDER. 2. THE FIRST COMMON ISSUE ARISES FOR CONSIDERATION IS WITH REGARD TO VALUATION OF CLOSING STOCK. 3. SH. R. VIJAYARAGHAVAN, THE LD.COUNSEL FOR THE AS SESSEE, SUBMITTED THAT THE ASSESSEE IS VALUING THE CLOSING STOCK AT COST OR REALIZABLE VALUE, WHICHEVER IS LESS, WHEN THE SUBST ANTIAL PORTION OF THE OLD STOCK WAS LYING AS ON 31 ST MARCH OF RELEVANT ASSESSMENT YEAR. AFTER EXAMINING THE MARKET CONDITION AND THE QUALITY OF THE OLD STOCK, THE ASSESSEE ESTIMATES THE REALIZABLE VALUE ON THE MARKET IN RESPECT OF THE OLD STOCK. THE ESTIMATION MADE BY T HE ASSESSEE WITH REGARD TO REALIZABLE MARKET VALUE ON THE OLD STOCK AMOUNTS TO 50% IN THE SECOND YEAR AND 25% OF THE ORIGINAL COST IN THE THIRD YEAR 3 I.T.A. NOS.1781 TO 1783/MDS/14 I.T.A. NO.1874/MDS/14 RESPECTIVELY. IF THE STOCK CONTINUES FOR MORE THAN THREE YEARS, THEN IT WAS CONSIDERED AS VERY OLD STOCK AND THE SAME WA S VALUED AT ` 100/- PER ITEM IN ORDER TO PREVENT PILFERAGE. THE ASSESSEE, IN FACT, UNDERTOOK THIS EXERCISE FROM TIME TO TIME AT THE EN D OF THE FINANCIAL YEAR. THE VALUE ASSIGNED FOR THE OLD STOCK ON THE BASIS OF THE REALIZABLE MARKET CONDITION, WAS CONTINUOUSLY VALUE D YEAR AFTER YEAR. THE ASSESSEE HAS NOT CHANGED THE METHOD OF V ALUING THE CLOSING STOCK. THE ASSESSEES ESTIMATION OF REALIZ ABLE MARKET VALUE OF THESE STOCKS ARE SUBSTANTIALLY FOUND TO BE CORRE CT WHENEVER THE OLD STOCKS ARE SOLD AND NET REALIZED VALUED WAS TAK EN AS RAISED IN THE BOOKS OF ACCOUNT. ACCORDING TO THE LD. COUNSEL , EVERY VALUATION OF STOCK WILL HAVE THE CONSEQUENCE OF POSTPONING TH E PROFIT OR LOSS TO THE YEAR OF SALE OF SUCH STOCK WHICH IS INEVITAB LE AND UNAVOIDABLE DEPENDING UPON WHETHER THE SALE PRICE REALIZED IS M ORE OR LESS THAN THE ESTIMATED VALUE OF THE CLOSING STOCK. ACCORDIN G TO THE LD. COUNSEL, THE REALIZABLE MARKET VALUE OF THE STOCK W AS BASED UPON THE ASSESSEES PERCEPTION WHICH WAS GAINED OVER A P ERIOD OF TIME IN THE BUSINESS. ACCORDING TO THE LD. COUNSEL, VALUAT ION OF CLOSING STOCK AT THE REALIZABLE MARKET VALUE IS ONE OF THE METHODS PERMITTED UNDER THE PROVISIONS OF INCOME-TAX ACT. 4 I.T.A. NOS.1781 TO 1783/MDS/14 I.T.A. NO.1874/MDS/14 4. REFERRING TO THE ASSESSMENT ORDER FOR THE ASSESS MENT YEAR 2009-10, MORE PARTICULARLY AT PARA 6 AND 7, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER HIMSE LF ADMITTED THAT THERE IS NO INVENTORY OF INDIVIDUAL BREAK UP OF PHY SICAL STOCK IDENTIFIED WITH REFERENCE TO BY-NUMBERS MADE OUT ON THE DATE OF SEARCH. THEREFORE, IT IS NOT POSSIBLE AT THIS POIN T OF TIME TO VERIFY WITH THE ITEMS WITH SPECIFIC BY-NUMBERS FORMED PART OF THE PHYSICAL INVENTORY ON THE DATE OF SEARCH BUT SUBSEQUENTLY EI THER SOLD BEFORE 31.3.2009 OR CONTINUE TO REMAIN UNSOLD AS ON 31.03. 2009. IN VIEW OF THE ADMISSION MADE BY THE ASSESSING OFFICER THAT THERE IS NO INVENTORY OF BREAKUP OF INDIVIDUAL STOCK IDENTIFIED WITH REFERENCE TO BY-NUMBERS, ACCORDING TO THE LD. COUNSEL, IT IS NOT POSSIBLE FOR THE ASSESSING OFFICER TO EXAMINE THE SAME. THE LD.COUN SEL FURTHER SUBMITTED THAT THE EXPERIENCE GAINED BY THE ASSESSE E OVER THE PERIOD OF TIME IN THE BUSINESS CANNOT BE JUST BRUSH ED ASIDE BY THE ASSESSING OFFICER AND DETERMINE VALUE OF CLOSING ST OCK. ACCORDING TO THE LD. COUNSEL, UNLESS THE STOCKS WERE SOLD WIT HIN FOUR YEARS PERIOD, THE REALIZABLE VALUE WOULD BE VERY LESS THA N THE COST PRICE. THEREFORE, IN ORDER TO AVOID PILFERAGE, THE OLD STO CKS WERE VALUED AT A PRICE OF ` 100/-. THE LD.COUNSEL FURTHER SUBMITTED THAT THE ASSESSEE IS THE RIGHT PERSON TO VALUE THE MATERIAL REMAINS UNSOLD 5 I.T.A. NOS.1781 TO 1783/MDS/14 I.T.A. NO.1874/MDS/14 DURING THE END OF THE FINANCIAL YEAR. THEREFORE, T HE ASSESSING OFFICER CANNOT JUST IGNORE THE VALUATION MADE BY TH E ASSESSEE BASED UPON THE EXPERIENCE IN THE BUSINESS. 5. ON THE CONTRARY, SH. PATHLAVATH PEERYA, THE LD. DEPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THERE W AS SEARCH IN THE PREMISES OF THE ASSESSEE ON 17.02.2009. DURING THE COURSE OF SEARCH OPERATION, THE CLOSING STOCK VALUED AS PER T HE BOOKS OF ACCOUNT AS ON 17.02.2009 WAS ` 20,15,05,458/-. HOWEVER, THE PHYSICAL INVENTORY FOR STOCK WAS FOUND TO BE LESS A S COMPARED TO THE STOCK AS PER BOOKS OF ACCOUNT TO THE EXTENT OF ` 1,27,64,281/- FOR THE ASSESSMENT YEAR 2009-10. THE MANAGING PARTNER SHRI SHIVA KUMAR WAS EXAMINED BY THE ASSESSING OFFICER. HE AD MITTED THAT THERE WAS AN ERROR IN THE FIGURE DECLARED IN THE BO OKS OF ACCOUNT. ONE SHRI PONANAND WAS ALSO EXAMINED IN RESPECT OF T HE STOCKS FOUND AT TIRUNELVELI BRANCH OF THE ASSESSEE. HOWEV ER, HE DID NOT AGREE TO THE DIFFERENCE FOUND DURING THE COURSE OF SEARCH OPERATION, IN THE STOCKS. POST SEARCH INVESTIGATION WAS MADE BY THE ASSESSING OFFICER. AT THE TIME OF INVENTORY, STOCK WITH SPEC IFIC BY-NUMBERS LYING UNSOLD WAS NOT INCLUDED IN THE PHYSICAL STOCK TAKEN ON THE DATE OF SEARCH AND THE STOCK WITH SPECIFIC BY-NUMBE RS SOLD 6 I.T.A. NOS.1781 TO 1783/MDS/14 I.T.A. NO.1874/MDS/14 SUBSEQUENT TO THE DATE OF SEARCH WAS ALSO NOT INCLU DED. THE ASSESSEE CLAIMED BEFORE THE ASSESSING OFFICER THAT IF THE ABOVE CLAIMS ARE CONSIDERED, THE EXCESS STOCK WOULD COME ONLY TO ` 35,96,618/-. THE ASSESSING OFFICER, AFTER EXAMININ G THE CLAIM OF THE ASSESSEE, FOUND THAT THE VERACITY OF CLAIM MADE BY THE ASSESSEE CANNOT BE TESTED AT THIS POINT OF TIME. T HEREFORE, THE EXPLANATION OF THE ASSESSEE IS ONLY AN AFTERTHOUGHT . ACCORDINGLY THE ASSESSING OFFICER DETERMINED THE DEFICIT STOCK AT ` 1,09,82,464/- AT CHENNAI BRANCH OF THE ASSESSEE AND THE EXCESS STOCK AT TIRUNELVELI WAS DETERMINED AT ` 29,22,060/-. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, THE ASSESSEE IS ENGAGED IN TEXTILE BUSINESS AND THERE W AS SEARCH IN THE PREMISES OF THE ASSESSEE UNDER SECTION 132 OF THE A CT ON 17.02.2009. FROM THE ORDERS OF THE LOWER AUTHORITI ES IT APPEARS THAT THE PHYSICAL INVENTORY OF STOCK WAS TAKEN AT THE BU SINESS PREMISES OF THE ASSESSEE AT CHENNAI AND TIRUNELVELI ON 17.02 .2009. THE INVENTORY TAKEN BY THE REVENUE WAS COMPARED WITH TH E BOOKS OF ACCOUNT AND THE REVENUE AUTHORITIES FOUND THAT THER E WAS VARIATION BETWEEN THE BOOKS OF ACCOUNT AND THE PHYSICAL INVEN TORY TAKEN. AT 7 I.T.A. NOS.1781 TO 1783/MDS/14 I.T.A. NO.1874/MDS/14 CHENNAI BRANCH OF THE ASSESSEE, THE INVENTORY TAKEN WAS ` 18,87,41,177/-. HOWEVER, AS PER THE BOOKS OF ACCOUN T AS ON 17.02.2009 WAS ` 20,15,05,458/-. THE REVENUE AUTHORITIES FOUND THAT THE PHYSICAL STOCK WAS LESS THAN WHAT WAS DISC LOSED IN THE BOOKS OF ACCOUNT TO THE EXTENT OF ` 1,27,64,281/-. EVEN THOUGH THE MANAGING PARTNER SHRI SHIVA KUMAR APPEARS TO HAVE A DMITTED THE STOCK DIFFERENCE FOR CHENNAI AND ANOTHER PARTNER AT TIRUNELVELI BRANCH CLAIMED BEFORE THE AUTHORITIES THAT THE STOC K TAKEN IS NOT CORRECT. THE ASSESSEE EXPLAINED BEFORE THE ASSESSI NG OFFICER THAT THEY ARE IN THE RETAIL BUSINESS OF TEXTILES AND REA DYMADE DRESS. OVER A PERIOD OF TIME, THE TECHNOLOGY AND FASHION A RE CHANGING AND THE MODEL OF THE DRESS MATERIAL IS ALSO FAST CHANGI NG. IF THE ASSESSEE COULD NOT SELL THE PRODUCT WITHIN 2-3 YEAR S, THEN IN THE FOURTH YEAR THERE CANNOT BE ANY VALUE FOR THE PRODU CTS AT ALL. THE ASSESSEE CLAIMED BEFORE THE AUTHORITIES THAT IN THE SECOND YEAR, THE VALUE OF THE PROPERTY WAS TAKEN AT 50% OF STOCK AND IN THIRD YEAR, IT WAS TAKEN AT 25% OF STOCK. THE ASSESSEE ALSO EXPLA INED BEFORE THE ASSESSING OFFICER THAT THEY ARE VALUING REGULARLY C OST OR MARKET VALUE, WHICH IS LESS, AS PER THE METHOD APPROVED BY THE LAW. FROM THE MATERIAL AVAILABLE ON RECORD, IT APPEARS THAT T HE ASSESSEE HAS CATEGORIZED THE STOCK INTO VARIOUS CATEGORIES, SUCH AS SLOW MOVING 8 I.T.A. NOS.1781 TO 1783/MDS/14 I.T.A. NO.1874/MDS/14 ITEM, NON-MOVING ITEM, ETC. THE PERCENTAGE OF PROV ISION MADE AT 25%, 50% AND 100% ON NOTIONAL BASIS WAS ADOPTED BY THE ASSESSEE FOR THE PURPOSE OF VALUING THE CLOSING STO CK. FROM THE ORDERS OF THE AUTHORITIES BELOW IT APPEARS THAT SIL K SAREES CONSTITUTE MAJOR SEGMENT. AT THE END OF THE THIRD YEAR, IF TH E SILK SAREES COULD NOT BE SOLD, THE SAME WAS VALUED AT ` 100/- BEING THE REALIZABLE MARKET VALUE OF THE STOCK. THIS CLAIM OF THE ASSES SEE APPEARS TO HAVE BEEN REJECTED BY THE ASSESSING OFFICER ON THE GROUND THAT THE ASSESSEE COULD NOT SUBSTANTIATE THE CLAIM. 7. IN THE TEXTILE MARKET, THE FASHION IN DRESS MATE RIAL IS FAST CHANGING. IF THE ASSESSEE COULD NOT SELL THE PRODU CTS IN THE YEAR IT WAS PURCHASED AND INTRODUCED, THE NEXT YEAR THE VAL UE OF THE STOCK MAY BE REDUCED AND THE ASSESSEE COULD NOT SELL THE PRODUCTS FOR THE SAME PRICE FOR WHICH IT WAS TARGETED IN THE YEA R OF PURCHASE. IT IS A WELL SETTLED PRINCIPLE OF LAW THAT CLOSING STO CK HAS TO BE VALUED AS PER THE MARKET PRICE OR COST WHICHEVER IS LESS, AT THE DISCRETION OF THE ASSESSEE. IN THIS CASE, THE ASSESSEE ADMITTEDL Y FOLLOWING THE COST OR MARKET PRICE, WHICHEVER IS LESS, UNIFORMLY IN ALL THE EARLIER ASSESSMENT YEARS. THE ASSESSEE VALUING THE REALIZA BLE VALUE BASED UPON THE PAST EXPERIENCE IN THE BUSINESS. TH E ASSESSING 9 I.T.A. NOS.1781 TO 1783/MDS/14 I.T.A. NO.1874/MDS/14 OFFICER OBSERVED THAT THE ASSESSEE FAILS TO SUBSTAN TIATE THE VALUATION MADE. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ASSESSING OFFICER IS NOT AN EXPERT IN TEXTILE BUSIN ESS. THE ASSESSING OFFICER UNLESS OTHERWISE HAS MATERIAL TO SUGGEST THAT THE VALUATION MADE BY THE ASSESSEE IS NOT CORRECT, HE C ANNOT DISPUTE THE VALUATION MADE BY THE ASSESSEE. IF THE TEXTILE MATERIAL COULD NOT BE SOLD IN THE SECOND OR THIRD YEAR, THEN THE ASSES SEE HAS TO REALISE THE VALUE AS PER THE MARKET CONDITION PREVAILING AT THAT POINT OF TIME. THEREFORE, WHEN THE ASSESSEE ESTIMATES THE MARKET V ALUE BASED UPON THEIR EXPERIENCE, THE ASSESSING OFFICER CANNOT STEP INTO THE SHOES OF THE ASSESSEE TO SAY THAT IT WAS NOT SUBSTA NTIATED. IF THE ASSESSING OFFICER FINDS THAT THE ASSESSEE COULD NOT SUBSTANTIATE THE REALIZABLE VALUE ESTIMATED, THEN THE ASSESSING OFFI CER OUGHT TO HAVE REFERRED THE ISSUE OF ESTIMATION TO THE EXPERTS IN THE FIELD TO STUDY THE MARKET CONDITION OF TEXTILES AT THE RELEVANT PO INT OF TIME BEFORE DISAPPROVING THE CLAIM MADE BY THE ASSESSEE. UNFOR TUNATELY, THE ASSESSING OFFICER HAS NOT MADE ANY SUCH EXERCISE. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE VALUATION OF STO CK HAS TO BE NECESSARILY MADE ON THE REALIZABLE MARKET VALUE ON THE BASIS OF THE EXPERIENCE IN THE BUSINESS. WHEN THE ASSESSEE VALU ED THE OLD STOCKS ON THEIR PAST EXPERIENCE, THE ASSESSING OFFI CER CANNOT HAVE 10 I.T.A. NOS.1781 TO 1783/MDS/14 I.T.A. NO.1874/MDS/14 ANY REASON TO DOUBT THE SAME UNLESS OTHERWISE CONTR ARY MATERIALS ARE AVAILABLE ON RECORD. IN THIS CASE, NO SUCH MAT ERIAL IS AVAILABLE ON RECORD. THEREFORE, THIS TRIBUNAL IS OF THE CONS IDERED OPINION THAT THE ASSESSING OFFICER CANNOT DOUBT THE VALUE MADE B Y THE ASSESSEE. THE CIT(APPEALS) HAS CONFIRMED THE ORDER OF THE ASSESSING OFFICER ON THE GROUND THAT THE ASSESSEE A GREED FOR DIFFERENCE ON CLOSING STOCK VALUATION AT THE TIME O F SEARCH AND POST SEARCH PROCEEDING. HOWEVER, BY A LETTER DATED 10.0 8.2009, THE ASSESSEE EXPLAINED BEFORE THE ASSESSING OFFICER THA T THERE WAS AN ERROR IN THE PHYSICAL INVENTORY OF STOCKS TAKEN BY THE REVENUE AUTHORITIES. THE ASSESSEE SPECIFICALLY CLAIMED THA T SPECIFIC BY- NUMBERS INVENTORISED AS PART OF YEAR END STOCK WAS NOT INCLUDED IN THE INVENTORY TAKEN ON THE DATE OF SEARCH. THE STO CK WHICH WAS LYING UNSOLD WITH SPECIFIC BY-NUMBERS WAS ALSO NOT INCLUDED IN THE STOCK TAKEN ON THE DATE OF SEARCH. SO, THE ASSESSE ES CLAIM BEFORE THE AUTHORITIES BELOW THAT THE STOCKS LYING UNSOLD ON THE DATE OF SEARCH WAS NOT TAKEN INTO CONSIDERATION BY THE REVE NUE AUTHORITIES. IN FACT, THE ASSESSING OFFICER HAS OBSERVED AS FOLL OWS AT PAGE 16 OF HIS ORDER:- .THERE IS NO INVENTORY OF INDIVIDUAL BREAK UP OF P HYSICAL STOCK IDENTIFIED WITH REFERENCE TO BY-NUMBERS MADE OUT 11 I.T.A. NOS.1781 TO 1783/MDS/14 I.T.A. NO.1874/MDS/14 ON THE DATE OF SEARCH. THEREFORE, IT IS NOT POSSIB LE AT THIS POINT OF TIME TO VERIFY WHETHER THE ITEMS WITH SPECIFIC BY-NUMBERS CLAIMED BY THE ASSESSEE FORMED PART OF THE PHYSICAL INVENTORY ON THE DAY OF SEARCH BY SUBSEQUENTLY EITHER SOLD BEFORE 31.3.2009 OR CONTINUE TO REMAIN UNSOLD AS ON 31.3.2009... IN VIEW OF SPECIFIC OBSERVATION OF THE ASSESSING OF FICER AT PAGE 16 IN THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2009-1 0, IT IS OBVIOUS THAT THE INVENTORY TAKEN BY THE REVENUE AUT HORITIES COULD NOT BE IDENTIFIED WITH THE PHYSICAL STOCK WITH REFE RENCE TO BY- NUMBERS. IF THE ASSESSING OFFICER COULD NOT IDENTI FY THE STOCKS WITH REFERENCE TO BY-NUMBERS, IT IS NOT KNOWN HOW THE RE VENUE AUTHORITIES CLAIM THAT THE STOCK WAS TAKEN PROPERLY ON THE DAY OF SEARCH. THIS OBSERVATION OF THE ASSESSING OFFICER CLEARLY INDICATES THAT THE STOCKS WERE NOT TAKEN PROPERLY AS CLAIMED BY THE ASSESSEE. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE RE IS NO JUSTIFICATION ON THE PART OF THE ASSESSING OFFICER TO IGNORE THE OLD STOCKS WHICH COULD NOT BE SOLD AND REMAIN IN THE ST OCKS ON THE DATE OF SEARCH DURING THE COURSE OF INVENTORY. THEREFOR E, THIS TRIBUNAL IS UNABLE TO UPHOLD THE ORDERS OF THE AUTHORITIES BELO W. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE A ND THE ENTIRE ADDITION MADE BY THE ASSESSING OFFICER IS DELETED. 12 I.T.A. NOS.1781 TO 1783/MDS/14 I.T.A. NO.1874/MDS/14 8. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DISA LLOWANCE OF LEASE COMMITMENT CHARGES. THIS GROUND OF APPEAL AR ISES FOR CONSIDERATION FOR ASSESSMENT YEARS 2008-09 AND 2009 -10. 9. SH. R. VIJAYARAGHAVAN, THE LD.COUNSEL FOR THE AS SESSEE, SUBMITTED THAT A PIECE OF LAND, ADJACENT TO THE ASS ESSEES SHOW ROOM, WAS TAKEN ON LEASE FOR USING THE SAME AS CAR PARK. ACCORDING TO THE LD. COUNSEL, THE LAND, IN FACT, BE LONGED TO HINDU RELIGIOUS AND CHARITABLE ENDOWMENTS DEPARTMENT. TH E TENANTS OF THE PROPERTY AGREED TO TRANSFER THE TENANCY IN FAVO UR OF THE ASSESSEE FOR AN AGREED CONSIDERATION. IN ORDER TO DO THE BUSINESS EFFECTIVELY AND FOR THE CONVENIENCE OF THE CUSTOMER S WHO ARE VISITING THE ASSESSEES SHOW ROOM, THE ASSESSEE WAS UNDER TREMENDOUS PRESSURE TO EXPAND THE CAR PARKING AREA. THE LD.COUNSEL FURTHER SUBMITTED THAT IN FACT THE LAND IN QUESTION WAS DEDICATED TO TEMPLES AROUND TIRUNELVELI. THE INCOM E FROM THE LAND WAS TO BE SPENT FOR PERFORMING POOJA IN THOSE IDENT IFIED TEMPLES. ACCORDING TO THE LD. COUNSEL, EVEN THOUGH THE TENAN TS OF THE LANDED PROPERTY AGREED FOR TRANSFER OF TENANCY IN FAVOUR O F THE ASSESSEE, THE HINDU RELIGIOUS AND CHARITABLE ENDOWMENT DEPART MENT INTERVENED CLAIMING THAT THE TENANTS HAVE NO RIGHT TO TRANSFER THE TENANCY RIGHT IN FAVOUR OF THE ASSESSEE. THE LD.CO UNSEL FURTHER 13 I.T.A. NOS.1781 TO 1783/MDS/14 I.T.A. NO.1874/MDS/14 SUBMITTED THAT THE HR&CE DEPARTMENT FURTHER CLARIFI ED THAT THE ASSESSEE HAS TO PAY DONATION TO THE EXTENT OF ` 1 CRORE TO VARIOUS TEMPLES FOR TAKING THE PROPERTY ON LEASE. HAVING L EFT WITH NO OTHER WAY, FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE, T HE ASSESSEE HAS PAID A SUM OF ` 1 CRORE FOR ACQUIRING THE LEASE HOLDING RIGHT OVER THE PROPERTY. ACCORDING TO THE LD. COUNSEL, THE ASSESS EE, IN FACT, PAID THE AMOUNT AS DIRECTED BY THE HR&CE DEPARTMENT FOR ACQUIRING THE TENANCY RIGHT. ACCORDINGLY, THE LEASE HOLDING RIGH T WAS TRANSFERRED IN FAVOUR OF THE ASSESSEE BY LEASE AGREEMENTS DATED 09.06.2008. 10. THE LD.COUNSEL FOR THE ASSESSEE FURTHER SUBMITT ED THAT THE AMOUNT PAID TO VARIOUS TEMPLES IN THE FORM OF DONAT ION WAS ON THE DIRECTION OF HR&CE DEPARTMENT FOR ACQUIRING THE LEA SE HOLDING RIGHT OVER THE LANDED PROPERTY. ACCORDING TO THE LD. COU NSEL, THE ASSESSEE IS NOT ACQUIRING ANY TITLE OVER THE PROPER TY. IN FACT, THE PAYMENT WAS MADE FOR GIVING CONSENT BY THE HR&CE DE PARTMENT TO TRANSFER THE LEASE IN FAVOUR OF THE ASSESSEE BY THE LEGAL HEIRS OF THE ERSTWHILE TENANTS OF THE LANDED PROPERTY. THE LD.C OUNSEL FURTHER SUBMITTED THAT THE LAND IN QUESTION IS AGRICULTURAL LAND AND THE TENANTS OF THE RESPECTIVE TEMPLES WERE CULTIVATING THE LAND. THE ORIGINAL TENANTS WERE NO MORE ALIVE AND THE ASSESSE E NEGOTIATED 14 I.T.A. NOS.1781 TO 1783/MDS/14 I.T.A. NO.1874/MDS/14 WITH THE LEGAL HEIRS OF THE ORIGINAL TENANTS AND TH EY AGREED TO TRANSFER THE TENANCY RIGHT IN FAVOUR OF THE ASSESSE E. SINCE HR&CE DEPARTMENT CLAIMED THAT THE LEGAL HEIRS OF ERSTWHIL E TENANTS HAS NO RIGHT TO TRANSFER THE LEASE, THE ASSESSEE HAS TO PA Y A SUM OF ` 1 CRORE TO THE TEMPLES AND THE SAME WAS PAID TO THE T EMPLES IN THE FORM OF DONATION AS DIRECTED BY HR&CE. THOUGH THIS PAYMENT WAS IN RELATION TO TAKING THE PROPERTY ON LEASE, THE AS SESSEE HAS NOT ACQUIRED ANY RIGHT OVER THE PROPERTY. THIS IS A PA YMENT MADE AS DONATION TO THE TEMPLES WHICH ENABLED THE ASSESSEE TO TAKE THE ADJACENT LAND AS LEASE FOR USING THE SAME AS PARKIN G AREA. THEREFORE, ACCORDING TO THE LD. COUNSEL, THIS PAYME NT IS ONLY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE AND NO CAPITAL ASSET WAS ACQUIRED. THE LEASE PERIOD WAS INITIALLY FOR TWO T O THREE YEARS. THE ASSESSEE CANNOT CLAIM ANY RIGHT OVER THE PROPERTY O THER THAN USING THE LAND FOR PARKING OF THE CUSTOMERS VEHICLES. A PART FROM THAT, THE ASSESSEE HAS NO RIGHT OVER THE PROPERTY, THEREFORE, ACCORDING TO THE LD. COUNSEL, NO CAPITAL ASSET WAS ACQUIRED BY THE A SSESSEE. THEREFORE, THE AUTHORITIES BELOW ARE NOT CORRECT IN SAYING THAT THE DONATION WAS GIVEN FOR ACQUISITION OF CAPITAL ASSET . 15 I.T.A. NOS.1781 TO 1783/MDS/14 I.T.A. NO.1874/MDS/14 11. ON THE CONTRARY, SH. PATHLAVATH PEERYA, THE LD. DEPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE LAN D IN QUESTION TO THE EXTENT OF 69.2 CENTS WAS DEDICATED TO THE TEMPL ES AROUND TIRUNELVELI. THE TENANCY RIGHT WAS GIVEN TO ONE S HRI GOPAL. ON HIS DEATH, THE LEGAL HEIRS OF SHRI GOPAL TRANSFERRED TH E TENANCY RIGHT IN FAVOUR OF SHRI K. MAHESH, WHO IS NONE OTHER THAN TH E PARTNERS OF THE ASSESSEE-FIRM, BY A DOCUMENT DATED 09.03.2007, FOR A CONSIDERATION OF ` 2,43,000/-. SIMILARLY, 82 CENTS OF LAND WAS OWNED BY SOME TEMPLES AROUND TIRUNELVELI AND IT WAS GIVEN ON LEAS E TO ONE SHRI VELU. ON THE DEATH OF SHRI VELU, HIS LEGAL HEIRS T RANSFERRED THE LEASE HOLDING RIGHT TO SHRI K. MAHESH, FOR A TOTAL CONSID ERATION OF ` 35,00,000/-, VIDE REGISTERED DOCUMENT DATED 04.07.2 007. ACCORDING TO THE LD. COUNSEL, IN FACT, THE LEASE HO LDING RIGHT WAS TRANSFERRED IN FAVOUR OF SHRI K. MAHESH. AFTER GET TING RESPECTIVE DEEDS FROM THE LEGAL HEIRS OF THE TENANTS, THE SAID SHRI MAHESH ALSO NEGOTIATED WITH HR&CE DEPARTMENT IN ORDER TO REGULA RIZE THE LEASE AND CONSENT TO MAKE DONATION TO VARIOUS TEMPLES. A CCORDING TO THE LD. D.R., THE LEASE RENTALS ARE TO BE PAID IN ADVAN CE TO TEMPLES. ACCORDING TO THE LD. D.R., THE LEASE WAS OBTAINED O NLY BY SHRI MAHESH, PARTNER OF THE ASSESSEE-FIRM AND NOT BY THE ASSESSEE-FIRM ITSELF. THEREFORE, THE PAYMENT MADE BY THE ASSESSE E AS DONATION TO 16 I.T.A. NOS.1781 TO 1783/MDS/14 I.T.A. NO.1874/MDS/14 VARIOUS TEMPLES CANNOT BE ALLOWED AS BUSINESS EXPEN DITURE. MOREOVER, THE TENANCY RIGHT OVER THE IMMOVABLE PROP ERTY HAS TO BE CONSTRUED AS IMMOVABLE PROPERTY ACQUIRED BY THE ASS ESSEE. EVEN IF IT IS PAID FOR ACQUISITION OF LEASE RIGHT OVER T HE IMMOVABLE PROPERTY, THAT HAS TO BE NECESSARILY TREATED AS CAPITAL IN NA TURE. THEREFORE, ACCORDING TO THE LD. D.R., THE CIT(APPEALS) HAS RIG HTLY CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER TREATING THE PAYMENT MADE BY THE ASSESSEE AS CAPITAL IN NATURE. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE SUBJECT LAND IN QUESTION IS AN AGRICULTURAL LAND AND IT IS ADJAC ENT TO THE SHOW ROOM OF THE ASSESSEE. THE ASSESSEE CLAIMS THAT THE ADJACENT LAND IS REQUIRED FOR ASSESSEES BUSINESS FOR USING THE S AME AS CAR PARK FOR THE CUSTOMERS WHO ARE VISITING THE SHOW ROOM. IT IS NOT IN DISPUTE THAT THE ASSESSEE IS ENGAGED IN THE BUSINES S OF RETAIL TEXTILE IN THE TOWN OF TIRUNELVELI. THE ADJACENT LAND BELO NGED TO VARIOUS TEMPLES AND THE SAME WAS UNDER THE CONTROL OF HR&CE DEPARTMENT, GOVERNMENT OF TAMIL NADU. THE ORIGINAL TENANTS OF THE AGRICULTURAL LAND EXPIRED AND IT APPEARS THAT THE A SSESSEE NEGOTIATED WITH LEGAL HEIRS OF THE ORIGINAL TENANTS , WHO IN FACT EXECUTED REGISTERED LEASE DEEDS IN FAVOUR OF THE AS SESSEES PARTNER 17 I.T.A. NOS.1781 TO 1783/MDS/14 I.T.A. NO.1874/MDS/14 SHRI MAHESH. FROM THE ORDER OF THE ASSESSING OFFIC ER IT APPEARS THE MONEY WAS PAID TO THE LEGAL HEIRS OF THE ERSTWH ILE TENANTS FROM THE ACCOUNT OF THE ASSESSEE-FIRM MAINTAINED AT INDI AN BANK, TIRUNELVELI TOWN BRANCH. THEREFORE, APPARENTLY, TH E PAYMENT WAS MADE FROM THE FUNDS OF THE ASSESSEE-FIRM AND THE LE ASE DEED WAS EXECUTED IN FAVOUR OF SHRI K. MAHESH BY THE LEGAL H EIRS OF THE ERSTWHILE TENANTS OF HR&CE DEPARTMENT. IT IS COMMO N KNOWLEDGE THAT THE TENANTS OF AGRICULTURAL LAND UNDER HR&CE D EPARTMENT CANNOT TRANSFER THE LAND TO ANY OTHER PERSON WITHOU T THE CONSENT OF HR&CE DEPARTMENT. THEREFORE, AS RIGHTLY CONTENDED BY THE LD.COUNSEL FOR THE ASSESSEE, THE HR&CE DEPARTMENT I NTERVENED AND THEY DIRECTED THE ASSESSEE TO PAY DONATION TO V ARIOUS TEMPLES. IN FACT, THE DONATIONS WERE PAID TO VARIOUS TEMPLES AS DIRECTED BY HR&CE DEPARTMENT. SUBSEQUENTLY, THE HR&CE DEPARTME NT DIRECTED THE EXECUTIVE OFFICERS OF THE RESPECTIVE T EMPLES TO EXECUTE LEASE DEED IN FAVOUR OF THE ASSESSEE. THEREFORE, I T IS OBVIOUS THAT THE ASSESSEE PAID MONEY TO THE LEGAL HEIRS OF THE E RSTWHILE TENANTS OF HR&CE DEPARTMENT AND OBTAINED REGISTERED SALE DE ED. TO REGULARIZE THE LEASE DEED, THE ASSESSEE IN FACT PAI D ANOTHER SUM OF ` 1 CRORE TO VARIOUS TEMPLES AS DONATION. 18 I.T.A. NOS.1781 TO 1783/MDS/14 I.T.A. NO.1874/MDS/14 13. NOW, THE QUESTION ARISES FOR CONSIDERATION IS W HETHER THE PAYMENT MADE BY THE ASSESSEE FOR REGULARIZING THE L EASE OBTAINED FROM THE LEGAL HEIRS OF THE ERSTWHILE TENANTS OF HR &CE DEPARTMENT IS CAPITAL IN NATURE OR REVENUE IN NATURE? WE HAVE CAREFULLY GONE THROUGH THE CONDITIONS IMPOSED BY THE HR&CE DEPARTM ENT FOR GIVING THE LEASE OF THE PROPERTY, WHICH WERE EXTRAC TED AT PAGE 13 OF THE IMPUGNED ORDER OF THE CIT(APPEALS). ONE OF THE CONDITIONS IS THAT THE ASSESSEE SHOULD NOT SUB-LEASE THE LAND AND ASSESSEE SHOULD USE THE LAND ONLY FOR BUSINESS. IT IS ALSO A CONDITION THAT NO PERMANENT STRUCTURE COULD BE ERECTED. EVEN THE TEM PORARY STRUCTURE WAS TO BE ERECTED ONLY WITH APPROVAL. FROM THE ABOVE, IT IS OBVIOUS THAT THE ASSESSEE CANNOT USE THE LAND OT HER THAN PARKING AREA FOR CUSTOMERS. THE ASSESSEE CANNOT CONSTRUCT ANY PERMANENT STRUCTURE ON THE LAND. AT THE BEST, THE ASSESSEE C AN MAKE TEMPORARY STRUCTURE AFTER OBTAINING NECESSARY APPRO VAL FROM HR&CE DEPARTMENT. THE ASSESSEE HAS ALREADY PAID TH E RESPECTIVE AMOUNTS TO THE LEGAL HEIRS OF THE ERSTWHILE TENANTS . THE DISPUTE IS WITH REGARD TO SUM OF ` 1 CRORE PAID TO THE TEMPLES AS DONATION. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE PAYMENT OF ` 1 CRORE AS DONATION TO VARIOUS TEMPLES, AS DIRECTED B Y THE HR&CE DEPARTMENT, IS ONLY TO REGULARIZE THE LEASE OBTAINE D FROM RESPECTIVE 19 I.T.A. NOS.1781 TO 1783/MDS/14 I.T.A. NO.1874/MDS/14 LEGAL HEIRS OF ERSTWHILE TENANTS OF HR&CE DEPARTMEN T. THIS PAYMENT OF ` 1 CRORE TO VARIOUS TEMPLES AS DONATION IS NOT FOR ACQUIRING ANY INTEREST OVER THE IMMOVABLE PROPERTY. AS IT IS CLEAR FROM THE ORDERS OF THE LOWER AUTHORITIES THAT A SUM OF ` 2,43,000/- WAS PAID BY THE ASSESSEE-FIRM FOR OBTAINING THE LEA SE DEED ON 09.03.2007. SIMILARLY, ANOTHER SUM OF ` 35,00,000/- WAS PAID BY THE ASSESSEE-FIRM FOR OBTAINING A LEASE DEED ON 04.07.2 007. THE ASSESSEE HAS ALREADY PAID AMOUNTS TO LEGAL HEIRS OF ERSTWHILE TENANTS. WHAT WAS PAID BY THE ASSESSEE AS DONATION TO VARIOUS TEMPLES IS FOR SUBSEQUENT REGULARIZATION AS PER DIR ECTION OF THE HR&CE DEPARTMENT. THEREFORE, THIS TRIBUNAL IS OF T HE CONSIDERED OPINION THAT THE PAYMENT OF DONATION HAS TO BE NECE SSARILY TREATED AS REVENUE IN NATURE. MOREOVER, THE LAND IN QUESTI ON CANNOT BE USED FOR ANY OTHER PURPOSE OTHER THAN THE BUSINESS. THE ASSESSEE CANNOT PUT UP ANY PERMANENT STRUCTURE OVER THE LAND . IN THOSE CIRCUMSTANCES, THIS TRIBUNAL IS OF THE CONSIDERED O PINION THAT THE DONATION GIVEN TO VARIOUS TENANTS AS PER THE DIRECT ION OF HR&CE DEPARTMENT HAS TO BE TREATED AS REVENUE IN NATURE I N THE HANDS OF THE ASSESSEE-FIRM. THIS TRIBUNAL IS OF THE CONSIDE RED OPINION THAT THE PAYMENT OF DONATION IS ONLY FOR THE PURPOSE OF CARRYING ON THE BUSINESS EFFECTIVELY IN THE COURSE OF EARNING PROFI T. THEREFORE, IT 20 I.T.A. NOS.1781 TO 1783/MDS/14 I.T.A. NO.1874/MDS/14 CANNOT BE TREATED AS CAPITAL IN NATURE. IN VIEW OF THE ABOVE, WE ARE UNABLE TO UPHOLD THE ORDERS OF THE LOWER AUTHORITIE S. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE A ND THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE DONATIONS AND LEAS E COMMITMENT CHARGES AS REVENUE EXPENDITURE. 14. THE NEXT GROUND OF APPEAL IS WITH REGARD TO ADD ITION TOWARDS STOCK DISCREPANCY. 15. SH. R. VIJAYARAGHAVAN, THE LD.COUNSEL FOR THE A SSESSEE, SUBMITTED THAT DURING THE COURSE OF SEARCH OPERATIO N, THE REVENUE AUTHORITIES FOUND DIFFERENCE IN THE PHYSICAL STOCK AND STOCK AS PER THE BOOKS OF ACCOUNT. THE ASSESSEE EXPLAINED BEFOR E THE ASSESSING OFFICER THAT THE DIFFERENCE IN PHYSICAL S TOCK WAS DUE TO VALUATION OF CLOSING STOCK. ACCORDING TO THE LD. C OUNSEL, WHEN THE TEXTILE GOODS CANNOT BE SOLD FOR MORE THAN TWO TO T HREE YEARS, THE VALUE OF THE SAME WOULD BE REDUCED CONSIDERABLY, TH EREFORE, THE ASSESSEE VALUED THE SAME AT NET REALIZABLE VALUE AS PER THE MARKET CONDITION PREVAILING ON THE LAST DAY OF RELEVANT FI NANCIAL YEAR. HOWEVER, THE ASSESSING OFFICER HAS TAKEN THE ENTIRE STOCK VALUE AS PER THE COST PRICE. ACCORDING TO THE LD. COUNSEL, WHEN THE ASSESSEE WAS FOLLOWING A REGULAR METHOD FOR VALUING THE CLOSING 21 I.T.A. NOS.1781 TO 1783/MDS/14 I.T.A. NO.1874/MDS/14 STOCK, NAMELY, COST OR MARKET PRICE WHICHEVER IS LE SS, THE ASSESSING OFFICER CANNOT VALUE THE CLOSING STOCK AT COST PRIC E. THE FASHION AND DESIGN ARE CHANGING VERY FAST IN TEXTILE INDUST RY. THEREFORE, IF THE ASSESSEE CANNOT SELL THE PRODUCT IN THE SHOP WI THIN TWO YEARS, THE SAME CANNOT BE SOLD AT COST PRICE. THE ASSESSE E HAS TO NECESSARILY CLEAR THE STOCK BY GIVING DISCOUNT. WH EN THE VERY OLD STOCK ARE AVAILABLE, THE SAME CANNOT BE SOLD EVEN A FTER THREE YEARS. THE LD.COUNSEL FURTHER SUBMITTED THAT THE ENTIRE ST OCK COULD BE IDENTIFIED BY BY-NUMBERS GIVEN BY THE ASSESSEE. TH E ASSESSING OFFICER, EVEN THOUGH CLAIMS THAT AN INVENTORY WAS T AKEN AT THE TIME OF SEARCH, HE CONFESSES IN THE ASSESSMENT ORDER THA T IT IS NOT POSSIBLE TO VERIFY THE ITEMS WITH SPECIFIC BY-NUMBE RS. ACCORDING TO THE LD. COUNSEL, THE DIFFERENCE WAS DUE TO VALUATIO N OF STOCK REMAIN UNSOLD FOR TWO / THREE YEARS ON THE NET REALIZABLE VALUE ESTIMATED BY THE ASSESSEE. THEREFORE, THE ASSESSING OFFICER HAS NO JUSTIFICATION FOR MAKING ANY ADDITION. 16. ON THE CONTRARY, SH. PATHLAVATH PEERYA, THE LD. DEPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE VAL UE OF INVENTORY, DURING THE COURSE OF SEARCH OPERATION, WAS TAKEN AT ` 18,87,41,177/- THE CLOSING STOCK AS PER BOOKS OF ACCOUNT WAS ` 20,15,05,458/- AS 22 I.T.A. NOS.1781 TO 1783/MDS/14 I.T.A. NO.1874/MDS/14 ON 17.02.2009. THEREFORE, THE PHYSICAL INVENTORY/S TOCK WAS FOUND TO BE LESS THAN THE STOCK AS PER THE BOOKS OF ACCOU NT. THE ASSESSING OFFICER FOUND THAT THERE WAS DIFFERENCE O F ` 1,27,64,281/-. THIS DIFFERENCE COULD HAVE COME DUE TO SALE OF STOC KS OUTSIDE THE BOOKS. THEREFORE, THE CIT(APPEALS), ACCORDING TO T HE LD. D.R., HAS RIGHTLY CONFIRMED THE ADDITION MADE BY THE ASSESSIN G OFFICER. 17. THE LD. DEPARTMENTAL REPRESENTATIVE FURTHER SUB MITTED THAT THE MAIN CONTENTION OF THE ASSESSEE BEFORE THIS TRI BUNAL IS THAT THE IDENTIFICATION OF NUMBERS, NAMELY, THE BY-NUMBERS W HICH CONFIRM PART OF CLOSING STOCK WAS NOT TAKEN AS A STOCK BY T HE SEARCH PARTY. THE ASSESSEE DURING THE REMAND PROCEEDING, FILED A LIST OF GOODS WITH UNIQUE IDENTIFICATION NUMBERS WHICH WAS SOLD S UBSEQUENTLY. THE LIST FURNISHED BY THE ASSESSEE WAS, IN FACT, FO RMS PART OF ANNEXURE-V TO THE IMPUGNED ORDER OF THE ASSESSING O FFICER. THE LD. D.R. FURTHER SUBMITTED THAT THERE IS NO INVENTO RY OF INDIVIDUAL BREAK-UP OF PHYSICAL STOCK IDENTIFIED WITH REFERENC E TO BY-NUMBERS MADE OUT ON THE DATE OF SEARCH. THEREFORE, THE ASS ESSING OFFICER HAS STATED IN THE ASSESSMENT ORDER THAT IT IS NOT P OSSIBLE FOR HIM AT THIS POINT OF TIME TO VERIFY WITH THE STOCK WITH SP ECIFIC NUMBERS CLAIMED BY THE ASSESSEE FORM PART OF PHYSICAL INVEN TORY ON THE DATE 23 I.T.A. NOS.1781 TO 1783/MDS/14 I.T.A. NO.1874/MDS/14 OF SEARCH. THE LIST OF GOODS WITH UNIQUE IDENTIFIC ATION NUMBER WERE CLAIMED TO BE SOLD SUBSEQUENT TO THE DATE OF SEARCH . TO VERIFY THE ASSESSEES CLAIM, THE ASSESSING OFFICER VERIFIED TH E COMPUTERS OF THE ASSESSEE. HOWEVER, FOR VARIOUS REASONS, THE EN TIRE THING COULD NOT BE VERIFIED. A RANDOM VERIFICATION WAS MADE AN D FOUND THAT THE LIST GIVEN BY THE ASSESSEE WAS NOT FOUND IN THE SYS TEM KEPT IN THE OFFICE OF THE ASSESSEE. THEREFORE, THE CLAIM OF TH E ASSESSEE THAT THERE WAS ERROR IN THE STOCK COULD NOT BE PROVED CO NCLUSIVELY. SINCE THE ASSESSING OFFICER FOUND THAT THE CLAIM MADE BY THE ASSESSEE WITH REGARD TO SALE OF GOODS SUBSEQUENT TO THE SEAR CH COULD NOT BE CONCLUSIVELY PROVED, THE CIT(APPEALS) HAS RIGHTLY C ONFIRMED THE ADDITION. 18. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. DUE TO DIFFERENCE IN STOCK BETWEEN THE BOOKS OF ACCOUNT AND THE PHYSI CAL INVENTORY TAKEN ON THE DATE OF SEARCH, AN ADDITION WAS MADE A S DEFICIENT STOCK. THE REVENUE CLAIMS THAT THIS DIFFERENCE IN THE STOCK COULD HAVE ARISEN DUE TO SALE OF GOODS OUTSIDE THE BOOKS OF ACCOUNT. HOWEVER, THE ASSESSEE CLAIMS THAT THESE ARE ITEMS W ITH SPECIFIC IDENTIFICATION NUMBERS AND IT WAS NOT TAKEN FOR THE CLOSING STOCK VALUATION BY THE REVENUE AUTHORITIES DURING THE COU RSE OF SEARCH 24 I.T.A. NOS.1781 TO 1783/MDS/14 I.T.A. NO.1874/MDS/14 OPERATION. THE ASSESSEE HAS GIVEN ALL THE DETAILS OF STOCK WITH SPECIFIC IDENTIFICATION NUMBERS. IT IS NOT IN DISP UTE THAT THE ASSESSEE IS HAVING SPECIFIC IDENTIFICATION / BY-NUMBERS TO I DENTIFY EACH AND EVERY ITEM WHICH WAS EXHIBITED FOR SALE IN THE SHOW ROOM. THE ASSESSING OFFICER HIMSELF CLAIMS IN THE REMAND REPO RT THAT DUE TO VARIOUS FACTORS, THE LIST GIVEN BY THE ASSESSEE COU LD NOT BE VERIFIED. IT IS NOT THE CASE OF THE REVENUE THAT THE DETAILS GIVEN BY THE ASSESSEE COULD NOT BE VERIFIED BECAUSE OF ANY DEFIC IENCY OR NEGLIGENCE ON THE PART OF THE ASSESSEE. THE OTHER FACTORS, WHICH PREVENTED THE ASSESSING OFFICER TO GO THROUGH THE D ETAILS GIVEN BY THE ASSESSEE, CANNOT BE A REASON FOR MAKING ANY ADD ITION. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ASSE SSEES CLAIM THAT CERTAIN INVENTORIES, WHICH ARE IDENTIFIED WITH BY-N UMBERS, COULD NOT BE TAKEN AS CLOSING STOCK BY THE REVENUE AUTHORITIE S WOULD GO TO SHOW THAT THE DIFFERENCE IS BECAUSE THE REVENUE HAS NOT TAKEN INTO CONSIDERATION THE ITEMS WHICH WERE LYING IN THE SHO W ROOM FOR SALE. THE ASSESSEE HAS CLAIMED THAT THE STOCKS WERE SOLD SUBSEQUENT TO SEARCH OPERATION. IN FACT, THE ASSESSEE HAS PRODUC ED ALL THE DETAILS TO IDENTIFY THOSE GOODS WHICH ARE SOLD SUBSEQUENT T O SEARCH. IN VIEW OF THESE REASONS, MERELY BECAUSE THE ASSESSING OFFICER COULD NOT VERIFY THAT CANNOT BE THE REASON TO MAKE ADDITI ON. THEREFORE, 25 I.T.A. NOS.1781 TO 1783/MDS/14 I.T.A. NO.1874/MDS/14 THIS TRIBUNAL IS UNABLE TO UPHOLD THE ORDERS OF THE LOWER AUTHORITIES. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES AR E SET ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITIO N MADE ON THE STOCK DISCREPANCY. 19. NOW COMING TO REVENUES APPEAL FOR ASSESSMENT Y EAR 2009- 10, THE ONLY ISSUE ARISES FOR CONSIDERATION IS WITH REGARD TO EXPENDITURE INCURRED BY THE ASSESSEE FOR RENOVATION AND REPAIR OF THE BUILDING TAKEN ON LEASE. 20. SH. PATHLAVATH PEERYA, THE LD. DEPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSEE CLAIMED EXPENDITURE INCURRED IN THE BUILDING TAKEN ON LEASE. ACCORDING TO THE LD. D.R., THE EXPENDITURE INCURRED BY THE ASSESSEE IN RENOVAT ION / REPAIR OF THE BUILDING HAS TO BE CAPITALIZED AND THE ASSESSEE AT THE BEST IS ENTITLED FOR DEPRECIATION. REFERRING TO EXPLANATIO N 1 TO SECTION 32 OF THE ACT, THE LD. D.R. SUBMITTED THAT THE ASSESSEE A T THE BEST CAN CLAIM DEPRECIATION AND DEFINITELY IT CANNOT BE ALLO WED AS REVENUE EXPENDITURE. THEREFORE, ACCORDING TO THE LD. D.R., THE CIT(APPEALS) IS NOT JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSES SEE. 21. ON THE CONTRARY, SH. R. VIJAYARAGHAVAN, THE LD. COUNSEL FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE HAS TAKEN THE BUILDING 26 I.T.A. NOS.1781 TO 1783/MDS/14 I.T.A. NO.1874/MDS/14 ON LEASE FOR THE PURPOSE OF ESTABLISHING A NEW SHOW ROOM. THE ASSESSEE INCURRED EXPENDITURE IN INTERIOR DECORATIO N, FLOORING AND OTHER MISCELLANEOUS WORK. THE EXPENDITURE INCURRED BY THE ASSESSEE WAS CLAIMED AS REVENUE EXPENDITURE. THE C IT(APPEALS), BY PLACING RELIANCE ON THE ORDER OF THIS TRIBUNAL I N THE ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 2003-04 IN I.T.A. NO. 1460 & 2164/MDS/2007 DATED 14.03.2008, ALLOWED THE CLAIM O F THE ASSESSEE. THE CIT(APPEALS) HAS ALSO PLACED HIS REL IANCE ON THE JUDGMENT OF MADRAS HIGH COURT IN HARI VIGNESH MOTOR S PVT. LTD. ACCORDING TO THE LD. COUNSEL FOR THE ASSESSEE, THE CIT(APPEALS) HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE. 22. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE TOOK THE BUILDING ON LEAS E AND INCURRED EXPENDITURE ON TEMPORARY WOODEN STRUCTURE, FALSE CE ILING, FLOORING, PAINTING, ETC. THE ASSESSEE CLAIMED THE SAME AS RE VENUE EXPENDITURE. THE CIT(APPEALS) BY PLACING RELIANCE ON THE ORDER OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESS MENT YEAR 2003- 04 AND THE JUDGMENT OF MADRAS HIGH COURT IN HARI VI GNESH MOTORS PVT. LTD. (SUPRA), ALLOWED THE CLAIM OF THE ASSESSE E. THE ONLY CONTENTION OF THE REVENUE NOW BEFORE THIS TRIBUNAL IS THAT IN VIEW OF 27 I.T.A. NOS.1781 TO 1783/MDS/14 I.T.A. NO.1874/MDS/14 EXPLANATION 1 TO SECTION 32 OF THE ACT, THE EXPENDI TURE HAS TO BE CAPITALIZED AND THE ASSESSEE IS ENTITLED FOR DEPREC IATION. 23. WE HAVE CAREFULLY GONE THROUGH THE NATURE OF EX PENDITURE INCURRED BY THE ASSESSEE. IT IS NOT IN DISPUTE THA T THE ASSESSEE INCURRED THE EXPENDITURE FOR INTERIOR DECORATION, T EMPORARY WOODEN PARTITION, FLOORING, ETC. AN IDENTICAL ISSUE WAS E XAMINED BY THE KERALA HIGH COURT IN JOYALLUKAS INDIA PVT. LTD. V. ACIT (2016) 282 CTR 0551. THE KERALA HIGH COURT FOUND THAT THE EXP ENDITURE INCURRED BY THE ASSESSEE, IRRESPECTIVE OF CREATING ENDURING BENEFIT OR ADVANTAGE EVEN IF IT IS A PROFIT EARNING EFFORT, UNLESS AT THE END OF THE TERM OF THE LEASE, THE ITEM ON WHICH THE EXPEND ITURE WAS SPENT COULD BE RETRIEVED BY THE ASSESSEE, IT SHALL NOT AM OUNT TO CAPITAL EXPENDITURE BUT IT CAN BE TERMED ONLY AS REVENUE EX PENDITURE. THE KERALA HIGH COURT HAS ELABORATELY EXAMINED THE ISSU E ON THE SUBJECT BY REFERRING TO VARIOUS CASE LAWS ON THE SU BJECT INCLUDING THE JUDGMENT OF APEX COURT IN EMPIRE JUTE CO. LTD. V. C IT (1980) 124 ITR 1. IN VIEW OF THE ABOVE, WHEN THE ASSESSEE INC URRED EXPENDITURE AND IT CANNOT BE RETRIEVED AFTER EXPIRY OF TERM OF LEASE, IT HAS TO BE TREATED AS REVENUE IN NATURE. IN THIS CASE, ADMITTEDLY, THE EXPENDITURE WAS INCURRED IN INTERIOR DECORATION , FLOORING, PAINTING AND TEMPORARY PARTITIONS, ETC. THESE EXPENDITURES CANNOT BE 28 I.T.A. NOS.1781 TO 1783/MDS/14 I.T.A. NO.1874/MDS/14 RETRIEVED BY THE ASSESSEE AT THE EXPIRY OF LEASE TE RM. THEREFORE, SUCH EXPENDITURE CANNOT BE TREATED AS CAPITAL IN NA TURE AS FOUND BY KERALA HIGH COURT. IT HAS TO BE NECESSARILY TREATE D AS REVENUE EXPENDITURE. THEREFORE, THE CIT(APPEALS) HAS RIGHT LY ALLOWED THE CLAIM OF THE ASSESSEE. THIS TRIBUNAL DO NOT FIND A NY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 24. IN THE RESULT, APPEALS OF THE ASSESSEE IN I.T.A . NOS.1781, 1782 & 1783/MDS/2014 ARE ALLOWED. HOWEVER, REVENUE S APPEAL IN I.T.A. NO.1874/MDS/2014 IS DISMISSED. ORDER PRONOUNCED ON 1 ST JUNE, 2016 AT CHENNAI. SD/- SD/- (. !'# ! ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) % / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 7 /DATED, THE 1 ST JUNE, 2016. KRI. 1 -089 :9)0 /COPY TO: 1. (/0 /ASSESSEE 2. ASSESSING OFFICER 3. 4 ;0 () /CIT(A) (CENTRAL)-I, CHENNAI 4. 4 ;0 /CIT, CENTRAL-I, CHENNAI 5. 9< -0 /DR 6. =( > /GF.