Deputy Commissioner of Income Tax Circle-4(1)(1), Bangalore V. M/sLMG Brands India Pvt Ltd , Bangalore

ITA 3293/BANG/2018

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 2617 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 14-06-2021
• Assessment Year: 2009-2010
• Appeal Filed On: 07-12-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Opportunity of being heard; Principle of natural justice; Reasonable cause; Revenue expenditure; Capital expenditure; Set aside

Judgement Text

ITA NO.3242&3293/BANG/2018 & CO 9/BANG/2019 LMG BRANDS INDIA PVT. LTD., BANGALORE IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER ITA NO.3242/BANG/2018 ASSESSMENT YEAR : 2009-10 LMG BRANDS INIA PVT. LTD. 5 TH FLOOR, 77 TOWN CENTRE BUILDING NO.3, WEST WING, OFF HAL AIRPORT ROAD, YEMALUR, BENGALURU 560 037. PAN NO : AAECM2693J VS. ACIT CIRCLE-11(5) BENGALURU APPELLANT RESPONDENT ITA NO.3293/BANG/2018 ASSESSMENT YEAR : 2009-10 DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-4(1)(1) BANGALORE VS. LMG BRANDS INIA PVT. LTD. 5 TH FLOOR, 77 TOWN CENTRE BUILDING NO.3, WEST WING, OFF HAL AIRPORT ROAD, YEMALUR, BENGALURU 560 037. APPELLANT RESPONDENT C.O. NO.9/BANG/2019 (ARISING OUT OF ITA NO.3293/BANG/2018) ASSESSMENT YEAR : 2009-10 LMG BRANDS INIA PVT. LTD. 5 TH FLOOR, 77 TOWN CENTRE BUILDING NO.3, WEST WING, OFF HAL AIRPORT ROAD, YEMALUR, BENGALURU 560 037. VS. DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-4(1)(1) BANGALORE APPELLANT RESPONDENT ITA NO.3242&3293/BANG/2018 & CO 9/BANG/2019 LMG BRANDS INDIA PVT. LTD., BANGALORE PAGE 2 OF 10 APPELLANT BY : SHRI SHARATH RAO, A.R. RESPONDENT BY : SHRI PRADEEP KUMAR, D.R. DATE OF HEARING : 14.06.2021 DATE OF PRONOUNCEMENT : 25.06.2021 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THE CROSS APPEALS FILED BY BOTH THE PARTIES AND THE CROSS OBJECTION FILED BY THE ASSESSEE ARE DIRECTED AGAINS T THE ORDER DATED 24.9.2018 PASSED BY LD. CIT(A)-4 BENGALURU AND THEY RELATE TO THE ASSESSMENT YEAR 2009-10. 2. THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLO WING ISSUES:- A) DISALLOWANCE OF CLAIM OF SHORTAGE OF INVENTORY. B) DISALLOWANCE OF EXPENDITURE RELATING TO EXCEPTIO NAL ITEMS. 3. THE REVENUE IS IN APPEAL BEFORE US CHALLENGING T HE DELETION OF DISALLOWANCE OF FRANCHISEE FEES. THE ASSESSEE HAS ALSO FILED CROSS OBJECTION SUPPORTING THE ORDER PASSED BY LD. CIT(A) IN GRANTING RELIEF TO THE ASSESSEE IN RESPECT OF FRANCHISEE FEE. 4. THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND IS ENGAGED IN THE BUSINESS OF SELLING READYMADE GARMENTS AND ACCE SSORIES ON RETAIL BASIS THROUGH ITS SHOW ROOMS. THE A.O. COMPLETED T HE ASSESSMENT OF THE YEAR UNDER CONSIDERATION BY MAKING DISALLOWA NCE OF THREE CLAIMS, REFERRED ABOVE. THE LD. CIT(A) GRANTED REL IEF IN RESPECT OF ADDITION RELATING TO FRANCHISEE FEES AND CONFIRMED THE ADDITIONS RELATED TO OTHER TWO ITEMS. HENCE, BOTH THE PARTIE S ARE IN APPEAL BEFORE US ON THE ISSUE DECIDED AGAINST EACH OF THEM BY LD. CIT(A). ITA NO.3242&3293/BANG/2018 & CO 9/BANG/2019 LMG BRANDS INDIA PVT. LTD., BANGALORE PAGE 3 OF 10 5. WE SHALL TAKE UP THE APPEAL FILED BY THE REVENUE FIRST. THE ONLY ISSUE URGED BY THE REVENUE RELATES TO THE DELETION OF DISALLOWANCE OF FRANCHISEE FEE. THE ASSESSEE CLAIMED A SUM OF RS.2, 50,42,421/- UNDER THE HEAD FRANCHISEE FEES. THE ASSESSEE SUB MITTED THAT IT IS DEALING WITH GARMENTS OF VARIOUS BRAND AND ACCORDIN GLY OBTAINED EXCLUSIVE FRANCHISEE RIGHTS FROM THEM. IT WAS SUBM ITTED THAT THE FRANCHISEE FEES IS PAID AS A PERCENTAGE OF SALES TU RNOVER OF THE RELEVANT BRANDED MERCHANDISE SOLD BY THE ASSESSEE, AS PER THE RELEVANT AGREEMENT ENTERED WITH THEM. IT WAS ALSO SUBMITTED THAT THESE BRAND HOLDERS HAVE NOT TRANSFERRED ANY BUSINE SS OR COMMERCIAL RIGHTS WITH ENDURING BENEFITS TO THE ASSESSEE. ACC ORDINGLY, IT WAS SUBMITTED THAT THE EXPENSES CLAIMED BY THE ASSESSEE IS REVENUE IN NATURE AND DEDUCTIBLE. THE A.O DID NOT AGREE WITH THE CONTENTIONS OF THE ASSESSEE AND ACCORDINGLY DISALLOWED THE ABOV E SAID AMOUNT. 6. THE LD. CIT(A) OBSERVED THAT THE FRANCHISERS HAV E NOT TRANSFERRED ANY RIGHTS IN THE TRADE MARKET OR ANY O THER I.P. TO THE ASSESSEE. FURTHER, HE NOTICED THAT THE ASSESSEE HA S NEITHER OBTAINED ANY NEW ASSET NOR ACQUIRED ANY RIGHT, WHICH ARE FRE ELY TRANSFERABLE. HE ALSO NOTICED THAT THE USAGE OF BRAND RIGHTS BY T HE ASSESSEE IS RESTRICTED TO THE PERIOD OF AGREEMENT AND FOR THE P URPOSE OF SALE OF FRANCHISERS PRODUCT. HE ALSO NOTICED THAT THE FRA NCHISEE FEE IS NOT ONE TIME PAYMENT BUT A RECURRING FEE DIRECTLY RELAT ED TO THE SALES EFFECTED BY THE ASSESSEE. ACCORDINGLY, THE LD. CIT (A) HELD THAT THE DECISION RENDERED BY HONBLE DELHI HIGH COURT IN TH E CASE OF CIT VS. JUBILANT WOODWORK PVT. LTD SHALL APPLY, WHEREIN IT WAS HELD THAT WHEN NO NEW ASSET COMES INTO EXISTENCE ON ACCOUNT O F PAYMENT OF FRANCHISEE FEE AND FURTHER WHERE THE RIGHTS UNDER T HE AGREEMENT ARE ONLY FOR THE TENURE OF THE AGREEMENT, THEN NO ENDUR ING BENEFIT WOULD BE DERIVED BY THE ASSESSEE FOLLOWING THE ABOVE SAI D DECISION ITA NO.3242&3293/BANG/2018 & CO 9/BANG/2019 LMG BRANDS INDIA PVT. LTD., BANGALORE PAGE 4 OF 10 RENDERED BY HONBLE DELHI HIGH COURT, THE LD. CIT(A ) DELETED THE DISALLOWANCE. 7. WE HEARD THE PARTIES ON THIS ISSUE. THE LD. A. R. SUBMITTED THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THE COORD INATE BENCH IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09 (IN ITA NO.3291/BANG/2018 AND THE TRIBUNAL ALLOWED THE CLAI M OF THE ASSESSEE VIDE ITS ORDER DATED 20.9.2020). 8. `WE NOTICE THAT AN IDENTICAL ISSUE HAS BEEN EXAM INED BY THE COORDINATE BENCH IN THE ASSESSEES OWN CASE AND THE CLAIM OF THE ASSESSEE WAS ALLOWED WITH THE FOLLOWING OBSERVATION S:- WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED AND C AREFULLY CONSIDERED THE MATERIAL ON RECORD. IN THIS CASE, THE ASSESSEE ENTE RED INTO VARIOUS AGREEMENTS WITH VARIOUS PARTIES AS DISCUSSED EARLIER WHICH IS THE P AYMENT OF FRANCHISEE FEES AS FOLLOWS : 1. BOSSINI GARMENT LIMITED 5% OF GROSS SALES 2. JOSEF SEIBEL ASIA PACIFIC LIMITED EURO 2 PER PAIR O F FOOTWEAR SOLD 3. VINCCILADIES SPECILITIES CENTRE SDN BHD 2% OF NET S ALES 4. BASIC PROPERTIES BV (KAPPA) 5% OF NET RETAIL TURNOV ER OR 10% OF NET WHOLESALE TURNOVER. THE ABOVE PAYMENTS BASED ON CERTAIN PERCENTAGE OF S ALES BY THE ASSESSEE. THE PARTIES WITH WHOM THE ASSESSEE HAS ENTERED INTO AGREEMENT H AS NOT TRANSFERRED ANY BUSINESS OR COMMERCIAL RIGHTS WITH ENDURING BENEFITS TO THE ASSESSEE. THE ASSESSEE CANNOT BE SAID TO HAVE ANY ENDURING BENEFIT BY ENTERING INTO THESE AGREEMENTS. THESE ARE IN THE NATURE OF DAY TO DAY OPERATIONS OF THE ASSESSEE 'S BUSINESS. BEING SO, THE CIT(APPEALS) JUSTIFIED IN ALLOWING THE EXPENDITURE AS REVENUE EXPENDITURE. THIS POSITION IS FORTIFIED WITH THE DECISION IN THE CASE OF JONAS WOODHEAD & SONS LTD. VS.CIT 224 ITR 342 WHEREIN IT HAS BEEN HELD THAT - ' THE COURTS HAVE APPLIED DIFFERENT TESTS LIKE STAR TING OF A NEW BUSINESS ON THE BASIS OF TECHNICAL KNOW-HOW RECEIVED FROM THE FOREIGN FIR M, EXCLUSIVE RIGHT OF THE COMPANY TO USE THE PATENT OR TRADEMARK WHICH IT REC EIVES FROM THE FOREIGN FIRM, THE PAYMENTS MADE BY THE COMPANY TO THE FOREIGN FIRM WH ETHER A DEFINITE ONE OR DEPENDENT UPON CERTAIN CONTINGENCIES, RIGHT TO USE THE TECHNICAL KNOW-HOW OF ITA NO.3242&3293/BANG/2018 & CO 9/BANG/2019 LMG BRANDS INDIA PVT. LTD., BANGALORE PAGE 5 OF 10 PRODUCTION OR THE ACTIVITY EVEN AFTER THE COMPLETIO N OF THE AGREEMENT, OBTAINING ENDURING BENEFIT FOR A CONSIDERABLE PART ON ACCOUNT OF THE TECHNICAL INFORMATION RECEIVED FROM A FOREIGN FIRM, PAYMENT WHETHER MADE 'ONCE FOR ALL' OR IN DIFFERENT INSTALMENTS CO-RELATABLE TO THE PERCENTAGE OF GROSS TURNOVER OF THE PRODUCT TO ULTIMATELY FIND OUT WHETHER THE EXPENDITURE OR PAYM ENT THUS MADE MAKES AN ACCRETION TO THE CAPITAL ASSET AND AFTER THE COURT COMES TO THE CONCLUSION THAT IT DOES SO THEN IT HAS TO BE HELD TO BE A CAPITAL EXPE NDITURE. NO SINGLE DEFINITIVE CRITERION BY ITSELF COULD BE DETERMINATIVE AND, THE REFORE, BEARING IN MIND THE CHANGING ECONOMIC REALITIES OF BUSINESS AND THE VAR IETIES OF SITUATIONAL DIVERSITIES THE VARIOUS CLAUSES OF THE AGREEMENT ARE TO BE EXAM INED. THE TRIBUNAL HAVING CONSIDERED THE DIFFERENT CLAUSES OF THE AGREEMENT A ND HAVING COME TO THE CONCLUSION THAT UNDER THE AGREEMENT WITH THE FOREIG N FIRM WHAT WAS SET UP BY THE ASSESSEE WAS A NEW BUSINESS AND THE FOREIGN FIRM HA D NOT ONLY FURNISHED INFORMATION AND THE TECHNICAL KNOW-HOW BUT RENDERED VALUABLE SERVICES IN SETTING UP OF THE FACTORY ITSELF AND EVEN AFTER THE EXPIRY OF THE AGREEMENT THERE IS NO EMBARGO ON THE ASSESSEE TO CONTINUE TO MANUFACTURE THE PRODUCT IN QUESTION, IT IS DIFFICULT TO HOLD THAT THE ENTIRE PAYMENT MADE IS A REVENUE EXPENDITURE MERELY BECAUSE THE PAYMENT IS REQUIRED TO BE MADE ON A CER TAIN PERCENTAGE OF THE RATES OF THE GROSS TURNOVER OF THE PRODUCTS OF THE INCOME AS ROYALTY. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE HIGH COURT WAS FULLY JUSTIFIED IN ANSWERING THE QUESTION WHETHER THE TRIBUNAL WAS RIGHT IN HOLDING THAT 25% OF THE AMOUNT PAID BY THE ASSESSEE AS ROYALTY WAS CAPITAL EXPENDITURE IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. JONAS WOODHEAD & SONS (INDIA ) LTD. VS. CIT (1979) 10 CTR (MAD) (FB) 150 (1979) 117 ITR 55 (MAD) (FB) : TC 16R.1270 AFFIRMED.' 6.FURTHER THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT VS. TTK HEALTH CARE LIMITED, THE HON'BLE BENCH OF CHENNAI I N ITA 1921/MAD/2016 DT.8.9.2016 HELD IN PARA 5 THAT WHEN THE ASSESSEE H AS NOT BECOME OWNERSHIP RIGHTS OF TRADE MARK AND THE SUCH LICENSES ARE REMAINED TH E PROPERTY OF THE LICENSEE, THE ASSESSEE HAS NOT DERIVED ANY ENDURING BENEFIT. THER EFORE EXPENSES ARE TO BE TREATED AS REVENUE EXPENDITURE, NOT CAPITAL EXPENDITURE. TH E ID. AR RELIED ON THE DECISION IN THE CASE OF TTK LIG LTD. VS. ACIT IN IT A NOS.1791 TO 1796/MAD/2011 DT.31.10.2012. FURTHER THE HON'BLE MA DRAS HIGH COURT IN THE CASE OF CIT VS. TVS LTD 110 ITR 338 (MADRAS) HELD T HAT WHEN THE PAYMENT MADE BY THE ASSESSEE TO A COMPANY WAS IN THE NATURE OF L ICENSE FEES WHICH CONSTITUTE AN ITEM OF ALLOWABLE EXPENDITURE IN THE COMPUTATION OF PROFIT AND GAINS AND IT CANNOT BE A CAPITAL EXPENDITURE. IN OUR OPINION, TH E FINDINGS AND REASONS GIVEN BY THE CIT(APPEALS) TO ALLOW THE CLAIM OF THE EXPEN SES IN REGARD TO FRANCHISEE ON THE AGREEMENT ENTERED BY THE ASSESSEE IS A REVEN UE EXPENDITURE AND IT CANNOT BE CONSTRUED AS A CAPITAL EXPENDITURE. HENCE THE AP PEAL OF REVENUE IS DISMISSED. 9. WE NOTICE THAT THE VIEW EXPRESSED BY LD CIT(A) I S CONSISTENT WITH THE VIEW TAKEN BY THE COORDINATE BENCH IN AT 2 008-09. ITA NO.3242&3293/BANG/2018 & CO 9/BANG/2019 LMG BRANDS INDIA PVT. LTD., BANGALORE PAGE 6 OF 10 ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE DE CISION RENDERED BY LD. CIT(A) ON THIS ISSUE. 10. IN THE CROSS OBJECTION, THE ASSESSEE IS SUPPORT ING THE DECISION RENDERED BY LD. CIT(A) ON THIS ISSUE. SINCE WE HAV E UPHELD THE VIEW TAKEN BY LD. CIT(A) ON THIS ISSUE, THE CROSS OBJECT ION FILED BY THE ASSESSEE SHALL BECOME INFRUCTUOUS. 11. WE SHALL NOW TAKE UP THE APPEAL FILED BY THE AS SESSEE. THE FIRST ISSUE RELATES TO DISALLOWANCE OF RS.1,15,83,4 76/- RELATING TO CLAIM OF SHORTAGE OF INVENTORY. THE ASSESSEE EXPLA INED BEFORE THE A.O. THAT THE SHORTAGE OF INVENTORY HAS BEEN FOUND WHEN THE PHYSICAL INVENTORY OF APPARELS & ACCESSORIES WAS VERIFIED BY THE AUDITORS WITH THE BOOK STOCK IN VARIOUS SHOW ROOMS/WAREHOUSES LOC ATED ALL OVER INDIA. IT WAS NOTICED THAT THERE WAS SHORTAGE OF I NVENTORY IN MANY ITEMS AND THERE WAS EXCESS INVENTORY IN SOME OF THE ITEMS. THE NET VALUE OF SHORTAGE/EXCESS OF INVENTORY WAS QUANTIFIE D AT RS.1,15,83,476/-. IT WAS EXPLAINED BEFORE THE AO T HAT THE ASSESSEE IS IN THE RETAIL TRADE AND THE SHORTAGE USUALLY OCC UR ON ACCOUNT OF SHOP LIFTING, PILFERAGE IN MERCHANDISE DURING TRANS IT, THEFT OF INVENTORIES, INTERNAL DAMAGES CAUSED TO THE BOX ETC . IT WAS EXPLAINED THAT THE ABOVE SAID AMOUNT REPRESENTED CUMULATIVE F IGURE OF SHORTAGES NOTICED IN VARIOUS STORES/WAREHOUSES. TH E ASSESSEE ALSO SUBMITTED THAT IT IS A NORMAL FEATURE IN THE RETAIL TRADE AND RATE OF LOSSES DUE TO SHOP LIFTING, PILFERAGE, THEFT BY EMP LOYEES, ETC. HAVE BEEN ESTIMATED AT 3% OF TOTAL SALES. IN SUPPORT OF THE SAME, THE ASSESSEE FURNISHED A REPORT PRINTED BY INDIA TODAY AND ALSO BY REDIFF.COM. 12. THE A.O., HOWEVER, TOOK THE VIEW THAT THE AMOUN T OF RS.1,15,83,476/- IS HUGE AMOUNT AND THE ASSESSEE HA S FAILED TO PROVIDE THE EXACT DETAILS OF INVENTORY OF SHORTAGES . FURTHER, THE ITA NO.3242&3293/BANG/2018 & CO 9/BANG/2019 LMG BRANDS INDIA PVT. LTD., BANGALORE PAGE 7 OF 10 ASSESSEE HAS NOT FILED ANY FIR FOR THEFT OR SHOP LI FTING. THE A.O. ALSO DID NOT ACCEPT THE NEWSPAPER REPORT FURNISHED BY TH E ASSESSEE. ACCORDINGLY, HE DISALLOWED THE CLAIM OF SHORTAGE IN INVENTORY OF RS.1,15,83,476/-. 13. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A), I N PRINCIPLE, ACCEPTED THE OBSERVATIONS OF THE A.O. HOWEVER, HE ALSO ACCEPTED THE FACT THAT THE RETAIL BUSINESS IS PRONE TO ISSUES OF SHOP LIFTING, PILFERAGE, DAMAGES, ETC. HE NOTICED THE SHORTAGE O F INVENTORY CLAIMED BY THE ASSESSEE WORKED OUT TO 1.97% OF THE TOTAL SA LES EFFECTED DURING THE YEAR. ACCORDINGLY, HE TOOK THE VIEW THAT THE D ISALLOWANCE OF ENTIRE CLAIM IS UNREASONABLE. ACCORDINGLY, THE LD. CIT(A) DIRECTED THE A.O. TO RESTRICT THE DISALLOWANCE TO 50% OF THE AMOUNT O F LOSS CLAIMED BY THE ASSESSEE. 14. BEFORE US, THE LD. A.R. SUBMITTED THAT THE ASSE SSEE IS ENGAGED IN RETAIL TRADING OF GARMENTS AND IT HAS GOT SHOWRO OMS/WAREHOUSES ALL OVER INDIA. AS PART OF AUDIT EXERCISE, IT IS U SUAL PRACTICE TO TAKE PHYSICAL INVENTORY OF STOCKS OF VARIOUS ITEMS AND C OMPARE THE SAME WITH BOOK STOCKS. THE INVENTORY TAKING WORK WAS CA RRIED OUT BY AUDITORS OF THE ASSESSEE COMPANY IN ALL THE RETAIL SHOWROOMS AS WELL AS IN THE WAREHOUSES. THE NET AMOUNT OF SHORTAGE N OTICED BY ANY SHOWROOMS WAS RS.56.37 LAKHS AND THE NET AMOUNT OF SHORTAGE NOTICED IN THE WAREHOUSES WAS RS.56.46 LAKHS, BOTH AGGREGATING TO RS.115.83 LAKHS. THE LD. A.R. SUBMITTED THAT THE E NTIRE REPORT OF THE SHORTAGES STORE-WISE, APPAREL-WISE, ACCESSORIES-WIS E HAVE BEEN FURNISHED TO THE A.O. AND THE SAME IS PLACED FROM P AGE NOS.307 TO 765 OF THE PAPER BOOK. ACCORDINGLY, HE SUBMITTED T HAT THE A.O. WAS NOT CORRECT IN MENTIONING THAT THE ASSESSEE HAS NOT FURNISHED THE DETAILS. THE LD. A.R. INVITED OUR ATTENTION TO THE ABOVE SAID PAGES TO BUTTRESS HIS POINT THAT STOCK TAKING HAS BEEN DONE METICULOUSLY AND ITA NO.3242&3293/BANG/2018 & CO 9/BANG/2019 LMG BRANDS INDIA PVT. LTD., BANGALORE PAGE 8 OF 10 THE SHORTAGES/EXCESS STOCK HAS BEEN NOTICED IN RESP ECT OF EACH ITEM OF APPAREL/ACCESSORIES. 15. WE ALSO NOTICE FROM THE REPORT THAT THERE ARE S HORTAGES AS WELL AS EXCESS STOCKS AND THE NET AMOUNT OF DIFFERENCE R ESULTED IN SHORTAGE OF STOCK, WHICH WAS VALUED AT RS.115.83 LA KHS. WE NOTICE FROM THE REPORT THAT THE PHYSICAL INVENTORY HAS BEE N TAKEN IN ALL STORES AND WAREHOUSES AND THE DIFFERENCE BETWEEN PH YSICAL STOCK AND BOOK STOCK HAS BEEN NOTICED METICULOUSLY IN RESPECT OF EACH ITEM OF APPAREL AND THE ACCESSORY. THUS, IT IS NOT A SINGL E CASE OF THEFT, AS PRESUMED BY THE AO, WHICH MAY WARRANT FILING OF FIR . THE SHORTAGE NOTICED IS AS LOW AS RS.68/-. THE LD CIT(A) HAS AL SO APPRECIATED THAT THE RETAIL TRADE IS PRONE TO SUCH PILFERAGES, SHOPL IFTING ETC., RESULTING IN SUCH KIND OF SHORTAGES OF STOCK. HENCE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT THERE IS NO REASON TO SUSPECT THE CLAIM OF THE ASSESSEE. ACCORDINGLY, WE ARE OF THE VIEW THAT THERE IS NO REASON TO RESTRICT THE DISALLOWANC E TO 50% AS DONE BY LD. CIT(A). IN OUR VIEW, IN THE FACTS AND CIRCU MSTANCES OF THE CASE AND ALSO CONSIDERING THE DETAILED REPORT OF SHORTAG ES OF STOCK, THE ENTIRE CLAIM OF THE ASSESSEE SHOULD HAVE BEEN ALLOW ED AS DEDUCTION. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY LD. C IT(A) AND DIRECT THE A.O. TO DELETE THE DISALLOWANCE RELATING TO SHO RTAGE OF INVENTORY. 16. THE NEXT ISSUE RELATES TO DISALLOWANCE OF EXPEN DITURE ON EXCEPTIONAL ITEMS AMOUNTING TO RS.86,97,395/-. THE A.O. NOTICED THAT THE ASSESSEE HAS DEBITED THE PROFIT & LOSS ACC OUNT WITH EXPENDITURE ON EXCEPTIONAL ITEMS OF RS.7,31,75,961/ -. OUT OF THE ABOVE AMOUNT, THE ASSESSEE HAD VOLUNTARILY DISALLOW ED AN AMOUNT OF RS.6,44,78,566/-. WITH REGARD TO THE REMAINING AMO UNT OF RS.86,97,395/- THE ASSESSEE DID NOT FURNISH THE DET AILS BEFORE THE A.O. HENCE, THE AO DISALLOWED THE REMAINING AMOUNT OF ITA NO.3242&3293/BANG/2018 & CO 9/BANG/2019 LMG BRANDS INDIA PVT. LTD., BANGALORE PAGE 9 OF 10 RS.86,97,395/- CLAIMED BY THE ASSESSEE. BEFORE LD. CIT(A), THE ASSESSEE FURNISHED EXPLANATIONS WITH REGARD TO THE CLAIM OF ABOVE SAID CLAIM. HOWEVER, THE LD. CIT(A) REFUSED TO ADM IT THE EXPLANATIONS ON THE REASONING THAT THE ASSESSEE FAILED TO FURNIS H DETAILS BEFORE A.O. AND FURTHER OBSERVED THAT NO REASONABLE CAUSE WAS SHOWN UNDER RULE 46A IN ORDER TO ADMIT THE EXPLANATIONS O F THE ASSESSEE. WITH REGARD TO THE EXPLANATIONS FURNISHED BY THE AS SESSEE ALSO, THE LD. CIT(A) DREW ADVERSE INFERENCE AND ACCORDINGLY C ONFIRMED THE DISALLOWANCE. 17. BEFORE US, THE LD. A.R. SUBMITTED THAT THE ASSESSEE HAS COLLATED THE DETAILS RELATING TO THE ABOVE CLAIM AND MAJOR P ORTION OF THE ABOVE SAID CLAIM AMOUNTING TO RS.74.31 LAKHS RELATED TO F ORFEITURE OF RENT DEPOSITS ON CANCELLATION OF LEASE DURING LOCK-IN PE RIOD. HE SUBMITTED THAT THIS DISALLOWANCE SHOULD ALSO BE DELETED, SINC E DETAILS ARE AVAILABLE. 18. HOWEVER, WE NOTICE THAT THE ASSESSEE HAS NOT FU RNISHED EXPLANATION/DETAILS BEFORE THE A.O. AND THE LD. CIT (A) HAS ALSO NOT ADMITTED THE EXPLANATIONS FURNISHED BY THE ASSESSEE , MEANING THEREBY, NO TAX AUTHORITY HAS EXAMINED THE DETAILS RELATING TO THE CLAIM. HENCE, IN THE INTEREST OF NATURAL JUSTICE, W E ARE OF THE VIEW THAT THE ASSESSEE SHOULD BE PROVIDED WITH ONE MORE OPPOR TUNITY TO PROPERLY EXPLAIN ITS CASE. ACCORDINGLY, WE SET ASI DE THE ORDER PASSED BY LD. CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE A.O. FOR EXAMINING IT AFRESH BY DULY CONSIDERING THE INF ORMATION AND EXPLANATIONS THAT MAY BE FURNISHED BY THE ASSESSEE. AFTER AFFORDING ADEQUATE OPPORTUNITY OF BEING HEARD, THE A.O. MAY T AKE APPROPRIATE DECISION IN ACCORDANCE WITH LAW. ITA NO.3242&3293/BANG/2018 & CO 9/BANG/2019 LMG BRANDS INDIA PVT. LTD., BANGALORE PAGE 10 OF 10 19. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED. THE APPEAL OF THE REVENUE AND CROSS OBJEC TION OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH JUNE, 2021. SD/- (N.V. VASUDEVAN ) VICE PRESIDENT SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 25 TH JUNE, 2021. VG/SPS COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.