TaxTMI 
TaxTMI 
2017 (8) TMI 361
X X X X Extracts X X X X
X X X X Extracts X X X X
....n all the assesse's appeal is with regard to addition with reference to valuation of closing stock. 3. The facts of the case as narrated in ITA No.1097/Mds/2016 for the A.Y. 2010-11 are that the assessee is valuing the closing stock subject to a provision and commencing from the accounting year ended 31.3.2006 relevant to the A.Y. 2006-07, there has been a change in the method of valuation of closing stock. The stock shown at cost as per books was subject to a provision which was calculated at a fixed percentage on the stock as per the financial accounts. Through the proves of ageing, the stock was identified with the relevant year of purchase and provision was made at increasing percentages depending upon the year of purchase. 3.1 The method of valuation adopted for valuing the stock is as under : Particulars Provision Percentage AY 09-10 Provision Percentage AY 08-09 Provision Percentage AY 07-08 Provision Percentage AY 06-07 Provision for unsold stock out of purchases of current year (Yo) Nil Nil Nil Nil Provision for unsold stock out of purchases of one year before current year (Y1) 25% 50% 25% 50% Provision for unsold stock....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r. For example, as seen from the above table, in the assessment year 2009-10, the assessee adopted the reduction of value of purchase price at 25%, when the stock is one year old. However, for the assessment year 2008-09, it was 50%, for the assessment year 2007-08 again 25% and for the assessment year 2006-07, the same was 50%. There is no explanation for such kind of arbitrary reduction of either 25% or 50%. There is no consistency in the method followed by the assessee for valuing the closing stock. The closing stock is to be valued at market price or cost whichever is less and that should be consistent from year to year. The assessee is not disputed that it has been followed the same method. However, consequent to search action, the assessee wanted to change the method of stock valuation for the first time, which is nothing but an after-thought so as to reduce the income which cannot be permitted at this point of time. Accordingly, this ground in all these appeals is rejected." Aggrieved, the assessees are in appeals before us. 4. We have heard both the sides and perused the material on record. Admittedly, this issue was considered and decided against the assesse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e, we are of the opinion that the lower authorities are justified in dismissing this ground of appeal. 8. Next common ground raised by the assessee in ITA Nos.1097 & 1098/Mds/2016 for the AYs 2010-11 and 2011-12 is with regard to disallowance of claim of expenditure relating to repairs. 9. The facts of the case as in assessment year 2010-11 are that during the year, the assessee has claimed expenditure by way of repairs to machinery, building and other repairs. In this connection, the assessee was asked to furnish detailed break-up and the corresponding bills in respect of expenditure exceeding Rs. 1 lakh. From the break-up furnished, the AO observed that some of the expenditure are directly incurred by the assessee and major amounts are incurred by the flag-ship firm M/s. RmKV Et Sons, which are in-turn allocated to the group concerns based on floor space occupied in the Chennai and Tirunelveli complex. As called for, the assessee produced bills/invoices in connection with repairs. However, the AO observed that the assessee could not produce the necessary bills in respect of the following items : Sl. No. Name of the party Amount incurred By RmKV Et Sons (Rs. )....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Therefore, in the absence of bills, the AO disallowed an amount of Rs. 28,56,685/-. Aggrieved, the assessee went in appeal before the CIT(Appeals). 10. On appeal, the CIT(Appeals) observed that the assessee is a leading textile trader in Tamilnadu having shops at various places. During the year under appeal, the assessee has claimed expenditure by way of repairs on machinery, building and other repairs. Further, the CIT(Appeals) observed that some of the repairs are directly incurred by each entity of this group and most of the repairs are incurred by flagship firm R.M.K.V. & Sons, which are in turn allocated to the group concerns based on the floor space occupied in Chennai, Tirunelveli. In the course of appellate proceedings, the assessee filed fresh evidence in the form of bills for the following items: Sl. No. Name of the party Amount incurred By RmKV Et Sons (Rs. ) Amount incurred Directly (Rs.) Tirunelveli 1. Rajesh Electricals 3,41,871 - 2. Smart Interior Pvt. Ltd. 22,55,725 - 3. E-Jeeva Painter 58,00,096 - 4. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssue is already covered by the earlier order of the Tribunal in assessee's own case in ITA No.1875/Mds/14 for the AY 2008- 09, wherein the Tribunal held in para 22 & 23 as follows: "22. We have heard both the parties and perused the material on record. Similar issue was considered by the Tribunal in ITA No.1384/Mds/13 dated 29.5.2016, wherein the Tribunal has held as follows : 7. We have heard the parties and perused the record. In the present case, the assessee has taken the building on leasehold on which the assessee carried on interior work and claimed as revenue expenditure. The same was rejected by the CIT(A). The Ld. DR contended that the assessee made new addition the leased building and it is not the case of renovation of the leased building or improvement of the leased building as in the case of Joy Alukkas Pvt. Ltd., cited supra as held by the Kerala High Court. For settling the controversy, we have to go through the Explanation 1 to sec. 32(1) of the Act which was inserted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 with effect from 1.4.1988 which deals with the situation where the expenditure has been incurred by the assesse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r in relation to and by way of renovation, extension or improvement to the building which is put up in a building taken on lease by him for carrying on his business and profession of the assessee, but not in a case of construction of any structure or doing any work or relation to where such building is put up/constructed for the purpose of business or the profession of the assessee in a land taken on lease by the assessee." 10. Thus it is clear that the ratio laid down by the Madras High Court in the said judgment does not support the case of the assessee. 11. In the present case, the assessee has taken building on lease and made certain interior decoration. It is the case that the assesse has beautified the leased building. The High Court has further held in the aforesaid case that the language employed in a statute is the determinative factor of the legislative intent and even assuming there is a defect or any omission in the words used in the Legislature, the Court cannot correct or make up the deficiency, especially when a literal reading thereof produces an intelligible result an any departure from the literal rule would really be amending the law in the garb....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lusion that the expenditure should be looked upon as revenue expenditure." 14. From the above judgment, we can conclude that it is essential that the expenditure incurred on the construction of any structure on the leased premises should result in enduring benefit. That any expenditure incurred for civil work by a lessee in respect of the lease premises, without any further proof cannot be said to be capital expenditure or revenue expenditure. In order to find out the nature of expenditure, it is necessary to find out the nature of construction put up, the purpose of construction/renovation and the use to which the construction put up and also if it is a case of repair, replacement, addition or improvement has to be gone into. It is only on the aforesaid material, keeping in mind the principles enunciated in the judgments by the Supreme Court and keeping in mind section 37 and section 32 of the Act, that one has to determine whether the expenditure is revenue expenditure or capital expenditure. What would apply to civil work equally applies to electrical work or interior decoration. The assessee had not stated the nature of civil works constructed, the nature of interior d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oans and interest collected on amount lent to partners without considering the flexibility in such a borrowing from the family members which should command a premium in the interest rates. To reiterate the hassle free borrowings, in the sense, no security is called for and funds are available for indefinite period and no stiff conditions exist relating to repayment of principal and interest and most of family members to whom these interest are paid are assessed to tax at the maximum rate and hence, this is not a case of evasion of tax. In short, according to the ld. AR, there is no loss to the revenue and disallowance is unwarranted. The CIT(Appeals) observed that there is a force in assessee's argument and all the interest recipients', who are relatives are assessed to tax at maximum rates. Accordingly, the CIT(Appeals) directed the AO to delete the addition. Against this, the Revenue is in appeal before us. 18. We have heard both the parties and perused the material on record. In the present case, the assessee paid interest to the persons specified in Sec.40A(2)(b) of the Act at 18% per annum as against the payment of interest to banks and partners at 13% per annum. According ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mers to make purchases frequently, according to which, a customer who makes a purchase of Rs. 100 and above is eligible for a discount of 1% in the next purchase and so on, and when the customer makes subsequent purchases the discount due to them of 1% of previous purchase is allowed against the same and the balance only will be collected. ii. That the discounts actually allowed under the scheme during the year were treated as 'Bonus Redemption Expenses' which was debited under the head 'Miscellaneous expenses'. iii. That in respect of the un-availed discounts, the assessee treated it as accrued liability and the same was debited under the head 'Hospitality Expenses'. 20.1 According to the AO, the actual discount allowed to the customers during the year and debited under the head 'Miscellaneous expenses' is certainly an allowable expenditure, but the second part of 'Bonus Redemption Expenses' debited to the profit and loss account under the head 'Hospitality Expenses' towards accrued liability is not allowable for the reason that there is no accrued liability but it is only a contingent liability. Accordingly, the assessee was requested to furnish its exp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he assessee is free to claim such liability in future as an when the customer visits him for the next time in future. Accordingly, an amount of Rs. 1.99 crs. is hereby disallowed and added back to the total income." 21.1 After considering the finding of the AO and the explanation given by the assessee about the deductibility of the provision made towards bonus card, the CIT(Appeals) observed that the criteria for allowing deduction on account of a provision is that the liability to incur the expenditure which is claimed by way of a provision should be certain and secondly quantification of such a liability should be scientific/reasonable. According to the CIT(Appeals), as per the terms of issue of loyality cards, the accumulation of points, the customers were free to encash in subsequent purchases. The assessee is legally bound to provide equivalent of reward points in cash or kind. The loyality points are given in the form of discount in the subsequent purchases. According to the CIT(Appeals), the fact that the customers did not visit the shop for subsequent purchases will not make the claim for such a claim as accrued liability. The liability of the assessee in so far as accum....