TaxTMI 
TaxTMI 
2016 (6) TMI 1415
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....ourse 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 notice 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 Assessing Officer subsequent to the search operation more particularly, during the course of assessment proceedings. According to the ld. Counsel, since no assessment proceedings was pending on the date of 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 all, any material was found during the course of search operation, the Assessing Officer has to confine himself only in respect of the material found during the course of search operation and the assessing authority has no jurisdiction to reopen the assessment completed on the date of the search. In the absence of any material, the entire assessment made by the Assessing Officer is not justified.....
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....e and the entire addition made by the Assessing Officer is deleted. 6. In the result, the assessee's appeal I.T.A.No.1784/Mds/2014 is allowed. 7. Now, coming to the assessee's appeals for assessment years 2007-08, 2008-09 and 2009-10, the first common 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 authorities found that the reported closing stock was less than the closing stock as per the books of account. According to the ld. Counsel, the assessee was valuing the closing stock as per the method regularly following i.e cost or realizable market value whichever is lower. The assessee has not changed the method of valuation of closing stock during the years under consideration. According to the ld. Counsel, in the business of textile, the unsold stock for more than two years has no value at all. According to the ld. Counsel, the stock of the assessee can be identified individually by by-number. The assessee was valuing the unsold stock which remains for more than one year at 25% of the cost of the stock or the net realizable value in the market whichever is....
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.... for valuing the closing stock cannot be said to be reflecting the correct realizable value. Since the assessee could not substantiate the provision made for realizable value of the goods remained unsold at the end of the relevant assessment year, the Assessing Officer has disallowed the claim of the assessee. Therefore, the CIT(A) has rightly confirmed the disallowance made by the Assessing Officer. 10. We have considered the rival submissions on either side and also perused the material available on record. The assessee admittedly engaged in the retail business of textile at Chennai and Tirunelveli. The assessee is valuing the closing stock depending upon the stock which remains unsold. The case of the assessee 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 less. Similarly, if the stock remains unsold for more than two years, the same was valued @ 50% of the cost or the net realizable value whichever is less. In case the stocks remains unsold for more than three years, the assessee is valuing at Rs. 100/- or the net realizable value whichever is less. The assessee is engaged in the business....
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....ee. In view of the above, we are unable to uphold the orders of the lower authorities and accordingly, the same are set aside. The Assessing Officer is directed to delete the disallowance to the extent of Rs. 1,23,66,170/- for assessment year 2007-08, Rs. 2,36,95,104/- for assessment year 2008-09 and Rs. 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 assessee submitted that the assessee claimed payment of interest @ 18% to the specified persons provided u/s 40A(2)(b) of the Act. The assessee has also made advances to partners and collected interest only @ 13%. The assessee has also availed loan from Indian Overseas Bank and paid interest @ 13%. The Assessing Officer after considering the above facts, found that the payment of interest at 18% to the specified persons are excessive. Accordingly, he restricted the interest payment to 13%. According to the ld. Counsel, the loans received from the specified persons are unsecured loans and interest on unsecured loans in the market during the relevant....
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....7-08, Rs. 13,43,291/- for assessment year 2008-09 and Rs. 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 contribution to LIC Gratuity Fund. 16. Shri R. Vijayaraghavan, ld. Counsel for the assessee submitted that the assessee has contributed towards LIC Gratuity Fund of the employees. However, the Assessing Officer disallowed the claim of the assessee on the ground that the fund was not approved by the prescribed authority. Placing reliance on the 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 submitted 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 authority, the Supreme Court found that the payment has to be allowed. Even otherwise, according to the ld. Counsel, the payment made by the assessee is only for the purpose of business, therefore, it has to be allowed u/s 37 of the Act. 17. On the contrary, Shri Pathlavath Peerya, ld. DR submitte....
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.... side and also perused the material available on record. Admittedly, the assessee has not produced the original receipts before the Assessing Officer for scrutiny. When the assessee has not produced the original receipts for making claim u/s 80G of the Act, this Tribunal is of the considered opinion that the Assessing Officer has rightly disallowed part of the claim. This Tribunal do not find any reason to interfere with the order of the lower authority. Accordingly, the same is confirmed. 23. In the result, the assessee's 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 raised a ground with regard to disallowance of pooja expenses of Rs. 5,19,217/-. 25. Shri R. Vijayaraghavan, ld. Counsel for the assessee 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 expenditure has to be treated as business expenditure. According to the ld. Counsel, the Assessing Officer rejected the claim of the assessee without a....
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....he 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 the major expenses were towards change of flooring, false ceiling, lighting and other similar structure which are temporary in nature. Therefore, 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 assessee's claim of Rs. 64,58,309/-, Shri R. Vijayaraghavan, ld. Counsel for the assessee submitted that the assessee claimed expenditure of Rs. 64,58,309/- towards repair. The assessee has filed supporting material before the CIT(A). In fact, the CIT(A) called for the remand report with regard to the expenditure of Rs. 64,58,309/-. The Assessing Officer verified the report and found that the claim made by the assessee is correct. Inspite of the finding of the Assessing Officer in the remand report, the CIT(A) disallowed the claim of the assessee. According to the ld. Counsel, since the Assessing Officer found that the claim is correct, there cannot be any disallowance. 31. On the contrary, Shri Pathlavath Peerya, ld.....
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....odelled so as to make it a showroom at Tirunelveli. The assessee 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 Explanation 1 to sec. 32 of the Act, the expenditure incurred by the assessee has to be 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 Explanation 1, the ld. DR submitted that the expenditure incurred by the assessee on the building are permanent in nature, therefore, the permanent 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 expenditure is only repair to the building. In this case, no expenditure was incurred for repair. The expenditure was incurred for renovation of building to establish a showroom. According to the ld. DR, the showroom is a ....
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.... claim the expenditure as revenue in nature? This issue was specifically considered by this Tribunal in the assessee's own case for assessment year 2002-03 when the assessee challenged the order of the Administrative Commissioner u/s 263 of the Act. This Tribunal found that the similar expenditure can be allowed as revenue 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 High 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 case before the Kerala High Court the assessee took a premises on lease and incurred expenditure for renovation. The object of the assessee was to establish a showroom in the course of its business activity. The Kerala High Court, after considering the relevant case laws on the subject, found that the similar expenditure is revenue in nature. In view of the above, this Tribunal do not find any reason to interfere with the order of the lower authority. Accordingly, the....
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....al, 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 of Rs. 2,43,000/-. The actual consideration paid by Shri K. Mahesh was Rs. 10,50,000/- for which evidence was found during the course of search 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 lease deed in favour of Shri K. Mahesh for a consideration of Rs. 35 lakhs. Even though the consideration for lease was paid by the assessee-firm from its bank account, the payment was in fact debited in the current account of Shri K. Mahesh in the books of account as advance of money. Therefore, for all practical purposes, the leasehold land has to be treated as individual land of the assessee. Hence, the lease commitment charges cannot be allowed as business expenditure while computing the taxable income. 43. We ....
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....oncerns. Referring to the assessment order, the ld. Counsel submitted that goods purchased can be tracked through the system of by numbers till the same are finally sold by the assessee. The ld. Counsel further submitted that the 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 was 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 during the intervening period before the date of search, were taken by the assessee as closing stock as on 31.3.2009. This was omitted by the search party in the inventory taken by them. The assessee has also explained before the Assessing Officer that the advantage of assigning by-numbers to each and every product is to identify the journey of the goods from the date of purchase till it was finally sold. Therefore, the inventory prepared by the search party is suffered from various infirmities. The discrepancy pointed out by the Assessing Officer is not correct. The ld. Counsel further submitted that the asse....