TaxTMI 
TaxTMI 
2021 (6) TMI 980
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....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 accessories on retail basis through its show rooms. The A.O. completed the assessment of the year under consideration by making disallowance of three claims, referred above. The ld. CIT(A) granted relief in respect of addition relating to franchisee fees and confirmed the additions related to other two items. Hence, both the parties are in appeal before us on the issue decided against each of them by Ld. CIT(A). 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 submitted that it is dealing with garments of various brand and accordingly obtained exclusive franchisee rights from them. It was submitted that the franchisee fees is paid as a percentage of sales turnover of the relevant branded merchandise sold by the assessee, as per the relevant agre....
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....Net Sales 4. Basic Properties BV (Kappa) 5% of Net retail turnover or 10% of net wholesale turnover. The above payments based on certain percentage of sales by the assessee. The parties with whom the assessee has entered into Agreement has 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 starting of a new business on the basis of technical know-how received from the foreign firm, exclusive right of the company to use the patent or trademark which it receives from the foreign firm, the payments made by the company to the foreign firm whether a definite one or dependent upon certain contingencies, right to use the technical know-how of production or the activity even after the c....
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....1 to 1796/Mad/2011 Dt.31.10.2012. Further the Hon'ble Madras High Court in the case of CIT Vs. TVS Ltd 110 ITR 338 (Madras) held that when the payment made by the assessee to a company was in the nature of license 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, the findings and reasons given by the CIT(Appeals) to allow the claim of the expenses in regard to franchisee on the Agreement entered by the assessee is a revenue expenditure and it cannot be construed as a capital expenditure. Hence the appeal of revenue is dismissed." 9. We notice that the view expressed by Ld CIT(A) is consistent with the view taken by the coordinate bench in AT 2008-09. Accordingly, we do not find any infirmity in the decision rendered by Ld. CIT(A) on this issue. 10. In the cross objection, the assessee is supporting the decision rendered by Ld. CIT(A) on this issue. Since we have upheld the view taken by Ld. CIT(A) on this issue, the cross objection filed by the assessee shall become infructuous. 11. We shall now take up the appeal filed by the assessee. The first issue relates to disa....
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....s items and compare the same with book stocks. The inventory taking work was carried out by auditors of the assessee company in all the retail showrooms as well as in the warehouses. The net amount of shortage noticed 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 entire report of the shortages store-wise, apparel-wise, accessories-wise have been furnished to the A.O. and the same is placed from page nos.307 to 765 of the paper book. Accordingly, he submitted that 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 the shortages/excess stock has been noticed in respect of each item of apparel/accessories. 15. We also notice from the report that there are shortages as well as excess stocks and the net amount of difference resulted in shortage of stock, which was valued at Rs. 115.83 lakhs. We notice from the report that the physical inventory has been taken in all stores and wareho....