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TMI Blog2016 (6) TMI 1229X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 the 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 respectively. If the stock continues for more than three years, then it was considered as very old stock and the same was valued at Rs. 100/- per item in order to prevent pilferage. The assessee, in fact, undertook this exercise from time to time at the end of the financial year. The value assigned for the old stock on the basis of the realizable market condition, was continuously valued year after year. The assessee has not changed the method of valuing the closing stock. The assessee's estimation of realizable market value of these stocks are substantially found to be correct whenever the old stocks are sold and net realized valued was taken as raised in the books of account. According to the Ld. counsel, every valuation of stock will have the consequence of postponing the profit or loss to the year of sale of such stock whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the stock as per books of account to the extent of Rs. 1,27,64,281/- for the assessment year 2009-10. The managing partner Shri Shiva Kumar was examined by the Assessing Officer. He admitted that there was an error in the figure declared in the books of account. One Shri Ponanand was also examined in respect of the stocks found at Tirunelveli branch of the assessee. However, 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 specific by-numbers lying unsold was not included in the physical stock taken on the date of search and the stock with specific by-numbers sold subsequent to the date of search was also not included. The assessee claimed before the Assessing Officer that if the above claims are considered, the excess stock would come only to Rs. 35,96,618/-. The Assessing Officer, after examining the claim of the assessee, found that the veracity of claim made by the assessee cannot be tested at this point of time. Therefore, the explanation of the assessee is only an afterthought. Accordingly the Assessing Officer determined the deficit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stitute major segment. At the end of the third year, if the silk sarees could not be sold, the same was valued at Rs. 100/- being the realizable market value of the stock. This claim of the assessee 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 material is fast changing. If the assessee could not sell the products in the year it was purchased and introduced, the next year the value 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 year of purchase. It is a well settled principle of law that closing stock 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 admittedly following the cost or market price, whichever is less, uniformly in all the earlier assessment years. The assessee valuing the realizable value based upon the past experience in the business. The Assessing Officer observed that the assessee fails to substantiate the valuation made. This Tribunal is of the considered opinion that the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... follows at page 16 of his order:- "....There is no inventory of individual break up of physical stock identified with reference to by-numbers made out on the date of search. Therefore, it is not possible 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 Officer at page 16 in the assessment order for the assessment year 2009-10, it is obvious that the inventory taken by the Revenue authorities could not be identified with the physical stock with reference to bynumbers. If the Assessing Officer could not identify the stocks with reference to by-numbers, it is not known how the Revenue 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 there is no justification on the part of the Assessing Officer to ignore the old stocks which could n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se holding right over the landed property. According to the Ld. counsel, the assessee is not acquiring any title over the property. In fact, the payment was made for giving consent by the HR&CE Department to transfer the lease in favour of the assessee by the legal heirs of the erstwhile tenants of the landed property. The Ld.counsel 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 assessee negotiated with the legal heirs of the original tenants and they agreed to transfer the tenancy right in favour of the assessee. Since HR&CE Department claimed that the legal heirs of erstwhile tenants has no right to transfer the lease, the assessee has to pay a sum of Rs. 1 Crore to the temples and the same was paid to the temples in the form of donation as directed by HR&CE. Though this payment was in relation to taking the property on lease, the assessee has not acquired any right over the property. This is a payment made as donation to the temples which enabled the assessee to take the adjacent land as lease for using the same as parking area. Therefore, accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment made by the assessee as capital in nature. 12. We have considered the rival submissions on either side and perused the relevant material available on record. The subject land in question is an agricultural land and it is adjacent to the show room of the assessee. The assessee claims that the adjacent land is required for assessee's business for using the same as car park for the customers who are visiting the show room. It is not in dispute that the assessee is engaged in the business of retail textile in the town of Tirunelveli. The adjacent land belonged 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 assessee negotiated with legal heirs of the original tenants, who in fact executed registered lease deeds in favour of the assessee's partner Shri Mahesh. From the order of the Assessing Officer it appears the money was paid to the legal heirs of the erstwhile tenants from the account of the assessee-firm maintained at Indian Bank, Tirunelveli Town Branch. Therefore, apparently, the payment was made from the funds of the assessee-firm and the lease ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 Rs. 2,43,000/- was paid by the assessee-firm for obtaining the lease deed on 09.03.2007. Similarly, another sum of Rs. 35,00,000/- was paid by the assessee-firm for obtaining a lease deed on 04.07.2007. 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 direction of the HR&CE Department. Therefore, this Tribunal is of the considered opinion that the payment of donation has to be necessarily treated as revenue in nature. Moreover, the land in question 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 opinion that the donation given to various tenants as per the direction of HR&CE Department has to be treated as revenue in nature in the hands of the assessee-firm. This Tribunal is of the considered opinion that the payment of donation is only for the purpose of carrying on the busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the value of inventory, during the course of search operation, was taken at Rs. 18,87,41,177/- The closing stock as per books of account was Rs. 20,15,05,458/- as on 17.02.2009. Therefore, the physical inventory/stock was found to be less than the stock as per the books of account. The Assessing Officer found that there was difference of Rs. 1,27,64,281/-. This difference could have come due to sale of stocks outside the books. Therefore, the CIT(Appeals), according to the Ld. D.R., has rightly confirmed the addition made by the Assessing Officer. 17. The Ld. Departmental Representative further submitted that the main contention of the assessee before this Tribunal is that the identification of numbers, namely, the by-numbers which confirm part of closing stock was not taken as a stock by the search party. The assessee during the remand proceeding, filed a list of goods with unique identification numbers which was sold subsequently. The list furnished by the assessee was, in fact, forms part of Annexure-V to the impugned order of the Assessing Officer. The Ld. D.R. further submitted that there is no inventory of individual break-up of physical stock identified with reference to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtain inventories, which are identified with by-numbers, could not be taken as closing stock by the Revenue authorities would go to show that the difference is because the Revenue has not taken into consideration the items which were lying in the show room for sale. The assessee has claimed that the stocks were sold subsequent to search operation. In fact, the assessee has produced all the details to identify those goods which are sold subsequent to search. In view of these reasons, merely because the Assessing Officer could not verify that cannot be the reason to make addition. Therefore, this Tribunal is unable to uphold the orders of the lower authorities. Accordingly, the orders of the lower authorities are set aside and the Assessing Officer is directed to delete the addition made on the stock discrepancy. 19. Now coming to Revenue's appeal for assessment year 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. Acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Kerala High Court found that the expenditure 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 expenditure was spent could be retrieved by the assessee, it shall not amount to capital expenditure but it can be termed only as revenue expenditure. The Kerala High Court has elaborately examined the issue on the subject by referring to various case laws on the subject including the judgment of Apex Court in Empire Jute Co. Ltd. v. CIT (1980) 124 ITR 1. In view of the above, when the assessee incurred 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 retrieved by the assessee at the expiry of lease term. Therefore, such expenditure cannot be treated as capital in nature as found by Kerala High Court. It has to be necessarily treated as revenue expenditure. Therefore, the CIT(Appeals) has rightly allowed the claim of the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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