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TMI Blog2016 (6) TMI 1415X X X X Extracts X X X X X X X X Extracts X X X X ..... sment was already completed. Therefore, in view of the language employed by the Parliament in sec. 153A of the Act, the Assessing Officer has to confine himself only to the material found during the course of search operation. Therefore, when the assessment proceeding was completed before the date of search, the Assessing Officer has no jurisdiction to frame block assessment u/s 153A of the Act in the absence of any material found during the course of search operation. Thus the orders of the lower authorities are set aside and the entire addition made by the Assessing Officer is deleted. Valuation of closing stock - method of valuation of closing stock - assessee is valuing the closing stock depending upon the stock which remains unsold - HELD THAT:- The assessee is engaged in the business of readymade garments and other textile products. It is not in dispute that the fashion is changing very fast and the assessee has to stock the latest fashion textiles so as to meet the expectation of the customers. The only objection of the Revenue appears to be that the assessee is valuing the silk sarees at Rs. 100/-. The lower authorities have not classified the nature of the silk sar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest only @ 13% - AO 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% - HELD THAT:- This claim of the assessee is not in dispute. The assessee admittedly paid interest only @ 18%. Therefore, this Tribunal is of the considered opinion that when the assessee has paid interest less than the market rate of interest for the unsecured loan, the Assessing Officer is not justified in restricting the interest to 13%. Assessing Officer is not justified in restricting the payment of interest to 13%. Therefore, this Tribunal is 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 of interest u/s 40A(2)(a). Disallowance of contribution to LIC Gratuity Fund - assessee has contributed towards LIC Gratuity Fund of the employees - Assessing Officer disallowed the claim of the assessee on the ground that the fund was not approved by the prescribed authority - HELD THAT:- As the assessee has made contribution to LIC Gratuity Fund. It is also not in dispute that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer - AO after verifying the material filed by the assessee, found that the claim made by the assessee is correct except to the extent of Rs. 64,54,309/-. When the Assessing Officer found that the claim made by the assessee is correct, this Tribunal is of the considered opinion that the CIT(A) has rightly confirmed the order of the Assessing Officer. In the absence of any other material available on record to prove the genuineness of the claim to the extent of Rs. 64,54,309/-, this Tribunal is of the considered opinion that the CIT(A) has rightly confirmed the order of the Assessing Officer. This Tribunal do not find any reason to interfere with the order of the CIT(A) Expenditure claimed by the assessee for renovation of the showroom - whether the assessee can claim the expenditure as revenue in nature? - HELD THAT:- 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 expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ystematically by allocating by-number and also providing a system of tracking through the computer, this Tribunal is of the considered opinion that the authorities below ought to have examined the method adopted by the assessee in a detailed manner and an opportunity shall be given to the assessee to explain how the method works. However, without considering all these factors, the Assessing Officer simply came to the conclusion that there was a discrepancy. This Tribunal is of the considered opinion that the discrepancy was due to stocks remain unsold for more than one year and the assessee valued the same at the net realizable value or cost whichever is less, therefore, the CIT(A) is not justified in confirming the addition made by the Assessing Officer. Accordingly, the orders of the lower authorities are set aside and the Assessing Officer is directed to delete the addition. - I.T.A.Nos.1784, 1785, 1786 & 1787/Mds/2014, I.T.A.Nos.1880 & 1881/Mds/2014 - - - Dated:- 1-6-2016 - SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER For the Assessee : Shri R. Vijayaraghavan, Advocate For the Department : Shri Pathlavath Peerya, CIT OR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 5. We have considered the rival submissions on either side and also perused the material available on record. It is not in dispute that no incriminating material was found during the course of search operation. Sec. 153A of the Act clearly says that all pending assessment proceedings on the date of the search would abate and the Assessing Officer has to pass a comprehensive assessment order u/s 153A of the Act including all incomes disclosed in the return of income filed in the regular course. In the case before us, the assessee has filed the return of income in the regular course before the date of search and the Assessing Officer completed the assessment u/s 143(3) of the Act by determining the total income at Rs. 8,97,69,861/-. Therefore, on the date of search on 18.2.2009, no assessment proceeding was pending for the assessment year 2006-07. The question arises for consideration is when no assessment proceeding was pending on the date of search, can the Assessing Officer frame the assessment u/s 153A of the Act in the absence of any material found during the course of search operation? This Tribunal is of the considered opinion that in the absence of any search material, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e lower authorities. However, the same was not considered. Whenever the stocks were sold, the same was declared to the Department and taxes were paid. The Assessing Officer has also doubted the method of valuation followed by the assessee. According to the ld. Counsel, it is a valuation as per the market condition in the textile industry, therefore, the Assessing Officer cannot doubt the valuation made by the assessee. 9. On the contrary, Shri Pathlavath Peerya, ld. Departmental Representative submitted that during the course of search operation, the Revenue authorities found that the financial statement filed alongwith the return of income which contains the details of closing stock was less than the details of the closing stock as per the books of account. Therefore, the assessee was asked to reconcile the difference between the closing stock found in the Annexures to the financial statement filed alongwith the return of income and the books of account. The assessee explained before the Assessing Officer that the value of the closing stock as per the Annexures to the financial statement was after deducting the provision which was calculated at the fixed percentage on the value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t from pure silk, art silk also available in the market, hence, the valuation may differ from product to product. The silk sarees manufactured in one particular year may not be liked by the people after three or four years. Therefore, the assessee has to necessarily value the stock if it remains unsold for more than three years at the net realizable value or a value which could be estimated on adhoc basis. In this case, the assessee has estimated the same at Rs. 100/- or net realizable value in respect of the stocks which remains to be unsold for more than three years. The Assessing Officer has also found that it is not possible to identify the goods remained unsold in the showroom of the assessee. The fact remains that each and every product of the assessee was allotted by-number and it can be identified with reference to the by-number. Therefore, if the Revenue authorities wanted to identify the goods remained unsold for more than one year, two years or three years as the case may be, it can be verified and identified by referring to by-numbers. Hence, the Assessing Officer cannot doubt the valuation made by the assessee. This Tribunal is of the considered opinion that in view o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer is not justified in restricting the payment of interest at 13%. 13. On the contrary, Shri Pathlavath Peerya, ld. DR submitted that the assessee has paid interest on the borrowed loan from the bank only at 13%. The assessee has also advanced loan to the partners and received interest only at 13%, therefore, there is no justification for making payment of interest @ 18% to the specified persons u/s 40A(2)(b) of the Act. The excess payment over and above 13% is not for business purpose, therefore, the Assessing Officer has rightly disallowed the claim of the assessee. 14. We have considered the rival submissions on either side and also perused the material available on record. The assessee claimed before the Tribunal that loan was borrowed long ago and the interest was paid as per the terms and conditions agreed. It is not in dispute that the loan is an unsecured one. When the assessee has received loan without offering any security, naturally, the rate of interest would be higher than the secured loan. The market rate of interest during the relevant assessment year was 20 to 24%. This claim of the assessee is not in dispute. The assessee admittedly paid inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal is of the considered opinion that the judgment of the Apex Court in Textool Company Ltd.(supra) is squarely applicable to the facts of the case. When the money has gone out of the hands of the assessee, this Tribunal is of the considered opinion that the same has to be allowed even though the LIC Gratuity Fund was not approved by the concerned CIT in view of the judgment of the Apex Court in Textool Company Ltd.(supra). In view of the above discussion, we set aside the orders of the lower authorities and the Assessing Officer is directed to delete the addition towards contribution to LIC Gratuity Funds to the extent of Rs. 2,34,433/- for assessment year 2007-08, Rs. 2,01,384/- for assessment year 2008-09 and Rs. 1,00,000/- for assessment year 2009-10. 19. The next ground of assessee s appeal for assessment year 2007-08 is with regard to disallowance of donation to the extent of ₹ 54,700/-. 20. Shri R. Vijayaraghavan, ld. Counsel for the assessee submitted that the assessee claimed donation of Rs. 1,09,400/-. However, the Assessing Officer without any reason restricted the same to 50% of the claim. According to the ld. Counsel, when the assessee has in fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r doing pooja, this Tribunal is of the considered opinion that the same is for business purpose. Hence, the Assessing Officer is not justified in disallowing the claim of the assessee. When the assessee starts its business by performing pooja, this Tribunal is of the considered opinion that the expenditure incurred for performing pooja is for business purpose, therefore, the same has to be allowed while computing the total income. Accordingly, the orders of the lower authorities are set aside and the Assessing Officer is directed to delete the addition made of Rs. 5,19,217/-. 28. The assessee has also raised a ground in its appeal for assessment year 2008-09 with regard to the disallowance towards repairs confirmed by the CIT(A) to the extent of Rs. 65,71,729/-. 29. Shri R. Vijayaraghavan, ld. Counsel for the assessee submitted that the assessee has taken a building on lease. The building as such cannot be used for business of the assessee. The ambience of the building has to be changed. It has to be made fit for establishing a showroom. The assessee is not the owner of the building. Whatever expenditure incurred by the assessee was only for the purpose of expansion of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the CIT(A) and the CIT(A) called for the remand report from the Assessing Officer. The Assessing Officer, after verifying the material filed by the assessee, found that the claim made by the assessee is correct except to the extent of Rs. 64,54,309/-. When the Assessing Officer found that the claim made by the assessee is correct, this Tribunal is of the considered opinion that the CIT(A) has rightly confirmed the order of the Assessing Officer. In the absence of any other material available on record to prove the genuineness of the claim to the extent of Rs. 64,54,309/-, this Tribunal is of the considered opinion that the CIT(A) has rightly confirmed the order of the Assessing Officer. This Tribunal do not find any reason to interfere with the order of the CIT(A). Accordingly, the same is confirmed. 33. Now coming to Revenue s appeals I.T.A.No.1880 1881/Mds/2014 for assessment year 2008-09 and 2009-10, the only issue arises for consideration is with regard to expenditure claimed by the assessee for renovation of the showroom. 34. Shri Pathlavath Peerya, ld. DR submitted that the assessee has claimed an expenditure of Rs. 5,01,46,573/-. The assessee has also claimed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the Revenue has filed the present appeal. 35. On the contrary, Shri R. Vijayaraghavan, ld. Counsel for the assessee submitted that even though the Assessing Officer disallowed a sum of Rs. 24,31,275/- towards the claim of repair to the building and machinery, the CIT(A), by placing reliance on the order of this Tribunal in the assessee s own case for assessment year 200-304, deleted the addition made by the Assessing Officer. Now the Revenue has filed appeal only with regard to the claim of repairs to the extent of Rs. 1,36,77,865/- and not the entire deletion made by the CIT(A). 36. Referring to sec. 32(a)(i) of the Act , the ld. Counsel submitted that depreciation can be allowed in case the expenditure is incurred for establishing a capital asset. According to the ld. Counsel, in this case, the assessee is engaged in the existing textile business. In order to expand the business of the assessee, the assessee intended to establish another showroom in the leased premises. The building taken on lease has to be made ready for using the same as showroom. Therefore, the CIT(A) has rightly found that the expenditure incurred by the assessee is revenue in nature. 37. We hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... premises of the assessee. The ld. Counsel further submitted that the vacant land adjacent to the assessee s premises was taken on lease by the assessee for using the same as car park. If the land was not taken on lease, the assessee s business would have affected very badly, therefore, the acquisition of the leaseholding right over the land was for the business interest of the assessee. Therefore, the payment made by the assessee is for taking the land on lease. Merely because the same was shown as donation in the books of account, according to the ld. Counsel, the same cannot be disallowed. 41. On the contrary, Shri Pathlavath Peerya, the ld. DR submitted that the assessee has made claim by way of lease commitment charges to the extent of Rs. 1 crore in the name of six institutions. According to the ld. DR, the Assessing Officer, after verification of books of account, found that the assessee has paid Rs. 30 lakhs to temples as donation. The assessee clarified before the Assessing Officer that the payment of lease commitment charges was made as per the direction of the Commissioner, HR CE, Chennai. The assessee also clarified that originally the payments were made by the indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an order dated 31.5.2008 directed Shri K. Mahesh, partner of the assessee-firm, to pay donation to various temples. Accordingly, donations were paid from the account of the assessee-firm and after receiving donation by the respective temples, the Executive Officer executed the lease deed in favour of Shri K. Mahesh. Therefore, it is obvious that the assessee-firm made the payments in the form of donation as per the direction of HR CE for obtaining the lease hold lands. Even though initially the lease deed was executed by Shri K. Mahesh and the legal heirs of the erstwhile tenants, the lease was subsequently taken from the temples directly consequent to the order of the HR CE Department. Therefore, this Tribunal is of the considered opinion that the lease commitment charges which was disclosed as donation in the books of account is for the purpose of obtaining lease holding interest of the land in question. Since the donation was made as per the direction of HR CE for the purpose of obtaining lease of the land for business purpose, this Tribunal is of the considered opinion that the payment is revenue in nature. Therefore, the orders of the lower authorities are set aside and the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the course of search operation. He admitted that there was an error in the valuation of some of the products. Therefore, the deficient stock found during the course of search operation was treated as unreflected sales outside the books of account. The investment made by the assessee for purchasing the stock sold outside the books was treated as unexplained investment in the stock. Therefore, the Assessing Officer made addition of ₹ 21,05,178/- towards unrecorded sales and ₹ 39,43,833/- as unexplained investment. 47. We have considered the rival submissions on either side and also perused the material available on record. From the order of the CIT(A) it appears that the CIT(A) called for the remand report from the Assessing Officer. Further, it appears further that the assessee requested for the copies of the details of the physical inventory taken by the search party for verification and reconciliation. This was apparently not provided to the assessee. It is not in dispute that stock of the assessee can be identified by unique number provided. Therefore, when the assessee purchases an item from the date of purchase till the date of sale, it can be tracked thr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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