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M/s Express Retail Services (P) Ltd.,A-41, Naraina Industrial Area, Phase-II, New Delhi 110 028 vs. Dy. ommissioner of Income Tax, Circle 11(1), New Delhi
February, 11th 2013
                                                            ITA NO. 5938/Del/2012


                  IN THE INCOME TAX APPELLATE TRIBUNAL
                       DELHI BENCH "B", NEW DELHI
                BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER
                                    AND
                SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER
                           I.T.A. No. 5938/Del/2012

                                A.Y. : 2009-10
M/s Express Retail Services (P) Ltd., vs. Dy. Commissioner of Income Tax,
A-41, Naraina Industrial Area,            Circle 11(1), New Delhi
Phase-II, New Delhi ­ 110 028
(PAN: AABCE4123E)
(Appellant )                              (Respondent )

            Assessee by                :   Sh. R.S. Singhvi, CA
           Department by               :   Dr. Sudha Kumari, C.I.T. (D.R.)


                              ORDER
PER SHAMIM YAHYA: AM
     This appeal by the Assessee is directed against the order of the
Ld. Commissioner of Income Tax (Appeals)-XIII, New Delhi                 dated
04.9.2012 pertaining to assessment year 2009-10.




2.   The      grounds raised read as under:-

      1.(i)       That under the facts and circumstances of the case
                  the lower authorities were not justified in applying
                  provisions of Sec. 145(3) and in making              trading
                  addition of ` 2 crore on adhoc basis.

     ii)          That the observation and finding of lower authorities
                  are without proper appreciation of fact and based on
                  surmises and conjectures and in total disregard to our



                                      1
                                                         ITA NO. 5938/Del/2012


                  detailed submissions before Assessing Officer and Ld.
                  Commissioner of Income Tax (A).

     2.           That the orders of the lower authorities are not
                  justified on facts and same are bad in law.

3.   In this   case the assessee is running Departmental Store at
various places in Delhi in the name of "Big Apple". The Departmental
Store was started in F.Y. 2006-07. The "Big Apple" is a retail chain of
convenience stores, catering to daily house hold needs of various
income group customers. The assessee has got 65 Stores in Delhi
during F.Y. 2008-09. In this case survey u/s 133A was carried out at the
business premises of the appellant company on 29.04.2008 and hard
disk of the computer and incriminating documents, loose papers were
found and impounded during the course of survey. Statement of the
Managing Director, Sh. Munish Hemrajani of the "Big Apple" and Vice
President (F&A) Sh. Vishal Kalra were recorded during the course of
survey on various documents found and impounded during the course
of appellant proceedings. In the assessment order, the Assessing
Officer has rejected books of accounts of the appellant on the basis of
defects and discrepancies noticed by the Assessing Officer:-

4.   Upon assessee's appeal, Ld. Commissioner of Income Tax (A)
held as under:-

           "The submission made by the appellant before Assessing
           Officer as well as before me is not addressing the defects
           and deficiencies found in the books of accounts of the
           appellant at the time of survey in cash found and in the
           inventory of closing stock and opening stock. Similarly, the
           increase in expenses was exceptionally high which was not
                                     2
                                                        ITA NO. 5938/Del/2012


          found justifiable. The appellant's contention that number of
          stores had increased from 20 to 65. It is seen that most of
          the stores were open in the month of July, August,
          September and October 2007 and the increase was
          exceptionally high in expenses. Therefore, increase in
          number of stores cannot justify increase in expenses under
          the head legal and professional, travelling and conveyance,
          miscellaneous expenses, advertisement and entertainment,
          selling and distribution etc. It is also seen that cash deficit
          found during the course of survey was claimed to be utilized
          for   giving   advance   to   farmers   and   to   Sh.   Munish
          Hemrajanai, MD in F.Y. 2006-07. However, there were no
          records in the books of accounts about such payment of
          cash in F.Y. 2006-07 and 2007-08. This clearly suggest that
          appellant's books do not reflects correct state of affairs and
          same cannot be relied upon specially in view of huge
          decline in the gross profit during the year. Hence, the books
          of accounts rejected by the Assessing Officer u/s 145(3) of
          the IT Act on the basis of defects pointed out above were
          justified and the resultant addition of Rs. 2 crore is based on
          such defects. Therefore, the addition made by the Assessing
          Officer does not call for any interference and same is
          upheld.

5.   Against the above order the assessee is in appeal before us.

6.   We have heard the rival contentions in light of the material
produced and precedent relied upon. Assessee's submissions in this




                                   3
                                                           ITA NO. 5938/Del/2012


regard   on   the    observations   of   the   Assessing   Officer     &    Ld.
Commissioner of Income Tax (A) is as under:-

          Observation

          Closing stock of F.Y. 2007-08 did not match with opening
          stock of F.Y. 2008-09.

          Reply

          No diff. in value of opening and closing stock.          It can be
          verified from audited balance sheet at page no. 28 of Paper
          Book.

          Reconciliation of opening and closing stock at page no. 73-
          74 of paper book.

          Observation

          Valuation of stock is done differently.

                :-
          Reply :-

          There is no change in valuation method. It can be seen from
          the reconciliation statement on page no. 73-74 of paper
          book.      The diff. pointed out by the Ld. Commissioner of
          Income Tax (A) is due to amount of VAT in the closing stock
          of F.Y. 2007-08, however, the amount shown in balance
          sheet excludes value of VAT.

          Observation

          Decline in GP.

          Reply

                                     4
                                            ITA NO. 5938/Del/2012


It can be seen that the GP rate has improved significantly
from previous year.

A.Y. 2006-07 : 20.121%

A.Y. 2007-08 : 12.95%

A.Y. 2008-09 : 9.03%

A.Y. 2009-10 : 13.63%

Also variation in GP rate is due to opening of new stores as
per reasons submitted in letter dated 17.10.2011 at page
no. 59-61 of paper book.

Observation

There is huge increase in expenses under employees cost,
rent and other services, traveling and conveyance,        legal
and professional charges, miscellaneous exp., selling and
distribution exp. Etc.

Reply

These observations are without proper appreciation of facts.
The Assessing Officer has given the comparative details at
page 2 para 5 of the assessment order and as per these
details, it is self evident that the cost has come down in
respect of claim of rent and other services. In fact, the
increase in rent and other services were on account of
opening of new stores in respect     of which details were
given at page 54 to 57 of the paper book.       Further, the
entire claim is supported from audited accounts and


                         5
                                                ITA NO. 5938/Del/2012


Assessing Officer has not found any mistake or irregularity
in respect of any part of claim of expenses.

Observation

Appellant    is   not    maintaining   quantitative   details     of
purchase, sales and stock. The appellant has admitted that
no stock register is maintained.        On physical verification
of stock there was shortfall in the stock.     This shows that
there is no proper control on the sale and purchase and
closing stock.

Reply

Proper stock record is maintained on ERP system. Detail of
location and category wise inventory is at paper book page
no. 75-86.

Appellant has nowhere stated that no stock is maintained.
It can be verified from the statement of Managing Director
Shri Munish Hemrajani on page no. 89 (Q. 9) and page no.
94 (Q. 27,28)

Observation

Cash deficit found during the course of survey.

Reply

There was no case of any cash deficit and reconciliation
statement was duly furnished to the Assessing Officer and
Assessing Officer has not disputed the correctness of the
same.    Further,       there is no case of any incriminating





                            6
                                                              ITA NO. 5938/Del/2012


            material either relating to trading activities or otherwise
            during     the course of survey or     assessment proceedings
            and whole basis of addition is without proper application of
            mind and in total disregard to full proof and comprehensive
            system followed by the appellant.

7.    On the basis of the above said, assessee's submissions is that

there is no legal or factual basis for invoking provisions of Sec. 145(3)

of the I.T. Act.


7.1   Furthermore, it was the submissions of the ld.           Counsel of the

assessee that the assessee was having ERP System. In this regard, he

submitted his submissions as under:-


            "Enterprise resource planning (ERP) systems integrate
            internal and external management information across an
            entire      organization,       embracing      finance/accounting,
            manufacturing, sales and service, customer relationship
            management, etc. ERP systems automate this activity with
            an integrated software application. The purpose of ERP is to
            facilitate the flow of information between all business
            functions inside the boundaries of the organization and
            manage the connections to outside stakeholders.

            Characteristics

            ERP      (Enterprise   Resource    Planning)   systems      typically
            include the following characteristics:



                                        7
                                                ITA NO. 5938/Del/2012


· An integrated system that operates in real time (or next
  to real time), without relying on periodic updates
· A common database, which supports all applications.
· A consistent look and feel throughout each module.
· Installation     of   the      system     without     elaborate
  application/data      integration    by     the     Information
  Technology (IT) department.

Functional Areas

The following are common functional areas covered in an
ERP System. In many ERP Systems these are called and
grouped together as ERP Modules:

Financial Accounting

     General Ledger, Fixed Asset, Payables, Receivables,
     Cash Management, Financial Consolidation

Management Accounting

Budgeting, Costing, Cost Management, Activity Based
Costing

Human Resources

Recruiting, Training, Payroll, Benefits, 401 K, Diversity
Management, Retirement, Separation

Manufacturing

Engineering, Bill of Materials, Work Orders, Scheduling,
Capacity,   Workflow          Management,     Quality     Control,


                          8
                                                               ITA NO. 5938/Del/2012


            Manufacturing        Process,       Manufacturing           Projects,
            Manufacturing Flow, Product Life Cycle Management

            Supply Chain Management

            Supply Chain Planning, Supplier Scheduling, Order to Cash,
            Purchasing,      Inventory,     Product    Configurator,        Claim
            Processing

            Project Management

            Project Planning, Resource Planning, Project Costing, Work
            Break    Down     Structure,    Billing,   Time     and     Expense,
            Performance Units, Activity Management

            Customer Relationship Management

            Sales and Marketing, Commissions, Service, Customer
            Contact, Call Center Support

            Data Services

            Various "self-service" interfaces for customers, suppliers
            and/or employees

            Access Control

            Management of user privileges for various processes"

7.2    Ld. Departmental Representative on the other hand relied upon
the    order of the authorities below. She submitted that the books are
having defects and hence were rightly reflected.              Ld. Departmental
Representative      further relied upon the case of Ratan Lal Omprakash
vs. C.I.T. 132 ITR 640 & S.N. Namasivayam Chettiar vs. C.I.T. 38 ITR
579.
                                      9
                                                        ITA NO. 5938/Del/2012


7.3   We have carefully considered the submissions. We note that

assessee has maintained proper books of accounts and the system of

accounting and management under the ERP system.         It has been duly

submitted by the assessee that the observation that there is difference

in value of opening and closing stock is not correct, the same is

evident from the audited balance sheet of the assessee company.

Assessee also produced reconciliation of opening and closing stock of

the company in this regard.          Furthermore, it is the assessee's

submissions that there is no change in the valuation method.            The

difference    pointed out by the Ld. Commissioner of Income Tax (A)

was due to amount of VAT in the closing stock of F.Y. 2007-08.

However, amount shown in the balance sheet excludes value of VAT.

We further find that Ld. Commissioner of Income Tax (A) is not correct

in giving the finding that GP has gone down in this case by comparing

to the results for A.Y. 2006-07.     The preceding 4 years results as

under:-


             "It can be seen that the GP rate has improved significantly
             from previous year.

                  A.Y. 2006-07 : 20.121%

                  A.Y. 2007-08 : 12.95%

                  A.Y. 2008-09 : 9.03%


                                    10
                                                        ITA NO. 5938/Del/2012


                  A.Y. 2009-10 : 13.63%

7.4   Furthermore, it has been the observation of the Ld. Commissioner

of Income Tax (A) that there is huge increase in expenses.          In this

regard, the assessee submitted that cost has come down in respect of

various expenses and increase is only in respect of claim and other

services. That in fact the increase in rent and other services were on

account of opening new stores in respect of details were given.

Furthermore,     the entire claim of expenditure is supported from the

audited accounts and the Assessing Officer         has not found any

mistakes or irregularity in respect of any part of the claim of the

expenses.      As mentioned earlier, assessee's submission has cogency

that proper stock record is maintained on ERP system.            It is the

assessee's contention that assessee has nowhere stated that no stock

is maintained.    The same is evident from the statement of Managing

Director Sh. Munish Hemrajani. Furthermore, assessee has claimed

that there was no case of any cash deficit and reconciliation statement

was duly furnished to the Assessing Officer and Assessing Officer has

not disputed the correctness of the same.    Lastly, it is the assessee's

contention that there is no case of any incriminating material either

relating to trading activity or otherwise during the course of survey or

assessment proceedings.


                                   11
                                                                 ITA NO. 5938/Del/2012


7.5   Thus,     we   find    that   assessee   has    cogently     rebutted      the

shortcomings noted in the appellate order. In our considered opinion,

the assessee has maintained proper books of accounts and there is no

case for invoking section 145(3) of the I.T. Act. We further find that

case laws relied upon by the Ld. Departmental Representative were

with regard to rejection of books in the particular facts of the case.

Hence, they are not applicable here. Therefore, we set aside the order

of the lower authorities and decide the issue in favour of the assessee.


8.    In the result, the appeal filed by the Assessee is allowed.

      Order pronounced in the open court on 08/2/2013.

      Sd/-                                                    Sd/-

       TOLANI]
 [R.P. TOLANI]                                       [SHAMIM YAHYA]
JUDICIAL MEMBER                                  ACCOUNTANT MEMBER

Date 08/2/2013
"SRBHATNAGAR"
Copy forwarded to: -
1.    Appellant 2.          Respondent           3.     CIT   4.       CIT (A)
5.    DR, ITAT


                                TRUE COPY
                                                        By Order,


                                                          Assistant Registrar,
                                                          ITAT, Delhi Benches



                                         12
 
 
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