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
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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
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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
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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
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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
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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
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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:
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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,
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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.
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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%
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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.
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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
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