TIN TAR RETAIL CORP ,MUMBAI vs. ASSISTANT COMM.OF INCOME TAX -CIRCLE 17(3), MUMBAI

2. The learned Commissioner of Income-tax (Appeals) erred in confirming the additions of Rs. 96,77,633/- made on account of alleged suppressed sales.

3. The learned Commissioner of Income-tax (Appeals) erred in confirming the disallowance of sum of Rs. 15,284/-on account of prior period expenses.

4. The learned Commissioner of Income-tax (Appeals) erred in confirming the disallowing of a sum aggregating to Rs 1,20,809/- under section 37(1) of the Act on account of Sales tax/VAT not recoverable written off during the year.

5. The learned Commissioner of Income-tax (Appeals) erred in making a enhancement of a sum aggregating to Rs 47,93,370/- under section 37(1) of the Act on account of capital work in progress written off on cancellation of projects during the year. It is submitted that the issue of amount written off on account of cancellation of project was not a subject matter of assessment proceedings initiated under section 153A of the Act and hence the action of learned to 6487/Mum/2024 Tin Tar Retail Corp. Commissioner of Income-tax (Appeals) in enhancing the disallowance is bad in law and ought to be deleted.

AY 2018-19 “1. The learned Commissioner of Income-tax (Appeals) erred in upholding a disallowance of a sum aggregating to Rs 91,806/- under section 37(1) of the Act on account of Sales tax/VAT not recoverable written off amounting to Rs 40,391/-and on account of Sundry Balances written off amounting to Rs 51,415/-. It is submitted that the appellant has correctly written off as expenses the amounts not recoverable and the same was incurred wholly and exclusively for the purpose of business. The disallowance made by the learned AO is bad in law and ought to be deleted.

AY 2017-18 “1. The learned Commissioner of Income-tax (Appeals) erred in confirming the validity of order passed under section 143(3) of the Act which is invalid and void ab initio.

4. The brief facts of the case are that the assessee is engaged in the business of trading of designing garments and filed the return under section 139(1) of the Act. All three appeals are filed by the assessee which is related to the search and seizure action was occurred on 29.05.2018. For A.Y. 2017-18 the assessee filed its to 6487/Mum/2024 Tin Tar Retail Corp. return income on 12.10.2017. The assessee related A.Y. 17-18 narrated the facts in synopsis of submission which is reproduced as below: “Assessment Year 2017-18 For this year, two appeals are arising before the Tribunal viz., ΙΤΑ No.6487/Mum/2024 which is arising from assessment order dated 22.12.2019 passed under section 143(3) of the Income-tax Act (the Act) and appeal being arising from assessment order dated 12.06.2021 passed under section 153A of the Act. In the assessment order passed under section 143(3), the AO made a disallowance of Rs.47,93,370 being deduction claimed in respect of write off of capital work in progress upon abandonment of projects. In the assessment order passed under section 153A of the Act, the AO made an addition to the Appellant's income in respect of alleged suppressed sales of Rs.96,77,633. He also made disallowance of prior period expenses of Rs.15,284 and write off of Sales Tax / VAT of Rs.1,20,809. The CIT(A) in the appeal arising from the said order passed under section 153A has enhanced the income by Rs.47,93,370 being disallowance of write off of capital work in progress upon abandonment of projects after upholding the same disallowance in the appellate order arising from 143(3) order. The issues that arise for consideration of the Hon'ble Bench in these appeals are as under: a. Whether the AO was justified in passing the assessment order under section 143(3) of the Act or he ought to have only passed an order under section 153A of the Act as the assessment proceedings stood abated. b. Assuming without admitting that the Tribunal holds that the AO was justified in passing the assessment order under section 143(3) of the Act, whether the Revenue was justified in disallowing the amount of Rs.47,93,370 being write off of capital work in progress on abandonment of projects in the said order. c. Assuming without admitting that the Tribunal holds that the AO was justified in passing the assessment order under section 143(3) of the Act as the said proceedings remained unabated, whether the adjustments to total income in the assessment order passed under to 6487/Mum/2024 Tin Tar Retail Corp. section 153A ought to have been restricted to such of them as emanating from incriminating material found during the course of search. Consequent thereto, the adjustments as made by the AO/ CIT(A) to the total income being in respect of alleged suppressed sales, prior period expenses, write off of Sales Tax/VAT and write off of capital work in progress on abandonment of projects was not justified. d. Whether the CIT(A) was justified in enhancing the assessment in the 153A proceedings to deny deduction in respect of write off of capital work in progress on abandonment of projects. e. Whether the AO/ CIT(A) were justified in making/ upholding the following adjustments to total income. i. alleged suppressed sales ii. prior period expenses iii. write off of Sales Tax/ VAT iv. write off of capital working progress on abandonment of the projects.

4. The brief facts as may be relevant for adjudicating Issue referred to above in para 3a above are as under: Sr. No. Date Events 1 12.10.2017 The appellant filed its return of income for the A.Y. 2017-18 2 29.05.2018 Search action was carried out u/sec. 132 of the Act at the business premises of the Appellant 3 09.08.2018 Notice under section 143(3) was issued selecting the return of income filed on 12.10.2017 for scrutiny. 4 22.12.2019 Pursuant to the above, assessment order under section 143(3) of the Act has been passed. to 6487/Mum/2024 Tin Tar Retail Corp. 5 18.02.2021 Notice had been issued under section 153A of the Act directing the Appellant to file its returns of income inter alia for the year under consideration under the said section. 6 12.06.2021 Pursuant to the above, assessment order under section 153A of the Act has been passed.

, the CIT(A) has observed in paragraphs 9 and 9.1 at page 16 of his order as under:

9. According to the appellant, the proceedings had abated on account of the search action initiated on 29.05.2018. I find that the notice u/s. 143(2) was issued subsequently on 09.08.2018 and no assessment was pending as on the date of search. 9.1 Second proviso to Sec. 153A states that the assessment proceedings pending on the date of initiation of search shall abate. Clearly, this condition has not been satisfied in the present case. Hence, I am of the view that there was no bar on the AO to conclude the assessment u/s. 143(3) of the act. From the records of Sec. 153A appellate proceedings which are being undertaken simultaneously in this office, it is seen that the notice u/s. 153A of the Act was issued on 18.02.2021. In our present case, the assessment had been completed much before on 22.12.2019. Thus, this is not a case where simultaneous proceedings or multiple parallel proceedings were going on same time.” Therefore, according to the CIT(A), the 143(3) proceedings were unabated. to 6487/Mum/2024 Tin Tar Retail Corp. This conclusion reached by the CIT(A) will be relevant for issue referred in para 3(c). Issue referred to in para 3(b) being disallowance of Rs.47,93,370 in respect of write off of capital work in progress of abandoned projects." 6487/Mum/2024, AY 2017-18 5. The Ld. AO passed an assessment order under section 143(3) of the Act making an addition of Rs.47,93,370/- on account of write-off of capital work-in- progress consequent to abandonment of projects at Hyderabad. Aggrieved by the said order, the assessee preferred an appeal before the [Ld. CIT(A). Subsequently, pursuant to a notice issued under section 153A of the Act, the Ld. AO passed another assessment order for A.Y. 2017–18, wherein he added back the difference in sales and disallowed the expenditure claimed under section 37(1) of the Act. The assessee again challenged the said order before the Ld. CIT(A). In the impugned appellate order, the Ld. CIT(A) upheld the additions made under section 153A and further enhanced the assessment by disallowing the expenses written off towards capital work-in-progress relating to abandonment of projects, which had originally been considered in the assessment under section 143(3). For A.Y. 2018–19, the Ld. AO disallowed the expenses claimed under section 37(1) pertaining to sales tax/VAT written off as irrecoverable and sundry balances written off. The assessee challenged the said assessment order before the Ld. CIT(A), who dismissed the appeal. Being aggrieved, the assessee is now in appeal before us.

to 6487/Mum/2024 Tin Tar Retail Corp. 9.1. Second proviso to Sec. 153A states that the assessment proceedings pending on the date of Initiation of search shall abate. Clearly, this condition has not been satisfied in the present case. Hence, I am of the view that there was no bar on the AO to conclude the assessment u/s. 143(3) of the act. From the records of Sec. 153A appellate proceedings which are being undertaken simultaneously in this office, it is seen that the notice u/s. 153A of the Act was issued on 18.02.2021. In our present case, the assessment had been completed much before on 22.12.2019. Thus, this is not a case where simultaneous proceedings or multiple parallel proceedings were going on same time. Hence, the additional ground no. 1 stands DISMISSED.

10. In the present case, the assessee has raised a ground challenging the validity of the assessment U/s 153A of the Act and the addition made on account of alleged difference in sales, which was treated by the Ld. AO as suppression of sales. It has been submitted that the assessee maintains its accounts through an ERP system, and due to system-related constraints, sales returns were not automatically adjusted in the software. Such adjustments were required to be carried out separately during the course of the assessment proceeding. In view of the aforesaid discussion in paragraph 9 of the ITAT order, the assessment carried out by the Ld. AO under section 153A of the Act cannot be held to be erroneous in terms of the statutory provisions. Related the merit the assessee furnished a detailed explanation in support of its contention, which has been duly recorded to 6487/Mum/2024 Tin Tar Retail Corp. by the Ld. AO in paragraph 4.5 at pages 6 to 9 of the impugned assessment order. The relevant observations of the Ld. AO, along with the submissions of the assessee, are reproduced hereunder: “4.5 The submission of the assessee is considered but not found acceptable. It is important to mention here that the year wise sales data provided to the assessee for reconciliation with the sales shown in Its books of account and ITR extracted from its own ERP system during the course of search action. The submission of the assessee that the excess of sales found in its own ERP system due to not considering the sales return and sales is not acceptable in the light of below: a. The assessee has submitted the details of the sales return for the differential amount without mentioning their corresponding sales invoices details. A sales return must be of some sales made by the assessee. The details submitted by the assessee consist of separate document no of sale return providing no linkage with its original sale document. Thus, the trail of the transaction is not provided by the assessee to justify its claim of sales return. It is Impossible to consider the genuineness of claim of the assessee regarding sales return valid without their corresponding sales Invoices, reasons of such returns and other relevant details/justification. Further, the assessee has also mentioned few sales invoices stating that these sales invoices were not in its own ERP system which is without any justification and supporting documents. b. Further, it is pertinent to mention here that it is a common practice of the retail chain business that the sales return is restricted to the limited period of time. Since the assessee is Into high-end designer clothes, It's sales return policy must be very specific and time bound.The assessee while submitting the details of sales return have not submitted such sales return policy adopted by it during the course of its business for the year under assessment. Moreover, such details have been submitted without any explanation/justification and supporting documents. However, before completing this assessment, the undersigned has reviewed the assessee's website to check its sales returns policy which is reproduced as under:

It is not ascertainable from the details he details submitted by the assessee assessee t that sales returns falls within its return policy or not as no corresponding sales Invoice details, shipment details of sales, other details furnished by the assessee to justify the genuineness of its claim of sales return. In absence of any other documentary evidences it can be fairly concluded that the assessee have merely made a mathematical sum of calculation of sales return and sales not considered and matched the difference of reconciliations. The submission of the assesssee Is merely an excel working and do not have any explanation, justification and supporting document. C. In addition to the above, on perusal of the financial statement for the year under assessment, It is seen that the assessee has not produced any schedule of the sales mentioning any sales return on the contrary the assessee has provided the consolidated sales amount. In this regard, it is worth to reproduce the extract of notes of profit and loss account of the assessee as under:

The assessee nowhere shown the sales retain or furnished any other documents to prove its claim of sales return. it is evident from the above that the assessee has nowhere shown the sales return or furnished any other documents prove its claim of sales return. d. It is important to sales, purchase and stock details as a general practice of retail chain. Assessee is stating that the sales return and sales not considered in the annexures reflects that the sales return is not the part of its ERP system. In such case, the sales and stock of the assessee is highly susceptible to the manipulation and manual changes as per assessee's wish of suppressing the sales and reduction of its tax liability is Inevitable. e. The assessee could have produced the stock register of the particular stock item highlighting the stock Inward due to sales returns of the particular stock item however assessee has failed to produce any stock register showing movements of stock items. f. The assessee could have produced the money trail of sales return in the form of cash payment through cash register or bank statement highlighting the payment made for the sales return or debit note copy if the sales made on credit. However, assessee has grossly failed to produce any such details. g. The assesses could have produced any email communication or sales return request raised by its customers as the assessee also has online store. Such email requested could be coupled with to 6487/Mum/2024 Tin Tar Retail Corp. the documentary evidence as well as the treatment of the same in its books. However, the assessee grossly failed to demonstrate its sales return either online sales or offline sales. Merely submitting the excel sheet cannot justify the claim of the assessee. 4.6 In the light of the above, it is concluded that the theory of sale return and sales not considered in ERP introduced by the assessee to match the difference of sales as per ITRand sales as per ERP is not supported by any cogent evidences. This concocted story of sales return has been brought by the assessee only to save itself from the tax liability nothing else. Thus, the addition of Rs. 96,77,633/- is made to the total income of the assessee for the year under assessment on account of suppressed sales. In this regard, I am satisfied that the assessee has furnished inaccurate particulars of income to conceal its income to the tune of Rs. 96,77,633. Hence, the penalty proceedings u/s 270A(1) of the IT Act, 1961 are initiated separately for underreporting due to misreporting of income on this issue.”

AY 2018-19 16. The assessee has challenged the order of the Ld. CIT(A), whereby the total addition relating to disallowance of Rs.91,806/- claimed under section 37(1) of the Act has been upheld. The Ld. AO disallowed the expenses claimed by the assessee on account of sales tax/VAT written off as irrecoverable amounting to Rs.40,391/- and sundry balances written off amounting to Rs.51,415/-. The Ld. AR submitted that both the expenditures are directly related to the assessee’s business activities and were incurred wholly and exclusively for the purposes of business. The Ld. DR, on the other hand, relied upon the orders of the revenue authorities. Upon careful consideration of the material available on record, we find that both the disallowances are intrinsically connected with the business operations of the assessee. The Ld. AO has failed to bring on record any cogent evidence or material to justify the rejection of the assessee’s claim. to 6487/Mum/2024 Tin Tar Retail Corp. Accordingly, the addition of Rs.91,806/- made by the Ld. AO and sustained by the Ld. CIT(A) is hereby deleted.