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Income Tax Appellate Tribunal, DELHI BENCH “B” BENCH NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI PRASHANT MAHARISHI
ORDER
PER AMIT SHUKLA, JUDICIAL MEMBER:
The aforesaid appeals have been filed by the Revenue against the separate order of even date 6.11.2013, passed by Learned CIT(Appeals)-13, New Delhi for the quantum of assessment passed u/s 143(3) for the A.Y. 2007-08 and 2010-11. Since in both the appeals common issues are involved arising out of identical set of facts, therefore, same have been heard together are being disposed off by way of this consolidated order.
2. We will first take up the appeal for the A.Y. 2007-08, whereby the Revenue has raised following grounds of appeal:- “1. On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs. 1,00,00,000/- made after rejecting the books of accounts u/s 145(3) of the Act.
2. On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs. 2,05,715/- made u/s 36(1)(va) of the Act in respect of employees’ contribution to EPF/VPF, read with section 2(24)(x) of the Act.
3. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of hearing.”
3. The brief facts qua the first issue are that, the assessee company is engaged in the business of retail trading through chain of departmental stores under the name of style of ‘Big Apple’. The Assessing Officer noted that in this year there was fall in G.P. rate as compared to the earlier assessment year and noted the following comparative results:- F.Y. Turnover in Rs. Gross Profit in Rs. G.P.Rate 2005-06 9205034 1860287 20.21% 2006-07 157158588 20360147 12.95% In response to the show cause notice issued by the Assessing Officer, the assessee submitted details of month wise purchase and sales and also month wise chart of expenses debited to the profit and loss account, which has been incorporated at page 2 of the assessment order. Apart from that the assessee has also given very elaborate explanation and reasons for decline in the gross profit rate which too has been incorporated by the Assessing Officer at pages 2 and 3 of the assessment order. However the Ld. Assessing Officer did not Page 2 of 13 accept the assessee’s contention and rejected the books of account u/s 145(3) and estimated trading addition on ad hoc basis at Rs. 1 crore. His relevant observations are as under:-
I have considered the reply which is found unacceptable. In point No.28(a) of Form 3CD the auditor pointed out that it is not feasible and possible to furnish quantitative details of purchase, sales & stock in view of the large numbers of items of different types, varities & size. When asked to furnish quantitative/ qualitative details of the items traded in the stores, it is admitted that no stock register is maintained items-wise, no separate stock register is maintained for perishable goods, hence the declared dosing stock is not subject to verification. Even the purchase/sales are not fully/properly vouched. In reply to adjustment made or variance found in physical verification of stock, the A.R. admitted that shortfall in stock found on the physical verification was reduced from the inventory of the closing stock. Since such quantification is not possible on the pad of the assessee which is a testimony of the fact that the inventory of closing stock furnished during the assessment proceedings was prepared on estimate basis asked to furnish details of perished/stolen stock store-wise month-wise, the A.R. neither could quantify such perished /stolen stock store-wise month-wise nor could furnish value of such stock reduced from inventory as a whole during the year. Thus it can be safely said that the closing stock in value terms is declared arbitrarily without any basis. It is worthwhile to mention here no F.i.R. registered by the assessee for the stolen stock to substantiate its claim in this regard, in view of above facts the declared trading results are not subject to verification, hence * am left with no other alternative but to invoke the provisions of section 145(3). The books of account maintained by the assessee are ^ejected by invoking the provisions of section 145(3) and to cover up ali possible leakages a lump sum trading addition of Rs.1 Crore is made and added to the total income of the assessee.
Before the Learned CIT(Appeals), again the assessee made very elaborate submissions objecting to the various observations made by the Assessing Officer and also explaining the reasons for fall in G.P. rate which was for the sake of ready reference is reproduced here:- “(a) Since it is a chain of departmental stores and numerous items are dealt in comprising of vegetables, stationery, grocery, cosmetics etc. and number of items available in any departmental stores which is running thousands, the auditor has simply pointed out that these details could not be annexed with the audit report. The auditor did not state that the assessee company was not maintaining stock register. Moreover, the turnover of all individual items was less than 15% of gross turnover and as such it was not necessary to give the quantitative information for any item in the Tax Audit Report as per guidance note on Tax Audit issued by The Institute of Chartered Accountants of India. However, it was categorically stated before the Assessing Officer that stock registers are maintained and all the purchases and sales are duly vouched and supported with bills and duly accounted for in the books of account as duly recorded by the Assessing Officer in the Assessment Order. There is a contradiction in the stand of the Assessing Officer in the Assessment Order. The Assessing Officer has not pointed out any items of purchases or sales which is not supported with bills or vouchers. The observation of the Assessing Officer regarding remarks of auditors in Auditors Report are based on surmises and conjectures. b) Regarding stock register, it was submitted before the Assessing Officer that the assessee company is maintaining the itemwise stock register. It may be submitted here that no departmental store can be run by any company in the absence of stock register, since such stores are run by the employees and salesmen deputed in those stores. It is for the internal control and for the business requirement that the stock registers were maintained. This aspect was duly brought to the notice of AO and was duly recorded by him in the assessment order that the stock registers are maintained by the company. c) It is submitted that inventory of opening and closing stock was furnished to the Assessing Officer. Please note that inventory of stock was physically taken and the value of stock being less on the basis of physical inventory as compared toquantitative details as per books was reduced from the value Page 4 of 13
of closing stock. Theassessee company had opened 17 stores during the year in addition to 3 storesstarted in Assessment year 2006-07. The company was new in the business andaccordingly could not have effective control on the small- small items lying in thestores. The relevant details were as under:- a) Value of stock as per stock records b) Less Stock Adjustmentfor variances found during Stock as per verification (Taken in P&L Account) d) Maintenance of Exhaustive Stock Records on ERP System It is submitted that the assessee company has a system of maintenance of books of account and stock records on ERP System in computers especially designed for chain of stores. All the purchases, sales, transfers to individual stores from Head Office etc are automatically recorded in the financial books as well as stock records. The company had opened 17 stores during the year out of which 12 stores were opened during the period of December, 2006 to March, 2007. During the year the company was in the process of setting up more number of stores and the company has system of verification of physical stocks with reference to inventory as per records on • periodical basis. During the year the said verification was carried out in respect of 5 stores and for the balance number of stores the exercise of physical verification of stocks was carried out in the subsequent year. The shortage of stock was found on basis of physical verification was apportioned for the year ended 31/03/2007 on the basis of sales turnover to arrive at the correct profitability for the relevant year. We are enclosing a statement showing such shortages in respect of various stores and warehouses on the basis of which shortage of stock amounting to Rs. 67,01,889/- was reduced from the value of stock as per stock records as on 31/03/2007. Please note that the inventory of stock was taken on the basis of values as per stock registers as reduced by the amount of shortage on the basis of physical verification as mentioned above. We are producing the item-wise working of variance report in respect of numerous items dealt in various stores during the year, on basis of which your goodself will appreciate that the inventory was taken on the correct basis. Please note that the same value closing stock was adopted as opening stock in the next year. Page 5 of 13
Please note that the stock variance was as under:- Turnover Rs. 15,71,58,588/- Stock Variance Rs. 67,01,889/- Percentage 4.26% It is submitted that the shortage of stocks was nominal being 4.26% of the sales turnover which was normal in the nature trade of the company by running departmental stores which are prone to risks of (a) perishable goods, (b) damaging of goods, (c) shop lifting and (d) short shelf life, etc and no adverse inference may kindly be drawn in this regard. It is submitted that no query was raised by the Assessing Officer during the assessment proceedings to produce the stock records and detailed workings of stock variance from various stores, which are produced before your goodself for verification. e) It is submitted that all the purchases and sales are duly vouched and supported with bills. The Assessing Officer has not pointed out any items of purchases and sales which is not supported with vouchers and bills. In fact the Assessing Officer has completed the assessment on the basis of the details furnished and did not require the assessee company to produce books of accounts and accordingly the Assessing Officer has rejected the books of accounts even without examining the same. e) It is submitted that the reconciliation of Sales and purchases with VAT returns were furnished to the Assessing Officer (copies enclosed) which has not been disputed by the Assessing Officer and no fault was found therein. f) It is submitted that theft and shop lifting in the departmental stores is a common practice and is prevalent not only in India but in the whole world. Your goodself will appreciate that in case there is shop lifting of items comprising of grocery items or cosmetic items then the salesmen and the employees of the assessee do not know the person who has made the theft. In the absence of the same, no FIR is possible to be filed against any unknown person for shop lifting. Further the items of shop lifting are of smaller values but in higher number and it is not possible for any departmental store to know the name and address of the person who has been carrying out such shop lifting. Page 6 of 13
Further the shelf life of many perishable items like, vegetables, fruits etc. is short and in the normal course these items of stock have to be written off. ” Apart from above submissions, the rejection of books of account was challenged on legal grounds.
The Learned CIT(Appeals) after considering the entire submissions made by the assessee and also the reasoning given by the Assessing Officer in the assessment order, noted that in the assessee’s own case, the Tribunal in the A.Y. 2009-10 on similar reasoning and on facts has decided the issue in favour of the assessee by holding that the assessee’s books of account cannot be rejected on grounds taken by the Assessing Officer. The relevant observations and finding of the Learned CIT(Appeals) in this regard reads as under:- “3.1 I have carefully considered the facts of the case and the submissions made by the Counsel of the appellant. The assessee company was engaged in the business of retail trade through a chain of stores, departmental stores under the brand name "Big Apple". This store was conceptualized as a retail chain of convenience stores catering to daily needs of the people. The stores offer variety of products including FMCG, home care products, grocery, fruits and vegetables. It is observed from the assessment records that the Assessing Officer has made the addition ofRs.l crore to the trading results. The gross profit during the year is shown at Rs 12.95%. The appellant had maintained complete stock records, bills/ vouchers' for the purchases, sales and various expenses. The sales and purchases made during the year reconcile with the returns filed with the (VAT) sales tax Department. The appellant had filed before the Assessing Officer the category- wise details of stocks and it was explained that the inventory of stock is maintained on centralized ERP System in respect of all the stores. The centralized purchases are made for majority of the items by the company and stocks are transferred Page 7 of 13
to the various stores run by the company across the city. No defects have been pinpointed regarding the correctness of the accounts maintained by the appellant. The books of accounts have been rejected without highlighting any specific observations/ discrepancies noted during the proceedings. It is noteworthy to mention here that survey u/s 133A of the Act was conducted on the premises of the appellant during the subsequent year and no discrepancies were noted in the stocks maintained at various stores across the city. The present year was still the initial year when 17 stores were opened by the company and 12 stores were opened between September to March 2007. This was the period of consideration. The submissions of the appellant make it clear that shortage of stock was approximately 4.26% basically on account of thefts and wastage particularly in vegetables and other perishable goods. The percentage is well within the reasonable limits. The Hon’ble ITAT New Delhi in the case of the appellant for A.Y. 2009-10 on the same issue has observed as under:- "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 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 previousyear. A.Y. 2006-07 20.121% A.Y. 2007-08 12.95% A.Y. 2008-09 9.03% Page 8 of 13
A.Y. 2009-10 13.63% 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 Hemrajoni. Furthermore, assessee has claimed that there was no case of anycash deficit and reconciliation statement was duly furnished to the AssessingOfficer 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 incriminatingmaterial either relating to trading activity or otherwise during the course ofsurvey or assessment proceedings.Thus, we find that assessee has cogently rebutted the shortcomings noted inthe appellate order. In our considered opinion, the assessee has maintainedproper books of accounts and there is no case for invoking section 145(3) ofthe IT Act. We further find that case laws relied upon by the Ld. Departmental Representatives were with regard to rejection of books in the particular factsof the case. Hence, they are not applicable here. Therefore, we set aside theorder of the lower authorities and decide the issue in favour of the assessee." Taking into consideration the various factors, it is held that the appellant had maintained proper books of accounts and there is no case for invoking provisions of section 145(3) of the Act. The adhoc addition of Rs. l,00,00,000/-made by the Assessing officer is therefore, deleted.”
Since, none appeared on behalf of respondent assessee, therefore, we deciding the appeal after hearing the Ld. DR and on the basis of material placed on record.
After considering the relevant finding given in the impugned orders, we find that the main reason for rejecting the books of accounts and making an ad hoc estimate of Rs. 1 crore in trading result by the Assessing Officer is that the gross profit rate during the year has declined in comparison to the earlier year. Apart from that, we find that the assessee has given very elaborate rebuttal of Assessing Officer’s observations and reasoning in its detailed explanation as to why the books of accounts cannot be rejected, relevant portion of assessee’s contention has already reproduced above. Based on entire material on record and assessee’s explanation, the Learned CIT (Appeals) has accepted the assessee’s contention and held that there is no a valid reason or material to reject the books of account and disturb the trading account. Apart from that, we find that the Tribunal in assessee’s own case for the A.Y. 2009-10 on similar set of facts has deleted the said ad hoc addition in trading account and also set aside the AO’s similar reasoning for rejection of books of accounts. No distinguishing features have been pointed out by the ld. DR before us. Therefore, under these facts, we do not find any reason to deviate from the finding of the Learned CIT(Appeals) which in turn is also based on the order of the Tribunal in assessee’s own case on similar set of facts. Accordingly, the order of the Learned CIT(Appeals) is affirmed and the ground raised by the Revenue is dismissed.
As regard the second issue is concerned, we find that the ld. Assessing Officer has made the addition on the ground that the Employees contribution to EPF/VPF amounting to Rs. 2,05,715/- for the month of February, 2007 was not deposited within the due date under the respective Act and accordingly, he had added the same u/s 2(24)(x) r.w.s. 36(1)(va).
Before the Learned CIT(Appeals), the assessee had submitted that the deposits of EPF/VPF was made before the due date not only under the prescribed statutory time limit under the respective Acts but also much before filing of return of income. The Learned CIT(Appeals) held that, even otherwise also if the payment has been made and credited to the government account before the due date of filing of return of income, then such an addition cannot be made. While come to this conclusion the Learned CIT(Appeals) has relied upon the decision of Hon'ble Supreme Court in the case of CIT vs. Alom Extrusions Ltd. reported in 319 ITR 306.
After considering the finding of the Learned CIT(Appeals) that the payments have been made much before the due date filing of return of income, then we do not find any reason for making any disallowance as the same is covered by the decision of Hon'ble Supreme Court in the case of CIT vs. Alom Extrusions Ltd. (supra). Thus, the second ground as raised by the Revenue is dismissed.
Now we take up the appeal for the A.Y. 2010-11 wherein the revenue has raised following grounds which reads as under:-
1. On the facts and circumstances of the case and in law, the CIT (A) has erred in deleting the addition of Rs. 2,00,00,000/- made after rejecting the books of accounts u/s 145(3) of the Act. Page 11 of 13
The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of hearing.”
13. Admittedly this ground is similar to the ground raised by the revenue in the A.Y. 2007-08 and also the reasoning given by the Assessing Officer as well as the Learned CIT(Appeals) are exactly the same. Therefore,our finding given above will apply mutatis mutandis in this year also. Accordingly, we uphold the order of the Learned CIT(Appeals) and dismissed the ground raised by the revenue.
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open courton 22.05.2017.