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TMI Blog2013 (11) TMI 426X X X X Extracts X X X X X X X X Extracts X X X X ..... d that:- Assessee has given detailed explanation regarding the books of accounts and stocks records maintained. Assessee has asserted that AO never asked about the books of accounts. These submissions were before the LD. CIT(A) but were not verified by the LD. CIT(A). Without considering these submissions, LD. CIT(A) has accepted the AO’s finding that books of accounts were not properly maintained - Tribunal in the order for A.Y. 2008-09 has also noted that assessee has maintained proper books of accounts and the system of accounting was under the ERP system - Assertions by the AO that books of accounts and stocks were not properly maintained is not sustainable and hence, this reason for rejection of books of accounts is accordingly not sustainable. AO has rejected the books of accounts u/s. 145(3) of the I.T. Act which is without any basis or justification or even without examination of the books of accounts. While making the lumpsum addition of Rs. 1.5 crore, the AO has not given the basis or justification of the same - No valid basis for addition of Rs. 1.5 crore has been pointed out. It is a pure guess work without any calculation. AO has observed that addition of Rs. 1.5 cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t claimed as business expenses ignoring the submissions of the appellant company that the payments were not covered by provisions of Sec. 40A(3) of the Income Tax Act. (c) That the Authorities below were not justified to ignore that the appellant had not made any claim of expenses in respect of alleged cash payments and there was no ground for any disallowance of alleged expenses, which were never claimed. 3. That the order framed is against the facts of case and bad in law. 4. That the assessee craves the right to add. amend, delete or substitute any ground of appeal." 3. In this case the asessee is running a 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 got 65 stores in Delhi during F.Y. 2008-09. In this case survey u/s. 133A was carried out at the premises of the assessee company on 29.4.2008 and some documents were found and impounded during the course of survey. In the assessment order for the current assessment year, AO rejected the books of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iv) It was also seen that appellant was not maintaining quantitative details of purchase, sales and stock. The appellant has admitted that no stock register is maintained item vise and also no stock for perishable goods was maintained. This shows that the closing stock and sale and purchases effected by the appe v) On physical verification of the stock there was a short fa11 in the stock and such shortfall was reduced from the inventory of the closing stock. This shows that there is no proper control on the sale and purchase and closing stock maintained by the appellant. The closing stock is prepared on the basis of estimation. vi) There is huge increase in expenses under the employees cost, rent and other services, travelling and conveyance, legal and professional charges: miscellaneous expense, selling and distribution expenses, repairs and maintenance etc. The details of such expenses were as under:- Head of expenditure Expenditure claimed last year in Rs. Expenditure claimed this year in Rs. Percentage increase over last year. Employee cost 26692305 130876420 490.31% Rent and other services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he course of survey was claimed to be utilized for giving advance Lo 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 or 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 TT Act on the basis of defects pointed out above were justified and the resultant addition of Rs. 1.50 crore is based on such defects. Therefore, the addition made by the AO does not call for any interference and same is upheld." 4.1 Furthermore, LD. CIT(A) also noted that assessee has not given any explanation of cash deficit of Rs. 23,43,565/- found during the course of survey. Ld. LD. CIT(A) noted that assessee has contended that difference pertained to financial year 2008-09 relevant to A.Y. 2009-10 and the same cannot be added in A.Y. 2008-09. By referring to the assessee s submissions regarding the reasons for cash deficit, Ld. LD. CIT(A) observed that on verification of vouc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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% A.Y. 2009-10 : 13.63% 7.4 Furthermore, it has been the observation of the Ld. Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect was noted by the tribunal and Tribunal observed that assessee has claimed that there was no case of any cash deficit and reconciliation was duly furnished to the AO and the AO has not disputed the correctness of the same. 9.1 AO has made the addition in the current asstt. year by holding the entire cash payment of Rs. 2343565/- was made during the F.Y. 2007-08 relevant to asstt. year 2008-09 against unrecorded / unaccounted purchases. AO noted that the source of cash payments were explained (it is out of cash in hand), but the fact that payment was made in cash in contravention of the provisions of section 40A(3). Hence, AO held that the entire payments was to be disallowed. AO further noted that assessee has made the cash payments of Rs. 63771/- and Rs. 84702/- against purchase of electric material. Similarly, assessee has made cash payment of Rs. 27250/- for installation of air conditioner. Hence, AO disallowed the entire payment in contravention of provisions of section 40A(3) and the total disallowance made by the AO came to Rs. 2519288/-. 10. Now we find that deficit in cash was found during the course of survey carried out at the business premises of the assessee com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books, then there is no question of payment in contravention of section 40A(3). We find that this aspect needs factual examination. If it found that these payments were out of books and not accounted in the books of accounts and financial accounts for F.Y. 2007-08, then there is no question of making any addition in this regard. Hence, for making examination of this aspect, we remit the issue to the file of the AO to examine whether these expenditures have been taken into account in finalising the accounts for A.Y. 2007-08. Furthermore, the payments in excess of a sum of Rs. 20,000/- have to be identified and accordingly, the matter has to be adjudicated. Needless to add that the assessee should be given an adequate opportunity of being heard. 11. Now we come to the issue that during the course of survey documents containing trial balance for the F.Y. 2007-08 were found. This trial balance showed the difference in sales, purchases, closing stock scrap sales and profit and loss from assessee s investments. In this regard, we find that the assessee has submitted the following to the AO:- "We are enclosing a statement showing the figures as per the Trial Balance from 01.04.2007 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tailed reasoning before the AO and also before the LD. CIT(A). These have not been controverted by the authorities below. They have been brushed aside without any reasoning. It had been explained by the assessee that objective of the assessee was to bring convenience and money saving shopping experience to Delhi within walking distance of their homes. To attain this objection, bulk purchases were made by the assessee company to obtain maximum discounts on the products and the same was offered to the customers at price which was below the MRP. This was also done as the new venture was set up in open and a competitive market which had already adjusted and matured to the idea of super market type retail chain stores. Since the assessee wanted to gain a solid foothold in the competitive market, it had to eat into the market share of its competitors, and this was possible only by offering various products at attractive prices as compared to its competitors. In order to deal with the situation assessee aimed at boosting volumes of business to get over the problems of low margin by increasing its sales. To attain this objective, the assessee had set up new stores in different areas. The n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the theft and shop lifting in the departmental stores is a common practice and is prevalent not only in India but in the whole world. 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. That in the absence of the same, no FIR is possible to be filed against any unknown person for shop lifting. That 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. That 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. That the write off of these perishable items of stock are in the normal course of business and these items were reduced from the stock from time to time as a practice. 15.1 Thus, we note that assessee has given detailed explanation regarding the books of accounts and stocks records maintained. Assessee has asserted that AO never asked about the books of accounts. These submissions were before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A), that the AO has rejected the books of accounts u/s. 145(3) of the I.T. Act which is without any basis or justification or even without examination of the books of accounts. While making the lumpsum addition of Rs. 1.5 crore, the AO has not given the basis or justification of the same. This submission was also agitated before us. We find that no valid basis for addition of Rs. 1.5 crore has been pointed out. It is a pure guess work without any calculation. AO has observed that addition of Rs. 1.5 crore was made to cover up all possible leakages and hence, lumpsum addition of Rs. 1.5 crore was made. Thus, we agree with the contention that even the AO had no basis or justification to arrive at the amount of addition. 16.4 We find that in similar situation, the rejection of accounts, and books of accounts and lumpsum addition was rejected by the Tribunal in assessee s own case for A.Y. 2008-09. Accordingly, in the background of the aforesaid discussions and precedent, we hold that reasons for rejection of books of accounts of the assessee are not cogent and lumpsum addition of Rs. 1.5 crore is also without any basis. Accordingly, we set aside the orders of the authorities below ..... X X X X Extracts X X X X X X X X Extracts X X X X
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