9911796707
TMI Blog2019 (1) TMI 588X X X X Extracts X X X X X X X X Extracts X X X X ..... for ascertaining the same for tax purposes. There is in fact no evidence with the Revenue which suggests or indicates the assessee to have realized the stock – to any extent, over cost price. Further, no doubt the MoU states the compensation to be out of stock with the assessee as on 31.08.2012. It is, however, apparent that the same only refers to the stock left with the assessee after return back, for which credit stands allowed to it by the principal in full, i.e., at cost. Rather, if not so, the assessee, on the contrary, stands to gain by being compensated for this stock, already sold by it and, thus, no longer with it as on 31.08.2012, which apparently is the relevant date for compensation. As it appears, the assessee has not reported the cash sales (up to 31.08.2012) to its’ principal. The loss, arise as it does in respect of the assessee’s opening stock, so that it has in fact arisen earlier to the current year, on account of factors that are normal incidences of the retail trade, i.e., represents business loss of the preceeding years, accounted for in the current year. Though, therefore, strictly speaking, not allowable for the current year, we yet consider it admissib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owance for the loss not accepted by it, implicit in the rejection of accounts and assessment at a profit @ 10%. The ld. counsel for the assessee, Sh. Kalra, would, upon this being observed by the Bench during hearing, object, stating that the same can only be the subject matter of the Revenue’s appeal. We are afraid, we could not disagree more. The question is of giving effect to the income assessed, i.e., the income as determined in assessment (or, as further modified in appeal) – nothing less and nothing more, and has nothing to do with the Revenue’s non-existent appeal. The Revenue’s appeal, where so, could only be qua the acceptance of the purchase return by the ld. CIT(A), as against it as not by the AO, impacting the volume of the stock that could be regarded as available with the assessee, and has nothing to do with the computational flaw afore-referred. The mistake, which is in the nature of an arithmetical anomaly, could be rectified u/s. 154. How could we, however, be oblivious to or overlook a glaring mistake staring us in the face, and which therefore stands brought to the fore. In fact, we would be failing in our duty were we not to do so. How could, one may ask, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-1, Jalandhar ( CIT(A) for short) dated 23.02.2017, partly allowing the assessee s appeal contesting her assessment under section 143(3) of the Income Tax Act, 1961 ('the Act' hereinafter) dated 28.03.2016 for the Assessment Year (AY) 2013-14. 2. The appeal raises two issues, which we will take up in seriatim. The assessee, in retail franchise business of a popular brand of apparels and allied products (Reebok), in view of, as stated, problems being faced by its Principal (Reebok India Company, or RIC for short), closed her said business during the relevant year. The issue arising is the trading loss, if any, incurred by the assesssee on the disposal of the stock-in-trade of the said business. While the assessee claims to have sold it s brought forward (from the preceding year) stock for ₹ 5.55 lacs, incurring thus a loss of ₹ 39.33 lacs, the Revenue has assessed it at a profit of ₹ 4.99 lacs. The assessee s, admittedly not maintaining any stock register, case is that of the opening stock of ₹ 171.06 lacs, that for ₹ 126.18 lacs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer rejected the trading results since the assessee could not produce books of accounts, bills, vouchers, stock register etc. The assessee s purchase returns totaling ₹ 1,26,18,099/- include the following:- Goshies Apparels P. Ltd. 1,15,52,825/- Berkley Retails Ltd. 7,93,615/- Royal Trading Co. 2,71,659/- Total Purchase Return 1,26,18,099/- 10. These have not been questioned by the Assessing Officer. Therefore I see no logic, even after rejection of books, to estimate G.P. on purchases which were returned to M/s Reebok s associates. To do that, it is necessary to reject the entire exercise of closure of business and the termination agreement between the two parties. 11. During appellate proceedings the assessee has stated that whatever stock was remaining had been sold out to hawkers at a throw away price of ₹ 5,55,291/- against the purchase price of ₹ 44,87,679/-. This explanation of the assessee cannot be believed. Any stock of a brand like Reebok is always favored by customers. A disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue arising, the assessee to have claimed a loss of ₹ 39.33 lacs (i.e., ₹ 44.88 lacs ₹ 5.55 lacs) through the trading account (refer para 2 of this order). The AO s stand to this extent is, therefore, misplaced, and rightly reversed by the ld. CIT(A), who has in principle accepted the AO s stand, i.e., of the assessee being unable to establish the correctness and completeness of its accounts in respect of the loss on sale of stock, i.e., as available with it and, thus, the correctness of its disclosed trading results. 3.2 As regards the invocation of section 145(3), upheld by the ld. CIT(A), i.e., qua the stock not returned by the assessee to its principal, and in respect of which it therefore makes a claim (for loss) through its trading account for the year, the same is to be understood in its proper perspective. The issue arising, and the case of the Revenue rests, on the sustainability (or otherwise) of the assessee s claim in respect of the loss stated as incurred and, accordingly, claimed on the sale of the said stock, i.e., in the facts and circumstances of the case. It is not necessary for the Revenue for effecting or sustaining the said disallowan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility to fetch the selling price, which is marked, as is usually the case, over the cost price. In other words, the only significance of the invocation of section 145(3) is a simultaneous estimation of profit. In fact, it is a moot point, and stands to reason that if a claim of cost could be doubted or regarded as unproved for being unsubstantiated without necessarily rejecting the accounts, why could not, similarly, the claim of sale . The answer, to a point, may also lie in the nature of the counter evidence available with the Revenue. Not accepting a claim, be it a debit (expenditure) or credit (income), could be due to the unreliability or indefiniteness of the material furnished in substantiation, as also the positive evidences led by the Revenue in rebuttal. While the former could result in a passive disallowance, which again could be total or partial, so that some estimation is intrinsic to the exercise, the latter would enable the AO, whose powers in the matter of assessment are plenary, to estimate a figure, of course, based on the facts and circumstances of the case as well as the material on record. Whether the claim/s is reasonably proved on the basis of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. How could, then, the loss on disposal of said stock, stated to fetch a mere ₹ 5.55 lacs, reflecting thus trading loss of ₹ 39.33 lacs, be verified? Why, the sale amount of ₹ 5.55 lacs, stated to be in cash to street hawkers, is itself not verifiable. The assessee justifies the same before us on the basis of it being a distress sale; the assessee being required to vacate the rented premises used as showroom/s. Besides, without doubt, the stock was damaged, or else the company would itself accept it back, so that the very fact that it did not is proof enough that the said stock, i.e., as not returned to the company, was not saleable. No proper bills/receipts could be expected to be issued to/received from the Thariwalas (street vendors), to whom the goods were sold. As regards the claim of distress sale, we are unable to understand the basis thereof. There are no purchases, for both the showrooms, during the year. As some purchase orders, due to the lead time for supply, are in pipeline at any given point of time, the very fact of absence of any purchase, at least since April 01, 2012, implies that no purchase/supply orders were issued/made since pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d which looses its originality the other piece doesn t match with shoe displayed. (e) Goods not cleared even after repeated reduction sales are called old fashioned and old model which are not salable. (f) Many other factors such as goods damaged while packing or unpacking. (g) Color fading because of time gap. (h) Various other unforeseen factors which is normal creations of a business. To put succinctly, these are: (i) damage on account of dampness, colour fading, etc.; (ii) stock getting out of fashion; (iii) loss of originality of the product, which is for several reasons, as on account of display, etc. All these factors, which are a normal incident of the trade, would surely result in loss of value, but would not, without doubt, render the relevant goods valueless, or nearly so, as the assessee claims. The assessee has, further, not led any material qua the extent of the damage to its goods at any stage, even as the same would indeed have been documented, only whereupon the said stock, duly identified, stands determined, and the value of which, as per the books of RIC, is at ₹ 27.33 lacs. Why? How does, further, the assessee justify the ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- (Rupees Ten Lakh Ninety Three Thousand One Hundred and Ninety One only), to the Franchisee towards stock liquidation support. (emphasis, by underlining, ours) Clearly, therefore, the stock with the assessee has been assessed to yield only 60% of the wholesale (cost) price, for the principal (RIC) to have in fact compensated the assessee for the anticipated loss of the balance 40% thereof. This compensation, duly accounted for by the assessee, though, would not alter our algorithm or the loss under consideration (Rs. 39.33 lacs), as the same is being reckoned on gross loss basis, i.e., the difference between the cost of the unreturned goods lying with the assessee, i.e., as claimed, and their value as realized on sale, again, as claimed, both of which remain unchanged at ₹ 44.88 lacs and ₹ 5.55 lacs respectively. The aforesaid assessment, duly accepted by and between the parties, i.e., in settling their accounts on the closure of business relationship or termination of the franchise agreement, can only be regarded as a fair assessment of such loss and, thus, a proper basis for ascertaining the same for tax purposes. A discount of 40% on cost, it may be noted, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the balance for which therefore a disallowance becomes therefore sustainable, it being by now clear that the same could not fetch its cost price, much less its sale price, so that there is no question of any profit on its sale. The assessee s accounts reflecting stock-in-trade at cost, at which it is allowed credit for by its principal on return, ₹ 44.88 lacs represents the value of the stock left with it at cost. The difference of ₹ 17.55 lacs; the principal determining the same at ₹ 27.33 lacs, remains unexplained. The realizable value of the stock is at 60%, i.e., ₹ 16.398 lacs, as against ₹ 5.553 lacs by the assessee, whose claim, thus, can be said to be proved to the extent of ₹ 10.932 lacs (Rs.27.33 lacs - ₹ 16.398 lacs), i.e., out of the total loss of ₹ 39.33 lacs claimed by the her. The assessee, accordingly, instead of being assessed at a profit of ₹ 4.99 lacs, as by the Revenue, would stand to be allowed a loss of ₹ 10.932 lacs and, accordingly, gets a relief for ₹ 15.922 lacs (i.e., ₹ 4.99 lacs + ₹ 10.932 lacs). Here it may also be relevant to mention, and even as observed by the Bench during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preferred in disposing the matter before it. Inasmuch as the same, however, would result in an increase in income, it was considered proper by us to put this forth to the ld. counsel for the assessee who, while agreeing with the same, i.e., the computational algorithm, questions its legitimacy in the instant proceedings. This is unfortunate in view of it being a simple matter of an arithmetical mistake, as pointed out earlier. How could, one may ask, the assessee be allowed relief of ₹ 15.922 lacs, i.e., pursuant to our order, where no disallowance of loss has been made by the Revenue in the first place; the afore-said figure including the claim of loss at ₹ 10.932 lacs. We are conscious that the assessee s Gd. 2; Gd. 1 being general in nature, warranting no adjudication, restricts itself to the addition qua the profit sustained, and which addition we have found as without basis. This, however, is of no moment. The assessment at a profit, firstly, itself implies absence of loss, so that there is no question of the loss claimed having been accepted (by the Revenue), a part of which in fact stands allowed by us, i.e., in deciding the issue discerned as arising for ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
