M/s. Express Retail Services (P) Ltd., New Delhi V. ACIT, New Delhi

ITA 4858/DEL/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69374 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 25-09-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 12-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHAMEER SHARMA
• Keywords: Rejection of books of accounts; Business expenditure; Additional evidence
• Section: 40A(3); 133A

Judgement Text

ITA NO. 4858/DEL/2012 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B, NEW DELHI BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 4858 /DEL/201 2 A.Y. : 2008-09 M/S EXPRESS RETAIL SERVICES (P) LTD., A-41, NARAINA INDUSTRIAL AREA, PHASE-I, NEW DELHI 110 028 (PAN: AABCE4123E) VS. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 10(1), NEW DELHI (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) ASSESSEE BY : SH. R.S. SINGHVI, CA DEPARTMENT BY : SH. S HAMEER SHARMA, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-XIII, NEW DELHI DATED 02.7.2012 PERTAINING TO ASSESSMENT YEAR 2008-09. 2. THE GROUNDS RAISED READ AS UNDER:- (A) THAT UNDER AND FACTS AND CIRCUMSTANCES OF THE CASE THE AUTHORITIES BELOW WERE NOT JUSTIFIED TO MAKE LUMP S UM TRADING ADDITION OF RS. 1,50,00,000/- ON THE ALLEGATION THA T ADDITIONS WERE TO COVER UP THE ALLEGED POSSIBLE LEAKAGE AND T HE ADDITION BEING MADE ON ASSUMPTIONS AND PRESUMPTIONS DESERVES TO BE DELETED. (B) THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED T O IGNORE THE DETAILED SUBMISSIONS FURNISHED JUSTIFYING THE GROSS PROFIT ITA NO. 4858/DEL/2012 2 RESULTS AND ALSO IGNORING THE FACT THAT THE PROPER STOCK RECORDS WERE MAINTAINED AND ALL THE PURCHASES AND SALES WER E DULY VOUCHED, MONTHWISE DETAILS OF PURCHASES AND SALES W ERE FURNISHED AND NO DISCREPANCIES, WHATSOEVER, WAS NOT ICED IN THE SAME AND THE ADDITION OF RS.1,50,00,000/- HAS BEEN MADE PURELY ON SURMISES AND CONJECTURES. (C) THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED T O INVOKE THE PROVISIONS OF SECTION 145(3) OF THE INCOME TAX ACT WITHOUT POINTING OUT ANY DEFECT IN THE BOOKS OF ACCOUNTS OR VOUCHERS OR OTHER RECORDS AND THE AUTHORITIES BELOW WERE NOT JU STIFIED TO PROCEED TO MAKE LUMP SUM TRADING ADDITION OF RS.1,50,00,000/- TO COVER THE ALLEGED POSSIBLE LEAK AGE. 1(A) THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED TO MAKE ADDITION OF RS.23,43,565/- U/S 40A(3) OF THE INCOME TAX ACT ON THE BASIS OF CASH FOUND DURING THE SURVEY ON 29.04. 2008 WHICH WAS RELEVANT TO A. Y. 2009-10 AND NOT A. Y. 2008-09 , THE YEAR UNDER APPEAL, IGNORING THE DETAILED EXPLANATION REG ARDING RECONCILIATION OF CASH FOUND WITH REFERENCE TO CASH BALANCE AS PER THE BOOKS OF ACCOUNT. (B) THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED T O MAKE ADDITION OF RS.63,771/+RS.84.702/- + RS.27,250/- A GGREGATING TO RS.175,273/- U/S 40A(3) OF THE INCOME TAX ACT BE ING CASH PAYMENTS TOWARDS CAPITAL EXPENSES AND NOT CLAIMED A S BUSINESS EXPENSES IGNORING THE SUBMISSIONS OF THE A PPELLANT COMPANY THAT THE PAYMENTS WERE NOT COVERED BY PROVI SIONS OF SEC. 40A(3) OF THE INCOME TAX ACT. (C) THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED T O IGNORE THAT THE APPELLANT HAD NOT MADE ANY CLAIM OF EXPENSES IN RESPECT ITA NO. 4858/DEL/2012 3 OF ALLEGED CASH PAYMENTS AND THERE WAS NO GROUND FO R ANY DISALLOWANCE OF ALLEGED EXPENSES, WHICH WERE NEVER CLAIMED. 3. THAT THE ORDER FRAMED IS AGAINST THE FACTS OF CA SE 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 DEPARTMENT AL STORE AT VARIOUS PLACES IN DELHI IN THE NAME OF BIG APPLE. THE DEPARTMENTAL STORE WAS STARTED IN F.Y. 2006-07. TH E BIG APPLE IS A RETAIL CHAIN OF CONVENIENCE STORES, CATERING TO DA ILY HOUSE HOLD NEEDS OF VARIOUS INCOME GROUP CUSTOMERS. THE ASSESS EE 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 COM PANY ON 29.4.2008 AND SOME DOCUMENTS WERE FOUND AND IMPOU NDED DURING THE COURSE OF SURVEY. IN THE ASSESSMENT ORDER FOR THE CURRENT ASSESSMENT YEAR, AO REJECTED THE BOOKS OF ACCOUNTS OF THE ASSESSEE ON THE BASIS OF FOLLOWING DEFECTS AND DISCREPANCIES NOTED BY THE AO. (I) DURING THE COURSE OF SURVEY CASH AS PER BOOK S WAS SHOWN AT RS. 24,96,135/- WHEREAS, AS PER PHYSICAL VERIFICATION DURING THE SURVEY CASH OF RS. 1,52,57 0/- WAS FOUND. FOR BALANCE CASH OF RS. 23,43,565/- 5H. VISH AI KAIRA, VP (F&A) STATED THAT RS. 5.5 LACS WAS GIVEN TO MANAGING DIRECTOR SH. MUNISH HEMRAJANI ON 09.08.200 7. RS. 7,73,460/- WAS PAID TO FARMERS DURING F.Y. 200 6-07 TO BE ADJUSTED AGAINST PURCHASES. HOWEVER, NO EVIDE NCE OR ENTRY RECORDED IN THIS REGARD WAS FURNISHED TO T HE SURVEY TEAM AT THE TIME OF SURVEY. FOR BALANCE CASH OF RS. 10,20,105/- NO EXPLANATION OR EVIDENCE WAS FURN ISHED TO THE SURVEY TEAM AS WELL AS ASSESSING OFFICER. TH IS ITA NO. 4858/DEL/2012 4 SHOWS THAT BOOKS OF ACCOUNTS OF THE APPELLANT DID N OT REFLECT TRUE AFFAIRS OF THE APPELLANT AND LOT OF TR ANSACTIONS WERE DONE OUTSIDE THE BOOKS OF ACCOUNTS. II) DURING THE COURSE OF SURVEY DOCUMENT CONTAININ G TRIAL BALANCE FOR THE F. Y. 2007-08 WAS IMPOUNDED. THIS T RIAL BALANCE SHOWS THE DIFFERENCE IN THE SALES, PURCHASE S, CLOSING STOCK, SCRAP SALE AND PROFIT & LOSS FROM SH ARE INVESTMENTS AS UNDER:- PARTICULARS AMOUNT IN RS. AS PER RETURN OF INCOME AMOUNT IN RS. AS PER TRIAL BALANCE DIFFERENCE WITH REFERENCE TO THE TRIAL BALANCE IN RS. SALES 750295400 748074147.96 +2221252.04 PURCHASES 736464263 73885163.40 - 2387390.4 CLOSING STOCK 89166223 89206002.85 -38668,75 SCRAP SALE 1087924 1093092 -5157 PROFIT AND LOSS FROM SHARE INVESTMENT 64680336 65200546.45 -520210.45 FROM THE ABOVE CHART IT IS CLEARLY EVIDENT THAT TH ERE IS A DIFFERENCE BETWEEN THE SALES PURCHASES AND CLOSING STOCK BOOKED BY THE APPELLANT IN ITS BOOKS OF ACCOUNTS AN D SHOWN IN THE TRIAL BALANCE. THIS SHOWS THAT THE BOOKS OF ACC OUNTS MAINTAINED BY THE APPELLANT DO NOT REFLECT CORRECT AFFAIRS OF ITS BUSINESS. III) THE APPELLANT HAS SHOWN GROSS PROFIT @9.03% AS AGAINST 20.21 % IN A.Y. 2006-07 AND 12.95% IN A.Y. 2007-08. THUS, THERE IS A HUGE DROP IN THE GROSS PROFIT AS COMPARE TO EARLIER YEARS. THE APPELLANT HAS NOT SUBMITTED ANY' PLAUSIB LE REASON FOR SUCH A HUGE DECLINE IN THE GROSS PROFIT. THEREF ORE. THE BOOKS OF ACCOUNTS OF THE APPELLANT WERE NOT FOUND R ELIABLE. ITA NO. 4858/DEL/2012 5 (IV) IT WAS ALSO SEEN THAT APPELLANT WAS NOT MAINTA INING QUANTITATIVE DETAILS OF PURCHASE, SALES AND STOCK. THE APPELLANT HAS ADMITTED THAT NO STOCK REGISTER IS MAINTAINED I TEM VISE AND ALSO NO STOCK FOR PERISHABLE GOODS WAS MAINTAINED. THIS SHOWS THAT THE CLOSING STOCK AND SALE AND PURCHASES EFFEC TED BY THE APPELLANT WERE NOT SUBJECT TO VERIFICATION. EVEN TH E SALES AND PURCHASES WERE NOT FULLY VOUCHED. V) ON PHYSICAL VERIFICATION OF THE STOCK THERE WAS A SHORT FA11 IN THE STOCK AND SUCH SHORTFALL WAS REDUCED FROM TH E INVENTORY OF THE CLOSING STOCK. THIS SHOWS THAT THERE IS NO P ROPER CONTROL ON THE SALE AND PURCHASE AND CLOSING STOCK MAINTAIN ED BY THE APPELLANT. THE CLOSING STOCK IS PREPARED ON THE BAS IS OF ESTIMATION. VI) THERE IS HUGE INCREASE IN EXPENSES UNDER THE EM PLOYEES COST, RENT AND OTHER SERVICES, TRAVELLING AND CONVE YANCE, LEGAL AND PROFESSIONAL CHARGES: MISCELLANEOUS EXPENSE, S ELLING AND DISTRIBUTION EXPENSES, REPAIRS AND MAINTENANCE ETC. THE DETAILS OF SUCH EXPENSES WERE AS UNDER:- HEAD OF HEAD OF HEAD OF HEAD OF EXPENDITURE EXPENDITURE EXPENDITURE EXPENDITURE EXPENDITURE EXPENDITURE EXPENDITURE EXPENDITURE CLAIMED LAST CLAIMED LAST CLAIMED LAST CLAIMED LAST YEAR IN RS. YEAR IN RS. YEAR IN RS. YEAR IN RS. EXPENDITURE EXPENDITURE EXPENDITURE EXPENDITURE CLAIMED THIS CLAIMED THIS CLAIMED THIS CLAIMED THIS YEAR IN RS. YEAR IN RS. YEAR IN RS. YEAR IN RS. PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE INCREASE OVER INCREASE OVER INCREASE OVER INCREASE OVER LAST YEAR. LAST YEAR. LAST YEAR. LAST YEAR. EMPLOYEE COST 26692305 130876420 490.31% RENT AND OTHER SERVICES 13894920 76067603 547.44% TRAVELLING AND CONVEYANCE 1970294 7799032 395.83% LEGAL AND PROFESSIONAL CHARGERS 210038 2088655 994.42% INTERNAL AUDIT FEES 0 1843367 0 MISC. EXPENSES 395056 2682775 679.08% SELLING AND DISTRIBUTIONS 5536271 32463090 586.37% ITA NO. 4858/DEL/2012 6 EXP. BUSINESS DEVELOPMENT AND ENTERTAINMENT EXP. 1727734 6515739 377.37% ADVERTISEMENT 3214550 19118915 594.76% REPAIR AND MAINTENANCE 992851 4671590 470.52% THE ABOVE CHART ESTABLISHES THAT IN THE EXPENSES S HOWS THAT SOME OF THE EXPENSES, INCREASED SUBSTANTIALLY AND T HE SALES WERE NOT INCOMMENSURATE WITH THE INCREASE IN EXPENS ES. THE INCREASE IN EXPENSES WAS RANGING FROM 377% TO 994% WHEREAS SALES INCREASED TO 477%. THEREFORE, INCREASE IN SOM E OF THE EXPENSES WAS EXCEPTIONALLY HIGH WHICH WAS NOT EXPLA INED BY THE ASSESSEE PROPERLY. 3.1 CONSIDERING THE ABOVE, THE AO HELD THAT HE HAS NO ALTERNATIVE BUT TO INVOKE THE PROVISIONS OF SECTION 145(3) AND TO COVER UP ALL POSSIBLE LEAKAGES A LUMPSUM TRADING ADDITION OF RS. 1.50 CRORE WAS MADE. AO ALSO DISALLOWED CASH PAYMENT FOR MAKING TH E PURCHASES ON VARIOUS ITEMS OF RS. 25,19,288/- U/S 40A(3). 4. UPON ASSESSEES APPEAL LD. CIT(A) AFFIRMED THE A OS ACTION OF REJECTION OF BOOKS OF ACCOUNTS AND LUMPSUM ADDITION OF RS. 1.50 CRORES. IN THIS REGARD, LD. CIT(A) HELD AS UNDER:- THE SUBMISSION MADE BY THE APPELLANT BEFORE ASSESS ING 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 DIFFERENCES IN TRIAL BALANCE. 'SIMILARLY, THE INCREASE IN EXPENSES WAS E XCEPTIONALLY HIGH WHICH WAS NOT FOUND JUSTIFIABLE. THE APPELLANT '-S CONTENTION THAT NUMBER OF STORES HAD INCREASED FROM 20 TO 64. ITA NO. 4858/DEL/2012 7 IT IS SEEN THAT MOST OF THE STORES WERE OPENED IN T HE MONTH OF JULY, AUGUST, SEPTEMBER AND OCTOBER 2007 AND THE IN CREASE WAS EXCEPTIONALLY HIGH IN EXPENSES. THEREFORE, INCR EASE IN NUMBER OF STORES CANNOT JUSTIFY INCREASE IN EXPENSE S UNDER THE HEAD LEGAL AND PROFESSIONAL, TRAVELLING AND CONVEYA NCE. MISCELLANEOUS EXPENSES, ADVERTISEMENT AND ENTERTAIN MENT, 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 LO FARMERS AND TO SH. MUNISH HEM RAJANAI, MD IN F. Y. 2006-07. HOWEVER. THERE WERE NO RECORD S IN THE BOOKS OF ACCOUNTS ABOUT SUCH PAYMENT OR CASH IN F. Y. 2006-07 AND 2007-08.THIS CLEARLY SUGGEST THAT APPELLANT'S B OOKS DO NOT REFLECTS CORRECT STATE OF AFFAIRS AND SAME CANNOT B E RELIED UPON SPECIALLY IN VIEW OF HUGE DECLINE IN THE GROSS PRO FIT DURING THE YEAR. HENCE, THE BOOKS OF ACCOUNTS REJECTED BY TH E ASSESSING OFFICER U/S 145(3) OF THE TT ACT ON THE BASIS OF DE FECTS POINTED OUT ABOVE WERE JUSTIFIED AND THE RESULTANT ADDITION OF RS. 1.50 CRORE IS BASED ON SUCH DEFECTS. THEREFORE, THE ADD ITION MADE BY THE AO DOES NOT CALL FOR ANY INTERFERENCE AND S AME IS UPHELD. 4.1 FURTHERMORE, LD. CIT(A) ALSO NOTED THAT ASSESSE E 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 ASSESSE E 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 ASSESSEES SUBMISSIONS REGARDING T HE REASONS FOR CASH DEFICIT, LD. LD. CIT(A) OBSERVED THAT ON VERIF ICATION OF VOUCHERS IN THIS REGARD, IT IS SEEN THAT THESE PAYMENTS HAVE BEEN MADE IN CASH DURING THE FINANCIAL YEAR 2007-08 FOR PURCHASE S. HE OBSERVED THAT THERE IS NO DETAIL GIVEN IN THE SUBMISSION FOR OTHER VOUCHERS ITA NO. 4858/DEL/2012 8 PENDING FOR ENTRY IN THE BOOKS. HOWEVER, LD. CIT(A ) NOTED THAT MOST OF THE PAYMENTS WERE EXCEEDING RS. 20,000/- AND PA YMENT MADE EXCEEDING RS. 20,000/- IN CASH IS IN CONTRAVENTION OF THE PROVISION OF SECTION 40A(3) OF THE I.T. ACT. LD. CIT(A) OBSERVE D THAT MOST OF THE PAYMENTS PERTAINED TO FINANCIAL YEAR 2007-08 AND C ASH PAYMENTS HAS TO BE CONSIDERED IN THE F.Y. 2007-08 RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION. LD. CIT(A) NOTED THAT AS SESSEE HAS NOT SUBMITTED ANY ADDITIONAL EVIDENCES WHICH CAN PROVE THAT DEFICIT IN CASH WAS ON ACCOUNT OF TRANSACTION THAT TOOK PLACE AFTER 1.4.2008. THEREFORE, HE OBSERVED THAT IT IS CLEAR THAT DEFICI T IN CASH WAS ON ACCOUNT OF TRANSACTIONS THAT TOOK PLACE BEFORE 1.4. 2008, THEREFORE, IT IS CLEARLY EVIDENT THAT DEFICIT IN CASH WAS ON ACCO UNT OF CASH PAYMENTS MADE IN F.Y. 2007-08 FOR PURCHASES MADE FR OM SUCH CASH, WHICH WAS IN CONTRAVENTION OF SECTION 40A(3) OF TH E I.T. ACT. HENCE, LD. CIT(A) HELD THAT THE DISALLOWANCE OF CASH PAYM ENT OF RS. 25,19,288/- EXCEEDING TO RS. 20,000/- U/S. 40A(3) OF THE I.T. IS FULLY JUSTIFIED. 5. AGAINST THE ABOVE ORDER ASSESSEE IS IN APPEAL BE FORE US. 6. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE R ECORDS. 7. LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT IN SI MILAR SITUATION, IN ASSESSEES OWN CASE FOR A.Y. 2009-10, THE TRIB UNAL HAS SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETED THE ADDITION MADE IN THIS REGARD. HENCE, HE SUBMITTED THAT THE CONSIDE RING THE ABOVE ITAT ORDER THE PRESENT APPEAL OF THE ASSESSEE NEEDS TO BE TREATED AS COVERED AND HENCE, ALLOWED. 7.1 LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER H AND SUBMITTED THAT EVERY YEAR THE CASE DEPENDS UPON THE FACTS OF THE CASE. JUST BECAUSE THE TRIBUNAL HAS ALLOWED THE ASSESSEES APP EAL FOR A.Y. 2009-10 IT DOES NOT SIGNIFY THAT ASSESSEES APPEAL FOR ASSTT. YEAR ITA NO. 4858/DEL/2012 9 2008-09 IS ALSO COVERED. HE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 8. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. WE FIND THAT TRIBUNAL FOR ASSTT. YEAR 200 8-09 HAS ALLOWED THE ASSESSEES APPEAL AFTER ADJUDICATING AS UNDER:- 7.3 WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS. WE NOTE THAT ASSESSEE HAS MAINTAINED PROPER BOOKS OF ACCOU NTS AND THE SYSTEM OF ACCOUNTING AND MANAGEMENT UNDER THE E RP SYSTEM. IT HAS BEEN DULY SUBMITTED BY THE ASSESSE E THAT THE OBSERVATION THAT THERE IS DIFFERENCE IN VALUE OF OP ENING AND CLOSING STOCK IS NOT CORRECT, THE SAME IS EVIDENT F ROM THE AUDITED BALANCE SHEET OF THE ASSESSEE COMPANY. AS SESSEE ALSO PRODUCED RECONCILIATION OF OPENING AND CLOSING STOCK OF THE COMPANY IN THIS REGARD. FURTHERMORE, IT IS T HE ASSESSEES SUBMISSIONS THAT THERE IS NO CHANGE IN THE VALUATIO N METHOD. THE DIFFERENCE POINTED OUT BY THE LD. COMMISSIONE R OF INCOME TAX (A) WAS DUE TO AMOUNT OF VAT IN THE CLOS ING STOCK OF F.Y. 2007-08. HOWEVER, AMOUNT SHOWN IN THE BAL ANCE SHEET EXCLUDES VALUE OF VAT. WE FURTHER FIND THAT LD. CO MMISSIONER OF INCOME TAX (A) IS NOT CORRECT IN GIVING THE FIN DING THAT GP HAS GONE DOWN IN THIS CASE BY COMPARING TO THE RESU LTS 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% ITA NO. 4858/DEL/2012 10 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 I NCREASE IN EXPENSES. IN THIS REGARD, THE ASSESSEE SUBMITTED T HAT COST HAS COME DOWN IN RESPECT OF VARIOUS EXPENSES AND IN CREASE 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. FURTH ERMORE, THE ENTIRE CLAIM OF EXPENDITURE IS SUPPORTED FROM THE A UDITED ACCOUNTS AND THE ASSESSING OFFICER HAS NOT FOUND A NY MISTAKES OR IRREGULARITY IN RESPECT OF ANY PART OF THE CLAIM OF THE EXPENSES. AS MENTIONED EARLIER, ASSESSEES SUBMISSION HAS COGENCY THAT PROPER STOCK RECORD IS MAINTAINED ON ERP SYSTEM. IT IS THE ASSESSEES CONTENTION THAT ASSES SEE HAS NOWHERE STATED THAT NO STOCK IS MAINTAINED. THE S AME 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 STAT EMENT WAS DULY FURNISHED TO THE ASSESSING OFFICER AND ASSESS ING OFFICER HAS NOT DISPUTED THE CORRECTNESS OF THE SAME. LA STLY, IT IS THE ASSESSEES CONTENTION THAT THERE IS NO CASE O F ANY INCRIMINATING MATERIAL EITHER RELATING TO TRADING A CTIVITY OR OTHERWISE DURING THE COURSE OF SURVEY OR ASSESSMENT PROCEEDINGS. 7.5 THUS, WE FIND THAT ASSESSEE HAS COGENTLY REBUTT ED 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 RELIE D UPON BY THE LD. DEPARTMENTAL REPRESENTATIVE WERE WITH REGARD TO REJECTION ITA NO. 4858/DEL/2012 11 OF BOOKS IN THE PARTICULAR FACTS OF THE CASE. HENC E, THEY ARE NOT APPLICABLE HERE. THEREFORE, WE SET ASIDE THE O RDER OF THE LOWER AUTHORITIES AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 9. FIRST WE DEAL WITH THE ISSUE OF CASH DEFICIT FO UND AND EXPENDITURE DISALLOWED FOR VIOLATION OF SECTION 40A (3). WE FIND THAT THE CASH DEFICIT IN THIS CASE WAS FOUND DURING T HE COURSE OF SURVEY WHICH WAS CARRIED OUT AT THE BUSINESS PREMISES BY THE ASSESSEE ON 29.4.2008. WE NOTE THAT REGARDING THE CASH DEFICIT FOUND DURING THE COURSE OF SURVEY, ASSESSEE HAS SUBMITTED BEFORE THE TRIBUNAL IN ITATS ORDER FOR A.Y. 2009-10 THAT THERE WAS NO CAS E OF ANY CASH DEFICIT AND RECONCILIATION STATEMENT WERE DULY FUR NISHED TO THE AO. HOWEVER, THE AO HAS NOT DISPUTED THE CORRECTNESS OF THE SAME. THIS ASPECT WAS NOTED BY THE TRIBUNAL AND TRIBUNAL OBSER VED THAT ASSESSEE HAS CLAIMED THAT THERE WAS NO CASE OF ANY CASH DEFICIT AND RECONCILIATION WAS DULY FURNISHED TO THE AO AND TH E 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 UNR ECORDED / UNACCOUNTED PURCHASES. AO NOTED THAT THE SOURCE O F CASH PAYMENTS WERE EXPLAINED (IT IS OUT OF CASH IN HAND) , BUT THE FACT THAT PAYMENT WAS MADE IN CASH IN CONTRAVENTION OF THE PR OVISIONS OF SECTION 40A(3). HENCE, AO HELD THAT THE ENTIRE PAY MENTS WAS TO BE DISALLOWED. AO FURTHER NOTED THAT ASSESSEE HAS MA DE THE CASH PAYMENTS OF RS. 63771/- AND RS. 84702/- AGAINST PUR CHASE OF ELECTRIC MATERIAL. SIMILARLY, ASSESSEE HAS MADE CASH PAYMENT OF RS. 27250/- FOR INSTALLATION OF AIR CONDITIONER. H ENCE, AO DISALLOWED THE ENTIRE PAYMENT IN CONTRAVENTION OF PROVISIONS O F SECTION 40A(3) AND THE TOTAL DISALLOWANCE MADE BY THE AO CAME TO RS. 2519288/-. ITA NO. 4858/DEL/2012 12 10. NOW WE FIND THAT DEFICIT IN CASH WAS FOUND DU RING THE COURSE OF SURVEY CARRIED OUT AT THE BUSINESS PREMISES OF T HE ASSESSEE COMPANY ON 29.4.2008. HENCE, THE CASH DEFICIT PERT AINED TO ASSTT. YEAR 2009-10. THE TRIBUNAL HAS GIVEN A FINDING THAT ASSESSEE HAS DULY EXPLAINED THE CASH DEFICIT AND AO HAS NOT CONT ROVERTED THE SAME. NOW WE FIND THAT IN THE PRESENT ASSESSMENT Y EAR ALSO SIMILAR REMARKS HAVE BEEN MADE BY THE AUTHORITIES BELOW. I T HAS FURTHER BEEN OBSERVED BY THE LD. CIT(A) THAT THE CASH DEFIC IT PERTAINING TO EXPENDITURE MADE BY THE ASSESSEE AND MOST OF THESE PAYMENTS WERE PERTAINING TO FINANCIAL YEAR 2007-08 AND THERE FORE, SUCH CASH PAYMENTS WERE TO BE CONSIDERED IN FINANCIAL YEAR 20 07-08 RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION. 10.1 WE NOTE THAT LOWER AUTHORITIES HAVE NOT MADE A NY DETAIL OF THE EXPENDITURE IN CONTRAVENTION OF SECTION 40A(3). SW EEPING STATEMENTS HAVE BEEN MADE THAT MOST OF THESE PAYMEN TS ARE EXCEEDING RS. 20,000/-. LD. CIT(A) IN THIS REGARD HAS OBSERVED THAT ASSESSEE HAS NOT SUBMITTED ANY EXPLANATION OR EVIDE NCE WHICH CAN PROVE THAT DEFICIT IN CASH WAS ON ACCOUNT OF TRANSA CTION WHICH TOOK PLACE AFTER 1.4.2008. THEREFORE, HE HELD THAT IT IS CLEARLY EVIDENT THAT DEFICIT IN CASH WAS ON ACCOUNT OF CASH MADE IN THE FINANCIAL YEAR 2007-08 FOR PURCHASES MADE FROM SUCH CASH WHIC H WAS IN CONTRAVENTION OF SECTION 40A(3) OF THE I.T. ACT. T HUS, WE FIND THAT AUTHORITIES BELOW HAVE NOT IDENTIFIED THE PAYMENTS WHICH WERE EXCEEDING RS. 20,000/- WHICH HAVE BEEN SAID TO BE I NCURRED IN CONTRAVENTION OF SECTION 40A(3). FURTHER, AS REGAR DS, THE OTHER EXPENDITURE ON ELECTRIC ITEMS & AIR CONDITIONERS, WE FIND CONSIDERABLE COGENCY IN THE ASSESSEES COUNSEL SUBM ISSION THAT THESE RELATED TO CAPITAL PURCHASE AND HENCE, CANNOT BE TREATED AS PAYMENTS IN VIOLATION OF SECTION 40A(3). THUS, WE FIND THAT THERE IS NO CASE OF ADDITION OF SECTION 40A(3) WITH REGARD TO PURCHASES THAT ITA NO. 4858/DEL/2012 13 WERE MADE ON ACCOUNT OF CAPITAL ITEMS. HOWEVER, W E FIND THAT FOR MAKING ANY ADDITION IN THIS REGARD IT WAS INCUMBENT UPON THE LOWER AUTHORITIES TO MAKE OUT THE DETAILED LIST OF EXPEN DITURE WHICH WAS FOUND TO BE IN VIOLATION OF SECTION 40A(3). THIS AS PECT HAS BEEN TREATED IN A SWEEPING MANNER BY NOTING THAT MOST O F THE PAYMENTS WERE EXCEEDING RS. 20,000/- AND HENCE IN CONTRAVENT ION OF SECTION 40A(3). 10.2 IN THIS REGARD, LD. COUNSEL OF THE ASSESSEE SU BMITTED THAT AS NOTED BY THE LOWER AUTHORITIES THESE PAYMENTS WE RE OUTSIDE THE BOOKS OF ACCOUNTS. HENCE, HE PLEADED THAT WHEN T HE PAYMENTS WERE MADE OUT OF THE BOOKS, THEN THERE IS NO QUESTI ON OF PAYMENT IN CONTRAVENTION OF SECTION 40A(3). WE FIND THAT THIS ASPECT NEEDS FACTUAL EXAMINATION. IF IT FOUND THAT THESE PAYMEN TS WERE OUT OF BOOKS AND NOT ACCOUNTED IN THE BOOKS OF ACCOUNTS A ND FINANCIAL ACCOUNTS FOR F.Y. 2007-08, THEN THERE IS NO QUESTIO N OF MAKING ANY ADDITION IN THIS REGARD. HENCE, FOR MAKING EXAMIN ATION OF THIS ASPECT, WE REMIT THE ISSUE TO THE FILE OF THE AO T O EXAMINE WHETHER THESE EXPENDITURES HAVE BEEN TAKEN INTO ACCOUNT IN FINALISING THE ACCOUNTS FOR A.Y. 2007-08. FURTHERMORE, THE PAYMEN TS IN EXCESS OF A SUM OF RS. 20,000/- HAVE TO BE IDENTIFIED AND ACC ORDINGLY, THE MATTER HAS TO BE ADJUDICATED. NEEDLESS TO ADD THAT THE ASSESSEE SHOULD BE GIVEN AN ADEQUATE OPPORTUNITY OF BEING H EARD. 11. NOW WE COME TO THE ISSUE THAT DURING THE COURSE OF SURVEY DOCUMENTS CONTAINING TRIAL BALANCE FOR THE F.Y. 200 7-08 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 SUBM ITTED THE FOLLOWING TO THE AO:- ITA NO. 4858/DEL/2012 14 WE ARE ENCLOSING A STATEMENT SHOWING THE FIGURES A S PER THE TRIAL BALANCE FROM 01.04.2007 TO 31.03.2008 IMPOUND ED DURING THE COURSE OF SURVEY MID THE AUDITED BALANCE SHEET & PROFIT & LOSS ACCOUNT, ALSO SHOWING THE DIFFERENCES BETWEEN THE TWO. THE DIFFERENCES BETWEEN THE IMPOUNDED TRIA L BALANCE AND THE AUDITED BALANCE SHEET ARE QUITE NOMINAL AND ARE MAINLY DUE TO FINAL ENTRIES PASSED ON THE BASIS OF RECONCILIATION WITH THE BANKS AND LARGE NUMBER OF BRANCHES OF THE COMPANY. THOUGH THE DIFFERENCES ARE NOT MATERIAL, WE ARE ENC LOSING A STATEMENT EXPLAINING THE REASONS OF DIFFERENCES BET WEEN THE SEIZED TRIAL BALANCE AND AUDITED PROFIT & LOSS ACCO UNT. IN VIEW OF THE ABOVE NO ADVERSE INFERENCE MAY KINDLY BE DRA WN IN THIS REGARD. 12. WE FIND THAT THE AO HAS NOT COMMENTED UPON TH E ABOVE SUBMISSIONS OF THE ASSESSEE. 12.1 BEFORE THE LD. CIT(A) WE FIND THAT THE ASSESSE E HAS SUBMITTED THAT THE DIFFERENCE WERE MAINLY ON ACCOUNT OF PEND ING ENTRIES OF FINALISING OF ACCOUNTS FOR THE YEAR ENDING 31.3.200 8. IT WAS THE FURTHER SUBMISSION THAT DIFFERENCE ALSO AROSE ON THE BASIS OF RECONCILIATION WITH THE BANKS AND LARGE NUMBER OF BRANCHES OF THE COMPANY. WE FIND THAT ASSESSEE HAS DULY GIVEN THE S UBMISSIONS EXPLAINING THE REASONS OF DIFFERENCE BETWEEN THE SE IZED MATERIAL AND AUDITED ACCOUNTS. IT WAS INCUMBENT UPON THE AUT HORITIES BELOW TO CONSIDER THE SUBMISSIONS. HOWEVER, WE FIND THAT ORDERS OF THE AUTHORITIES BELOW ON THIS ISSUE IS SILENT WITH REG ARD TO THE SUBMISSIONS OF THE ASSESSEE ON THIS ASPECT. HENCE, WE NOTE THAT THE POINT TAKEN BY THE AUTHORITIES BELOW THAT ASSESSEE S BOOKS ARE NOT RELIABLE AS THERE IS DIFFERENCE BETWEEN THE TRIAL BALANCE IMPOUNDED AND ACCOUNTS SHOWN BY THE ASSESSEE IS NOT SUSTAINAB LE. ITA NO. 4858/DEL/2012 15 13. NOW WE COME TO THE CONTENTION OF THE AO THAT G ROSS PROFIT HAS GONE DOWN TO 9.03% AGAINST 20.21%IN A.Y. 2006-07 AN D 12.95% IN A.Y. 2007-08. THUS THERE IS HUGE DROP IN THE GROSS PROFIT AS COMPARED TO EARLIER YEARS. AO HAS OBSERVED THAT ASSESSEE HAS NOT SUBMITTED ANY PLAUSIBLE REASON TO SUCH DECLINE IN T HE GROSS PROFITS. THEREFORE, THE BOOKS OF ACCOUNTS OF THE ASSESSEE WE RE NOT FOUND RELIABLE. IN THIS REGARD, WE NOTE THAT THE DECLIN E IN PROFIT AS COMPARED TO THE PREVIOUS ASSESSMENT YEAR IS ONLY 3.92%. THIS CANNOT BE CONSIDERED TO BE A HUGE DROP IN GROSS PR OFIT. 13.1 THE FINDING OF THE AO AND THE LD. CIT(A) THAT ASSESSEE HAS NOT SUBMITTED ANY PLAUSIBLE REASONS FOR SUCH A HUGE DE CLINE IN THE GROSS PROFIT IS ALSO NOT CORRECT. THE ASSESSEE HAS GIVEN A DETAILED REASONING BEFORE THE AO AND ALSO BEFORE THE LD. CIT (A). THESE HAVE NOT BEEN CONTROVERTED BY THE AUTHORITIES BELOW. THE Y HAVE BEEN BRUSHED ASIDE WITHOUT ANY REASONING. IT HAD BEEN EXPLAINED BY THE ASSESSEE THAT OBJECTIVE OF THE ASSESSEE WAS TO BRIN G CONVENIENCE AND MONEY SAVING SHOPPING EXPERIENCE TO DELHI WITHI N 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 CUS TOMERS 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 H AD ALREADY ADJUSTED AND MATURED TO THE IDEA OF SUPER MARKET T YPE RETAIL CHAIN STORES. SINCE THE ASSESSEE WANTED TO GAIN A SOLID FOOTHOLD IN THE COMPETITIVE MARKET, IT HAD TO EAT INTO THE MARKET S HARE 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 VOLUM ES OF BUSINESS TO GET OVER THE PROBLEMS OF LOW MARGIN BY INCREASIN G ITS SALES. TO ATTAIN THIS OBJECTIVE, THE ASSESSEE HAD SET UP NEW STORES IN DIFFERENT ITA NO. 4858/DEL/2012 16 AREAS. THE NUMBER OF SUCH STORES OPENED DURING THE YEAR WERE 44. THIS LED TO SUBSEQUENT INCREASE IN THE EMPLOYEES CO ST, RENT AND OTHER SERVICE COST, BUSINESS PROMOTION EXPENSES ETC . THAT WERE TO BE BORNE BY THE ASSESSEE COMPANY IRRESPECTIVE OF TH E AMOUNT OF SALES MADE DURING THE RESPECTIVE TWO YEARS. THUS, W E NOTE THAT ASSESSEE HAS GIVEN DUE EXPLANATION AND THESE HAVE N OT AT ALL BEEN CONSIDERED BY THE AUTHORITIES BELOW. HENCE, TAKING THE DECLINE IN GROSS PROFIT BY 3.94% AS REASON FOR REJECTING THE B OOKS OF ACCOUNTS IS NOT SUSTAINABLE. 14. FURTHERMORE, IN THIS REGARD, WE DRAW SUPPORT F ROM THE HONBLE PUNJAB HIGH COURT DECISION IN THE CASE OF PANDIT BR OS. VS. C.I.T. 26 ITR 159. IN THIS CASE IT WAS HELD THAT IF PROFITS APPEAR LOW OR NO STOCKS BOOK MAINTAINED, IT CANNOT BE A REASON TO RE JECT BOOKS, IT CAN BE A REASON TO PROVOKE FURTHER INQUIRY. 15. NOW WE COME TO THE FINDING OF THE AO THAT PROP ER QUANTITATIVE DETAILS OF PURCHASE AND SALES WERE NOT MAINTAINED A ND THE SAME WERE NOT SUBJECTED TO VERIFICATION. IN THIS REGAR D, WE NOTE THAT ASSESSEE HAS DULY SUBMITTED BEFORE THE AUTHORITIES BELOW THAT PROPER STOCK BOOKS AND ANOTHER BOOKS OF ACCOUNTS A RE MAINTAINED. IT WAS DULY SUBMITTED THAT ASSESSEE COMPANY HAD A SYSTEM OF MAINTAINING OF ACCOUNTS AND STOCKS ON ERP SYSTEM IN COMPUTER ESPECIALLY DESIGNED FOR CHAIN OF STORES. THAT ALL T HE PURCHASES, SALES, TRANSFERS TO INDIVIDUAL STORES FROM HEAD OFFICE ETC . ARE AUTOMATICALLY RECORDED IN THE FINANCIAL BOOKS AS WELL AS STOCK RE CORDS. THAT THE COMPANY HAS SYSTEM OF VERIFICATION OF PHYSICAL STO CK WITH RESPECT TO INVENTORY AS PER THE RECORDS ON PERIODICAL BASI S. THAT THESE WERE DULY VERIFIED BY THE SURVEY PARTY OF THE DEPARTMENT THROUGH SURVEY U/S. 133A OF THE I.T. ACT. SINCE THE MAIN SCOPE OF SURVEY WAS THE VERIFICATION OF STOCK AND IN THIS CASE NO DISCREPA NCY WAS NOTED BY THE SURVEY PARTY OF THE DEPARTMENT. THAT ALL PUR CHASES AND SALES ITA NO. 4858/DEL/2012 17 WERE DULY VOUCHED WITH THE SUPPORTED BILLS AND VO UCHERS. THAT THE ASSESSEE HAS NOT POINTED OUT ANY ITEM OF PURCHASE A ND SALES WHICH WERE NOT SUPPORTED WITH VOUCHERS AND BILLS. THAT I N FACT THE AO HAS COMPLETED THE ASSESSMENT ON THE BASIS OF THE DETAI LS FURNISHED AND DID NOT REQUIRE ASSESSEE COMPANY TO PRODUCE THE BO OKS OF ACCOUNTS AND ACCORDINGLY THE AO HAS REJECTED THE BOOKS OF AC COUNTS WITHOUT EXAMINING THE SAME. THAT THE SALES AND PURCHASES W ERE AS PER VAT RETURNS AND IS A MATTER OF RECORD. THAT THE THEFT A ND 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 I TEMS THEN THE SALESMEN AND THE EMPLOYEES OF THE ASSESSEE DO NOT K NOW THE PERSON WHO HAS MADE THE THEFT. THAT IN THE ABSENCE OF THE SAME, NO FIR IS POSSIBLE TO BE FILED AGAINST ANY UNKNOWN PER SON FOR SHOP LIFTING. THAT THE ITEMS OF SHOP LIFTING ARE OF SMAL LER VALUES BUT IN HIGHER NUMBER AND IT IS NOT POSSIBLE FOR ANY DEPART MENTAL STORE TO KNOW THE NAME AND ADDRESS OF THE PERSON WHO HAS BEE N CARRYING OUT SUCH SHOP LIFTING. THAT THE SHELF LIFE OF MANY PERISHABLE ITEMS LIKE, VEGETABLES, FRUITS ETC. IS SHORT AND IN THE N ORMAL COURSE THESE ITEMS OF STOCK HAVE TO BE WRITTEN OFF. THAT THE WRI TE OFF OF THESE PERISHABLE ITEMS OF STOCK ARE IN THE NORMAL COURSE OF BUSINESS AND THESE ITEMS WERE REDUCED FROM THE STOCK FROM TIME T O TIME AS A PRACTICE. 15.1 THUS, WE NOTE THAT ASSESSEE HAS GIVEN DETAILE D 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. CI T(A) BUT WERE NOT VERIFIED BY THE LD. CIT(A). WITHOUT CONSIDERI NG THESE SUBMISSIONS, LD. CIT(A) HAS ACCEPTED THE AOS FINDI NG THAT BOOKS OF ACCOUNTS WERE NOT PROPERLY MAINTAINED. WE FURTHER FIND THAT ITA NO. 4858/DEL/2012 18 TRIBUNAL IN THE ORDER FOR A.Y. 2008-09 HAS ALSO NOT ED THAT ASSESSEE HAS MAINTAINED PROPER BOOKS OF ACCOUNTS AND THE SY STEM OF ACCOUNTING WAS UNDER THE ERP SYSTEM. WE FIND THAT ASSERTIONS BY THE AO THAT BOOKS OF ACCOUNTS AND STOCKS WERE NOT P ROPERLY MAINTAINED IS NOT SUSTAINABLE AND HENCE, THIS REAS ON FOR REJECTION OF BOOKS OF ACCOUNTS IS ACCORDINGLY NOT SUSTAINABLE . 16. NOW WE COME TO THE FINDING OF THE AO THAT THERE IS HUGE INCREASE IN EXPENSES. IN THIS REGARD, ASSESSEE H AS DULY SUBMITTED BEFORE THE AUTHORITIES BELOW THAT MAIN REASONS FOR INCREASE IN EXPENSES IN THE ABOVE HEADS WERE DUE TO OPENING OF 44 STORES BY THE COMPANY DURING THE FINANCIAL YEAR 2007-08. THE NUMBER OF STORES OF THE COMPANY INCREASED FROM 20 AS ON 14.2 007 TO 64 AS ON 31.3.2008. IT WAS FURTHER SUBMITTED THAT THERE WA S INCREASE IN TURNOVER DURING THE YEAR DUE TO OPENING OF NEW STOR ES WHICH WILL BE CLEAR FROM THE FOLLOWING:- YEAR ENDING YEAR ENDING YEAR ENDING YEAR ENDING TURNOVER IN CRORES OF RUPEES TURNOVER IN CRORES OF RUPEES TURNOVER IN CRORES OF RUPEES TURNOVER IN CRORES OF RUPEES 31.3.2007 15.71 CRORES 31.3.2008 75.02 CRORES 16.1 HENCE, IT WAS SUBMITTED THAT SINCE THERE HAS B EEN CONSIDERABLE INCREASE IN THE TURNOVER, INCREASE IN EXPENDITURE IS A NATURAL OUTCOME. THIS ASPECT OF THE SUBMISSIONS HA S NOT BEEN CONTROVERTED BY THE AUTHORITIES BELOW. WITHOUT CONS IDERING OR COMMENTING UPON THE ASSESSEES SUBMISSIONS, IN THI S REGARD, IT HAS BEEN CONCLUDED BY THE AO AND THE LD. CIT(A) THAT AS SESSEES BOOKS OF ACCOUNTS ARE NOT PROPERLY MAINTAINED AND HENCE T HEY WERE LIABLE FOR REJECTION. THIS IN OUR CONSIDERED OPINION IS NOT SUSTAINABLE. 16.2 IN THE BACKGROUND OF THE AFORESAID DISCUSSION, WE FIND THAT ASSESSEE HAS GIVEN PROPER EXPLANATION TO ALL THE SH ORTCOMINGS AND DEFICIENCIES NOTED BY THE AO. THESE SUBMISSIONS HA VE BEEN MADE ITA NO. 4858/DEL/2012 19 BEFORE THE AO AS WELL AS LD. CIT(A). THE SUBMISSIO NS OF THE ASSESSEE HAVE NOT BEEN COUNTERED BY THE AUTHORITIES BELOW. IN THIS VIEW OF THE MATTER, WE FIND THAT THE REASONS FOR REJECTION OF BOOKS OF ACCOUNTS BY THE AUTHORITIES BELOW ARE NOT COGENT AND HENCE, NOT SUSTAINABLE. 16.3 NOW WE COME TO THE BASIS OF LUMPSUM ADDITION O F RS. 1.5 CRORES MADE BY THE AO. IN THIS REGARD, ASSESSEE HA S DULY SUBMITTED BEFORE THE LD. LD. CIT(A), THAT THE AO HAS REJECTED THE BOOKS OF ACCOUNTS U/S. 145(3) OF THE I.T. ACT WHICH IS WITHO UT ANY BASIS OR JUSTIFICATION OR EVEN WITHOUT EXAMINATION OF THE BO OKS OF ACCOUNTS. WHILE MAKING THE LUMPSUM ADDITION OF RS. 1.5 CRORE , THE AO HAS NOT GIVEN THE BASIS OR JUSTIFICATION OF THE SAME. THI S SUBMISSION WAS ALSO AGITATED BEFORE US. WE FIND THAT NO VALID BASI S 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, L UMPSUM ADDITION OF RS. 1.5 CRORE WAS MADE. THUS, WE AGREE WITH THE CONTENTION THAT EVEN THE AO HAD NO BASIS OR JUST IFICATION TO ARRIVE AT THE AMOUNT OF ADDITION. 16.4 WE FIND THAT IN SIMILAR SITUATION, THE REJE CTION OF ACCOUNTS, AND BOOKS OF ACCOUNTS AND LUMPSUM ADDITION WAS REJE CTED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2008-09. ACCORDINGLY, IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS AND PRE CEDENT, WE HOLD THAT REASONS FOR REJECTION OF BOOKS OF ACCOUNTS OF THE ASSESSEE ARE ITA NO. 4858/DEL/2012 20 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 AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 17. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 11/10/2013. SD/- SD/- [ [[ [A. D. JAIN A. D. JAIN A. D. JAIN A. D. JAIN] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 11/10/2013 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES ITA NO. 4858/DEL/2012 21