TIN TAR RETAIL CORP,MUMBAI V. ACIT, CC-4(2), MUMBAI

ITA 6478/MUM/2024

AI Insights

The case involves Tin Tar Retail Corp, a partnership firm engaged in retail trading of high-end designer garments, which faced additions in its income assessments for the years 2013-14 to 2016-17, alleging suppressed sales. The additions were based on discrepancies between sales data reported in income tax returns and data extracted from the firm's ERP system during a search operation under section 132 of the Income-tax Act, 1961. The Tribunal examined whether the additions were justified in the absence of incriminating material found during the search. The Tribunal concluded that the books of accounts maintained in the ERP system did not constitute incriminating material and thus, the additions were not legally sustainable.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 713305 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2014-2015
• Other Referred Cases: PCIT vs. Abhisar Buildwell Private Ltd., Param Dairy Ltd. vs. ACIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: REVENUE RECOGNITION
• Keywords: Difference of opinion; Change of opinion; Rejection of books of accounts
• Section: 143(3); 132; 153A

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH MUMBAI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA Nos. 6478, 6479, 6480 and 6483/MUM/2024 Assessment Years: 2014-15, 2015-16, 2016-17 and 2013-14 Tin Tar Retail Corp Jayems Engg. Co. Ltd., 130/132 Great Western Bldg., SBS Marg, Fort, Mumbai - 400001 (PAN : AAAFT4061C) Vs. Assistant Commissioner of Income Tax, CC-4(2), Mumbai (Assessee) (Respondent) Present for: Assessee : Shri Nitesh Joshi, Advocate Shri Vipul Mody, CA and Shri Ashwin Kashinath, CA Revenue : Shri Ritesh Misra, CIT DR Date of Hearing : 11.06.2025 Date of Pronouncement : 31.07.2025 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: These four appeals filed by assessee are against the orders of Ld. CIT(A)-52, Mumbai vide order nos. i) ITBA/APL/S/250/2024-25/1070775469(1) ii) ITBA/APL/S/250/2024-25/1070775489(1) iii) ITBA/APL/S/250/2024-25/1070775495(1) iv) ITBA/APL/S/250/2024-25/1070775460(1) Printed from counselvise.com 2 ITA Nos. 6478, 6479, 6480 and 6483/MUM/2025 Tin Tar Retail Corp. AYs 2014-15, 2015-16, 2016-17 and 2013-14 all dated 29.11.2024, passed against the assessment orders passed by ACIT Central Circle-4(2), Mumbai, u/s. 153A of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 12.06.2021 for Assessment Years 2014-15, 2015-16, 2016-17 and 2013-14 respectively. 2. This bunch of four appeals have common grounds of appeal where the two issues raised are identical except for variation in the quantum of addition made. First issue relates to challenging the impugned assessment order passed u/s.153A r.w.s. 143(3) which are contrary to the provisions of the Act. Second issue is on the merits of the case where the addition has been made on account of alleged suppressed sales. We take up appeal for Assessment Year 2013-14 as the lead case to draw the facts and give our observations and findings which shall apply mutatis mutandis on all the other three captioned appeals. 3. The effective grounds of appeal on merit are as given below: Assessment Year Validity of 153A assessment Addition of suppressed sales Amount in Lakhs (Rs.) Other disputed disallowances Amount in Lakhs (Rs.) 2013-14 √ 40.08 - 2014-15 √ 64.17 - 2015-16 √ 68.67 - 2016-17 √ 61.24 - 4. Brief facts of the case are that assessee is a partnership firm engaged in the business of retail trading in high-end designer garments under the brand name 'Ensemble'. Assessee has 5 retail stores of which 3 stores are in Mumbai and 2 stores in Delhi. The accounts are Printed from counselvise.com 3 ITA Nos. 6478, 6479, 6480 and 6483/MUM/2025 Tin Tar Retail Corp. AYs 2014-15, 2015-16, 2016-17 and 2013-14 maintained using software viz. 'Navision' which is an Enterprise Resource Planning (ERP) system. Details of returns of income originally filed by the assessee under section 139(1) of the Act are as under: Assessment Year Date of filing Total Income (Rs.) Assessments Status Order Date 2013-14 30.09.2013 1,66,38,550 143(3) 23.03.2016 No proceedings pending as on the date of search 2014-15 29.11.2014 3,10,05,982 143(1) 05.06.2015 2015-16 29.09.2015 4,06,42,621 143(1) 12.09.2016 2016-17 15.10.2016 2,33,27,572 143(1) 10.11.2016 4.1. A search action under section 132 of the Act was carried out on 29.05.2018 at the business premises of the assessee as well as on a group entity viz. Jayems Engineering Co. Pvt. Ltd. Notices under section 153A of the Act were issued on 18.02.2021. Pursuant to these notices, assessee filed returns of income for relevant years on 26.02.2021, reporting the same income as in the original returns. During the course of search, Department took the back-up of ERP server data as noted in the panchnama. 4.2. During the course of assessment proceedings, ld. Assessing Officer asked the assessee to furnish reconciliation of sales as per ERP data extracted during the course of search and sales as per ITR. Assessee furnished complete details of sales return along with details of subsequent sales, movement of stock and goods returned to suppliers for reconciling the two data sets. Ignoring the details so submitted, ld. Assessing Officer took credit side of sales recorded in the ledger account of sales ignoring the entries made on the debit side on the ledger account of sales relating to the ‘sales return’, resulting into unwarranted additions alleging the same as suppressed sales, Printed from counselvise.com 4 ITA Nos. 6478, 6479, 6480 and 6483/MUM/2025 Tin Tar Retail Corp. AYs 2014-15, 2015-16, 2016-17 and 2013-14 aggregating to Rs. 3.31 Crore. Details of the addition so made is tabulated below: All Amounts in Rs. Cr. Assessment Year Gross Sales Sales Return Net Sales as per accounts and ITR 2013-14 21.24 0.40 20.84 2014-15 26.01 0.64 25.37 2015-16 29.42 0.69 28.73 2016-17 29.10 0.61 28.49 2017-18 29.58 0.97 28.61 Total 135.35 3.31 132.04 5. We have heard both the parties on the legal issue as well as on the merits of the case. Ld. CIT DR furnished a written submission on the factual position and merit to put up his case. We have gone through the orders of the authorities below as well as material placed on the record including paper book containing 306 pages furnished by the assessee. 6. On the legal issue raised by the assessee vide ground no. 1, assessee contends that no addition can be made without any incriminating material found and seized during the course of search conducted on the assessee. As already noted in the facts above, Department took the backup of ERP server as noted in the panchnama. The said ERP server contains books of accounts maintained by the assessee using software namely, NAVISON which is an ERP system. The present assessment years under consideration before us in appeal are unabated years within the meaning of provisions contained in section 153A. There were no proceedings pending as of the date of search for all the four assessment years and therefore they stand unabated. The Printed from counselvise.com 5 ITA Nos. 6478, 6479, 6480 and 6483/MUM/2025 Tin Tar Retail Corp. AYs 2014-15, 2015-16, 2016-17 and 2013-14 position of law in respect of unabated assessment years is settled by the decision of Hon’ble Supreme Court in the case of PCIT vs. Abhisar Buildwell Private Ltd. [454] ITR 212 (SC), wherein, it is held that no addition can be made by the Assessing Officer in absence of any incriminating material found and seized during the course of search. 6.1. It is important to note that section 153A of the Act empowers the Assessing Officer to assess or reassess the 'total income’ in cases where the search is carried out under section 132 of the Act. It provides a framework for conducting an assessment proceeding as a result of a search under section 132 of the Act. It further provides that assessment/reassessment pending on the date of search would abate and a single assessment would be made under section 153A of the Act only. 6.2. In the present case, the only material being relied upon by the Assessing Officer to make the addition is the data extracted from ERP and the return of income. It is submitted that the data extracted from the ERP is the very basis on which the financial statements have been prepared and the same have been subject to audit by Chartered Accountant. All entries were duly recorded in the books of account which have been subjected to audit and the audited financial statements were part of the return of income filed, much before the date of search. These accounts are used by the Assessing Officer in framing the assessment order. There is no incriminating material arising from the search. In absence of incriminating material, no addition can be made for the years under consideration. 6.3. It is a case where the books of accounts were maintained by the assessing in the ERP system which are not rejected by the Ld. Printed from counselvise.com 6 ITA Nos. 6478, 6479, 6480 and 6483/MUM/2025 Tin Tar Retail Corp. AYs 2014-15, 2015-16, 2016-17 and 2013-14 Assessing Officer. He has resorted to the data contained in the ERP system which has been used for the purpose of making the additions, on account of reconciliation in respect of sales return which has been alleged to be suppressed sales made by the assessee. 6.4. Definition of books of accounts as contained in section 2(12A) is extracted below which mentions the books of accounts maintained in electronic form/digital form, for which department took a backup from the ERP server.: \"books or books of account\" includes ledgers, day-books, cash books, account- books and other books, whether kept in the written form or in electronic form or in digital form or as print-outs of data stored in such electronic form or in digital form or in a floppy, disc, tape or any other form of electro-magnetic data storage device; 6.5. On the legal issue raised by the assessee, the moot point which arises for consideration is whether the books of accounts maintained by the assessee in its software/ERP system constitutes incriminating material for the purpose of making addition u/s.153A r.w.s. 143(3). Similar issue had come up before the coordinate bench in the case of Param Dairy Ltd. vs. ACIT in ITA No.3988/Del/2019, wherein on similar facts it was held that books of accounts maintained in software do not constitute incriminating material. This decision of the coordinate bench was confirmed by the Hon’ble High Court of Delhi in ITA No.37/2021, dated 15.02.2021. Relevant extracts from the decision of the coordinate bench from the aforesaid decision are reproduced as under: “14. A perusal of the assessment order for A.Y 2008-09 reveals that the first and main addition is on account of milk purchase tanki. The Assessing Officer has extracted the details of purchase of milk under different ledger heads from F.Ys. 2007-08 to 2013-14 at page 18 of his order from which it can be seen that purchase of milk under the head \"Milk Tanki\" are clearly mentioned. Copy of the assessment order framed u/s 143(3) of the Act dated 28.07.2010 for A.Y 2008- 09 is placed at pages 42 to 43 of the paper book and audited financial statements are at pages 2 to 29 of the paper book. 15. In the Schedule the Profit and Loss Account under the head Purchases\" a detailed bifurcation of milk purchases under different heads have been Printed from counselvise.com 7 ITA Nos. 6478, 6479, 6480 and 6483/MUM/2025 Tin Tar Retail Corp. AYs 2014-15, 2015-16, 2016-17 and 2013-14 mentioned and milk purchase tanki is specifically found in the details which has been added by the Assessing Officer while framing assessment Purchases have been shown at Rs. 17,27,01,506.74. It is the same amount order u/s 143(3) r.w.s 153A of the Act. In our considered opinion, when the entries have been duly made in the books of account, which have been subjected to audit and the audited financial statements of account were part of the return of income filed much before the date of search, which have been dated 28.07.2010 as mentioned hereinabove, such additions and such assessment orders cannot be accepted as the same are devoid of any incriminating material/documents found at the time of search. 16. Next addition is on account of commission paid at Rs. 11,72,488/-. Again, on a perusal of the details of administrative expenses, same commission expense is found to be charged in the profit and loss account. Once again, this addition has nothing to do with any incriminating material/document found at the time of search. 17. Similarly, other additions have been made on account of details already forming part of audited financial statement of account. 18. The ld. DR has vehemently stated that soft copies were seized at the time of search and the extracts from soft copies have been made basis for framing the impugned assessments and the same are found at the time of search and therefore, are incriminating material. 19. A perusal of the audited report in Form No. 3CD, which is placed at page 31 of the paper book shows that under the details \"Books of account maintained\", it is mentioned \"Cash Book, ledger, stock register, bank book\", etc. Books are maintained on tally accounting software. It seems that this tally accounting software was seized during the search and the same has been treated as incriminating material. In our considered opinion, regular books of account of the assessee, by any stretch of imagination, cannot be treated as incriminating material forming basis of framing assessment u/s 153A r.w.s 143(3) of the Act.\" 7. In the given set of facts before us, where nothing is brought on record to controvert the submissions made by the assessee except for data the data extracted from ERP which has been relied upon for the purpose of making addition found and seized during the course of search which in fact are the regular books of accounts maintained by the assessee, the additions so made do not meet the test of the judgement of Hon’ble Supreme Court in the case of Abhisar Buildwell Pvt. Ltd. (supra), all the four years being unabated years. Accordingly, the additions so made and the assessment completed thereupon u/s.153A for the unabated years is not in accordance with the provisions of the law and judgement of the Hon’ble Supreme Court. Accordingly, ground No.1 raised by the assessee is allowed. Printed from counselvise.com 8 ITA Nos. 6478, 6479, 6480 and 6483/MUM/2025 Tin Tar Retail Corp. AYs 2014-15, 2015-16, 2016-17 and 2013-14 8. On the merits of the case, ld. AO has made the addition on account of sales return which are duly recorded in the books of account without rejecting the same. Purchases, sales, inventories are accepted by the ld. AO. Assessee claims that certain factual position and the business process vis-a-vis the accounting methodology adopted by the assessee has not been considered by the ld. AO while alleging suppression of sales. Assessee is a partnership firm and is required to maintain books of accounts and get them audited u/s. 44AB of the Act. Its books of accounts are also subjected to audit under the State VAT Act also. In Para 4.1 of the impugned assessment order, ld. AO observed and noted that sales data of the assessee was extracted from its ERP system. From the review of the sales data so extracted from the assessee's ERP system and sales data reported in the income tax return form, ld. AO found that assessee has disclosed less turnover in its return when compared with the sales data extracted from the ERP system. The year wise difference in sales data is tabulated as under: Assessment year As per ITR (Rs.) Sales data as per assessee's ERP System (Rs.) Sales suppressed in ITR (Rs.) 2013-14 20,84,62,620 21,24,70,685 40,08,065 2014-15 25,36,86,080 26,01,03,296 64,17,216 2015-16 28,72,98,992 29,41,66,809 68,67,817 2016-17 28,48,79,026 29,10,03,064 61,24,038 Total 2,34,17,136 8.1. Assessee made its detailed submissions along with annexures to reconcile the sales for which ld. AO has recorded the differences. Part Printed from counselvise.com 9 ITA Nos. 6478, 6479, 6480 and 6483/MUM/2025 Tin Tar Retail Corp. AYs 2014-15, 2015-16, 2016-17 and 2013-14 of the annexures are reproduced in the impugned assessment order. Submission of the assessee is that excess of sales found in the ERP system is due to not considering the sales return by the ld. AO. According to the assessee, the differential amount pertains to sales return. However, ld. AO did not find the submissions of the assessee as acceptable by observing that there is no linkage between the sales and sales return supported by documentary evidences. Further, there is no specific sales return policy and there are long gaps between sales made and sales return claimed by the assessee which appears to be unrealistic. Further, ld. AO observed that assessee ought to have produced stock register to demonstrate the movement of goods on account of sales return as well as cash book for the accounting of refund of money against the sales return and any communication by the customers to establish that they approached the assessee for making sales return. Thus, on these observations, ld. AO took an adverse conclusion to make an addition on account of suppressed sales. 8.2. On each of the observations of ld. AO, assessee made detailed submissions to explain the process of business, mapping it to the accounting methodology adopted in the ERP system to justify that there is no difference in the sales data and all the sales return are duly accounted for in the books which forms part of the sales reported in the return form. For the purpose of explaining its business process and the methodology adopted while accounting the transactions, it was explained that assessee uses bar-code system to identify each of its products. Entire inventory of the assessee is bar-coded, which is generated when a stock item is received from the supplier. The ERP system does not permit entry of any item in the stock register without a bar-code, which is printed and fixed with each of the garment item. It is only when a bar-code is captured in the inventory and tagged with Printed from counselvise.com 10 ITA Nos. 6478, 6479, 6480 and 6483/MUM/2025 Tin Tar Retail Corp. AYs 2014-15, 2015-16, 2016-17 and 2013-14 the product, the inventory is transferred to the store and is ready for sale. Thus, the accounting practice of the assessee for recording sales and sales return was explained as under: “Accounting of Sales: Once a customer selects the goods for purchase, the employee at the sales counter opens Navision ERP and scans/punches the Bar Code. The ERP selects the product from the stock register and the same is auto captured in the invoice. The employee is required to feed the name of the customer, amount of discount (if any) and the mode of payment. The sales amount is computed by the ERP and VAT, as applicable, is auto computed and invoice is ready for print. Once the invoice is issued to the customer. At close of sale counter, the accounts team on T+1 basis, update the records the sales made and stock outward in ERP. These entries are made on the basis of Bar Codes. Accounting of Sales Return: Since the Assessee is retailer, trading in garments, the plausible few reasons for sales return are as under: i. Change of opinion (natural light conditions v. store lighting, opinion of family members) ii. Fitting is not correct (wrong size, typically when purchased by customer for another person) iii. Discoloration or loose stitching not detected at the store, etc. The Sales Return was accounted in the same ledger account of Sales as a debit entry in ERP as well as in Tally. In ERP, the sales return was also recorded under the Bar Code. At the store, the customer returning the goods were given the following options: i. Exchange of same product; ii. Exchange of different product; iii. Credit note to be used against future sales; iv. Refund Based on the nature of the sales return, Document ID 'SCR' - Sales Return and 'CN' - Credit Note were generated in the system. A similar system was in place in Tally for EDS. The Sales, net of returns, being the balance reflecting in the Sales Ledger is reported in the Statement of Profit and Loss.” 8.3. It is submitted that on sales return, the following three scenarios arises: i. Goods are subsequently sold; ii. Goods are returned to the supplier; iii. Goods remain in stock 8.4. A complete reconciliation of sales, sales return and the subsequent sales/return to supplier/retained in stock forms part of Paper Book-II. The details give complete flow of goods from sale till the Printed from counselvise.com 11 ITA Nos. 6478, 6479, 6480 and 6483/MUM/2025 Tin Tar Retail Corp. AYs 2014-15, 2015-16, 2016-17 and 2013-14 ultimate outcome on account of sales return. The supporting documents in the form of original sales invoice, sales return credit note, subsequent sales invoice/purchase return voucher and the stock register (based on Bar Code) reflecting movement of stock were produced before the ld. AO during the assessment proceedings. 8.5. In respect of sales return policy disclosed on the website, it is submitted by the assessee that it does not have any website for online sales. What ld. AO has taken note of is a policy of a website belonging to some other entity. 8.6. Assessee claimed that the sales and sales return both are recorded in the same ledger, copies of which were furnished in the course of assessment proceedings. This practice has been followed consistently by it of disclosing the net credit in sales ledger account which is net of returns. In this respect, reference was made to the sales statement placed in the paper book wherein it was pointed out that in the column with the heading “QTY”, number of pieces of garments sold are recorded. Wherever there is a case of sales return, the number in this column is reported with a (-) sign. The bill number also has a different series which starts with “SCR” whereas for the item of sales, the bill number starts with “CPI”. 8.7. On the requirement of submission of stock registers for tracking of movement of inventory, assessee furnished complete details in respect of original sales as well as sales return and subsequent sales of the items which were returned, to depict the movement of stock. 8.8. On the requirement of trail of funds on account of refund for sales return, assessee demonstrated that credit notes were issued for Printed from counselvise.com 12 ITA Nos. 6478, 6479, 6480 and 6483/MUM/2025 Tin Tar Retail Corp. AYs 2014-15, 2015-16, 2016-17 and 2013-14 exchange or sale of another product. Out of 235 instances of sales return during Assessment Year 2014-15, only eight cases involved refund to the customer for which relevant documents are placed on record in the paper book for the relevant Assessment Year. The transaction for refund is also mapped to bank statement to reflect refund granted to the customer and the same has been accounted for in the books of accounts of the assessee. 8.9. On the observation of ld. Assessing Officer about communication from the customer with respect to sales return, claim of the assessee is that since it is into retail trade, the sales return takes place by customer physically visiting the stores and therefore there is no such requirement of prior communication to demonstrate that request was made for the sales return. 9. Ld. CIT DR called for report from the ld. Assessing Officer in respect of documentary evidences placed in the paper book by the assessee. An email communication dated 06.09.2025 is placed on record whereby ld. Assessing Officer has given his comments on the documents placed in the paper book of the assessee. The comments made by him are based on the assessment order as inability is expressed in para-2.2 to offer comments on the voluminous details of sales reconciliation statements. In the conclusion in para-5 also, it is stated that records are being traced and thus he is unable to offer any comment on the sales reconciliation statement without going into the veracity of the same. 10. In the overall conspectus of the above discussion, we find that assessee has evidently demonstrated about no mismatch in sales data from the accounting data for which the back-up is already available with Printed from counselvise.com 13 ITA Nos. 6478, 6479, 6480 and 6483/MUM/2025 Tin Tar Retail Corp. AYs 2014-15, 2015-16, 2016-17 and 2013-14 the Department, forming part of the seized material noted in the panchnama about the difference noted by the ld. Assessing Officer towards alleged suppression of sales. The difference has arisen more on account of understanding of the business process and accounting methodology adopted by the assessee which has been evidently demonstrated with corroborative documentary evidence and the data generated from the ERP system itself. Assessee has maintained regular books of accounts in the electronic system in digital form. It is not a case of rejection of books of accounts and adoption of some net profit rate to make the addition. Assessee has also placed on record details relating to movement of stock by furnishing the relevant data including stock register. It has also explained the coding system adopted by it for recording various class of transactions so as to reconcile the data of sales and sales return which matches with the data reported in its return. 10.1. From the perusal of the audited financial statements, it is observed that significant accounting policy for revenue recognition mentions that ‘sales are net of sales tax, discounts and returns as applicable’. Assessee maintains one single ledger wherein both sales and sales return are accounted for, giving the net result of sales which are duly reported in the profit and loss statement. For various other observations made by ld. Assessing Officer for alleging the suppression of sales, assessee has adequately met each of the observations by giving cogent explanations, supported by relevant documentary evidences. 11. Considering the facts on record and the submissions so made as discussed in detail in the above paragraphs, we delete the addition made by the ld. Assessing Officer alleging suppression of sales with respect to difference in sales reported in the return form and accounted Printed from counselvise.com 14 ITA Nos. 6478, 6479, 6480 and 6483/MUM/2025 Tin Tar Retail Corp. AYs 2014-15, 2015-16, 2016-17 and 2013-14 in the books of accounts pertaining to sales return. Ground No.2 raised by the assessee is allowed. 12. In the result, appeal of the assessee for Assessment Year 2013-14 is allowed. 13. Since identical issues are involved in other three appeals, except for variation in quantum of addition, the other three appeals are also allowed by applying the observations and findings given by us in respect of appeal for Assessment Year 2013-14. 14. In the result, all the four appeals of the assessee are allowed. Order is pronounced in the open court on 31 July, 2025 Sd/- Sd/- (Amit Shukla) (Girish Agrawal) Judicial Member Accountant Member Dated: 31 July, 2025 MP, Sr.P.S. Copy to : 1 The Assessee 2 The Respondent 3 DR, ITAT, Mumbai 4 5 Guard File CIT BY ORDER, (Dy./Asstt.Registrar) ITAT, Mumbai Printed from counselvise.com "