AI Drafter 
TaxTMI 
TaxTMI 
2019 (1) TMI 588
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....red 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 Rs. 5.55 lacs, incurring thus a loss of Rs. 39.33 lacs, the Revenue has assessed it at a profit of Rs. 4.99 lacs. The assessee's, admittedly not maintaining any stock register, case is that of the opening stock of Rs. 171.06 lacs, that for Rs. 126.18 lacs was returned back to the principal. The balance stock of Rs. 44.88 lacs left with it being not saleable, was accordingly sold to the street vendors (thariwalas) for Rs. 5.55 lacs, resulting thus in the claimed loss (refer trading account at PB pg. 7). The same has been sold in cash, even as no receipts, etc. could be expected from and, thus, obtained from the street vendors, while the (cash) sale account was presented in the assessment proceedings (PB pgs. 8 - 42). There is, under the circumstances, no valid reason for the rejection of assessee's books of account, which stands though endorsed by the ld. CIT(A). The Revenue's case, on the other hand, is that the loss booked by the assessee is not evidenced. The assessee's normal gross profit (GP) rate is in ....
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.... stated that whatever stock was remaining had been sold out to hawkers at a throw away price of Rs. 5,55,291/- against the purchase price of Rs. 44,87,679/-. This explanation of the assessee cannot be believed. Any stock of a brand like Reebok is always favored by customers. A discount of 30-40% can be understood but sale of stock of Rs. 44,87,679/- @ l/8th of its purchase price is beyond the realm of imagination. Reebok is a company which has a very high brand value in India and whether the company is going through a financial crisis hardly concerns the common consumer. Sale of such stock to hawkers is something that cannot be believed. In the interest of justice the assessee sale of remaining stock is estimated at the same G.P. as average of two earlier years of 10%. It is worthwhile to note that the G.P. for the A.Y. 2011-12 has been shown @ 21% by the assessee herself. Due to loss in subsequent year, the average G.P. comes to 10%. Therefore an addition of Rs. 4,98,631/- on account of G.P. on sale of remainder stock is directed to be added to the income of the assessee.' (*) [the correct date is '30.11.2012'] As clear from the reading of the assessment and the appellate order....
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.... 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 disallowance to reject the assessee's trading account/results, which it though does in view of the unreliability of the accounting figures as to stock as well as the absence of any reliable evidence as to sale; the cash sale bill/s being only a self generated document. The burden to prove its' return, and the claims preferred thereby, it may be appreciated, is on the assessee (CIT v. Calcutta Agency Ltd. [1951] 19 ITR 191 (SC); CIT v. R. Venkataswamy Naidu [1956] 29 ITR 529 (SC)). Where, therefore, the loss as claimed is not reasonably proved, a disallowance in its respect shall ensue irrespective of whether substantial doubts have been raised qua the reliability of the assessee's accounts in general. In fact, no such doubts have indeed been raised. The 'rejection' of accounts is thus primarily in relation to the stock sales; there being no purchases for the year, as well as the value of the stock (after that returned to its' principal, for which credit stands al....
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....he 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 evidences led, or not, a question of fact, is a different matter, concerning the merits of the claim/s. What is being sought to be brought forth, plainly, is that the matter is, rather than technical, factual, and boils down to, on one hand, the 'proving' of the assessee's claims by her, and the 'disproving' of the assessee's claims' by the Revenue, on the other. To, however, answer the question as to the applicability of section 145(3), we, for the reasons afore-stated, as well as that may find elaboration in the subsequent part of this order, see no infirmity therein qua the assessee's trading results, which only stand disturbed by the Revenue. Rather, we observe, apart from absence of stock reconciliation/details, also un-reconciled balances with trade parties, impinging on the correctness and completeness of the assessee's accounts. 3.3 We shall now deal with the matter on a factual plane. The assessee is not maintaining any stock records. What, then, one may a....
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.... 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 prior thereto. That is, the assessee had ceased its' purchases, conveying understandably this fact to its' principal. That is, the decision to close business; the assessee also citing financial problems being faced by the principal, had been taken prior to the beginning of the year, and the negotiations for closure, i.e., the terms thereof, etc., on. The adjustment of the purchase return from the opening stock is also presumably on account of this, i.e., is supportive. The franchise agreement/arrangement ceases w.e.f. November 30, 2012, the termination date. The assessee, thus, had adequate time to dispose the goods. Even if some time of the current year is regarded as consumed in identifying the stock which RIC would not accept, still the assessee had sufficient time for the purpose, particularly considering that negotiations were on and the assessee knew about the return-ability of the stock, which would again, presumably, only be in terms of the agreement. Why, the sale of stock by the asse....
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....s 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 Rs. 27.33 lacs. Why? How does, further, the assessee justify the balance? We find none. Though stated in the Memorandum of Understanding (MoU) (PB pgs. 43-47) to be the value of stock at wholesale price, i.e., the assessee's cost price, for the goods at the assessee's Store 1, we observe no explanation by the assessee at any stage, including before us, with reference to the stocks lying at its' two different stores. The assessee is maintaining consolidated accounts for both the stores, and the entire stock figures as furnished, viz. opening stock, returned, and that sold, are with reference to its' entire stock. Mere suggestion of the balance stock lying at the other, second store, would imply the opening stock, purchase return and sales, to also include stock of Store 2, rendering the segregation of stock as of no consequence. In fact, such a segregation could only be possible on the basis of separate accounts, or in the very least separate stock registers, i.e., where the account of the ....
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....e 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, works to over 50% on sale price, considering a mark-up that yields the normative GP rate of 20%. This assessment, it may be further noted, is in broad agreement with that by the ld. CIT(A), who states of a discount of 30%-40% as understandable (at para 11 of his order, reproduced supra), though inexplicably, and in contradiction to his own assessment, allows no loss, but assesses a profit of Rs. 4.99 lacs. 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, alr....
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....Rs. 10.932 lacs and, accordingly, gets a relief for Rs. 15.922 lacs (i.e., Rs. 4.99 lacs + Rs. 10.932 lacs). Here it may also be relevant to mention, and even as observed by the Bench during hearing, that a proper adjustment to the assessee's returned income in this respect would warrant an add back (disallowance) of the loss claimed, followed by reduction of the loss assessed (or a further add back of the profit sustained), and which also explains the aforesaid figure of Rs. 15.922 lacs. We refer to the 'profit sustained' even as we have accepted the assessee's claim for loss, to whatever extent, only for completeness of the stated algorithm. An assessment at a profit of Rs. 50, for example, as against the claimed loss of Rs. 100, would warrant an addition for Rs. 150 to an assessee's returned income. We state so as we observe that this has not been followed in computing the assessee's income, resulting in a mismatch between the income as assessed and its' computation; the Revenue failing to make disallowance 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 bein....