/bin/sh: rm: command not found
According to Apple's official documentation, it is by design that shell scripts invoked from AppleScript's do shell script action do not inherit the $PATH variable from your login shell's environment. 

Accordingly, Apple instructs users to use full paths to commands when invoking shell scripts from AppleScript rather than relying on the $PATH variable in the environment.

In the script in your example, you could replace rm with /bin/rm

According to the aforelinked documentation, this is the intended, documented behavior; a script that expects the environment's $PATH to be set for do shell script commands is a script with a bug.

That said, if you absolutely need to use relative paths and use $PATH to complete them, you could prefix any shell script called by do shell script with the command PATH=/usr/bin:/bin:/usr/sbin:/sbin:/usr/local/bin:/usr/X11/bin;