The ITAT Ruled that the addition on security deposits from Distributors/Retailers against Coca Cola bottles are invalid.
Facts
The assessee is engaged in the business of manufacturing beverages. While scrutinizing the return of income, the Assessing Officer found that the assessee has claimed deduction of Rs. 2,02,71,336/– on account of non-compete fee amortized in the computation of income.
The assessee was asked to justify its claim and the assessee relied upon the decision of the Hon’ble Supreme Court in the case of Empire Jute Company 124 ITR 1. It was explained that the payment of non-compete fees has been done to the shareholders/contractors of the bottling companies to facilitate the conduct of the assessee’s business more efficiently and more profitably, leaving the fees untouched.
Submissions
counsel for the assessee, vehemently stated that in the earlier year, the provision was created, but since it was unascertained, therefore, added back in the computation of income, but provision continued in the books of account and since during the year liability was ascertained, provision brought forward was reversed.
Decision
The two member bench of Anubhav Sharma Judicial Member and N.K. Billaiya Accountant Member said that section 41(2) of the Act applies only if the assets are owned by the power generating undertaking and since the assessee is not a power generating company, the CIT(A) grossly erred in applying provisions of Section 41(2) of the Act.
The bench viewed that the assessee has not claimed any trading liability. Containers and bottles are shown under the head “Current Assets” and deposits are shown as “Liabilities”. There is no evidence brought on record to show that liability has ceased to exist.
“The cessation of liability can only occur either by operation of law or debtors unequivocally declaring his intention to not honor his liability when payment is demanded by the creditor”, the bench added.
The Tribunal held that neither provisions of section 41(1) of the Act apply [Assessing Officer fails] nor provisions of section 41(2) and 43(6) of the Act [CITA fails].
The bench noted that since the assessee is engaged in the business of manufacturing and distribution of non-alcoholic beverages which are perishable in nature, these beverages are supplied in glass and plastic bottles which are susceptible to breakage. Such breakage and expiry of the products leads to inventory losses which was at Rs. 9,29,17,122/- in the year under consideration.
It found that the write off of inventory is based on actual loss and not on estimation. Therefore, the CIT(A) was correct in allowing the same as business expenditure. Such action of the CIT(A) cannot be faulted with.
Case title: Hindustan Coca Cola Beverages Pvt. Ltd. v/s Addl. CIT
Citation: ITA No. 5671/DEL/2018 [A.Y. 20103-11]
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