TaxTMI 
TaxTMI 
2019 (3) TMI 1290
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....- (b) Pre-operative expenses Rs.5,05,000/- Rs.9,30,968/- (2) Profit chargeable to tax (a) Advances/deposits against written off bottles and cases Rs.3,26,05,241/- Current year's business income Rs.3,35,36,209/- Less : Set-off business loss Rs.3,35,36,209/- Business Income Nil (B) Income from House property Rs.11,27,122/- Total income Rs.11,27,122/-" Thus, the AO quantified the total income at Rs. 11,27,122/- after set off of losses against the Nil income returned by the assessee. In the assessment, AO disallowed Rs. 9,30,968/- on account of certain expenses. In addition, the AO made addition of Rs. 3,26,05,241/- on account of advances/deposits written off on account of the Bottles and the Cases. Assessee's business involves supply of cold drinks/Bottles and the Cases. Assessee collects advances/deposits from the shopkeepers against the supply of cold drink Bottles and the Cases. However, as per the provisions, the AO allowed set off of these additional incomes against the brought forward business losses of earlier years. 3. Aggrieved....
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....r 2000. The assessee's business involves buying of the Bottles & the Cases needed for the business of bottling of said Cool drinks. Assessee sells the cold drinks to the consumers through the outlets. At the time of supply of cold drink Bottles and the Cases to the said outlets-cum-customers, the assessee receives the repayable advances/deposits towards the security against the Bottles & the Cases. Thus, the books of account of the assessee contains the Bottles & the Cases account and these Bottles & the Cases are shown as "stock-in-trade" (Trading Assets) in the books of account upto 31-03-1996. Subsequently, for some reasons, the said stock-in-trade (Bottles & the Cases) is reflected in the books as Fixed Asset w.e.f. 01.04.1996. Hence, considering the capital/fixed assets, the assessee claimed depreciation on these fixed assets as per the provisions of section 32 of the Income Tax Act from the A.Y. 1996-97. As per the business norms, as stated earlier, the assessee receives the deposits/advances from the outlets of cool drinks and refunds the same as and when the Bottles and the Cases are returned to the assessee at the end of the business with that customer. As per the books, t....
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....nt assets of bottles and cases of Rs. 8,70,55,075/-, the assessee should have written off only the differential amount of Rs. 5,44,49,834/- (Rs.8,70,55,075 - Rs. 3,26,05,241). However, the assessee has failed to take into account the effect of security deposits of Rs. 3,26,05,241 collected by it against these written off bottles and cases. Also, these deposits of Rs. 3,26,05,241/- are lying with the assessee since 31/3/1996 and earlier period. Thus, these deposits amounting to Rs. 3,26,05,241/- are no more payable to the parties and hence, are liable to tax u/s.41 of the Act. Hence, this amount of Rs. 3,26,05,241/- is added to the total income of the assessee u/s.41 of the I.T. Act." Thus, the AO brought to the tax the benefit worth Rs. 3,26,05,241/- by invoking the provisions of section 41(1) of the Act. In the process, AO treated the same on the trade deposits despite the fact the related assets are depreciable assets that falls in the capital field. 6. Before the CIT(A) : It is an undisputed fact that the assessee wrote off the entire block of Bottles & Cases in the earlier A.Y. 2006-07. AO proceeded to invoke the provisions of section 41(1) in respect of the relatable advanc....
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....take back the deposit. The AR, was asked as to what was the treatment given if the customer damaged the bottles and was not able to return the bottles. It was explained that in such a scenario the deposit would be confiscated and treated as other income and value of damaged bottles was debited to profit and loss account. The non returnable bottle deposit and damaged bottles and cases were given effect to through Profit and loss account by the company itself. The AR was also asked whether it was possible to get confirmations from all the depositors to confirm the continuance of liability. The AR reiterated that the liability to pay deposits is continuing one and that the deposits are returned on receipt of bottles and cases and that getting confirmation is difficult as company is out of business and does not have the infrastructure to collect confirmation from numerous parties. From the above, it is transpires that as the appellant company has written off bottles and cases worth Rs. 8,70,55,075/-, logically the company should have written off the related deposits. The company has outstanding deposits amounting to Rs. 5,55,68,474/-as against the breakage expense of Rs. 8,70,55,075....
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....ained any amount in respect of any loss or expenditure in the year under consideration, Ld. Counsel, however, submitted that assessee wrote off an amount of Rs. 8,70,55,075/- on account of Bottles & Cases in the earlier A.Y. 2006-07 and the same constitutes an allowable claim of the assessee in that assessment year. This amount refers to the value of Bottles & Cases lying with the customers. Assessee wrote off these amounts as the Bottles & Cases are not returned by the customers. These assets might have been damaged too at their end. Customers never returned them to the assessee. As such, the assessee could not file confirmation from the customers too before the AO. Nevertheless, the liabilities are not written off in the books of the assessee. 8.1 Referring to the connected liabilities, (i.e. the advances), Ld. Counsel submitted that these liabilities of Rs. 5,55,68,474/-, i.e. being security deposits of Bottles & Cases are not only connected to the capital assets but also constitutes non-remissible in the year under consideration. These amounts need to be paid to the customers as and when the Bottles & Cases are returned to the assessee. These Bottles & Cases, being fixed asset....
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....of time earlier had the Assessing Officer doubted the creditworthiness or identity of the creditors. There was no remission or cessation of the liability during the previous year relevant to the assessment year under consideration. The deletion of the addition was justified." 3) CIT Vs. Alvares & Thomas, 394 ITR 647 "Merely because creditor could not traced on date when verification was made, is not a ground to conclude that there was cessation of liability in terms of section 41(1) because cessation of liability has to be cessation in law, of debt to be paid by assessee to creditor." 4) CIT Vs. Shri Vardhman Overseas Ltd. "Held, dismissing the appeal, that the assessee had not unilaterally written back the accounts of the sundry creditors in its profit and loss account. The liability was shown in the balance sheet as on March 31, 2002. The assessee being a limited company, this amounted to acknowledging the debt in favour of the creditors for purposes of section 18 of the Limitation Act, 1963. The assessee's liability to the creditors, thus, subsisted and did not cease nor was it remitted by the creditors. The liability was enforceable in a court of law. The amount was....
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....not make the trade liabilities as other liabilities. Further, Ld. DR argued that there cannot be two classification of Bottles/Cases when the block of assets of Bottles and the Cases is one and the same class. Of course, Ld. DR argued on the fact that the assessee considered the relevant Bottles & Cases as stock-in-trade prior to 1996 and all of them were treated as the Fixed Assets since 1996 onwards. Of course, the claim of depreciation was allowed by the AOs on the Bottles & Cases. Ld. DR for the Revenue heavily placed reliance on the orders of AO/CIT(A). DECISION OF THE TRIBUNAL 10. We have heard both the parties and perused the orders of the Revenue. We have also considered the provisions of section 41(1) of the Act. We find there is no dispute on the basic facts that includes : (1) collecting the advances/security deposits from the customers against the cold drink Bottles and the relevant Bottle Cases as part of the Bottling business of the assessee. Assessee claimed depreciation u/s.32 of the Act on this block of assets over the years and AO did not disturb the claim of depreciation. These deposits are undisputedly not written off in the books and hence the liabilities sta....
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....nefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or (b) the successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year. Explanation 1.-For the purposes of this sub-section, the expression "loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereo....