TMI Blog2023 (12) TMI 1225X X X X Extracts X X X X X X X X Extracts X X X X ..... e s liability qua deposit is regarded as it s income by Revenue. How, one wonders, being axiomatic, could that be disputed, signify as it does the right to receive, case law on which is legion The amount having been already received, income arises to that extent; the assessee acquiring a dominion or unqualified right over the same. That the assessee may not have appropriated it as it s income in it s accounts is another matter, it being trite that that the passing or, as the case may be, non-passing of accounting entries is not determinative of the matter. Accounting entries do not create income, but only recognize it. Non-booking of income in accounts would be to no consequence Sutlej Cotton Mills Ltd. v. CIT [ 1978 (9) TMI 1 - SUPREME COURT ]. Reliance on case law, de hors the facts and ratio, is of no moment, rendered in fact of no consequence in view of identity of the ratio or the principle of law relied upon. The assessee s challenge, in fact, is not based on merits per se , but on precedence, which we have again found to be in agreement with the Revenue s case, i.e., cessation of liability signifying accrual of income. For the reasons unknown, this cessation has, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statement (or Balance Sheets as at the end of the year/s) that would clarify the financing pattern of the taxable assets and, by implication, of the non-taxable or the tax-free investment. No such exercise has been done at any stage for us to issue any finding in the matter. No interference, therefore, apart from the exclusion of the term loan aforesaid is warranted in computing disallowance u/s. 14A. Assessee s appeal is partly allowed. - Shri Sanjay Arora, Accountant Member And Shri Manomohan Das, Judicial Member For the Assessee : Shri P.M. Veeramani, CA For the Revenue : Smt. J.M. Jamuna Devi, Sr. D.R. ORDER PER SANJAY ARORA, AM This Appeal by the Assessee is directed against the Order dated 28.06.2022 by the Commissioner of Income Tax (Appeals), NFAC, Delhi [CIT(A)], disallowing the assessee s appeal contesting it s assessment under section 143(3) of the Income Tax Act, 1961 ( the Act ) dated 27.12.2017 for Assessment Year (AY) 2015-16. 2. The appeal, filed on 09.01.2023, is delayed by 135 days. The condonation petition accompanying the appeal, which is supported by a sworn affidavit dated 29.12.2022 by Shri Simon John, the Director and Pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allenged the same before the Hon'ble High Court, withdrawn it on account of low tax-effect: 7. Though the above order of the Tribunal was challenged by the Revenue before the Hon ble High Court of Kerala, it is confirmed that the Revenue has withdrawn the appeal pending before the Hon ble High Court on account of low tax-effect. Since the Tribunal has decided the issue in favour of the assessee, we delete the addition made u/s 41(1) of the I.T. Act. It is ordered accordingly. Smt. Devi, the ld. Sr. DR, admitting to this being the state of affairs, i.e., identity of facts and the issue arising per se , decision by the Tribunal qua which had since attained finality, the hearing in the matter was closed. 5. We have heard the parties, and perused the material on record. , 5.1 At the outset, we clarify two things. Firstly, the statement of the case, as set out at para 3 above, is as per para 3.1 of the assessment order to the contents of which we were, for the reasons best known to the parties, not taken through during hearing, even as the same are not disputed at any stage by the assessee. Shri Veeramani, the ld. counsel for the assessee, on being queried by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efundable due to efflux of time . The CIT(A) failed to appreciate that the Income Tax Officer erred in not following the decision of the ITAT Cochin Bench in assessee's own case for all earlier assessment years wherein on identical issue, the appeal was allowed in favour of the appellant. The CIT(A) failed to note that the Income Tax Officer could not have made the addition only for the reason that department appeal for earlier years is pending before the Kerala High Court. (emphasis, ours) The issue in principle is, thus, consistent with that for the earlier years, as stated by us at para 3 hereinabove, even as we would consider that the reduction in the amount of deposit refundable, arise as it does by virtue of the Agreement under which the deposits are accepted, is more appropriately termed as cessation of liability or liability ceasing , rather than lapsed liability . As regards precedence, we proceed by reproducing from the order relied upon by the Tribunal in the assessee s case for AY 2014-15. It extracts para 6 of it s order for AY 2011-12. As a reading thereof shows, the Tribunal for AY 2011-12 (ITA 199/Coch/2016, dated 16.11.2016) extracts it order in the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich again stands to reason as the deep freezer is provided only under the Agreement, and is subject to depreciation over the period thereof. How could, one may ask, refund of the deposit, which is only to secure the deep freezers installed at the vendor s premises, arise during it s currency, defeating the very purpose of taking deposits, i.e., securing the assessee-depositee s interest, in the first place. Reference to the Agreement by the assessee, as indeed by the Tribunal, is only qua its termination, and for the reason that the deposit, to the extent it obtains, is refundable thereat. We may, for the sake of clarity, reproduce it s order for AY 2014-15 in toto qua this issue, as under, which would also exhibit the circuitous manner of reliance: 2. Two issues are raised in this appeal, namely, (i) freezer deposit considered as lapsed liability u/s 41(1) of the I.T.Act amounting to Rs. 43,99,905; (ii) belated payment of employees contribution to PF ESI amounting to Rs. 27,220. We shall adjudicate the issues as under: Freezer Deposit considered as lapsed liability u/s 41(1) of the I.T.Act amounting to Rs. 43,99,905 3. As regards the above issue, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive portion of the said order in respect of the above said issue. 6. We have considered the rival submissions and carefully perused the record. We have also gone through the copy of the order passed by the co-ordinate bench of the Tribunal in the case of High Range Foods (P) Ltd , referred supra. In respect of the first issue, i.e., Whether the deposits received from the dealers can be considered as income of the assessee , the Tribunal has observed as under. The assessee received Deposit for the supply of freezer from the concerned vendors. The freezers are required to safe-keep the edible ice-creams. They are required for the purpose of business. The small vendors may not be inclined to purchase the freezers as they are not affordable to them considering their status. This made the assessee company to supply freezer on the receipt of fixed deposit and the compensation of the spread-over period . They are attached with a liability. The accrual comes only on termination of agreement. The business necessity requires cordial relationship with vendors. The assessee cannot treat these two amounts as receipts in the nature of income unless the so-called agreement terminat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered as the income of the assessee so long as the agency agreement continues . Accordingly, we set aside the order of Ld CIT(A) on this issue in the hands of both the assessees and direct the AO to delete the addition made on this issue in the hands of both the assessees herein . 5. The only objection of the Ld. DR is that the appeal was filed against the order of the Tribunal and the same is pending before the High Court. But on a query from the Bench, the Ld. DR submitted that he does not have knowledge of any stay granted by the Hon ble High Court on the operation of the earlier order of the Tribunal. Since the Ld. CIT(A) has followed the order of the Tribunal, we are of the considered opinion that mere pending of the appeal before the High Court against the order of the Tribunal cannot be a reason to take a different view. Therefore, by following the order of the Tribunal for the earlier assessment year, this Tribunal is of the considered opinion that the deposits collected by the assessee for freezer cannot be considered as income of the assessee. 6. In view of the above facts and circumstances of the case and in view of the order of the Tribunal, we do not find any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it s latest order (for AY 2014-15). We have already noted absence of any reason for the finding as to non-accrual of income during the currency of the Agreement, which finding itself cannot be regarded as a precedent. Assuming such a reason in the unspecified order would be clearly presumptuous. In other words, there is nothing on record to exhibit precedence, and we continue to be clueless about the reason informing the said decision by the Tribunal, i.e., considering the undisputed primary facts, and at any stage, and this is precisely the reason for our reference to the question of law admitted by the Hon ble Court. Rather, we observe no reference to the fact of the diminishing liability over time to refund the deposit, i.e., the basis for accrual of income, which is therefore to be answered. That apart, the finding by the Tribunal and it s decision, at para 6 and 7 respectively of it s order for AY 2014-15, relied upon, is qua s. 41(1). How could the same possibly be a precedent for an addition u/s. 28(i), particularly as there is nothing in the issue arising that even remotely suggests of the ingredients for the invocation of s. 41(1) being met, which is only in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , while arrivign at a different conclusion even as it adopted the ratio laid by the Hon ble Court. Considered from this stand-point, the ratio of the Tribunal s order relied upon, as we discern, is that there could be no accrual of income till the liability attached with the deposit continues, i.e., till there is a debt owed in favour of the depositor. How, one wonders, could that be faulted with, being precisely the Revenue s case; a debt owed, in common parlance, as indeed in legal terms, implying a liability to pay in praesenti or in futuro an ascertained sum of money ( Kesoram Industries and Cotton Mills Ltd. vs. CWT [1966] 59 ITR 767 (SC). Rather, the Tribunal goes to the extent of stating that only where a debt arises in it s favour, that any income in respect of the deposit could arise to the assessee. Without doubt, the appropriation of deposit by the assessee as non-refundable could only be on account of a debt in assessee s favour arising on account of the agreement, constituting a binding contract between the parties. The statement is unexceptional and, as afore-noted, the basis of the Revenue s case, stated albeit much more clearly and definitely. In sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, which is independent of termination, which results in accrual of income. True, termination also signifies the amount refundable, but then that is only the amount not non-refundable, since determined at the expiry of each year. The exercise is to be carried out at each year-end, determining the deposit amounts no longer refundable. There being no dispute on quantum at any stage, we have no hesitation in according our approval to the impugned addition. We are conscious that the said sum or part thereof may have been booked as income in the subsequent years, i.e., on termination of the relevant agreements. It is, however, again trite that income is liable to be taxed for the right year, and it being taxed in another year is no ground for it being not brought to tax for the right year [ CIT v. British Paints India Ltd . [1991] 188 ITR 44 (SC); CIT vs. Chunilal V. Mehta Sons P. Ltd. [1971] 82 ITR 54 (SC)]. We decide accordingly. 7. The only other issue arising in the instant appeal, projected per Gds. 4-6, is qua disallowance under section 14A of the Act, effected by the AO at Rs. 44,361, being Rs. 34,397 and Rs. 10,324 in respect of interest and indirect expenditure under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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