ACIT Vs Jojo Frozen Foods Private Limited (ITAT Cochin)
Conclusion: Amount paid as security deposit was taxable only on the year of termination of an agreement between the assessee and the dealer/distributor. Hence AO was not justified in treating the deposit as income each year irrespective of whether the dealership was terminated or not.
Held: Assessee-company was a manufacturer and dealer of ice cream and frozen foods, was giving freezers to its dealers/distributors for storing the ice cream. For giving the freezers, assessee was collecting deposits, which were refundable on termination of the dealership. As per the terms of the agreement between assessee and dealer/distributor, assessee could recover 25% of the deposit each year towards wear and tear, when agreements were terminated. According to assessee, such recoveries were offered as income in the year in which the dealership was terminated and such recovery was made. AO held that 25% of the deposit should be treated as income each year irrespective of whether the dealership was terminated or not. It was held that ITAT had dismissed the department appeal against the original assessment following its own orders for the earlier years on the ground that the said amount was taxable only in the year of termination and assessee had already offered such amount to tax in the return of income filed by it. The above order of the Tribunal had not been reversed by the Hon’ble High Court. Therefore, following the Tribunal order, in assessee’s own case, it was held that the freezer security deposit was taxable only on the year of termination of an agreement between the assessee and the dealer/distributor.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal at the instance of the Revenue is directed against CIT(Appeals)’s order dated 24.06.2019. The relevant assessment year is 2009-2010.
2. Two issues are raised in these appeals :
(i) whether the CIT(A) is justified in quashing the reopening of assessment as invalid;
(ii) whether the CIT(A) is correct in holding that the lapsed freezer deposits cannot be treated as income in the hands of assessee.
3. The brief facts of the case are as follow:
The assessee is a private limited company. It is engaged in the business of manufacture and dealer of ice cream and frozen foods. The assessee was giving freezers to its dealers / distributors for storing the ice cream. For giving the freezers, the assessee was collecting deposits, which were refundable on termination of the dealership. The assessee as per the terms of agreement (entered between the assessee and dealer / distributor), could recover 25% of the deposit each year towards wear and tear, when agreements were terminated. According to the assessee, such recoveries were offered as income in the year in which the dealership was terminated and such recovery was made. The Revenue was of the view that 25% of the deposit should be treated as income in each year irrespective whether the dealership was terminated or not.
3.1 In the original assessment completed u/s 143(3) of the I.T.Act (order dated 29.12.2012), the Assessing Officer had made an addition of Rs.20,16,542, being lapsed liability towards freezer security deposit. The addition made by the Assessing Officer was deleted by the CIT(A) vide order dated 28.01.2013. The CIT(A) deleted the addition by following the ITAT order in assessee’s own case for the earlier assessment years. The department appeal as against the order of the CIT(A) was dismissed by the Tribunal in ITA No. 311/Coch/2013 (order dated 29.07.2013).
4. The department issued notice u/s 148 of the I.T.Act on 30.03.2016. The reason for issuance of notice u/s 148 of the I.T.Act was to bring to tax lapsed security deposits up to assessment year 2006-2007 in the current assessment year.
A sum of Rs.1,80,61,857 was treated as income towards lapsed liability in the reassessment order dated 30.12.2016 passed u/s 143(3) r.w.s. 147 of the I.T.Act (The present appeal proceeding is out of order of reassessment dated 30.12.2016).
5. Aggrieved by the reassessment completed, the assessee preferred an appeal to the first appellate authority. Before the first appellate authority, the assessee raised two issues, viz., (i) whether the reopening of assessment is valid; and (ii) on merits whether the lapsed freezer deposit could be brought to tax in the current assessment year when the dealership agreement has not been terminated. The CIT(A) decided both the issues in favour of the assessee.
5.1 As regards the issue of validity of reopening of assessment, the relevant finding of the CIT(A) reads as follow:-
“5. The appellant stated that the Notice u/s. 148 was issued on 30.03.2016 for A.Y. 2009-10, obviously beyond 4 years and, therefore, it could only be done if all the material facts were not disclosed fully and truly during the course of original assessment. The appellant had objected to reassessment on this ground and the AO dismissed the objection of the appellant with following remarks:
“The AR ‘s objections were considered and disposed off vide this office letter dated 26.12.2016. It was replied to the assessee that the materials relevant to receipt of freezer deposit necessary for the assessment were not fully and truly furnished by the assessee at the time of original scrutiny assessment. And the assessee company was requested to furnish the documents, accounts and any other evidence on which it relied in support of the Return filed for this A. Y. by issue of notice u/s. 143(2) of the Act dated 23.12.2016.”
6. From the remarks of the AO, it is clear that the issue of Freezer Deposits was considered by the AO while framing original assessment order. The AO has also not mentioned as to what material fact was not fully and truly disclosed by the assessee. A mere assertion, without giving any details of such non-disclosure, in my opinion, is not sufficient to reopen the case, beyond a period of 4 years, especially so, when the assessment has been completed u/s.143(3) and the issue has been considered by the AO during original scrutiny proceedings. Thus, on the facts of this case, in my opinion, the reassessment u/s. 147 is bad-in-law and needs to be quashed.”
5.2 With reference to the issue on merits, the CIT(A) followed the order of the ITAT in assessee’s own case. The relevant finding of the CIT(A) reads as follow:-
“7. On merits also, the issue of taxing the freezer deposits stands covered in favour of the appellant by the order of Hon’ble ITAT, Cochin Bench, in its own case for the instant Assessment Year itself. Understandably, the Department is in High Court on this issue. Until Hon’ble High Court reverse the order of the Hon’ble ITAT, the order of the Hon’ble ITAT stands good.”
6. Aggrieved by the order of the CIT(A), the Revenue has filed the present appeal before the Tribunal. The learned Departmental Representative strongly supported the assessment order and relied on the grounds raised.
6.1 The learned AR filed a brief written submission, which reads as follow:-
Issue before ITAT
1. Whether the reopening of the assessment for the assessment year 2009-10, which was originally completed u/s 143(3) by making addition towards freezer deposit received between AY 2009-10, was valid to consider the same addition in respect of freezer deposits received by the appellant from inception up to assessment year 2006-07.
2. Whether the freezer deposit collected by the appellant could be treated as income as a lapsed liability.
