Case Law Details
Hindustan Coca-Cola Marketing Company Pvt. Ltd Vs DCIT (ITAT Delhi)
We have carefully considered the facts of the case that the assessee stated that approximately 10000 cases were pulled back by the assessee from the market in view of the exceptional quality issues. The assessee submitted that the above quality issue is the pulled back of inventory from the market on account of expiry of the products. The assessee submitted that there is a life span of the beverages and beyond that it cannot be consumed and therefore, it has to be pulled back from the market. There cannot be any claim on this issue from anybody else as it is product risk, which is attached to the assessee only. The ld AO did not believe and disallowed the above claim. The ld AO held so that there is no evidence with the risk of stock was on the assessee. The ld CIT(A) relying on his own decision for AY 2008-09 allowed 70% of the such claim and confirmed the disallowance to the extent of 30% thereof and therefore, the assessee is in appeal. We find that for AY 2008-09 the issue was identical. When for AY 2008-09 the matter reached coordinate bench the assessee did not press this ground for smallness of the amount, however, for AY 2006-07 i.e. the impugned assessment year the assessee is pressing this disallowance. Therefore, the order of the ld CIT (A) for AY 2008-09 is perused and part of which is reproduced by the ld CIT (A) while deciding the appeal of the assessee for the impugned assessment year. In that particular case the ld CIT (A) clearly noted the BDD policy of the assessee company. He further noted that the assessee furnished the details in respect of loss of finished goods. The BDD policy necessarily applies to the finished goods only. The ld CIT (A) further accepted that possibility of having the inventory loss in the business of the appellant cannot be ruled out. He further considered annual turnover of the assessee and stated that claim of inventory loss is not significant. It was further noted that the ld AO has not brought on record any adverse evidence still he reached at a conclusion to allow only 70% of such loss. Even otherwise, the assessee has claimed such loss on account of passing of the of the expiry date of the finished product of the assessee. The value of such goods is as such Nil as having became non-marketable. It is not the case of the revenue that the assessee has derived any revenue from sale of such goods. Even otherwise, it is not possible. It is also not the case of the ld AO that such losses are claimed by the distributors. Naturally, the distributors will never make such claim on their account when they are clearly distributing stock only. Naturally, that is the risk of marketing company. Therefore, there is no reason to restrict it at an adhoc figure. In view of this, we do not find any justification to restrict allowance of such claim to the extent of 70%. According to us, it should be allowed in its entirety. Such loss is neither stated to be contingent or non-existent. In view of this, we reverse the order of the ld CIT (A) and direct the ld AO to delete the additions/ disallowances of Rs. 20,89,501/- being loss on account of passing of the expiry date of the product. Accordingly, disallowance of Rs. 20,89,501/- is directed to be deleted.
FULL TEXT OF THE ITAT JUDGEMENT
1. This appeal is filed by the assessee against the order of the ld CIT (A)-X, Delhi dated 29.09.2014 for the Assessment Year 2006-07, raising the only issue in the appeal that the ld CIT (A) has erred in restricting the disallowance on account of excess shortage/ breakage to 30% merely following appellants own case decided by the ld CIT (A) in subsequent years (AY 2008-09). The contention in the ground of appeal of the assessee is that ld CIT(A) has failed to appreciate that the expenditure incurred by the appellant due to pulling back of inventory from the market on account of expiry of product are normal business expenditure allowable as deduction in accordance with the provisions of the Act.
2. Brief facts of the case shows that the assessee is a company engaged in the business of trading of non-alcoholic beverages. It filed its return of income on 30.11.2006 declaring a loss of Rs. 25,80,27,830/-. The issue in this appeal is disallowance of write off excess shortage of the inventory by the assessee. The fact shows that during the year under consideration it was seen that as compared to the earlier year Assessee Company had claimed excess breakage and shortage. In its reply dt. 23/12/2008 the assessee company had given reasons for substantial increase in shortage. As per assessee, approximately 60000 cases were destroyed to floods in Mumbai and against the damages insurance amount of Rs. 1.12 crores were received and shown as other income. Approx. 100000 cases were pulled back by the assessee from market in view of exceptional quality issues. The assessee was asked to adduce evidence and explain nature of these exceptional quality issues. It was further asked as to whether any claim was launched before Hindustan Coca Cola Beverages Pvt. Ltd., the company that manufactures the good for raising the quality issue. In reply dt. 26/12/2008 the assessee changed its stand and claimed that the pulling back of inventory from the market was on account of expiry of the products i.e. best before date [BBD] and that no claim has been made because risk and rewards of the products are attached to the assessee company. Ld AO considered it and found to be unsatisfactory for the reason that firstly, the assessee company claimed that the products were removed from the market due to exceptional quality issue but when it was asked to produce the evidences, it changed its stand and claimed the loss on account of expiry date of the product. The fact of the matter is that in this type of business every year there would be products having expired shelf life. This is a normal shortage, which arises to all the companies engaged in this type of trade. The assessee company did not produce any evidence to show that the risk of stock was its own. It never produced any agreement with its distributors to show that it was obliged to even bear losses on account of sales already made to the distributors for best before date stock. In these circumstances and further with no evidence produced to actually substantiate the claim that these stocks were really called back from the market and in absence of any claim being made on the manufacturing company which is normal in such type of business, the ld AO held that the claim of exceptional inventory loss worth Rs. 20898501/- is not acceptable and addition of Rs. 2089501/- is made to the income of the assessee.
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