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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri Chandra Poojari, AM & Shri George George K, JM
This appeal at the instance of the assessee is directed against CIT(A)’s order dated 22.11.2021. The relevant assessment year is 2014-2015.
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
. M/s.High Range Foods Private Limited. 3. As regards the above issue, the assessee is a private limited company engaged in the manufacture of Ice-cream and frozen foods. The Assessing Officer had added a sum of Rs.43,99,905 u/s 41(1) of the I.T.Act in respect of freezer deposit on proportionate basis as lapsed liability. The view taken by the A.O. was confirmed by the CIT(A).
Aggrieved, the assessee is in appeal before the Tribunal. The learned AR submitted that the issue in question is decided in favour of the assessee by the order of the Tribunal in assessee’s own case in (order dated 16.11.2016) for assessment year 2011-2012.
The learned Departmental Representative supported the orders of the Income Tax Authorities.
We have heard rival submissions and perused the material on record. On identical facts, the Tribunal in assessee’s own case (supra) by following the earlier Tribunal order, had held that addition u/s 41(1) of the I.T.Act is not warranted. The relevant finding of the Tribunal for assessment year 2011-2012 (supra), reads as follows:-
“3.4 We have heard the rival parties and perused the material on record. In assessee’s own case, the division bench of the Tribunal have decided the matter in favour of the assessee, by following the earlier orders of the Tribunal. The relevant findings of the Tribunal in assessee’s own case read as follows: “4. We have considered the rival submissions on either side and relevant material on record. The issue arises is whether the deposits in respect of the freezer has to be considered as income of the assessee or not. As rightly submitted by the Ld. AR of the assessee that this issue was considered by the Tribunal in one of . M/s.High Range Foods Private Limited. the assessees for the earlier assessment year and found that such deposits cannot be considered as income of the assessee. For the sake of convenience, we extract below the order dated 08.08.2012 passed by the Tribunal in the case of M/s. Kreem Foods (P) Ltd. In relating to assessment year 2007-08:- “3. At the time of hearing, the Ld. Counsel for the assessee submitted a copy of the order dated 25-05-2012 passed by this Bench in the case of Jojo Frozen Food (P) Ltd. and Cream Packs (P) Ltd. in I.T.A. Nos. 655 & 654/Coch/2010 wherein the Tribunal has considered an identical issue and decided the same in favour of the assessee. For the sake of convenience, we extract below the operative 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 terminated. In other words it is not a debt owned by the assessee. Hence, under the above facts and circumstances of the case, this issue to be decided in favour of the assessee by setting aside the orders of the authorities. Besides the assessee never treated this as income in the books. The assessee consistently holding it so as the amount attached with a liability to refund. The assessee never admitted this amount as income in the books. Only accrued income arose to the assessee during the relevant previous year also can be brought to tax under the Income-tax provisions which is a settled law. In other words, there must be a debt owned to the assessee and until this is created in favour of the assessee as a debt due to the assessee, it cannot be said as income accrued. Hence, the decision relied by the Jr. D.R. in the case of CIT vs. T.V. Sundaram Iyengar and Sons cited supra, is clearly distinguishable on facts. In that case, assessee itself . M/s.High Range Foods Private Limited. admitted this as income as per the book entries. Hence, it is distinguishable. The decision relied by the ld. counsel for the assessee in the case of CIT vs. Realest Builders and Services Ltd. – 307 ITR 202 (SC) in addition to the following cases – (a) Siddheswar Sahakari Sakhar Karkhana Ltd. vs. CIT & Others – 270 ITR 1 (SC); (b) Bharat Petroleum Corporation Ltd. vs. CIT – 202 ITR 492 (Cal). (c) Sugauli Sugar Works (Impugned) Ltd. – 236 ITR 518 (SC); 5 (d) Star India P. Ltd. vs. Addl. CIT – 311 ITR (ST) 235 (Mumbai). (e) Govind Prasad Prabhu Nath – 171 ITR 417 (All.); (f) Hindustan Housing and Land Development Trust Ltd. – 161 ITR 524 (SC); (g) Ace Builders Pvt. Ltd. vs. CIT – 225 ITR 746 (SC); (h) Mantra Tanta Yantra Vigyan vs. CIT – 300 ITR 140 (Raj.); and (i) Guardian Industries Corpn. vs. Assistant Director of Income-tax – 7 DTR 594 (Del.). are also supports the plea of the assessee. The accrual has been dealt with in the relied judgments. Hence, under the given set of facts and circumstances, we by relying on the above decisions set aside the orders of the authorities and allow this ground of the assessee as it cannot be treated as income for the year relevant under appeal.”
7. Since the co-ordinate bench has already taken a view on identical issue, by following the said decision, we hold that the deposits collected from vendors cannot be considered 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 . M/s.High Range Foods Private Limited. 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 infirmity in the order of the Ld. CIT(A) and accordingly, the same is confirmed.
In the result, all the appeals filed by the revenue stand dismissed.” 3.5 Admittedly, the issue in question is covered in favour of the assessee by the order of the division bench of the Tribunal, cited supra. Both the parties have submitted that the issue is pending for adjudication before the Hon’ble jurisdictional High Court. No contrary High Court judgment has been cited. Hence, respectfully following the order of the division bench of the Tribunal, in assessee’s own case ( supra), we uphold the order of the first appellate authority as correct and in accordance with law and no interference is called for. It is ordered accordingly.”
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.
Disallowance of belated payment of employees’ contribution to PF & ESI amounting to Rs.27,220
For the assessment year 2014-2015, the employees’ contribution to PF and ESI was disallowed u/s 36(1)(va) of the . M/s.High Range Foods Private Limited. I.T.Act, for not making payments within the due date prescribed under the relevant Acts.
Aggrieved, the assessee preferred appeal before the first appellate authority. The CIT(A) dismissed the appeal of the assessee.
Aggrieved, the assessee has filed the present appeal before the Tribunal. The learned AR relied on the submissions made before the Income Tax Authorities.
The learned Departmental Representative submitted that the issue in question is squarely covered by the judgment of the Hon’ble jurisdictional High Court in the case of CIT v. Merchem Limited (supra) and in the case of Popular Vehicles & Services Private Limited v. CIT (supra).
We have heard the rival submissions and perused the material on record. The assessee is claiming deduction of delayed remittance of employees’ contribution to PF and ESI, stating that the same has been deposited before the due date of filing return u/s 139(1) of the I.T.Act. However, the Hon’ble jurisdictional High Court in the case of CIT v. Merchem Limited (supra) and in the case of Popular Vehicles & Services Private Limited v. CIT (supra) had clearly held that employees’ share of PF and ESI, which was not deposited within the due date under the respective Acts, is not an allowable deduction u/s 36(1)(va) of the I.T.Act. Therefore, following the judgments of the Hon’ble jurisdictional High Court in the case of CIT v.
. M/s.High Range Foods Private Limited. Merchem Limited (supra) and Popular Vehicles & Services Private Limited v. CIT (supra), we hold that since the employees’ contribution to PF and ESI was not deposited within the due date specified in the relevant Acts, the same cannot be allowed as a deduction u/s 36(1)(va) of the I.T.Act. It is ordered accordingly.
In the result, the appeal filed by the assessee is partly allowed. Order pronounced on this 04th day of August, 2022.