M/S HIGH RANGE FOODS PRIVATE LTD,KOCHI vs. ITO CORPORATE WARD 1(3), KOCHI

O R D E R

Per Sanjay Arora, AM

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 Principal Officer of the assessee- company, explains the delay in terms of non-conveyance of the impugned order inasmuch as it’s uploading on the ITBA was not accompanied by a simultaneous uploading on the mobile application as well as a real time alert through SMS, as required by clause 11 of the National Faceless Appeal Scheme (NFAS), so that the order cannot be regarded as served on 28.6.2022, the date of the impugned order and ITANo. 22/Coch/ 2023 (AY 2015-16) High Range Foods Pvt. Ltd. vs. ITO its uploading. It was only later, in December, 2022, while accessing it’s account on the Revenue’s portal that the assessee became aware of the passing of the impugned order and took immediate steps for filing the appeal. The facts averred per the petition, i.e., non-uploading on the mobile application and non-receipt of the alert, are not contested by the Revenue. Under the circumstances, we have no hesitation in accepting the explanation. The delay was accordingly condoned, and the appeal admitted. This effectively also answers the assessee’s Gd. 2 – not pressed before us, assailing the validity of the impugned order on account of its transmission being not as per NFAS; Gd. 1 being general in nature, not warranting any adjudication.

3. The appeal raises two issues, which we shall take up in seriatim. The first and the principal adjustment to the returned income is an addition on account of lapsed liability in respect of refundable deposits. The assessee, a manufacturer of ice-cream and frozen foods, provides, with a view to facilitate sales, deep freezers to it’s distributors and dealers against deposits (from them), refundable on termination of the agency agreement. So, however, the value of the freezer falls by 25% each year. As such, the amount refundable (by the assessee) under the Agreement reduces @ 25% (of the original deposit) for each year or part thereof over which the agreement runs. It is this decline in the amount refundable to it’s vendors by the assessee that the Revenue regards as a lapsed liability, and brings to tax.

4. Before us, the assessee’s case, taking us through the order by the Tribunal in assessee’s own case for the immediately preceding year (i.e., AY 2014-15), in dated 04.08.2022 (PB pgs. 6-12), reading it in its relevant part, reproduced as under, was that the matter has attained finality, i.e., as regards the Tribunal is concerned, with in fact the Revenue, having though challenged 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 Page 2 ITANo. 22/Coch/ 2023 (AY 2015-16) High Range Foods Pvt. Ltd. vs. ITO 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 Bench during hearing as to the basis for the deposit being regarded as a lapsed liability on the basis of time, i.e., the reason for the proportionate reduction in the deposit refundable by the Revenue, would submit that it represents the Revenue’s understanding of the matter. And, that there was, further, no dispute as to the matter under appeal being identical to that for the earlier years, decided by the Tribunal and having since attained finality, pre-empting any further query by the Bench. Secondly, the issue being claimed to be decided by the Tribunal, we shall, where indeed so, be bound to follow the same in view of judicial precedence. Where, however, unable to persuade ourselves to follow the same, the matter is to, stating reasons, be referred for consideration by a larger Bench.

5.2 The first issue before us is, accordingly, qua precedence; it being a common ground during hearing that the issue arising for adjudication on merits, delineated at para 3 above, and toward which we may also reproduce the assessee’s relevant Ground, being the only ground qua the impugned addition, i.e., besides para 3.1 of the assessment order, as under:

ITANo. 22/Coch/ 2023 (AY 2015-16) High Range Foods Pvt. Ltd. vs. ITO “Lapsed liability on freezer deposit 3.1. In the assessment of earlier years in the case of the assessee, the issue involved is addition made on account of lapsed liability in respect of freezer deposits taken by the assessee from its dealers. The assessee-company manufactured ice creams and frozen foods, sold it through distributors from whom it obtained deposits in lieu of installing deep freezers at their premises. It was noted that as per the agreements with the distributors / dealers the value of the freezer falls by 25% every year and part of the year is recognized as whole year. This is to say that if the distributor terminates his agreement with the assessee-company at the end of the 1st year, then he could recover only 3/4th of the payment made as deposit for the freezer. Thus at the end of the fourth year the entire amount deposited for the freezer becomes non-refundable even if agreement is not terminated.” (emphasis, supplied) “3. Without prejudice to the above, CIT(A) is not justified in upholding the order of the Income Tax Officer in bringing to tax proportionate amount of dealer deposit amounting to Rs. 37,28,509 as income for the year on the ground that the deposits became non-refundable 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 assessee’s case for an earlier year, which extracts it’s order in the case of Kreem Foods (P.) Ltd. (ITA No. 597/Coch/2010, dated 08.8.2012), which in turn extracts it’s order in Jojo Frozen Food (P.) Ltd. and Cream Packs (P.) Ltd. (ITA Nos. 654 & 655/Coch/2010, dated 25.5.2012), and which in turn again extracts from the Tribunal’s order in the assessee’s case, also read out during hearing:

ITANo. 22/Coch/ 2023 (AY 2015-16) High Range Foods Pvt. Ltd. vs. ITO “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”. The Tribunal’s order for AY 2011-12 and, indeed, that followed by it, is again not the parent order; the latter again referring to and following another order by it’s Division Bench in the assessee’s case, details of which are not specified. While this clarifies the issue arising for adjudication on merits to be the same as that for the current year, removing the confusion arising due to reference to s. 41(1), clearly inapplicable, by the Tribunal for AY 2014-15, even as it purportedly follows the orders for the earlier years, which bear no reference to s. 41(1), it does not inform the specific reason for the decision. That is, why, in it’s view, no income in respect of vendor’s deposits would arise during the currency of the Agreement as a part of it, in terms of the Agreement itself, becomes non-refundable as at each year-end due to diminution in the value of the freezers. Without doubt, cessation of liability, which, as the assessment order states – with there being no dispute on primary facts, is irrespective of the termination of Agreement, would lead to accrual of income to that extent (as a part of trading receipt, assessable as profit or gains of business u/s. 28(i) of the Act). And which is only understandable inasmuch as the diminution in the value of the equipment and, correspondingly, in the security deposit amount refundable, which thus inures to the assessee in his own right, has nothing to do with the termination of the Agreement, even as the amount, to the extent it is, is refundable only thereat, which 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 ITANo. 22/Coch/ 2023 (AY 2015-16) High Range Foods Pvt. Ltd. vs. ITO 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 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).

4. 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.

5. The learned Departmental Representative supported the orders of the Income Tax Authorities.

6. 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 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 Page 6 ITANo. 22/Coch/ 2023 (AY 2015-16) High Range Foods Pvt. Ltd. vs. ITO 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 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 I.T.A. Nos. 73- 79/Coch/2014 Page 7 ITANo. 22/Coch/ 2023 (AY 2015-16) High Range Foods Pvt. Ltd. vs. ITO (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 Income6-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 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.

7. 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.”

ITANo. 22/Coch/ 2023 (AY 2015-16) High Range Foods Pvt. Ltd. vs. ITO 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.” (emphasis, ours) Why we wonder the parent order, which is, as stated, in the assessee’s own case, not adduced, relying instead on the orders in the case of other assessees following the same? And this happens time and again, as in the appellate proceedings before the Tribunal for AY 2011-12, AY 2014-15, and then again for AY 2015-16. Be that as it may, the foregoing confirms what stands stated hereinbefore, i.e., qua the contents of the Tribunal’s orders; reference to which is only toward precedence.

5.3 Continuing with our examination of the issue of precedence, we find that the parent order by the Tribunal, constituting the precedent, is unspecified. Could an unspecified order be regarded as a judicial precedent? We are conscious of it being stated that the matter stands carried to the Hon'ble High Court, though was not pressed and, in fact, withdrawn, on account of low tax-effect. There is no reference either to the order appealed against by the Revenue, or to the corresponding appeal before the Hon’ble Court, stated as withdrawn, much less the question of law admitted, only on the basis of which the issue of precedence could be decided. Needless to add, there are no findings in the matter in any of the orders by the Tribunal cited per 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 Page 9 ITANo. 22/Coch/ 2023 (AY 2015-16) High Range Foods Pvt. Ltd. vs. ITO 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 a liability deduction for which stands already allowed to the assessee in the computation of its business income, i.e., upon the liability in its respect, inter alia, ceasing. True, mere non-mention or wrong mention of the provision of law, as long as there is power for the relevant action, would not defeat it in law. The principle has no application here inasmuch as the finding is rather to the contrary, i.e., of a provision being not applicable. It is nobody’s case that the section cited in the ‘precedent’ is wrong, nor could be inasmuch as, as afore-noted, there is nothing therein (or in the orders further relied upon) stating the reason for the non-maintainability of the applicable provision, i.e., s. 28(i).

5.4 Continuing further, even as we have, in the absence of any reason for it’s decision, i.e., of accrual of income being only on the termination of the agreement, stated of absence of a ratio decidendi, which only constitutes the judicial precedent and is binding (Sree Bhagavathi Textiles Ltd. v. CIT [2000] 244 ITR 496 (Ker)), it is, strictly speaking, not the case. Though generally regarded as it’s ratio, the reason for the decision, absent in the instant case, may not necessarily be the ratio of a decision, which is the principle or the statement of law on which the decision is founded. As explained in The Mavilayi Service Cooperative Bank Ltd. & Ors. v. CIT [2021] 431 ITR 1 (SC), the statement of the principles of law applicable to the legal problems disclosed by the facts alone that is the binding ratio of a case; the judgment based on the combined effect of the statements of the principle of law applicable to the material facts of the case cannot be described as the ratio decidendi of a Judgment. Page 10 ITANo. 22/Coch/ 2023 (AY 2015-16) High Range Foods Pvt. Ltd. vs. ITO The ratio, it explained with reference to the decision in Citizen Co-operative Society Ltd. v. Asst. CIT [2017] 397 ITR 1 (SC), cited before it, would not depend upon the conclusion arrived at on the facts in that case; a case being an authority for what it actually decides in law and not for what may seem to logically follow from it. It, accordingly, applying the ratio of the said decision, arrived at a different conclusion. The discussion therein in the matter is elucidative. Reference in this context may also profitably be made to the recent order by this Bench in The Karannur Service Co-op. Bank Ltd. v. ITO (in dated 16/11/2023), wherein the Tribunal, while arriving 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 withthe 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 6. There is, we observe, no dispute on the primary facts. That is, the refundable deposits, to secure the assessee’s interest, are accepted from it’s dealer by the assessee on provision of equipment to them, which is though subject to depreciation. Though refundable only on termination of the agreement, the amount refundable Page 11 ITANo. 22/Coch/ 2023 (AY 2015-16) High Range Foods Pvt. Ltd. vs. ITO reduces at a definite rate for each year (or part thereof) of the agreement, corresponding with the rate of depreciation, i.e. @25% p.a. The amount refundable thus reduces at a defined rate each passing year. This ascertained reduction in the amount refundable and, thus, the ceasing of the assessee’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, viz. Keshav Mills Ltd. vs. CIT (1953) 23 ITR 230 (SC) Turner Morrison & Co. Ltd. v. CIT [1953] 23 ITR 152 (SC) E.D.Sassoon & Co. Ltd. v. CIT[1954] 26 ITR 27 (SC) Morvi Industries Ltd. v. CIT[1971] 82 ITR 835 (SC) R.B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570 (SC) CIT v. Excel Industries Ltd. [2013] 358 ITR 295 (SC) 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 [1979] 116 ITR 1 (SC)). 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, as it appears, in assessee’s view, coincided with the termination of agreement, which represents the fundamental flaw in assessee’s case. It is not the amount refundable, which is only on the said termination, but that non-refundable, 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 Page 12 ITANo. 22/Coch/ 2023 (AY 2015-16) High Range Foods Pvt. Ltd. vs. ITO 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 rule 8D(2)(ii) and 8D(2)(iii) respectively. The assessee’s case is that the interest allocated, i.e., Rs.30,90,104, includes interest on term loan, which is incurred wholly in respect of taxable income. Even as the assessee relies for the purpose on Geojit Investment Services vs. Asst. CIT (ITA No. 261/Coch/2014 dated 28.08.2014), the matter admits of no two views; that being very premise of s. 14A, i.e., to isolate the expenditure, direct or indirect, incurred in relation to taxable income, disallowing the balance. Until and unless there is diversion of funds, of which there is no whisper, the term loan, as indeed working capital loan/advance, are for business purposes, would not stand to be allocated, which is only qua common expenses. The assessee has also claimed that it has sufficient funds of it’s own, i.e. vis-a-vis the investment yielding non-taxable income, being at an average of Rs.305 lakhs and Rs.19 lakhs respectively, and that therefore no part of the tax-free investment could be regarded as financed from interest bearing borrowings. The matter is completely factual. It is only in the absence of the assessee exhibiting it’s case with reference to facts and figures that the average formula prescribed u/r. 8D comes into play. The comparison as made is misplaced. The term loan, for example, does not finance the fixed assets to the Page 13 ITANo. 22/Coch/ 2023 (AY 2015-16) High Range Foods Pvt. Ltd. vs. ITO extent of 100%, so that the balance is by own capital, as indeed the repayment of the term loan, increasing the share self-financed to that extent. Similarly, for the working capital borrowing, which also entails margin money. Money has no bones and, therefore, it is only the fund flow 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 of the Act. We decide accordingly.

ITANo. 22/Coch/ 2023 (AY 2015-16) High Range Foods Pvt. Ltd. vs. ITO Copy to: 6. The Appellant 7. The Respondent 8. The Pr. CIT concerned 9. The Sr. DR, ITAT, Cochin 10. Guard File By Order Assistant Registrar ITAT, Cochin ITANo. 22/Coch/ 2023 (AY 2015-16) High Range Foods Pvt. Ltd. vs. ITO IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN Before Shri Sanjay Arora, Accountant Member and Shri Manomohan Das, Judicial Member (Assessment Year: 2015-16) High Range Foods Pvt. Ltd. The Income Tax Officer 28/3030, Cheruparambath Road Corporate Ward – 1(3) vs. Kadavanthra, Kochi 682020 Kochi [PAN:AAACH6076L] (Appellant) (Respondent) Assessee by: Shri P.M. Veeramani, CA Revenue by: Smt. J.M. Jamuna Devi, Sr. D.R. Date of Hearing: 11.09.2023 Date of Pronouncement: 11.12.2023 O R D E R

Per Sanjay Arora, AM

5.2 The first issue before us is, accordingly, qua precedence; it being a common ground during hearing that the issue arising for adjudication on merits, delineated at para 3 above, and toward which we may also reproduce the assessee’s relevant Ground, being the only ground qua the impugned addition, i.e., besides para 3.1 of the assessment order, as under: Page 19 ITANo. 22/Coch/ 2023 (AY 2015-16) High Range Foods Pvt. Ltd. vs. ITO “Lapsed liability on freezer deposit 3.1. In the assessment of earlier years in the case of the assessee, the issue involved is addition made on account of lapsed liability in respect of freezer deposits taken by the assessee from its dealers. The assessee-company manufactured ice creams and frozen foods, sold it through distributors from whom it obtained deposits in lieu of installing deep freezers at their premises. It was noted that as per the agreements with the distributors / dealers the value of the freezer falls by 25% every year and part of the year is recognized as whole year. This is to say that if the distributor terminates his agreement with the assessee-company at the end of the 1st year, then he could recover only 3/4th of the payment made as deposit for the freezer. Thus at the end of the fourth year the entire amount deposited for the freezer becomes non-refundable even if agreement is not terminated.” (emphasis, supplied) “3. Without prejudice to the above, CIT(A) is not justified in upholding the order of the Income Tax Officer in bringing to tax proportionate amount of dealer deposit amounting to Rs. 37,28,509 as income for the year on the ground that the deposits became non-refundable 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 assessee’s case for an earlier year, which extracts it’s order in the case of Kreem Foods (P.) Ltd. (ITA No. 597/Coch/2010, dated 08.8.2012), which in turn extracts it’s order in Jojo Frozen Food (P.) Ltd. and Cream Packs (P.) Ltd. (ITA Nos.

ITANo. 22/Coch/ 2023 (AY 2015-16) High Range Foods Pvt. Ltd. vs. ITO 654 & 655/Coch/2010, dated 25.5.2012), and which in turn again extracts from the Tribunal’s order in the assessee’s case, also read out during hearing: “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”. The Tribunal’s order for AY 2011-12 and, indeed, that followed by it, is again not the parent order; the latter again referring to and following another order by it’s Division Bench in the assessee’s case, details of which are not specified. While this clarifies the issue arising for adjudication on merits to be the same as that for the current year, removing the confusion arising due to reference to s. 41(1), clearly inapplicable, by the Tribunal for AY 2014-15, even as it purportedly follows the orders for the earlier years, which bear no reference to s. 41(1), it does not inform the specific reason for the decision. That is, why, in it’s view, no income in respect of vendor’s deposits would arise during the currency of the Agreement as a part of it, in terms of the Agreement itself, becomes non-refundable as at each year-end due to diminution in the value of the freezers. Without doubt, cessation of liability, which, as the assessment order states – with there being no dispute on primary facts, is irrespective of the termination of Agreement, would lead to accrual of income to that extent (as a part of trading receipt, assessable as profit or gains of business u/s. 28(i) of the Act). And which is only understandable inasmuch as the diminution in the value of the equipment and, correspondingly, in the security deposit amount refundable, which thus inures to the assessee in his own right, has nothing to do with the termination of the Agreement, even as the amount, to the extent it is, is refundable only thereat, which 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 ITANo. 22/Coch/ 2023 (AY 2015-16) High Range Foods Pvt. Ltd. vs. ITO 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 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).

4. 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.

5. The learned Departmental Representative supported the orders of the Income Tax Authorities.

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 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.

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.” (emphasis, ours) Why we wonder the parent order, which is, as stated, in the assessee’s own case, not adduced, relying instead on the orders in the case of other assessees following the same? And this happens time and again, as in the appellate proceedings before the Tribunal for AY 2011-12, AY 2014-15, and then again for AY 2015-16. Be that as it may, the foregoing confirms what stands stated hereinbefore, i.e., qua the contents of the Tribunal’s orders; reference to which is only toward precedence.

5.3 Continuing with our examination of the issue of precedence, we find that the parent order by the Tribunal, constituting the precedent, is unspecified. Could an unspecified order be regarded as a judicial precedent? We are conscious of it being stated that the matter stands carried to the Hon'ble High Court, though was not pressed and, in fact, withdrawn, on account of low tax-effect. There is no reference either to the order appealed against by the Revenue, or to the corresponding appeal before the Hon’ble Court, stated as withdrawn, much less the question of law admitted, only on the basis of which the issue of precedence could be decided. Needless to add, there are no findings in the matter in any of the orders by the Tribunal cited per 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 Page 25 ITANo. 22/Coch/ 2023 (AY 2015-16) High Range Foods Pvt. Ltd. vs. ITO 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 a liability deduction for which stands already allowed to the assessee in the computation of its business income, i.e., upon the liability in its respect, inter alia, ceasing. True, mere non-mention or wrong mention of the provision of law, as long as there is power for the relevant action, would not defeat it in law. The principle has no application here inasmuch as the finding is rather to the contrary, i.e., of a provision being not applicable. It is nobody’s case that the section cited in the ‘precedent’ is wrong, nor could be inasmuch as, as afore-noted, there is nothing therein (or in the orders further relied upon) stating the reason for the non-maintainability of the applicable provision, i.e., s. 28(i).

5.4 Continuing further, even as we have, in the absence of any reason for it’s decision, i.e., of accrual of income being only on the termination of the agreement, stated of absence of a ratio decidendi, which only constitutes the judicial precedent and is binding (Sree Bhagavathi Textiles Ltd. v. CIT [2000] 244 ITR 496 (Ker)), it is, strictly speaking, not the case. Though generally regarded as it’s ratio, the reason for the decision, absent in the instant case, may not necessarily be the ratio of a decision, which is the principle or the statement of law on which the decision is founded. As explained in The Mavilayi Service Cooperative Bank Ltd. & Ors. v. CIT [2021] 431 ITR 1 (SC), the statement of the principles of law applicable to the legal problems disclosed by the facts alone that is the binding ratio of a case; the judgment based on the combined effect of the statements of the principle of law applicable to the Page 26 ITANo. 22/Coch/ 2023 (AY 2015-16) High Range Foods Pvt. Ltd. vs. ITO material facts of the case cannot be described as the ratio decidendi of a Judgment. The ratio, it explained with reference to the decision in Citizen Co-operative Society Ltd. v. Asst. CIT [2017] 397 ITR 1 (SC), cited before it, would not depend upon the conclusion arrived at on the facts in that case; a case being an authority for what it actually decides in law and not for what may seem to logically follow from it. It, accordingly, applying the ratio of the said decision, arrived at a different conclusion. Reference in this context may also profitably be made to the recent order by this Bench in The Karannur Service Co-op. Bank Ltd. v. ITO (in 249/Coch/2020, dated 16/11/2023), wherein the Tribunal, 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 6. There is, we observe, no dispute on the primary facts. That is, the refundable deposits, to secure the assessee’s interest, are accepted from it’s dealer by the assessee on provision of equipment to them, which is though subject to depreciation. Though refundable only on termination of the agreement, the amount refundable Page 27 ITANo. 22/Coch/ 2023 (AY 2015-16) High Range Foods Pvt. Ltd. vs. ITO reduces at a definite rate for each year (or part thereof) of the agreement, corresponding with the rate of depreciation, i.e. @25% p.a. The amount refundable thus reduces at a defined rate each passing year. This ascertained reduction in the amount refundable and, thus, the ceasing of the assessee’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, viz. Keshav Mills Ltd. vs. CIT (1953) 23 ITR 230 (SC) Turner Morrison & Co. Ltd. v. CIT [1953] 23 ITR 152 (SC) E.D.Sassoon & Co. Ltd. v. CIT[1954] 26 ITR 27 (SC) Morvi Industries Ltd. v. CIT[1971] 82 ITR 835 (SC) R.B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570 (SC) CIT v. Excel Industries Ltd. [2013] 358 ITR 295 (SC) 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 [1979] 116 ITR 1 (SC)). 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, as it appears, in assessee’s view, coincided with the termination of agreement, which represents the fundamental flaw in assessee’s case. It is not the amount refundable, which is only on the said termination, but that non-refundable, 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 Page 28 ITANo. 22/Coch/ 2023 (AY 2015-16) High Range Foods Pvt. Ltd. vs. ITO 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 rule 8D(2)(ii) and 8D(2)(iii) respectively. The assessee’s case is that the interest allocated, i.e., Rs.30,90,104, includes interest on term loan, which is incurred wholly in respect of taxable income. Even as the assessee relies for the purpose on Geojit Investment Services vs. Asst. CIT (ITA No. 261/Coch/2014 dated 28.08.2014), the matter admits of no two views; that being very premise of s. 14A, i.e., to isolate the expenditure, direct or indirect, incurred in relation to taxable income, disallowing the balance. Until and unless there is diversion of funds, of which there is no whisper, the term loan, as indeed working capital loan/advance, are for business purposes, would not stand to be allocated, which is only qua common expenses. The assessee has also claimed that it has sufficient funds of it’s own, i.e. vis-a-vis the investment yielding non-taxable income, being at an average of Rs.305 lakhs and Rs.19 lakhs respectively, and that therefore no part of the tax-free investment could be regarded as financed from interest bearing borrowings. The matter is completely factual. It is only in the absence of the assessee exhibiting it’s case with reference to facts and figures that the average formula prescribed u/r. 8D comes into play. The comparison as made is misplaced. The term loan, for example, does not finance the fixed assets to the Page 29 ITANo. 22/Coch/ 2023 (AY 2015-16) High Range Foods Pvt. Ltd. vs. ITO extent of 100%, so that the balance is by own capital, as indeed the repayment of the term loan, increasing the share self-financed to that extent. Similarly, for the working capital borrowing, which also entails margin money. Money has no bones and, therefore, it is only the fund flow 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 of the Act. We decide accordingly.