The Cochin Income Tax Appellate Tribunal (ITAT) has recently held that the security deposit for the freezer was taxable only on the year of termination of distributor agreement.
The assessee Snofield Foods Pvt. Ltd. is engaged in manufacturing and sale of ice creams and other frozen foods. After completing the original assessment the assessee Assessing officer (AO) noted that the assessee has shown liability of Rs.3, 73, 26,241/- towards deposits and advances from his dealers. The AO directed the assessee to furnish complete details of the same. Thereafter assessee furnished a list containing only names and amounts of freezer deposits received during the year and freezer deposit refund amounting to Rs.5,56,526/-. It was explained that assessee was into manufacturing and distribution of ice creams and frozen foods and sells the products through its distributors.
After considering the explanation of the assessee the assessing officer added the sum of Rs.3,73,26,241/- which was shown as advances received from dealers as unproved liability. Against the order assessee filed an appeal before ITAT.The ITAT set-aside the order of CIT(A) and restored the same to the file of the Assessing Officer.
Thereafter after verifying the file of the assessee the assessing officer again made some addition upon the assessee’s income and completed the assessment.
Further the aggrieved assessee filed an appeal before the first appellate authority CIT (A).Then the CIT (A) allowed the appeal and against this order the revenue filed another appeal before ITAT.
P.M. Veermani counsel for the assessee submits that “ no income can accrue to the assessee by virtue of clause 7 of the freezer agreement referred by the AO, and that the deductions made by the assessee from the freezer deposits would accrue as income to the assessee only on termination of the freezer agreements”.
J.M. Jamuna Devi counsel for the revenue supported the decision of the lower authorities.
After considering the contentions of the both parties the division bench of the ITAT comprising the George George K. (Judicial Member) and Padmavathy S. (Accountant Member) dismiss the appeal filed by the revenue and held that security deposit is taxable only on the year of termination of the agreement between the assessee and the dealer/distributor.
Therefore the deductions made by the assessee from the freezer deposits would accrue as an income to the assessee only on termination of the agreement.
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