Jojo Frozen Foods P.Ltd, Cochin V. DCIT, Ernakulam

ITA 655/COCH/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61515 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 5 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 08-12-2010
• Court: TRIBUNAL
• Department Lawyers: PRADUMNA KUMAR SINCH
• Assessee Lawyers: A S NARAYANAMOORTHY
• Keywords: Capital asset; Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NOS. 655 & 654/COCH/2010 ASSESSMENT YEAR : 2007-08 1.JOJO FROZEN FOODS (P) LTD., D.NO.XXVIII/3030, CHERUPARAMPATHU ROAD, KADAVANTHRA, KOCHI. [PAN: AAACJ 8843K] 2. CREAM PACKS (P) LTD., D.NO.XXVIII/3030, CHERUPARAMPATHU ROAD, KADAVANTHRA, KOCHI. [PAN: AAACC 9368C] VS. THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-1, ERNAKULAM. (ASSESSEE-APPELLANT) (REVENUE- RESPONDENT) ASSESSEE BY SHRI A.S.NARAYANAMOORTHY, CA REVENUE BY SHRI PRADUMNA KUMAR SINCH, JR. DR DATE OF HEARING 02&03/05/2012 DATE OF PRONOUNCEMENT 25/05/2012 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THESE TWO APPEALS FILED BY THE RESPECTIVE ASSESSES ARE DIRECTED AGAINST THE SEPARATE ORDERS OF THE LD. CIT(A)-I, KOCHI IN THEIR RESPECTI VE HANDS AND THEY RELATE TO THE ASSESSMENT YEAR 2007-08. SINCE THE ISSUES URGED IN THESE TWO APPEALS ARE IDENTICAL IN NATURE, THEY ARE BEING DISPOSED OF BY THIS COMMON O RDER. 2. THE GROUNDS RAISED BY THE ASSESSEES ARE RELATED TO THE FOLLOWING TWO ISSUES. I.T.A.655 &654/COCH/2010 2 A) WHETHER THE LD. CIT(A) IS JUSTIFIED IN CONFIRMI NG THAT THE FREEZER DEPOSIT RECEIVED FROM THE VARIOUS DEALERS SHOULD BE ASSESS ED AS INCOME OF THE ASSESSEE. B) WHETHER THE LD. CIT(A) IS JUSTIFIED IN CONFIRM ING THAT THE GAIN ARISING OUT OF THE SALE OF LAND IS ASSESSABLE AS BUSINESS INCOME. 3. THE FACTS NECESSARY FOR THE DISPOSAL OF THE ISSU ES ARE STATED IN BRIEF. THE ASSESSEES HEREIN ARE CARRYING ON THE BUSINESS OF MANUFACTURE AND SALE OF ICE CREAMS. THEY SELL THEIR PRODUCTS THROUGH VARIOUS TYPES OF AGENTS, VIZ., VEN DORS, DISTRIBUTORS ETC. BY DULY ENTERING INTO AN AGREEMENT WITH THEM. IT IS IN THE COMMON K NOWLEDGE OF EVERYBODY THAT ICE CREAM PRODUCTS HAVE TO KEPT IN DEFREEZE CONDITION I N ORDER TO AVOID MELTING OF THE SAME. ACCORDING TO THE AGREEMENT ENTERED WITH THE VENDORS , THE ASSESSEES HAD TO SUPPLY DEEP FREEZER, FREEZERS AND FRIDGES OF REQUIRED SIZES TO THE VENDORS, SUBJECT TO THE PAYMENT OF A DEPOSIT. THE SAID DEPOSIT AMOUNT WAS EQUIVALENT T O THE COST OF FREEZER SUPPLIED TO THE VENDORS. THE SAID DEPOSIT WOULD BE RETURNED TO TH E VENDOR ON TERMINATION OF THE AGENCY AGREEMENT AND ON RETURNING THE FREEZERS. HOWEVER, AS PER CLAUSE 7 OF THE AGREEMENT, THE ASSESSEE, UPON RETURNING OF THE FREEZERS TO IT, SHA LL DEDUCT THE COST OF WEAR AND TEAR OF THE FREEZER MACHINE AGAINST THE DEPOSIT AMOUNT AND THE BALANCE ONLY WOULD BE RETURNED TO THE VENDORS. THE COST OF WEAR AND TEAR WAS CALCULATED @ 25% OF THE VALUE PER ANNUM OR PART THEREOF. IN VIEW OF THE ABOVE SAID CLAUSE, THE AO TOOK THE VIEW THAT THE DEPOSITS COLLECTED FROM THE VENDORS IN RESPECT OF FREEZERS H AS TO CONSIDERED AS THE INCOME OF THE ASSESSEE CALCULATED AT THE RATE OF 25% OF THE VALUE OF THE MACHINES ON PASSAGE OF EVERY YEAR. ACCORDINGLY, THE AO COMPUTED THE AMOUNT THA T SHOULD BE TREATED AS THE INCOME OF THE ASSESSEE AT RS. 45,32,575/- IN THE HANDS OF M/S JOJI FROZEN FOODS AND AT RS.24,97,737/- IN THE CASE OF M/S CREAM PACKS (P) L TD AND ADDED THE SAME TO THE TOTAL INCOME OF THE RESPECTIVE ASSESSEES. THE SAID ADDIT IONS WERE CONFIRMED BY THE LD. CIT(A) IN THEIR RESPECTIVE HANDS. 4. BOTH THE ASSESSEES HAD SOLD LANDS DURING TH E YEAR UNDER CONSIDERATION AND THEY OFFERED THE GAIN ARISING THEREON UNDER THE HEAD INC OME FROM CAPITAL GAINS. THE ASSESSING OFFICER NOTICED THAT THE OBJECT CLAUSE OF MEMORANDU M AND ARTICLES OF ASSOCIATION OF I.T.A.655 &654/COCH/2010 3 BOTH THE COMPANIES INCLUDED A CLAUSE RELATING TO CA RRYING ON THE BUSINESS OF AGENCY FOR REAL ESTATE. ACCORDINGLY, THE ASSESSING OFFICER T OOK THE VIEW THAT THE ACTIVITY OF SALE OF LAND SHOULD BE CONSIDERED AS THE BUSINESS ACTIVITIE S OF THE ASSESSEES HEREIN AND ACCORDINGLY ASSESSED THE GAIN ARISING ON SALE OF LA ND UNDER THE HEAD INCOME FROM BUSINESS. THE SAID ACTION OF THE AO WAS ALSO CONF IRMED BY THE LD. CIT(A). AGGRIEVED BY THE ORDERS PASSED BY LD CIT(A), BOTH THE ASSESS EES ARE IN APPEAL BEFORE US. 5. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEES SUBMITTED THAT THE CO- ORDINATE BENCH OF THE TRIBUNAL HAD CONSIDERED IDENT ICAL ISSUES IN THE CASE OF HIGH RANGE FOODS (P) LTD. IN I.T.A. NO. 652/COCH/2010 AND THE TRIBUNAL, VIDE ITS ORDER DATED 12 TH AUGUST, 2011, HAS HELD THAT THE DEPOSITS RECEIVED F ROM THE DEALERS CANNOT BE CONSIDERED AS INCOME. ON THE SECOND ISSUE, THE TRIBUNAL HAS HELD THAT THE SALE OF LAND SHOULD ONLY BE CONSIDERED AS TRANSFER OF A CAPITAL ASSET AND HE NCE, THE GAIN ARISING ON SUCH TRANSFER IS ASSESSABLE AS INCOME FROM CAPITAL GAINS ONLY. THE L D. COUNSEL FOR THE ASSESSEES ALSO PRODUCED A COPY OF THE ORDER OF THE TRIBUNAL, REFER RED SUPRA. 6. ON THE OTHER HAND, THE LD D.R STRONGLY SUPPO RTED THE ORDERS OF LD CIT(A). 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 FR EEZER FROM THE CONCERNED VENDORS. THE FREEZERS ARE REQUIRED TO SAFE KEEP TH E EDIBLE ICE-CREAMS. THEY ARE REQUIRED FOR THE PURPOSE OF BUSINESS. THE SMA LL 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 COMPENSATI ON OF THE SPREAD-OVER PERIOD. THEY ARE ATTACHED WITH A LIABILITY. THE ACCRUAL COMES ONLY ON TERMINATION OF AGREEMENT. THE BUSINESS NECESSITY R EQUIRES CORDIAL RELATIONSHIP WITH VENDORS. THE ASSESSEE CANNOT TRE AT THESE TWO AMOUNTS AS RECEIPTS IN THE NATURE OF INCOME UNLESS THE SO-CAL LED AGREEMENT TERMINATED. IN OTHER WORDS IT IS NOT A DEBT OWNED BY THE ASSESSEE . HENCE, UNDER THE ABOVE I.T.A.655 &654/COCH/2010 4 FACTS AND CIRCUMSTANCES OF THE CASE, THIS ISSUE TO BE DECIDED IN FAVOUR OF THE ASSESSEE BY SETTING ASIDE THE ORDERS OF THE AUTHOR ITIES. 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 RE LEVANT PREVIOUS YEAR ALSO CAN BE BROUGHT TO TAX UNDER THE INCOME-TAX PROVISI ONS 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 RELIE D BY THE JR. D.R. IN THE CASE OF CIT VS. T.V. SUNDARAM IYENGAR AND SONS CITED SU PRA, IS CLEARLY DISTINGUISHABLE ON FACTS. IN THAT CASE, ASSESSEE ITSELF ADMITTED THIS AS INCOME AS PER THE BOOK ENTRIES. HENCE, IT IS DISTINGUISH ABLE. THE DECISION RELIED BY THE LD. COUNSEL FOR THE ASS ESSEE 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); (D) STAR INDIA P. LTD. VS. ADDL. CIT 3 11 ITR (ST) 235 (MUMBAI). (E) GOVIND PRASAD PRABHU NATH 171 ITR 4 17 (ALL.); (F) HINDUSTAN HOUSING AND LAND DEVELOPME NT TRUST LTD. 161 ITR 524 (SC); (G) ACE BUILDERS PVT. LTD. VS. CIT 225 ITR 746 (SC); (H) MANTRA TANTA YANTRA VIGYAN VS. CIT 3 00 ITR 140 (RAJ.); AND (I) GUARDIAN INDUSTRIES CORPN. VS. ASSIS TANT DIRECTOR OF INCOME-TAX 7 DTR 594 (DEL.). ARE ALSO SUPPORTS THE PLEA OF THE ASSESSEE. THE AC CRUAL HAS BEEN DEALT WITH IN THE RELIED JUDGEMENTS. HENCE, UNDER THE GIVEN SET O F FACTS AND CIRCUMSTANCES, WE BY RELYING ON THE ABOVE DECISIONS SET ASIDE THE ORDERS OF THE AUTHORITIES I.T.A.655 &654/COCH/2010 5 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 T AKEN A VIEW ON IDENTICAL ISSUE, BY FOLLOWING THE SAID DECISION, WE HOLD THAT THE DEPOS ITS 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. 8 . WITH REGARD TO THE SECOND ISSUE, THE TRIBUNAL HAS HELD IN THE CASE OF HIGH RANGE FOODS (P) LTD, SUPRA, THAT THE INTENTION OF THE ASS ESSEE AT THE TIME OF PURCHASING THE LAND WOULD DECIDE THE NATURE OF INCOME ARISING ON ITS SA LE, I.E. IF AN ASSESSEE PURCHASES A LAND IN ORDER TO HOLD IT AS A CAPITAL ASSET, THEN THE GAIN ARISING ON ITS SALE SHALL BE ASSESSED AS CAPITAL GAIN. ON THE OTHER HAND, IF THE INTENTIO N WAS TO HOLD IT AS STOCK IN TRADE, THEN THE PROFIT ARISING ON ITS SALE WOULD BE ASSESSED AS INCOME FROM BUSINESS. IT WAS ALSO HELD THAT THE DEPARTMENT HAS TO BRING ON RECORD TO PROVE THAT THE ASSESSEE HAS INDULGED IN AN ACTIVITY OF ADVENTURE IN THE NATURE OF TRADE IN ORDER TO BRING THE PROFITS ON SALE OF LAND UNDER THE HEAD INCOME FROM BUSINESS. IN THE ABOV E CITED CASE, THE ASSESSEE THEREIN HAD DECLARED THE INVESTMENT MADE IN LAND UNDER THE HEAD FIXED ASSETS AND NOT AS STOCK-IN- TRADE. IT WAS ALSO NOTICED THAT THE ASSESSEE THEREI N NEVER VENTURED INTO ANY SUCH ACTIVITY OF TRADING IN LAND. IT WAS ALSO NOTICED THAT THE OBJE CT CLAUSE RELATING TO THE REAL ESTATE BUSINESS, INCLUDED IN THE MEMORANDUM AND ARTICLES O F ASSOCIATION, WAS ONLY AN ENABLING OBJECT, WHICH WAS NEVER STARTED BY THE ASSESSEE THE REIN. IT WAS ALSO NOTICED THAT THE ASSESSEE THEREIN NEVER DECLARED ANY BUSINESS INCOME FROM ADVENTURE IN THE NATURE OF TRADE. UNDER THESE CIRCUMSTANCES, IT WAS HELD BY THE TRIBUNAL THAT THE INCOME ARISING ON TRANSFER OF LAND IS ASSESSABLE UNDER THE INCOME FRO M THE CAPITAL GAINS ONLY. 9. THE LD A.R SUBMITTED THAT THE UNDERLYING FACTS A RE IDENTICAL IN NATURE IN THE INSTANT CASES ALSO. HOWEVER, WE ARE OF THE VIEW TH E CLAIM OF THE ASSESSEES REQUIRES VERIFICATION AT THE END OF THE AO, AS THE FACTS SUR ROUNDING THE ISSUE ARE NOT FULLY BORNE OUT I.T.A.655 &654/COCH/2010 6 OF ASSESSMENT ORDER. ACCORDINGLY, WE SET ASIDE T HE ORDER OF THE LD. CIT(A) ON THIS ISSUES AND RESTORE THE SAME TO THE FILE OF THE AO W ITH THE DIRECTION TO EXAMINE THE ISSUE AFRESH IN THE LIGHT OF PRINCIPLES DISCUSSED BY THE CO-ORDINATE BENCH OF TRIBUNAL IN THE CASE OF HIGH RANGE FOODS (P) LTD, SUPRA, AND DECIDE THE ISSUE ACCORDINGLY. NEEDLESS TO MENTION, THE ASSESSEE SHOULD BE GIVEN NECESSARY OPP ORTUNITY OF BEING HEARD. 10. IN THE RESULT, THE APPEALS FILED BY BOTH THE AS SESSES ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY ON 25-05-2012 SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 25TH MAY, 2012 GJ COPY TO: 1. JOJO FROZEN FOODS (P) LTD., D.NO.XXVIII/3030, CH ERUPARAMPATHU ROAD, KADAVANTHRA, KOCHI. 2. CREAM PACKS (P) LTD., D.NO.XXVIII/3030, CHERUPAR AMPATHU ROAD, KADAVANTHRA, KOCHI. 3. THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL C IRCLE-1, KOCHI. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, KOCH I. 4. THE COMMISSIONER OF INCOME-TAX, KOCHI 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE . BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN