KERALA STATE BEVERAGES M&M) CORPN LTD,TRIVANDRUM V. THE ACIT, CIR-1(1), TRIVANDRUM

ITA 421/COCH/2023

AI Insights

The case revolves around the issue of whether the stock of beverages transferred to the warehouse of Kerala State Beverages (M&M) Corporation Ltd. by the Excise Authorities due to a change in the Abkari Policy of the Government of Kerala was the property of the assessee. The assessee argued that it acted as an agent for the government in the buyback of stock from bar owners, following a government order, and did not own the stock. The Assessing Officer (AO) added the stock to the assessee's closing stock, leading to an addition of Rs. 12,32,57,000 to the assessee's income. The Commissioner of Income Tax (Appeals) upheld this addition, which was contested in the Tribunal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 396835 (ITAT-COCHIN)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2016-2017
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJIT KUMAR DAS
• Assessee Lawyers: K.S. MADHU
• Keywords: Business income; Revised return
• Section: 143(3); 142(1)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER ITA No. 421/Coch/2023 Assessment Year : 2016-17 Kerala State Beverages (M&M) Corporation Ltd., Bevco Towers, Cantonment House Road, Vias Bhavan PO, Trivandum-695033 PAN : AAACK9431G vs. The ACIT, Circle-1(1) Trivandrum (Appellant) (Respondent) For Assessee : Shri K.S. Madhu, CA For Revenue : Shri Sanjit Kumar Das, CIT-DR (Heard in Hybrid Bench) Date of Hearing : 25-03-2025 Date of Pronouncement : 27-05-2025 O R D E R PER SANDEEP SINGH KARHAIL, J.M : The assessee has filed the present appeal against the impugned order dt. 23-03-2023, passed u/s. 250 of the Income Tax Act, 1961 (‘The Act’) by the Ld. Commissioner of Income Tax(Appeals)-National Faceless Appeal Centre (NFAC), Delhi [‘Ld.CIT(A)’] for the AY. 2016- 17. 2 ITA No. 421/Coch/2023 2. In the interest of justice, the slight delay of three days in filing the present appeal is condoned. 3. The only issue that arises for our consideration in the present case is whether the stock transferred to the warehouse of the assessee by the Excise Authorities due to the change in the Abkari Policy of the Government of Kerala is the stock of the assessee. 4. The brief facts of the case pertaining to this issue, as emanating from the record: The assessee is engaged in wholesale and retail trading in beverages. For the year under consideration, the assessee filed its return of income on 17-10-2016, declaring a total income of Rs. 53,49,88,940/-. Subsequently, the assessee filed the revised return of income on 31-03-2018,returning an income of Rs. 60,87,61,120/-. The return filed by the assessee was selected for scrutiny, and statutory notices u/s. 143(2) and 142(1) of the Act were issued and served on the assessee. During the assessment proceedings, it was observed that the assessee has classified an amount of Rs. 12.32 crores as “due from Govt. of Kerala (Bar License)”. During the assessment proceedings, theassessee submitted that this amount is due from the Government, since the amount was paid to different parties to buy back the stock of beverages during the period of state state-imposed prohibition. The 3 ITA No. 421/Coch/2023 assessee submitted that the same was carried out pursuant to a Government order. As the stock that has been bought back by the assessee has not been included in the books in any manner and the assessee also failed to produce the Government orders, the AO, vide order dt. 28-12-2018 passed u/s. 143(3) of the Act, added the stock to the closing stock of the assessee, and consequently to the business income of the assessee. Accordingly, the AO made an addition of Rs. 12,32,57,000/- to the total income of the assessee. 5. The Ld.CIT(A), vide impugned order,dismissed the appeal filed by the assessee on this issue and held that the stock implied to be held by the assessee as its own stock and the State Government never meant to take back the liquor stock from the assessee. Thus, the Ld.CIT(A) held that the stock was the property of the assesseeand the assessee was duty-boundto add the stock to its closing stock. Being aggrieved, the assessee is in appeal before us. 6. During the hearing, the Ld.AR submitted that the amount paid to the bar owners was pursuant to the Government order for buyback of stock of beverages,and the assessee was not the owner of the stock and was acting merely as an agent. 4 ITA No. 421/Coch/2023 7. On the other hand, the Ld.DR vehemently relied on the order passed by the lower authorities. 8. We have considered the submissions of both sides and perused the material available on record. In the present case, on the basis that the assessee has classified an amount of Rs.12.32 crores as due from the Government of Kerala and the stock that has been bought back was not included in the booksof the assessee, the AO added the stock to the closing stock of the assessee. As per the assessee for the FY. 2015-16, the Government of Kerala cancelled the licenses of all Barsof hotels except those of five-star hotels as per the new Abkari Policy of the Government. It is the plea of the assessee that on 31-03-2015, the Commissioner of Excise, Government of Kerala issued directions to close down the Bars of the hotels, except those having five-star hotels and freeze the balance stock of the liquor kept in those hotels immediately. From the perusal of the said directions dt. 31-03-2015, issued by the Commissioner of Excise, Government of Kerala, forming part of the Paper Book, we find that directions were also issued to make necessary arrangements for the transfer of stock of the liquor to the concerned warehouse of the assessee. As per the assessee, when the stock was taken back by the Government, the bar owners approached the Governmentfor the price of the liquor taken from them. As the Government was having financial 5 ITA No. 421/Coch/2023 constraints, the assessee was directed to pay the amount to the bar owners. Accordingly, as per the assessee, it paid an amount of Rs.12,32,57,000/- to various bar licensees as directed by the Government towards the cost of the liquor surrendered, during the year under consideration. The assessor hasalso placed on record another letter dt. 07-07-2015 issued by the Government of Kerala directing the assessee to release the amount to the bar owners only after ascertaining any liabilities due to the Excise Department from the bar owners. Thus, the assessee was directed to deduct the liability, if any, found pending to the Excise Department, and the balance payment be made to the licensees. As per the assessee, it submitted a request to the Government of Kerala for the reimbursement of the amount paid to the bar owners, and the Government of Kerala agreed to the adjustment of the above amount against future Excise Duty and Sales Tax remittances. In this regard, the assessor has placed on record a letter dt. 16-08-2017 issued by the Government of Kerala permitting the assessee to set off an amount of Rs. 15,05,55,704/- paid to the bar licensees against the future Excise Duty/Sales Tax remittances. Thus, it is the claim of the assessee that since it paid these amounts on behalf of the Government and the said amount was due as on 31-03-2016, it has shown this amount as receivable from the Government of Kerala. In order to further support the contention that there was no purchase of liquor by the assessee from the bar owners the owner of the stock of beverages owners pursuant to the Government’s directions, the assessee has placed on record a letter dt. 27 6 ITA No. 421/Coch/2023 liquor by the assessee from the bar owners and the assessee was not the owner of the stock of beverages brought back from the bar owners pursuant to the Government’s directions, the assessee has letter dt. 27-02-2025, which reads as follows: ITA No. 421/Coch/2023 and the assessee was not ought back from the bar owners pursuant to the Government’s directions, the assessee has , which reads as follows: 9. Therefore, having perused the documents placed on record by the assessee, we find merit in the acted merely as an intermediary between the Government of Kerala disbursement of payment Thus, from the various directions Kerala/Excise Department had no ownership over the stocks facility and the complete ownership of the liquor Government of Kerala further pertinent to note that warehouse was also destroyed pursuant to the directions issued by the Commissioner of Excise, Kerala. Therefore, the impugned addition of Rs. 12,32,57,000/ adding the stock to the closing stock of the assessee is deleted 7 ITA No. 421/Coch/2023 having perused the documents placed on record by we find merit in the submission of the assessee that acted merely as an intermediary between the bar owners and the Government of Kerala for the transfer of liquor stock and disbursement of payment under the directions of the Government. from the various directions issued by the Government of Kerala/Excise Department, it is clear beyond doubt that had no ownership over the stocks of liquor kept in its warehouse facility and the complete ownership of the liquor remained with the Government of Keralathroughout the process. Before concluding, it is further pertinent to note that part of the stock in the assessee’s warehouse was also destroyed vide an order dt. pursuant to the directions issued by the Commissioner of Excise, the impugned addition of Rs. 12,32,57,000/ adding the stock to the closing stock of the assessee is deleted ITA No. 421/Coch/2023 having perused the documents placed on record by submission of the assessee that it bar owners and the for the transfer of liquor stock and under the directions of the Government. issued by the Government of it is clear beyond doubt that the assessee of liquor kept in its warehouse remained with the Before concluding, it is in the assessee’s vide an order dt. 14-03-2023, pursuant to the directions issued by the Commissioner of Excise, the impugned addition of Rs. 12,32,57,000/- by adding the stock to the closing stock of the assessee is deleted. 8 ITA No. 421/Coch/2023 Accordingly, the sole issue raised by the assessee before us is allowed. 10. In the result, the appeal by the assessee is allowed. Order pronounced on 27-05-2025 by way of proper mentioning on the Notice Board Sd/- Sd/- [INTURI RAMA RAO] [SANDEEP SINGH KARHAIL] ACCOUNTANT MEMBER JUDICIAL MEMBER Cochin, Dated: 27-05-2025 TNMM Copy to : 1) The Appellant 2) The Respondent 3) The CIT concerned 4) The D.R, ITAT 5) Guard file By Order Asst. Registrar I.T.A.T, Cochin "