ITAT Deletes Addition On Security Deposits From Distributors/Retailers Against Coca Cola Bottles

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has deleted the addition against Hindustan Coca-Cola Beverages on the Security Deposits made by distributors and retailers against Coca-Cola bottles.

The bench of Anubhav Sharma (Judicial Member) and N.K. Billaiya, (Accountant Member) has relied on the decision of the Supreme Court in the case of Sugauli Sugar Works [P] Ltd., in which it was held that the onus is on the revenue to bring on record tangible evidence to show that liability has ceased to exist, especially when it continues to be shown in the books of accounts of the assessee.

The assessee/appellant, Hindustan Coca-Cola Beverages, is in the business of manufacturing beverages. As a security deposit for bottles, the assessee company took deposits from customers, including distributors, merchants, and others. In the financial year 2010–11, the security deposits totalled Rs. 184 crores. The assessee was asked to provide party-specific information and confirmation, but it did not do so.

The AO made the additions on account of deposits from customers. The Assessing Officer observed that accumulated deposits are increasing and have increased from Rs. 158 crores to Rs. 184 crores.

The Assessing Officer was of the opinion that the amount outstanding at Rs. 1,58,09,01,589 is more than eight years old and concluded that there is no claimant to the huge amount and went on to make an addition under Section 41(1) of the Income Tax Act.

The assessee challenged the addition before the CIT (A). The assessee contended that Section 41(1) does not apply. The CIT(A), though convinced that section 41(1) is not applicable, proceeded to apply the provisions of sections 41(2) and 43(6). The CIT (A) directed the AO to justify the WDV block of assets of bottles and crates by reducing the deemed sale and discarded value of Rs. 1 58.09 crores.

Section 41(2) was inserted to provide for a levy of a balancing charge in respect of certain depreciable assets, namely, buildings, machinery, plants, or furniture, that are owned by the assessee and for which depreciation is claimed under Section 32(1)(i). The assets of an undertaking engaged in the generation or generation and distribution of power that was or has been used for the purpose of business. Section 41(2) applies only if the assets are owned by the power-generating undertaking and the assessee is not a power-generating company.

Section 41(1) is applicable only when twin conditions have to be satisfied. Firstly, deductions in respect of a trading liability should be claimed in the previous year. Secondly, the subsequent year's liability must be effectively written back, resulting in a benefit.

The ITAT, while allowing the appeal, held that the Assessee has not claimed any trading liability as containers and bottles were shown under the heading 'Current Assets' and deposits were shown as 'Liabilities'. The department has not brought on record any evidence to show that liability ceased to exist.

The ITAT held that neither Section 41(1) of the Act nor Sections 41(2) and 43(6) apply.

Case Title: Hindustan Coca-Cola Beverages Pvt. Ltd Versus ACIT

Case No.: ITA No. 5671/DEL/2018

Date: 18.07.2023

Counsel For Appellant: Sachit Jolly

Counsel For Respondent: Wasim Arshad

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