2016 (8) TMI 1354 - AT - Income Tax

Nature of receipt - revenue or capital - addition considering the trade deposits received by the assessee as the income of assessee - Held that - CIT(A) while deleting the addition has correctly noted that assessee is carrying on the business sales through Authorized Representative Dealers (ARDs) appointed by the assessee and Sales Service Providers (SSPs) appointed by Hero Motors Ltd. Since assessee s vehicles are kept with ARDs and SSPs for display, test drive, etc. trade deposits are received from them by the assessee by way of security deposits. As and when the sales take place through ARDs and SSPs, the sale proceeds are accounted as income by the assessee and this method of accounting has been consistently followed by the assessee and has also been accepted by the Revenue in the scrutiny proceedings. As during the year under consideration assessee had received trade deposits of ₹ 35.5 lacs and has repaid ₹ 26 lacs out of it and in effect the net trade received by the assessee during the year was only to the tune of ₹ 9.5 lacs. - Nothing to go against CIT s order - Decided against revenue

Summary

Issues:
- Consideration of revenue receipts as capital receipts
- Treatment of trade deposits as income

Consideration of revenue receipts as capital receipts:
The appeal was against the order of the Commissioner of Income Tax for the Assessment Year 2010-11. The appellant, engaged in trading of vehicles and spares, had filed a return of income declaring total income. The Assessing Officer determined a higher total income, which was partially relieved by the CIT(A). The Revenue appealed, contending that certain revenue receipts were erroneously treated as capital receipts. The primary issue was the treatment of a specific payment of ?35.50 lakhs received by the assessee against delivery of goods, which the Revenue argued should be considered part of sales. The CIT(A) had granted relief to the assessee, leading to the Revenue's appeal.

Treatment of trade deposits as income:
The core issue revolved around the treatment of trade deposits received by the assessee. The Assessing Officer considered these deposits as income, as they were not included in sales despite the delivery of vehicles. The CIT(A), however, deleted the addition after considering the appellant's business operations with Authorized Representative Dealers and Sales Service Providers. The CIT(A) noted that the trade deposits were received as security and were not directly related to sales proceeds. The method of accounting followed by the assessee, where sales proceeds were accounted for when actual sales occurred, was deemed consistent and acceptable. The Revenue's appeal challenged this decision, but the Tribunal upheld the CIT(A)'s order, stating that the Revenue failed to provide evidence to refute the CIT(A)'s findings. Consequently, the Tribunal dismissed the Revenue's appeal, affirming the deletion of the addition related to trade deposits.

In conclusion, the Tribunal upheld the CIT(A)'s decision regarding the treatment of trade deposits as income, dismissing the Revenue's appeal.