2019 (3) TMI 1307 - HC - Income Tax

Addition to income of the amounts deposited by the franchisees who have been supplied with freezers for storing the assessee s products - deposit made is the value of the freezers - as submitted that in all the above cases the demand is less than ₹ 50 lakhs and hence the continuance of the appeals as per the present litigation policy cannot be allowed - HELD THAT - In so far as supplying brand new freezers to the franchisees on a deposit of the price; taken from these franchisees. Every year there was a depreciation made on the value and the depreciated amounts offered as income in that particular year. If the franchisee discontinued the franchise then the balance written down value available as per the books of accounts are refunded to the franchisees. Hence, it is submitted that the income is returned in phases and there is no warrant for the addition made in the year in which the franchisee agreement is entered into, since it does not inure to the assesses as income. The learned counsel for the respondent asserts that even on merits he has a good case. However, in the circumstance of Revenue having sought for withdrawal of almost all the cases, we are of the opinion that even the two cases in which instructions have not been received are to be rejected following the litigation policy as introduced by the Central Government. There are other appeals in the batch in which the demand is far greater but all less than ₹ 50,00,000/-. We reject the appeals based on the litigation policy, leaving open the question of law raised.

Summary

Issues:
1. Addition to income of amounts deposited by franchisees for freezers supplied by assessee.
2. Continuance of appeals based on litigation policy.
3. System of supplying freezers to franchisees and depreciation on value.
4. Warrant for addition made in the year of franchisee agreement.
5. Rejection of appeals based on litigation policy.

Analysis:

1. The primary issue in the batch of cases involved the addition to income of amounts deposited by franchisees for freezers supplied by the assessee. The franchisees were required to deposit the value of the freezers they received. The contention was that the demand in all cases was less than ?50 lakhs, and the appeals' continuation based on the current litigation policy was questioned.

2. The learned Standing Counsel was directed to obtain instructions regarding the withdrawal of the appeals. It was revealed that written instructions had been received for the withdrawal of all appeals except two specific cases, identified as ITA Nos. 233 of 2012 and 245 of 2012.

3. The respondent's counsel explained the system of supplying brand new freezers to franchisees, with depreciation on the value each year. The depreciated amounts were treated as income for that year. If a franchisee terminated the agreement, the balance written down value was refunded. It was argued that income was returned in phases, and there was no justification for adding it in the agreement year as it did not accrue as income to the assessee.

4. Despite the respondent's counsel asserting a strong case on merits, considering the Revenue's request for withdrawal of almost all cases, the Court decided to reject even the two cases for which instructions had not been received. The rejection was based on the litigation policy introduced by the Central Government. The demand in ITA No. 233 of 2012 was approximately ?17 lakhs, and in ITA No. 245 of 2012, it was around ?25,44,000.

5. Additionally, there were other appeals in the batch with demands exceeding ?50 lakhs but less than ?50,00,000. In light of this, the appeals were rejected based on the litigation policy, while preserving the raised legal questions for future consideration.