1988 (5) TMI 73 - AT - Income Tax

Summary

Issues:
1. Disallowances sustained on account of deposits for the purchase of liquor bottles.

Analysis:
The judgment involves a dispute regarding disallowances sustained on account of deposits for liquor bottles. The Income-tax Officer disallowed certain amounts for different assessment years, contending that the deposits on bottles should not form part of the purchase price of liquor. The Commissioner of Income-tax (Appeals) upheld the disallowance, stating that a deposit cannot represent the cost of an item. However, the assessee argued that the deposits indeed formed part of the purchase cost of liquor bottles, as evidenced by the trading account entries. The supplier confirmed through a letter that the amounts labeled as deposits were indeed meant as the cost of bottles sold to the assessee.

The learned chartered accountant representing the assessee emphasized that liquor cannot be sold without the bottle container, and the amounts labeled as deposits were, in fact, the cost of the bottles. The departmental representative also acknowledged that the deposits represented the bottle costs but raised concerns about the timing of the clarification. The Tribunal upheld the assessee's contention, noting that the liquor was received in bottles and sold as such, making it impractical to separate the contents from the container at the point of sale. The confirmatory letter from the supplier further supported the assessee's position, indicating that the amounts in question were indeed for the cost of bottles and not mere deposits.

The Tribunal concluded that the amounts labeled as deposits were, in reality, the cost of the bottles and were appropriately reflected in the trading account as part of the purchase cost of liquor supplies. The Tribunal emphasized that there was no obligation for the assessee to return the bottles to the supplier, and the trade practice in the liquor sale industry did not involve bottle returns. The production of the confirmatory letter, though not presented before the lower authorities, was accepted as a clarification of the assessee's consistent stance. Consequently, the Tribunal ruled in favor of the assessee, deleting all the disallowances made by the revenue authorities related to the deposits on liquor bottles.