ITAT grants Relief to Hindustan Coca Cola by deleting additions of Rs 20.89 lakh

ITAT grants Relief to Hindustan Coca Cola by deleting additions of Rs 20.89 lakh

On 22 January 2021, the Income Tax Appellate Tribunal (ITAT), Delhi Bench granted relief to Hindustan Coca Cola wherein it deleted the additions of Rs 20.89 lakh on account of the passing of the expiry date of the product

The coram consisting of Amit Shukla and Prashant Maharishi noted, "The assessee has claimed a loss on account of the passing of the expiry date of their finished product, its market value became Nil. It is not the case of the revenue that the assessee has derived from the sale of such goods. Even otherwise, it is not possible."

The ITAT further observed that "It is also not the case of the AO that such losses are claimed by the distributors. Naturally, the distributors will never make such claim on their account when they are clearly distributing stock only as that is the risk of marketing company."

The ITAT held that it should be allowed in its entirety. Such loss is neither stated to be contingent or non-existent. Hence the order of the CIT(A) was reversed and the AO was directed to delete the additions/disallowances of Rs 20,89,501 being lost on account of the passing of the expiry date of the product.

The ITAT granted deletion of the disallowance of Rs 20,89,501 and the solitary issue in the appeal of the assessee was allowed by the Appellate Tribunal.

Hindustan Coca Cola Marketing Company Pvt. Ltd. (Assessee) has been engaged in the business of trading non-alcoholic beverages. It filed its return of income declaring a loss of Rs 25,80,27,830.

It was seen that as compared to the earlier year, Assessee had claimed excess breakage and shortage. It had given reasons for a substantial increase in shortage, approximately 60,000 cases were destroyed to floods in Mumbai and against the damages insurance amount of Rs 1.12 crore were received and shown as other income. Approx. 1,00,000 cases were pulled back by the Assessee from the market in view of exceptional quality issues.

The assessee was asked to adduce evidence and to explain the nature of these exceptional quality issues. The Assessing Officer (AO) considered it and found it to be unsatisfactory as the Assessee claimed that the products were removed from the market due to exceptional quality issue but when it was asked to produce the evidence, it changed its stand and claimed the loss on account of the expiry date of the product.

The AO opined that in such type of business every year there would be products having an expired shelf life. This is a normal shortage, which arises to all the companies engaged in this type of trade. The Assessee did not produce any evidence to show that the risk of stock was it's own.

The AO held that the claim of exceptional inventory loss worth Rs. 2,08,98,501 was not acceptable and the addition of Rs 20,89,501 was made to the income of the assessee.

The assessee alleged that the Assessing Officer (AO) did not rely on the facts stated by the assessee and it held that there was no evidence with the risk of stock being on the assessee.

The Commissioner of Income Tax (Appeals) [CIT(A)] relied on its own decision for AY 2008-09 and allowed 70 per cent of such claims and confirmed the disallowance to the extent of 30 per cent.

An appeal was filed before the ITAT Delhi Bench against the order of CIT(A). The only issue raised before the ITAT was that the CIT(A) has erred in restricting the disallowance on account of excess shortage/breakage to 30 per cent merely following own case decided by CIT(A) in subsequent years (AY 2008-09). The ITAT concluded that it did not find any justification to restrict the allowance of such claims to the extent of 70 per cent.