D.C.I.T. - 20, MUMBAI V. TIMEZONE ENTERTAINMENT PVT. LTD., MUMBAI

ITA 2564/MUM/2012

• Counselvise Citation: 256419914 RSA 2012
• Duration Of Justice: 2 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 11-12-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 17-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Keywords: Gift

Judgement Text

, , ,, , , ,, , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E MUMBAI , . . , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI R.C.SHARMA, ACCOUNTANT MEMBER . / ITA NO.2564/MUM/2012 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR: 2009-10 DCIT-9(3), 2 ND FLOOR, ROOM NO.229, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020 VS. M/S. TIMEZONE ENTERTAINMENT PVT. LTD. 301, JAI KRISHNA COMPLEX, NEAR FUN REPUBLIC, ANDHERI (W), MUMBAI-400053 ( # / REVENUE) ( $%&' / RESPONDENT ) P.A. NUMBER : AABCT9012F # ( ) / REVENUE BY: SHRI NEIL PHILIP $%&' ( ) / RESPONDENT BY : SHRI RAVI SAWANA ! ( *+ / DATE OF HEARING : 15/12/2014 ,-' ( *+ / DATE OF PRONOUNCEMENT : 17/12/2014 O R D E R PER JOGINDER SINGH, JM: THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DATE D 21/02/2012 OF THE LD. FIRST APPELLATE AUTHORITY, MUM BAI, ON THE GROUND THAT THE LD. COMMISSIONER OF INCOME TAX (APP EALS) ERRED IN DELETING THE DISALLOWANCE OF RS.96,41,274/- BEING T HE MERCHANDIZE REDEMPTION CHARGES. 2 M/S . TIMEZONE ENTERTAINMENT PVT. LTD. . 2. DURING HEARING OF THIS APPEAL, THE LD. DR, SHRI NEIL PHILIP, DEFENDED THE CONCLUSION DRAWN IN THE IMPUGNED ORDER BY SUBMITTING THAT THE MERCHANDIZE REDEMPTION CHARGES WERE WRONGL Y DELETED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS). ON THE O THER HAND, THE LD. COUNSEL FOR THE ASSESSEE, SHRI RAVI SAWANA, DEFENDE D THE CONCLUSION DRAWN IN THE IMPUGNED ORDER BY SUBMITTING THAT THE IMPUGNED ISSUE IS COVERED BY THE DECISION OF THE TRIBUNAL DATED 08 /03/2013 (ITA NO.5558/MUM/2011). 2.1. IN VIEW OF THE ABOVE, WE ARE REPRODUCING HEREU NDER THE RELEVANT PORTION FROM THE ORDER OF THE TRIBUNAL DATED 08/03/ 2013: 5. BEFORE THE CIT(A), THE ASSESSEE EXPLAINED THE EN TIRE CONCEPT OF THEMERCHANDISE REDEMPTION EXPENSES AND H OW IT IS CLAIMED IN THE BOOKS OF ACCOUNT. IT WAS SUBMIT TED THAT, WHEN A CUSTOMER VISITS IN THE TEPL CENTRES AND BUYS A CARD, LOADED WITH THE MONEY FOR THE COST OF THE GAME AND WHEN HE PLAYS THE GAME, COST OF THE GAME GETS UTILI ZED FROM SUCH AMOUNT OF MONEY LOADED ON HIS CARD. IN CERTAIN GAMES, THE CUSTOMER GETS BENEFIT IN THE FORM OF POINTS OR TICKETS WHEN HE PLAYS THE GAMES. SUCH POINTS OR TICKETS ARE ACCUMULATED ON HIS CARD, WHICH CAN BE REDEEMED AGAINST DIFFERENT TYPES OF MERCHANDISE OFFERED BY THE ASSESS EE AND THIS IS VALID FOR ONE YEAR. THE BALANCE CASH AMOUNT LOADED ON THE CARD WHICH CAN BE USED BY HIM ONLY FOR PLAYING THE GAMES AND POINTS/TICKETS CREDITED ON ITS CARD CAN BE REDEEMED AGAINST MERCHANDISES ONLY. THE CASH AMOUNT LOADED ON CARD IS IMMEDIATELY TREATED AS SALES BY THE ASSESSEE IRRESPECTIVE OF THE FACT THAT WHEN THE CUS TOMER 3 M/S . TIMEZONE ENTERTAINMENT PVT. LTD. . USES THE CARD FOR PLAYING THE GAME. THE POINTS/TICKE TS EARNED BY THE CUSTOMER ON ITS CARD ARE REDEEMED AGAINS T MERCHANDISES AND TO THE EXTENT THE SAME ARE REDEEME D DURING THE SAME FINANCIAL YEAR, THE COST IS BOOKED IN THE BOOKS OF ACCOUNT. HOWEVER, TO THE EXTENT SUCH POINT REMAINS UNREDEEMED AT THE END OF THE FINANCIAL YEAR, WHICH CAN BE REDEEMED BY THE CUSTOMER ANY TIME WITHIN THE PERIOD OF ONE YEAR, A PROVISION IS MADE IN THE BOOKS OF ACCOUNT, BASED ON ESTIMATED COST OF SUCH UNREDEEMED POINTS AT 1.5% OF T HE TOTAL SALES. THIS WAS EXPLAINED BY WAY OF AN EXAMPLE IN THE FOLLOWING MANNER, WHICH HAS BEEN REPRODUCED AT PARA 3 .5 OF THE APPELLATE ORDER : 3.5 THIS MAY BE BETTER EXPLAINED BY AN EXAMPLE AS FO LLOWS: SAY, A CUSTOMER HAS LOADED RS. 1,000/ ON HIS CARD W HICH HE CAN UTILIZE WHILEPLAYING VARIOUS GAMES AT A STOR E. THIS IS ACCOUNTED AS SALES BY TEPL IMMEDIATELY. ASSUME THE CUSTOMER UTILIZES RS.500/ TOWARDS GAM ES ON WHICH HE WINS TICKETS/POINTS WORTH RS.200/. NOW TH E CUSTOMER HAS THE OPTION TO REDEEM THOSE POINTS/TICK ETS AGAINST MERCHANDISE IN THE FORM OF GIFTS AND OTHER PRIZE ITEMS. IF HE SO REDEEMS THE TICKETS FOR SAY, RS. 100 / DURING THE YEAR, P&L ACCOUNT WOULD BE DEBITED BY RS.100/ UNDE R THE HEAD MERCHANDISE REDEMPTION FOR THAT FINANCIAL YEAR, REFLECTING THE VALUE OF ACTUAL MERCHANDISE CONSUMED BY TEPL. FOR THE REMAINING RS.100/ OF THE TICKETS STILL A VAILABLE TO THE CUSTOMER, WHICH THE CUSTOMER DOES NOT REDEEM IN THAT FINANCIAL YEAR, IT WOULD BE CARRIED FORWARDED AND HENCE THE CUSTOMER WOULD HAVE THE OPTION TO REDEEM SUCH BALAN CE 4 M/S . TIMEZONE ENTERTAINMENT PVT. LTD. . RS.100/ OF THE TICKETS IN THE SUBSEQUENT YEAR (THE POINTS/TICKETS LAPSE AFTER A PERIOD OF 1 YEAR FROM T HE DATE OF REFILL ON THE CARD). IN RESPECT OF SUCH UNREDEEMED TI CKETS OF RS.100/ THE APPELLATE PROVIDES AT AN ESTIMATED 1.5% ON SALES, WHICH IS REFLECTED IN THE P&L UNDER THE HEAD UNUTILIZED TICKETS. THE TOTAL COST OF POINTS/TICKETS EARNED BY THE CUS TOMER IS THEREFORE RS.100/ BEING THE COST OF MERCHANDISE ACTUALLY REDE EMED AND TAKEN BY THE CUSTOMER, PLUS RS. 15/ BEING PROV ISION @ 1.5% ON SALES OF RS.1000/ FOR THE UNREDEEMED TICKET S WORTH RS.100, I.E. RS. 100 + 15 = 115/. 6. IT WAS FURTHER SUBMITTED BY THE ASSESSEE THAT TO TAL COST OF THE POINTS EARNED BY THE CUSTOMERS ON THEIR SPENDING ON THE GAMES WAS AT RS.52.05 LACS WHICH WAS TOWARD ACTUAL REDEMPTION AND SUM OF RS.2.2 LACS WAS PROVISION MADE FOR UNREDEEMED POINTS. THE PROVISIONS SHOWN AS UNUTILIZED IN THE BALANCE SHEET AGGREGATED TO RS.54.5 LACS WHICH W ORKS OUT TO 11.4%. THIS WAS MUCH LOWER THAN THE INTERNAT IONAL NORMS ON THESE KINDS OF GAMES WHICH IS AROUND OF 14% TO 15%. SO FAR AS A SUM OF RS.52,05,260/ DEBITED IN THE P&L ACCOUNT, IS THE ACTUAL EXPENSES INCURRED FOR PURCHAS E OF MERCHANDISE FOR THE ENTIRE PERIOD, WHICH EXCLUDES TH E PROVISIONS FOR THE UNUTILIZED TICKETS OF THE ABOVE AMOUNTS. 7. THE LEARNED CIT(A) DULY APPRECIATED THE ASSESSEES SUBMISSION AND THE ACCOUNTING TREATMENT OF MERCHANDI SE EXPENSES, AND DELETED THE ADDITION, AFTER OBSERVING A ND HOLDING AS UNDER : 5 M/S . TIMEZONE ENTERTAINMENT PVT. LTD. . 3.12 I HAVE PERUSED THE ASSESSMENT ORDER AND THE WR ITTEN SUBMISSION. THE A.O. HAS MADE AN ADHOC DISALLOWANCE ON HIS SUBJECTIVE REASONING THAT ON AN AVERAGE AGAINST THE REVENUE (SALES COLLECTION) 5% WOULD BE THE OUTGO AS FAR AS MERCHANDISE REDUCTION IS CONCERNED. THE BASIS FOR ARISING ON THIS CONCLUSION IS NOT DISCLOSED. 3.13 THE APPELLANT ON THE OTHER HAND HAS ELABORATEL Y HIGHLIGHTED THAT THE DEBIT OF RS.52,05,260/ IS ON AC COUNT OF ACTUAL EXPENSES INCURRED FOR PURCHASE OF MERCHANDISE OF ENTIRE PERIOD WHICH IS EXCLUDING THE PROVISIONS FOR THE UNUTILIZED TICKETS OF THE ABOVE AMOUNTS. IT IS OBVIO US THAT THE ACTUAL EXPENDITURE IS ON ACCOUNT OF MERCHANDISE WHICH HAS BEEN REDEEMED (CONSUMED) BY THE CUSTOMERS. IT IS A SETTLED POSITION OF LAW THAT THE EXPENDITURE INCURRE D FOR THE PURPOSES OF BUSINESS IS AN ALLOWABLE EXPENDITURE. 3.14 THERE IS NO RATIONAL IN THE ACTION OF THE A.O. IN PEGGING THIS EXPENDITURE AT 5% OF SALES IN LIGHT OF THE FAC TS THAT THE APPELLANT HAS DEMONSTRATED THE FIGURES OF EARLIER YE ARS WHICH SHOWS THAT SUCH EXPENDITURE HOVERS AROUND 10% OF THE TOTAL SALES. IN ANY CASE, THERE IS NO PRESUMPTI VE FORMULA PRESCRIBED UNDER THE ACT TO RESTRICT DISALLOWANCE TO A CERTAIN PERCENTAGE OF SALES. 3.15 TAKING INTO ACCOUNT ALL THE FACTS AND CIRCUMST ANCES CUMULATIVELY THE ACTION OF THE A.O. IS HELD TO BE A RBITRARILY THE ADDITION SO MADE IS DELETED. 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTE D THAT THE ASSESSING OFFICER HAS BASED HIS REASONING ON RAN DOM SAMPLES FOR FOUR DIFFERENT WEEKS IN THE GIVEN FINAN CIAL YEAR 6 M/S . TIMEZONE ENTERTAINMENT PVT. LTD. . AND HAS WORKED OUT THE MERCHANDISE REDEMPTION EXPENSE S WHICH COMES TO 5% AND ACCORDINGLY, HE HAS RESTRICTED THE EXPENSES TO THE EXTENT. THEREFORE, THERE IS NO INFI RMITY IN THE CONCLUSION DRAWN BY THE ASSESSING OFFICER. HE, THUS STRONGLY RELIED UPON THE FINDINGS OF THE A.O.. 9. ON THE OTHER HAND THE LEARNED COUNSEL SUBMITTED TH AT SO FAR AS AMOUNT DEBITED IN THE PROFIT AND LOSS ACCOUNT AT RS.52,05,260/, ARE ACTUAL EXPENSES INCURRED FOR PUR CHASE OF MERCHANDISE FOR THE ENTIRE PERIOD AND THIS DOES NO T INCLUDE THE PROVISIONS FOR UNUTILIZED TICKETS. HE RE FERRED TO THE SUBMISSIONS MADE BEFORE THE CIT(A) WHICH HAVE B EEN INCORPORATED IN PARA 3.3 TO 3.11 AND STRONGLY RELIED U PON THE FINDINGS OF THE CIT(A). 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULL Y PERUSED THE ORDER OF THE AUTHORITIES BELOW. THE ASSE SSING OFFICER HAS RESTRICTED THE EXPENSES OF RS. 52,05,260 / DEBITED IN THE PROFIT AND LOSS ACCOUNT TO RS. 23,74,22 6/ BASED ON SOME WEEKLY RANDOM DETAILS OF EXPENSES. ON T HE OTHER HAND, THE ASSESSEES CASE IS THAT, IT BOOKS TH E ACTUAL EXPENSES INCURRED FOR THE PURCHASE OF MERCHANDISE A ND MAKES A PROVISION FOR THE UNUTILIZED TICKETS IN THE BALANCE SHEET. THESE EXPENSES HAVE BEEN INCURRED BY THE ASSE SSEE ON REDEMPTION OF POINTS OR TICKETS BY THE CUSTOMERS FOR DIFFERENT TYPES OF MERCHANDISE OFFERED BY THE ASSESS EE, WHO BUYS THE CARD FOR PLAYING THE GAMES AT VARIOUS CENT RES. TO THE EXTENT THAT POINTS OR TICKETS ARE UNREDEEMED AT THE END OF FINANCIAL YEAR, THE ASSESSEE MAKES A PROVISION B ASED ON ESTIMATE BASIS, AS, SUCH POINTS CAN BE REDEEMED IN TH E NEXT FINANCIAL YEAR BY THE CUSTOMER AT ANY TIME, BECAUSE THE 7 M/S . TIMEZONE ENTERTAINMENT PVT. LTD. . VALID PERIOD FOR REDEEMING THE POINTS IS FOR UP TO ONE YEAR. THE MANNER IN WHICH THE ASSESSING OFFICER HAS PROCE EDED TO ANALYSE THE NATURE OF EXPENSES, BY COLLECTING THE SAMPLE DETAILS OF FOUR WEEKS ON RAND OM BASIS IS NOT CORRECT APPROACH FOR APPRECIATING THE FACTS OF THE ASSESSEES CASE, ESPECIALLY WHEN THE ASSESSEE HAS G IVEN ALL THE DETAILS WITH REGARD TO THE NATURE OF EXPENSES WH ICH HAD ACTUALLY BEEN INCURRED DURING THE YEAR. HE HAS FAILED TO APPRECIATE THAT UNUTILIZED OR UNREDEEMED POINTS HAVE BEEN TAKEN AS PROVISION IN THE BALANCE SHEET AND ONLY ACT UAL EXPENSES FOR PURCHASE OF MERCHANDISE HAS BEEN BOOKE D IN THE PROFIT AND LOSS ACCOUNT. THUS, THE SUM OF RS.52,05,260/ IS THE ACTUAL AMOUNT INCURRED BY THE ASSESSEE ON MERCHANDISE REDEMPTION AND THIS DOES NOT CONTAIN EXPENSES ON UNREDEEMED POINTS. THE EXPLANATIO N GIVEN BY THE ASSESSEE BEFORE THE CIT(A) HAS NOT BEE N REBUTTED BEFORE US. THUS, THE CONCLUSION DRAWN BY THE CIT(A) BASED ON SUCH EXPLANATION APPEARS TO BE CORRE CT AND THE SAME IS AFFIRMED. ACCORDINGLY, GROUND NO. 1 RAIS ED BY THE DEPARTMENT STANDS DISMISSED. 2.2. WE ARE ALSO REPRODUCING HEREUNDER THE RELEVANT PORTION OF THE CONCLUSION DRAWN BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS). 4.2. I HAVE PERUSED THE ASSESSMENT ORDER AND WRITTEN SUBMISSIONS OF THE APPELLANT. THIS GROUND OF APPEAL IS IDENTICAL TO THAT TAKEN FOR A.Y. 2006-07 WHERE THE A PPEAL WAS DECIDED BY THE APPELLATE ORDER DATED 27/05/2011. THIS GROUND OF APPEAL HAS BEEN ALLOWED BY WAY OF DETAILED REASONING GIVEN IN THE ORDER FOR A.Y. 2006-07 AT PAR A 3.12 TO 8 M/S . TIMEZONE ENTERTAINMENT PVT. LTD. . 3.15. SINCE THE PRESENT GROUND OF APPEAL IS IDENTICA L HENCE FOLLOWING THE PRINCIPLE OF JUDICIAL CONSISTENCY, I ALLOW THIS GROUND OF THE APPELLANT. 2.3. IF THE OBSERVATION MADE IN THE ASSESSMENT ORD ER, CONCLUSION DRAWN IN THE IMPUGNED ORDER AND THE ORDE R OF THE TRIBUNAL, REPRODUCED HEREINABOVE, ARE ANALYZED, WE FIND THAT THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEAL S) FOR ASSESSMENT YEAR 2006-07 WAS UPHELD BY THE TRIBUNAL. THE TRIBUNA L WHILE ARRIVING AT A PARTICULAR CONCLUSION HAS DELIBERATED UPON THE ISSUE AND NO CONTRARY DECISION WAS BROUGHT TO OUR NOTICE, THEREF ORE, FOLLOWING THE DECISION OF THE TRIBUNAL, THIS GROUND OF THE REVENU E IS HAVING NO MERIT, CONSEQUENTLY, DISMISSED, RESULTING INTO DISM ISSAL OF APPEAL OF THE REVENUE. FINALLY, THIS APPEAL OF THE REVENUE IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION O F THE HEARING ON 15/12/2014. SD/- SD/- (R.C.SHARMA) ( JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED - 17/12/2014 F{X~{T? P.S/. ! . . ( (( ( $*. $*. $*. $*. /.'* /.'* /.'* /.'* / COPY OF THE ORDER FORWARDED TO : 1. &' / THE APPELLANT 2. $%&' / THE RESPONDENT. 3. 0 ( ) / THE CIT(A)- 4. 0 / CIT 9 M/S . TIMEZONE ENTERTAINMENT PVT. LTD. . 5. .12 $*! , , / DR, ITAT, MUMBAI 6. 23 4 / GUARD FILE. ! ! ! ! / BY ORDER, %.* $* //TRUE COPY// 5 55 5 / 6 6 6 6 # # # # (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI