AKBARALLYS DEPARTMENT STORES, MUMBAI V. DCIT 12(3), MUMBAI

ITA 4142/MUM/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3585 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2013
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 19-01-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 13-06-2012
• Court: TRIBUNAL
• Department Lawyers: ASGHAR ZAIN
• Keywords: Gift
• Section: 143(3)

Judgement Text

A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE S HRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ./ I.T.A. NO. 41 4 2 /MUM/20 1 2 ( / ASSES SMENT YEAR 200 8 - 0 9 M/S AKBARALLYS DEPARTMENT STORES, 45, VEER NARIMAN ROAD, FOUNTAIN, MUMBAI 400 0 23 . / VS. DY. COMMISSIONER OF INCOME TAX 12(3), AAYAKAR BHAVAN MUMBAI 400020. ./ PAN : AAAFA0780B ( / APPELLANT ) .. ( / RESPONDENT ) A PPELLANT BY SHRI VIJAY MEHTA R E SPONDENT BY : SHRI ASGHAR ZAIN / DATE OF HEARING : 1 9 - 0 1 - 2015 / DATE OF PRONOUNCEMENT : 13 - 0 5 - 2015 [ / O R D E R PER R.C. SHARMA, AM : THIS IS AN APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE LD. CIT(A) - 24, MUMBAI DATED 01 - 03 - 2012 FOR THE A.Y. 2008 - 09 IN THE MATTER OF ORDER PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961. 2. IN T HIS APPEAL THE ASSESSEE IS AGGRIEVED FOR ADDITION OF RS. 49,97,083/ - IN RESPECT OF GIFT VOUCHERS ISSUED BUT NOT ENCASHED. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. THE FACTS OF THE CASE ARE THAT THE ASSESSEE, WHICH IS RUNNING A DEPARTMENTA L STORE IS HAVING A SCHEME OF GIFT VOUCHER. THESE GIFT VOUCHERS ARE PURCHASED BY THE MEMBERS OF PUBLIC FOR GIFTING TO THEIR FRIENDS AND RELATIVES. THE ASSESSEE IS REFLECTING THE ITA 4142 / M/ 1 2 2 AMOUNTS COLLECTED ON SALE OF GIFT VOUCHERS AS OUTSTANDING LIABILITY IN THE BAL ANCE SHEET WHICH IS RS. 3,22,15,623/ - AS ON 31/03/2008. IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE WAS BOOKING THE SALES OF RELEVANT ITEMS ONLY WHEN THE RECIPIENT OF THE GIFT VOUCHER ACTUALLY PURCHASED THE GOODS AT A LATER DATE. THE ASSESSIN G OFFICER WAS OF THE OPINION THAT THIS WAS NOT CORRECT ACCOUNTING BECAUSE AS SOON AS THE GIFT VOUCHERS WERE SOLD BY THE ASSESSEE, THE SUMS RECEIVED WERE THE NON - REFUNDABLE RECEIPTS IN THE HANDS OF THE ASSESSEE. MOREOVER, SOME OF THE GIFT VOUCHERS BECOME TI ME BARRED AFTER THE SPECIFIED DATE OF THE GIFT VOUCHERS. BUT THE ASSESSEE HAD NOT FURNISHED ANY DETAILS OF THE OUTSTANDING LIABILITIES SHOWN IN THE BALANCE SHEET FOR WHICH THE VALIDITY HAD ALREADY EXPIRED. IN THE OPINION OF THE ASSESSING OFFICER, THE SUM R ECEIVED ON THE SALE OF THE GIFT VOUCHERS WAS NOTHING BUT SALE PROCEEDS OF THE ASSESSEE. ALTERNATIVELY, IT WAS ALSO RECEIPT FROM EXPIRED GIFT VOUCHER. THEREFORE, THE POSTPONEMENT OF THE SALE BY THE ASSESSEE TILL THE ENCASHMENT OF GIFT VOUCHERS WAS NOT CORRE CT BECAUSE THE INCOME HAD ALREADY ACCRUED ON THE DAY ON WHICH THE GIFT VOUCHER WAS SOLD. THE ASSESSEE HAD MENTIONED THAT THE SYSTEM OF ASSESSEE GENERATES INFORMATION RELATING TO OPENING BALANCE OF THE GIFT VOUCHERS, GIFT VOUCHERS ISSUED DURING THE YEAR, GI FT VOUCHERS ENCASHED DURING THE YEAR AND THE CLOSING BALANCE. THE ASSESSING OFFICER NOTED THAT IT WAS ADMITTED BY THE ASSESSEE THAT THERE WAS NO INBUILT SYSTEM TO CORRELATE ENCASHMENT OF GIFT VOUCHERS WITH ITS ISSUE. THE ASSESSEE HAD ADMITTED THAT AGE - WISE BREAK - UP OF THE OUTSTANDING GIFT VOUCHERS AS ON 31/03/2008 WAS NOT POSSIBLE. IT WAS FURTHER NOTICED BY THE AO THAT SO FAR AS VALUE CARD DISCOUNT (DISCUSSED BY THE AO IN PARA NO. 5 OF THE ASSESSMENT ORDER) WAS CONCERNED, THE ASSESSEE WAS CLAIMING THE EXPEN SES RELEVANT THERETO IMMEDIATELY IN THE SAME FINANCIAL YEAR. IN THE OPINION OF THE ASSESSING OFFICER, THE ASSESSEE HAD TRIED TO POSTPONE THE INCOME ARISING ON ACCOUNT OF THE GIFT VOUCHERS. THEREFORE, THERE WAS A CLEAR MISMATCH BETWEEN THE ACCOUNTING POLICY ADOPTED IN RESPECT OF GIFT VOUCHERS VIS - A - VIS VALUE CARD DISCOUNT. IN VIEW OF THE AFORESAID REASONS, THE ASSESSING OFFICER DISALLOWED ITA 4142 / M/ 1 2 3 2/3RD OF THE OUTSTANDING LIABILITY OF RS. 3,22,15,623/ - UNDER THE HEAD AS INCOME ACCRUED BUT NOT OFFERED FOR TAXATION. TH E TOTAL DISALLOWANCE WAS MADE AT RS. 2,14,77,082/ - . BY THE IMPUGNED ORDER, THE LD. CIT(A) RESTRICTED THE ADDITION TO THE EXTENT OF RS. 49,97,083/ - AFTER HAVING FOLLOWING OBSERVATION: - 2.2.1 I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS MAD E BY THE ASSESSEE. I AGREE WITH THE ASSESSEE THAT THE AMOUNT RECEIVED ON ACCOUNT OF GIFT VOUCHERS CANNOT BE CONSIDERED AS SALE AT THE POINT OF TIME OF SALE OF THE GIFT VOUCHERS SINCE NO INCOME HAS ACCRUED TO THE ASSESSEE AT THIS STAGE. IT IS ONLY AN ADVANC E RECEIVED BY THE ASSESSEE FOR A FUTURE SALE TO THE EXTENT OF THE AMOUNT REPRESENTED IN THE GIFT VOUCHERS. BY ISSUING THE GIFT VOUCHER AND ACCEPTING THE CASH IN LIEU OF THE GIFT VOUCHER, THE ASSESSEE IS ONLY ACCEPTING AN ADVANCE FROM THE CUSTOMERS WITH A P ROMISE TO REDEEM THE GIFT VOUCHER AND MAKE THE SALE OF THE AMOUNT WITHIN THE PERIOD OF 3 YEARS. TO THIS EXTENT, THERE CAN BE NO DISPUTE. HOWEVER, AS PER THE TERMS OF THE GIFT VOUCHER AND AS EXPRESSLY AGREED TO BETWEEN THE ASSESSEE AND THE PURCHASER OF THE GIFT VOUCHER, THE LIABILITY OF THE ASSESSEE TO HONOUR THE GIFT VOUCHER IS ONLY FOR A PERIOD OF THREE YEARS FROM THE DATE OF ISSUE OF THE GIFT VOUCHER. AFTER THE EXPIRY OF THE SAID THREE YEARS, THE ASSESSEE IS UNDER NO OBLIGATION TO HONOUR AND REDEEM THE GI FT VOUCHERS. HENCE, ON THE EXPIRY OF THREE YEARS FROM THE DATE OF ISSUE OF THE GIFT VOUCHER, IF THE SAID GIFT VOUCHERS ARE NOT REDEEMED, THE AMOUNTS EMBEDDED IN THE GIFT VOUCHER LEGALLY BECOME THE AMOUNTS OF THE ASSESSEE AND, THE PURCHASER OF THE GIFT VOUC HER, AFTER THREE YEARS HAS NO RIGHT TO CLAIM THE SAME OR HAS NO RIGHT TO PURCHASE THE GOODS TO THE EXTENT OF THE AMOUNTS REPRESENTED IN THE GIFT VOUCHERS. HENCE, AT THE END OF THREE YEARS, THE AMOUNTS BECOME THE INCOME OF THE ASSESSEE AS, LEGALLY, THE ASSE SSEE ONLY HAS A CLAIM OVER THE SAID AMOUNTS BY VIRTUE OF THE TERMS OF THE AGREEMENT RELATING TO THE GIFT VOUCHERS AND THE PURCHASER OF THE GIFT VOUCHER HAS NO LEGAL RIGHT OVER THE SAID AMOUNT. IT IS A DIFFERENT MATTER THAT THE ASSESSEE MAY REVALIDATE OR HO NOUR THE GIFT VOUCHERS EVEN BEYOND THE PERIOD OF 3 YEARS, ALTHOUGH, BY LAW HE IS. NOT REQUIRED TO DO SO. WHETHER OR NOT TO REVALIDATE OR HONOUR THE GIFT VOUCHERS BEYOND 3 YEARS IS LEFT TO THE CHOICE OF THE ASSESSEE AND THE PURCHASER OF THE GIFT VOUCHER CA NNOT LAY A CLAIM ON THE SAID AMOUNT. HOWEVER, AS PER THE PROVISIONS OF THE LT. ACT, 1961 AND IN VIEW OF THE DIFFERENT JUDICIAL DECISIONS, SOME OF WHICH HAVE BEEN RELIED UPON BY THE ASSESSEE ITSELF, AT THE END OF 3 YEARS, THE INCOME ACCRUES TO THE ASSESSEE. IN CIT VS ASHOKBHAI CHIMANBHAI (SUPRA) AND A.B.V. GONDA (SUPRA), IT HAS BEEN HELD THAT 'INCOME IS SAID TO HAVE BEEN RECEIVED NOT WHEN IT REACHES THE ASSESSEE, BUT WHEN THE RIGHT TO RECEIVE THE INCOME BECOMES VESTED IN THE ASSESSEE, IT IS SAID TO ACCRUE O R ARISE. IN THE CASE OF CIT VS SHRI GOVERDHAN LTD. (SUPRA) AND CIT VS NANDRAM HUNATRAM (SUPRA) RELIED UPON BY THE ASSESSEE, IT HAS BEEN HELD THAT IF THE ASSESSEE ACQUIRES A RIGHT TO RECEIVE THE INCOME, THEN ONLY THE INCOME CAN BE SAID TO HAVE ACCRUED TO H IM THOUGH IT MAY ITA 4142 / M/ 1 2 4 BE RECEIVED NOW OR LATER ON IT BEING ASCERTAINED. IN THE CASE OF CIT VS VAZIR SULTAN.& SONS (SUPRA) AGAIN RELIED UPON BY THE ASSESSEE, IT HAS BEEN HELD THAT AN INCOME ACCRUES OR ARISES WHEN THE ASSESSEE ACQUIRES A RIGHT TO RECEIVE THE SAME . 2.2.2 FROM THE ABOVE, IT IS EVIDENT THAT AT THE END OF THREE YEARS, THE RIGHT TO RECEIVE THE INCOME BECOMES VESTED IN THE ASSESSEE. THEREFORE THE ASSESSEE IS REQUIRED TO DISCLOSE THIS LIABILITY AS ITS INCOME SINCE THE SAME ACCRUES TO HIM AT THE END O F THREE YEARS WHEN THE LIABILITY IN RESPECT OF THE AMOUNT RECEIVED ON ACCOUNT OF THE GIFT VOUCHERS CEASES AND LEGALLY NO CLAIM CAN BE MADE BY ANY OTHER PERSON IN RESPECT OF THIS AMOUNT . IF THE CONTENTION OF THE ASSESSEE WERE TO BE ACCEPTED, THEN THE ASSES SEE WOULD NOT BE LIABLE TO DISCLOSE ANY INCOME ON THIS ACCOUNT SINCE HE WOULD ALWAYS SHOW THIS AMOUNT AS LIABILITY ON THE GROUND THAT THE SAME MAY BE CLAIMED BY THE PURCHASER OF THE GIFT VOUCHER AT A FUTURE DATE EVEN AFTER THE EXPIRY OF THREE YEARS FROM TH E DATE OF ISSUE OF THE GIFT VOUCHERS. THIS WILL LEAD TO A SITUATION WHERE THE ASSESSEE WOULD NEVER OFFER INCOME IN RESPECT OF THE EXPIRED GIFT VOUCHERS AND POSTPONE THE ACCRUAL OF INCOME DEFINITELY. THE LIABILITY CANNOT BE CONTINUE TO EXIST IN PERPETUITY W HEN THE TERMS AND CONDITIONS RELATING TO THE GIFT VOUCHERS ITSELF PROVIDE THAT THE LIABILITY OF THE ASSESSEE WOULD CEASE TO EXIST AFTER 36 MONTHS. HOWEVER, AS EXPLAINED ABOVE, THIS CONTENTION IS NOT LEGALLY TENABLE SINCE AT THE END OF THREE YEARS, NO CLAIM CAN LEGALLY BE MADE ON THIS AMOUNT AND IF THE ASSESSEE DECIDES TO HONOUR THE GIFT VOUCHER, IT WOULD BE ONLY AS PER HIS OWN DECISION. IN VIEW OF THE AFORESAID REASONS, THE CONTENTION OF THE ASSESSEE THAT NO INCOME HAS ACCRUED TO HIM IN RESPECT OF THE LIABI LITY IN QUESTION CANNOT BE ACCEPTED. 2.2.3 AS PER THE BALANCE SHEET, TOTAL GIFT VOUCHERS LIABILITY OF RS. 3,22,15,623/ - HAS BEEN SHOWN. THIS ALSO INCLUDES LIABILITIES ON ACCOUNT OF GIFT VOUCHERS WHICH WERE ISSUED DURING THE F. YRS. 2005 - 06, 2006 - 07 AND 2 007 - 08. AS PER THE TABLE FURNISHED BY THE ASSESSEE, OUT OF. THE GIFT VOUCHERS ISSUED DURING THESE YEARS, LIABILITY OUTSTANDING AT THE YEAREND WAS RS. 2,72,18,540/ - , LEAVING BALANCE OUTSTANDING LIABILITY OF RS. 49,97,083/ - . SINCE THE LIABILITIES RELATING TO THE F. YRS. 2005 - 06, 2006 - 07 AND 2007 - 08 WOULD NOT HAVE CEASED AS ON 31/03/2008 (FOR THE REASON THAT THE ASSESSEE IS REQUIRED TO HONOUR THE GIFT VOUCHERS FOR A PERIOD OF 3 YEARS FROM THE DATE OF ISSUE OF GIFT VOUCHERS), IT CAN BE SAFELY SAID THAT THE BALA NCE OUTSTANDING LIABILITY OF RS. 49,97,083/ - HAS CEASED TO EXIST AND THE INCOME TO THIS EXTENT HAS ACCRUED TO THE ASSESSEE. IN THE ABSENCE OF ANY OTHER DATA FURNISHED BY THE ASSESSEE, THIS AMOUNT OF RS. 49,97,083/ - IS TO BE CONSIDERED AS THE INCOME OF THE ASSESSEE FOR THE F.Y. 2007 - 08 RELEVANT TO THE A.Y. 2008 - 09. THIS AMOUNT IS, THEREFORE, TO BE BROUGHT TO TAX IN THE A.Y. 2008 - 09. HENCE, THE ADDITION TO THE EXTENT OF RS. 49,97,083/ - IS SUSTAINED. THIS GROUND OF APPEAL IS TREATED AS PARTLY ALL OWED. ITA 4142 / M/ 1 2 5 4. A GGRIEVED BY THE ABOVE ORDER, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US IN RESPECT OF THE ADDITION SUSTAINED BY THE LD. CIT(A). HOWEVER, THE LD. A.R. CLARIFIED THAT THE REVENUE IS NOT IN APPEAL FOR THE ADDITION DELETED BY THE LD. CIT(A). 5. WE HAVE CON SIDERED RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND FROM THE RECORD THAT DURING THE YEAR THE ASSESSEE HAS ISSUED GIFT VOUCHERS OF RS. 3.32 CRORES, OUT OF WHICH GIFT VOUCHERS OF RS.2.47 CRORES WERE ENCASHED DURING THE YEAR ITSELF LEAVING A BALANCE OF RS.85.07 LAKHS. THE GENUINENESS OF ISSUE OF GIFT VOUCHERS AND ITS ENCASHMENT IN SUBSEQUENT YEAR HAS NOT BEEN DENIED BY THE DEPARTMENT. EVEN IN EARLIER YEARS, NO ADDITION WAS MADE IN RECEIPT OF SIMILAR GIFT VOUCHERS ISSU ED BY THE ASSESSEE WHICH WAS CLAIMED TO HAVE BEEN ENCASHED IN THE SUBSEQUENT YEARS. DURING THE YEAR UNDER CONSIDERATION T HE CIT(A) HAS CONFIRMED THE ADDITION IN RESPECT OF VOUCHERS WHICH WERE MORE THAN THREE YEARS OLD. AS PER THE FIGURES AVAILABLE ON RECOR D WE FOUND THAT SUCH WORKING OF VOUCHERS MORE THAN THREE YEARS OLD WORKS OUT AT RS.7,35,107/ - , WHICH AS UNDER : - CHART SHOWING ADDITION ON ACCOUNT OF EXPIRED GIFT VOUCHER : SL.NO. PARTICULARS AS PER ALTERNATE WORKING 1. OUTSTANDING BALANCE AS ON 31.03.2 008 3,22,15,623 2. VOUCHERS ISSUED IN LAST THREE YEARS 11,24,58,064 3 . VOUCHERS REDEEMED IN LAST THREE YEARS OUT OF ABOVE (8,09,77,548) 4. OUTSTANDING OUT OF LAST THREE YEARS VOUCHERS (SL.NO.2 - 3) 3,14,80,516 5. V OUCHERS MORE THAN THREE YEARS OLD (SL.NO .1 - 4) 7,35,107 6. IN VIEW OF THE ABOVE CALCULATION, WE RESTRICT THE ADDITION TO RS. 7,35,107/ - IN RESPECT OF GIFT VOUCHERS ISSUED BY THE ASSESSEE. ITA 4142 / M/ 1 2 6 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PART. O RDER PRONOUNCED IN THE OPEN COURT ON 13 TH MAY , 2015 . 13/05/2015 SD/ - SD/ - ( SANJAY GARG ) ( R.C. SHARMA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED [ . . ./ RK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) CONCERNED , , MUMBAI 4. / CIT - CONCERNED , MUMBAI 5. , , / DR, ITAT, MUMBA I E BENCH 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI