ACIT CEN CIR 29, MUMBAI V. SHOPPERS STOP LTD, MUMBAI

ITA 5460/MUM/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59856 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 21-02-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 06-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B JAYA KUMAR
• Assessee Lawyers: SANJAY SOMANI
• Keywords: Business income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER. I.T.A. NO. 5460/MUM/2010. ASSESSMENT YEAR : 2007-08. ASSTT. COMMISSIONER OF INCOME-TAX, SHOPPERS STOP LTD. CIRCLE-29, MUMBAI. VS. B WING, 9 TH FLOOR EUREKA TOWRR, MIND SPACE, LINK ROAD, MALAD WEST, MUMBAI-400064. PAN AABCS4383A. APPELLANT. RESPONDENT. APPELLANT BY : SHRI B. JAYA KUMAR. RESPONDENT BY : SHRI SANJAY SOMANI. DATE OF HEARING : 21-02-2012 DATE OF PRONOUNCEMENT : 24-02-2012 O R D E R. PER P.M. JAGTAP, A.M. : THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF LEARNED CIT(APPEALS)-40, MUMBAI DATED 08-04-2010 AND THE SOLITARY ISSUE ARISING OUT OF THE SAME RELATES TO THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF ASSESSEES CLAIM FOR DEDUCTION TOWARDS REWARD POINTS AGAINST C URRENT YEARS SALES TREATING THE SAME AS UNASCERTAINED LIABILITY, WHICH THE LEARNED CIT(APPEALS) HAS DELETED. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF RETAILING A VARIETY OF HOUSEHOLD AND CO NSUMER PRODUCTS THROUGH VARIOUS DEPARTMENTAL STORES. THE RETURN OF INCOME FOR THE Y EAR UNDER CONSIDERATION WAS 2 ITA NO. 5460/MUM/2010 FILED BY IT ON 29-10-2007 DECLARING TOTAL INCOME OF RS.57,31,70,610/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE AO ON PERUSAL OF THE PROFIT & LOSS ACCOUNT FILED BY THE ASSESSEE ALONG WITH ITS RETURN OF INCOME AND OTHER RELEVANT DETAILS FURNISHED THAT A SUM OF RS.5,54,90 ,650/- WAS REDUCED FROM SALES ON ACCOUNT OF FIRST CITIZEN REWARD SCHEME AS MARKET ING EXPENSES. IT WAS EXPLAINED BY THE ASSESSEE THAT THE SAID EXPENDITURE WAS RELATED TO A SALES PROMOTION SCHEME UNDER WHICH CUSTOMERS WERE ALLOWED TO REDEEM REWARD POINTS AGAINST PURCHASES TO BE MADE BY THEM IN FUTURE. THE ASSESSE E SUBMITTED THAT IT WAS CLAIMING SUCH COST OF REWARD POINT ACCUMULATED AND NOT REDEEMED BY THE CUSTOMERS, ON THE SALES MADE DURING THE YEAR FOLLOW ING THE MERCANTILE BASIS OF ACCOUNTING. VARIOUS OTHER SUBMISSIONS WERE ALSO MAD E ON BEHALF OF THE ASSESSEE BEFORE THE AO IN SUPPORT OF ITS CONTENTION THAT THE PROVISION MADE FOR REWARD POINT UNDER FIRST CITIZEN REWARD POINT SCHEME WAS NOT C ONTINGENT LIABILITY AND THE SAME BEING AN ASCERTAINED LIABILITY WAS DEDUCTIBLE AGAINST BUSINESS INCOME. 3. THE SUBMISSIONS MADE BY THE ASSESSEE IN SUPPORT OF ITS CLAIM FOR DEDUCTION ON ACCOUNT OF PROVISION MADE FOR REWARD POINT WERE NOT FOUND ACCEPTABLE BY THE AO FOR THE FOLLOWING REASONS GIVEN IN THE ASSESSMEN T ORDER : (I) SALES PROMOTION ACTIVITY CAN NOT OVERRULE PROVI SIONS OF INCOME TAX ACT, OR THE PRINCIPALS OF ACCOUNTING REGULARLY FOLL OWED BY THE ASSESSEE IN BUSINESS FOR WHICH SUCH PROMOTIONAL ACTIVITIES A RE UNDER TAKEN. UNDER SECTION 40A(7), SUCH UNASCERTAINED LIABILITY ARE TO BE DISALLOWED. (II) FOR REDEEMING OF REWARD POINTS THE SSL DOES NO T HAVE TO INCUR ANY SUCH SPECIAL COST BY WAY OF GOODS OR FINANCIAL CHAR GES OR OTHERWISE, BUT THE REWARD POINTS ARE ADJUSTED AGAINST THE PURC HASE OF GOODS MADE IN THE NORMAL BUSINESS TRANSACTIONS. THEREFORE, APA RT FROM THE ACCOUNTING POINT, ON COST BASIS ALSO THE ASSESSEE D OES NOT ACTUALLY INCUR ANY SPECIAL EXPENDITURE AT THE TIME REWARD PO INTS ARE ALLOTTED TO THE CUSTOMERS. 3 ITA NO. 5460/MUM/2010 (III) REWARD POINTS ARE ACTUALLY ADJUSTED AGAINST T HE FUTURE PURCHASES ONLY BUT THE ASSESSEE DEBITS SUCH FUTURE UN-ASCERTAIN LI ABILITY/EXPENDITURE AGAINST THE INCOME OF THE YEAR. (IV) THE TERM USED BY THE ASSESSEE TO DESCRIBE SUCH LIABILITY AS PROVISION ITSELF PROVES THAT IT IS A FUTURE UN-ASCERTAIN LIAB ILITY AND UNDER THE PROVISION OF INCOME TAX ACT, U/S 40A(7) UNASCERTAIN ED PROVISION ARE NOT ALLOWABLE AS AN EXPENDITURE, THOUGH THE SAME MA Y BE CORRECT AS PER THE COMPANIES ACT OR THE INSTRUCTIONS OF THE IN STITUTE OF CHARTERED ACCOUNTANTS. (V) THE MERE FACT THAT THE PROVISION FOR REWARD POI NTS IS MADE ON THE BASIS OF REDEMPTION MADE BY THE CUSTOMERS OVER A PERIOD O F TIME AND NOT ON THE ACTUAL BASIS I.E. SECOND SALE, MAKES SUCH PROVI SION AS UN- ASCERTAINED LIABILITY. (VI) WHEN THE CUSTOMER PURCHASES GOODS FROM SSL THE REWARD POINTS EARNED ARE IN THE NATURE OF FUTURE UNASCERTAINED LI ABILITY AS IT CAN NOT BE SAID FOR CERTAINTY ON THE BASIS OF ANY REASONING OR STATISTICAL DATA OF EARLIER YEARS, WHEN THE SAME CUSTOMER WILL PURCHASE THE GOODS FOR EN- CASHING REWARD POINTS. 4. FOR THE REASONS GIVEN ABOVE, THE AO HELD THAT TH E PROVISION OF RS.5,54,90,650/- MADE BY THE ASSESSEE FOR REWARD PO INT ON SALES MADE DURING THE YEAR UNDER CONSIDERATION WAS UNASCERTAINED LIABILI TY AND THE SAME WAS NOT ALLOWABLE AS DEDUCTION IN THE YEAR UNDER CONSIDERAT ION. ACCORDINGLY THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF THE SAID AMOUNT WAS D ISALLOWED BY THE AO IN THE ASSESSMENT COMPLETED U/S 143(3) VIDE AN ORDER DATED 24-12-2009. 5. AGAINST THE ORDER PASSED BY THE AO U/S 143(3), A N APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LEARNED CIT(APPEALS). DURIN G THE COURSE OF APPELLATE PROCEEDINGS, ELABORATE SUBMISSIONS WERE MADE ON BEH ALF OF THE ASSESSEE IN SUPPORT OF ITS CLAIM THAT THE PROVISION MADE FOR REWARD POI NTS ON THE SALES MADE DURING THE YEAR UNDER CONSIDERATION WAS AN ASCERTAINED LIABILI TY AND THE SAME WAS ALLOWABLE AS DEDUCTION WHILE COMPUTING THE BUSINESS INCOME OF THE YEAR UNDER CONSIDERATION. THE LEARNED CIT(APPEALS) FOUND MERITS IN THE SAID S UBMISSION AND DELETED THE 4 ITA NO. 5460/MUM/2010 DISALLOWANCE MADE BY THE AO ON THIS ISSUE FOR THE F OLLOWING REASONS GIVEN IN PARAGRAPH NO. 3.3 OF HIS IMPUGNED ORDER : I HAVE CONSIDERED THE ASSESSMENT ORDER AND THE SU BMISSIONS OF THE APPELLANT. AS I FIND, THE ISSUE HAS BEEN DISCUSSED BY ME IN DETAIL IN MY APPEAL ORDER DATED 22.12.2009 IN APPELLANTS OWN CA SE FOR THE ASSTT. YEAR 2003-04. IN THIS ORDER, IN TERMS OF MY DISCUSSION I N PARA 3.3, 3.3.1 AND 3.3.2 OF MY ORDER, I HAVE ALLOWED THE APPELLANTS APPEAL ON THIS ISSUE FOR THAT YEAR. THE FACTS AND MOST OF THE RIVAL ARGUMENTS ON THESE ISSUES REMAINING THE SAME FOR THE PRESENT ASSESSMENT YEAR UNDER CONSIDER ATION, I AM NOT REPEATING THEM IN THIS ORDER. MY DISCUSSION IN THE ORDER FOR THE A.Y. 2003-04 MAY BE TAKEN AS PART OF THIS ORDER ALSO. THE ASSESSING OFF ICER FOR THE PRESENT ASSESSMENT YEAR HAS RAISED SOME FURTHER ISSUES IN P ARA 5.3 OF HIS ORDER AND I WILL CONFINE MYSELF TO DELIBERATING ON THESE ARGUME NTS ONLY IN THIS ORDER. IN THIS RESPECT, LOOKING INTO THE APPELLANTS SUBMISSI ONS ON THESE ARGUMENTS AND THE FACTS SURROUNDING THE GENESIS, ACCOUNTING AND M ETHOD OF QUANTIFICATION OF THE REWARD POINTS, I DO NOT FIND ANY MERIT IN TH E ARGUMENTS MADE BY THE ASSESSING OFFICER. TO THIS END, I FIND THE ASSESSIN G OFFICERS QUOTING OF SECTION 40A(7) OF THE ITA OUT OF PLACE AS THIS SECT ION TALKS OF ALLOWABILITY OF PROVISION FOR PAYMENT OF GRATUITY AS AGAINST WHICH, IN THE APPELLANTS CASE THE ISSUE IS ALLOWABILITY OF REWARD POINTS. AS MAY BE RECALLED, IN MY ORDER FOR THE A.Y. 2003-04, I HAVE DISCUSSED IN DETAIL HO W BECAUSE OF THE CONCEPT OF MATCHING REVENUE AND COSTS, THE SCIENTIFIC AND R EASONABLE BASIS OF QUANTIFICATION OF THE REWARD POINTS CLAIMED, THE JU DICIAL DECISIONS DISCUSSED BY ME AND ADEQUATE SAFEGUARDS AGAINST THE POSSIBILI TY OF DOUBLE DEDUCTION, THE APPELLANTS CLAIM IS ALLOWABLE. AS MAY BE NOTED IN THIS DISCUSSION FOR THE A.Y. 2003-04, I HAVE MADE IT CLEAR THAT BECAUSE OF THE FACTORS MENTIONED BY ME, THE CLAIM CANNOT BE TREATED AS A CONTINGENT LIA BILITY IN VIEW OF THE FACT THAT THE QUANTIFICATION OF THE CLAIM IS BASED ON RE SEARCH, TREND ANALYSIS AND LOGICAL CALCULATION. THE ASSESSING OFFICERS OTHER ARGUMENTS THAT THERE IS NO COST ATTACHED TO THE REDEMPTION OF THE REWARD POINT S IS ALSO MISPLACED IN THAT, AS DISCUSSED IN DETAIL IN MY ORDER FOR THE A. Y. 2003-04, SINCE THE REWARD POINTS HAVE THEIR GENESIS IN THE SALES MADE, WHEN THEY ARE EARNED, THEY CONSTITUTE COST INCURRED TO EARN THE CORRESPON DING REVENUE. AS ALSO DISCUSSED IN MY APPEAL ORDER FOR THE A.Y. 2003-04, THIS FINDS SUPPORT IN THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE C ALCUTTA CO. LTD. VS. CIT (WB) 37 ITR 1. IN THE OTHER POINTS ARGUED BY THE AS SESSING OFFICER, THE ESSENCE IS THAT THE REWARD POINTS ARE UNASCERTAINED LIABILITY. AS ALREADY DISCUSSED, THE REWARD POINTS HAVING BEEN QUANTIFIED ON A SCIENTIFIC BASIS ARE 5 ITA NO. 5460/MUM/2010 ALLOWABLE IN TERMS OF THE DECISIONS QUOTED BY ME IN MY ORDER FOR THE A.Y. 2003-04. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(APPEALS), THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 6. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE RELIEF ON THE ISSUE UNDER CONSIDERATION WAS GRANTED BY THE LEARNED CIT(APPEALS) TO THE ASSE SSEE IN THE YEAR UNDER CONSIDERATION MAINLY RELYING ON HIS APPELLATE ORDER FOR ASSESSMENT YEAR 2003-04 PASSED IN ASSESSEES OWN CASE WHEREIN A SIMILAR ISS UE WAS DECIDED BY HIM IN FAVOUR OF THE ASSESSEE. AT THE TIME OF HEARING BEFO RE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ORDER OF THE LEARNE D CIT(APPEALS) FOR ASSESSMENT YEAR 2003-04 GIVING RELIEF TO THE ASSESSEE ON A SIM ILAR ISSUE HAS ALREADY BEEN UPHELD BY THE TRIBUNAL VIDE ITS ORDER DATED 25-01-2 012 PASSED IN ITA NO. 1835/MUM/2010. HE HAS ALSO FILED A COPY OF THE SAID ORDER WHEREIN THE TRIBUNAL HAS DECIDED THIS ISSUE IN PARAGRAPH NO. 11 AS UNDE R : WE FULLY AGREE WITH THE AFORESAID FINDINGS OF THE COMMISSIONER (APPEALS). THE FACTS, ISSUES AND THE FINDINGS ARE B ROUGHT OUT NICELY BY THE COMMISSIONER (APPEALS). AS AND WHEN THE CUSTOMER OF THE ASSESSEE MAKES A PARTICULAR PURCHASE, THE CUSTOMER IS GIVEN A MONETA RY RIGHT, IN THE FORM OF REBATE IN THE COST OF GOODS THAT HE MAY PURCHASE AT A FUTURE DATE. THUS, AS AND WHEN A RIGHT IS GIVEN, THE ASSESSEE INCURS A LI ABILITY WHICH IT HAS CLAIMED AS MARKETING EXPENDITURE. THE ASSESSEE, BASED A HIS TORICAL DATA, IN A SCIENTIFIC MANNER, HAS ESTIMATED THAT ONLY 50% OF T HE REWARD POINTS GIVEN ARE LIKELY TO BE ENCASHED BY THE CUSTOMERS. OUT OF THIS, 50% GROSS PROFIT MARGIN IS REDUCED AND THE BALANCE IS ONLY CLAIMED A S EXPENDITURE. ON A DIRECTION FROM THE BENCH, THE ASSESSEE HAS ALSO FIL ED DATA FROM THE ASSESSMENT YEAR 2005-06 TO THE ASSESSMENT YEAR 2010 -11, WHICH SHOWS THAT THE POINTS LAPSED WAS SHOWN AS INCOME. THE ASSESSEE HAS ALSO PROVED THAT THIS IS A CONSISTENT ACCOUNTING POLICY BEING FOLLOW ED YEAR AFTER YEAR. ON THIS FACTUAL MATRIX, WE UPHOLD THE FINDING OF THE COMMIS SIONER (APPEALS). CONSEQUENTLY, THE GROUND RAISED BY THE REVENUE IS D ISMISSED. 6 ITA NO. 5460/MUM/2010 7. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDER ATION AS WELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO THAT OF ASSESSMENT YEAR 2003-04, WE RESPECTFULLY FOLLOW THE ORDER OF THE COORDINATE BEN CH OF THIS TRIBUNAL PASSED FOR ASSESSMENT YEAR 2003-04 (SUPRA) AND UPHOLD THE IMPU GNED ORDER OF THE LEARNED CIT(APPEALS) DELETING THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF ASSESSEES CLAIM FOR DEDUCTION TOWARDS REWARD POINTS AGAINST T HE CURRENT YEARS SALES. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED ON THIS 24 TH DAY OF FEBRUARY, 2012. SD/- SD/- (V. DURGA RAO) (P.M. JA GTAP) JUDICIAL MEMBER. ACCO UNTANT MEMBER MUMBAI, DATED: 24 TH FEBRUARY, 2012. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, E-BENCH. (TRUE COPY ) BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI BENCHES , MUMBAI. WAKODE .