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2017 (7) TMI 574

Head Note / Extract:
Addition u/s 41 - amount collected towards the scheme which was expired long ago - cessation of liability - Held that:- The assessee had launched a scheme of sales promotion. Under such scheme, the assessee would enroll a member, who would deposit a sum of ₹ 500/with the assessee company. If such a member in turn enrolled four members, he would get one black and white TV set manufactured by the assessee company free of cost. Same benefit would be available to the enrolled members if they fulfilled this condition. The scheme was operative for a period of 12 months. In other words, a member would have to enroll four members within such period of 12 months in order to get the benefit of earning a free TV set. Over a span of couple of years, the assessee collected a huge sum of ₹ 7.87 crores by enrollment membership fee of ₹ 500/each.

As is bound to happen, in such a scheme requiring continuous chain reactions, the chain would break at some stage. The amount of ₹ 7.87 crores represents the money deposited by those members. This amount remained with the company over the years without any change whatsoever. The Revenue authorities have found that there was no activity at the hands of the assessee company in connection with the scheme for past several years. Not a single customer had demanded the money back nor the assessee had made any attempt to repay the same. It was only when the Assessing Officer in the present assessment proceedings raised the issue, the assessee made correspondence with the customers. This, the Commissioner (Appeals) correctly categorized as an afterthought. More importantly in all invoices, the signatures of the member customers were missing. Their addresses were not sufficient. Over the years, the company had also invested such amount earning interest and used such interest for its purpose, of course, offering interest income to tax. By all accounts, the assessee has treated such amount as its own. The scheme itself terminated many years back. Limitation of claiming amount back has also seized. There is absolutely no movement or correspondence between the assessee and its members with respect to the claim or with respect to the deposited amounts. - Additions confirmed


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