TMI Blog2012 (12) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... I J. SUDHAKAR REDDY AND SHRI V. DURGA RAO, JJ. Revenue by : Mr. C.G.K. Nair Assessee by : Mr. Arvind Sonde ORDER PER J. SUDHAKAR REDDY, A.M. This appeal preferred by the Revenue, is directed against the impugned order dated 22nd January 2009, passed by the Commissioner (Appeals)-XXXX, Mumbai, for assessment year 2003-04. 2. Brief facts of the case are that the assessee is a company and is engaged in the business of running retail stores through various outlets in Mumbai, Bangalore, Hyderabad, Jaipur, etc. The retail store sales various lifestyle products like readymade garment, watches, shoes, jewellery, etc. The facts relating to the sole issue that arises in this appeal are as follows:- 3. The assessee, as part of its business stretegy to sustain patronage by its customers and to encourage loyalty, introduced a sales promotion scheme under the name and style of First Citizen . Under the scheme, the customers earned reward points for the purchases made by them at the stores of the assessee. The accumulated rewards point can be redeemed by the customers by way of rebate from the sale price while making additional purchases at the assessee s stor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 50%, the gross profit margin is removed and only the balance was claimed. He relied on the following case laws:- Calcutta Co. Ltd. Vs CIT, [1959] 037 ITR 001 (SC); Jet Airways Pvt. Ltd., 2006-TIOL-26-ITAT-MUM; Taparia Tools Ltd. v/s JCIT, [2003] 260 ITR 0102 (Bom); and Rotork Control India Pvt. Ltd. v/s CIT, 108 Taxman 422 (SC) 7. The learned Counsel invoked Rule-27, and challenged the re-opening of assessments. He referred to the reasons for re-opening at page-37 of the paper book and submitted that the information was picked up from the notes to accounts for assessment year 2003-04 and from a letter submitted during the course of assessment proceedings. He pointed out that the Assessing Officer recorded that the claim is at variance with the accounting policy. Referring to the notice to the financial statements, which is at Page-12 of the paper book and he submitted that the note deals on revenue recognition and not with provisions. Thus, he submitted that the Assessing Officer was looking into the wrong notes to accounts. He submitted that the accounting policy does not discuss expenditure and deals only with revenue recognition. He pointed out that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant has to bear the cost of the redemption, the points assume the character of cost in relation to the redemption entitled sale. The appellant s claim is thus, in full agreement with the concept of matching revenue and costs. In this respect, I find the appellant s reliance on the decision of the Hon ble Supreme Court in the case Calcutta Co. Ltd. Vs. CIT (WB) 37 ITR 1 as apt and appropriate. In the case Calcutta Co. Ltd. Vs. CIT, the Hon ble Supreme Court has, in the context of a future discharge of liability in connection with development of plots,! held that the liability on the assessee having been imported, the Liability would be an accrued liability and would not convert into a conditional one merely because the liability was to be discharged at a future date. This view has been echoed by the Hon ble Supreme Court again in their decision in the case Bharat Earth Movers Vs. CIT. Once the concept of matching revenue and costs is found established, the next natural question would be to see the quality and accuracy of the quantification of the cost to see whether on not the FCC points debited are based on scientific calculation and research. This brings us to the second ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re redeemed by the customers. Further, this is again reduced by gross profit margin of 30%. The appellant also maintains proper accounting entry in the FCC points redemption account and also runs a software on the redemption process. Premised on this, find that the tests of historical basis and systematic entry of data as laid down by the Supreme Court are fulfilled by the appellant s method of quantification and accounting of the FCC points. In this respect, I also note that the appellant s reliance on the decision of the Hon ble ITAT, Mumbai Bench in the case ACIT. Circle 5(1), Mumbai and M/s. Jet Airways India P. Ltd. in TA No.3691/M/02 as very apt and appropriate. In this decision, vide its order dated 30.05.2006 while allowing the airline s claim on its scheme called frequent flyer programme , a claim very similar to the FCC reward points in the appellant s case, the Hon ble ITAT has held as under:- In our view, the claim of the assessee has been properly allowed by the CIT(A). The assessee has a scheme known as frequent flyer programme , Whereby the passengers who frequently use the services of the assessee s airline are permitted to accumulate certain number of miles o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oresaid findings of the Commissioner (Appeals). The facts, issues and the findings are brought out nicely by the Commissioner (Appeals). As and when the customer of the assessee makes a particular purchase, the customer is given a monetary 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 liability which it has claimed as marketing expenditures. The assessee, based a historical data, in a scientific manner, has estimated that only 50% of the 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 as expenditure. On a direction from the Bench, the assessee has also filed 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 followed year after year. On this factual matrix, we uphold the findings of the Commissioner (Appeals). Consequently, the ground raised by the Revenue is dismissed. As we have upheld the order passed by the Commissioner (Appeals), we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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