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Loyalty Solutions And Research Pvt Ltd Versus The Deputy Commissioner of Income Tax, The Commissioner of Income Tax-II

2016 (2) TMI 801 - KARNATAKA HIGH COURT

Change of opinion - Validity of reopening of assessment - Held that:- Having regard to the audit objection having been addressed by the assessing officer, there would remain no basis for reassessment four years after the assessment order, when the audit objection has been met by the assessing officer as per the letter referred.

Incidentally, it is pointed out that one other contention by the respondents is that the assessment order does not indicate that the assessing officer had deal .....

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ed on a full bench decision of the Delhi High Court in the case of Commissioner of Income-tax vs. Usha International Limited, (2012 (9) TMI 767 - DELHI HIGH COURT). - Decided in favor of assessee. - Writ Petition No. 6565, 6566 of 2015 (T-IT) - Dated:- 11-2-2016 - Anand Byrareddy, J. For the Appellant : Shri K.P.Kumar, Senior Adv. for Shri T. Suryanarayana, Adv For the Respondent : Shri Jeevan J Neeralgi, Adv ORDER Heard the learned Senior Advocate Shri K.P.Kumar appearing for the learned counse .....

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ed towards future purchases. The loyalty program is managed by the petitioner at an agreed price with its partners. For the assessment year 2008-09, the gross amount received from the partners towards the redemption of the loyalty points was accounted upfront as income and was offered to tax and the cost of redemption of points was claimed as a deduction in computing the said income. Insofar as the unredeemed loyalty points are concerned, the petitioner had created a provision for its liability .....

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he petitioner has subsequently learnt that an audit objection was raised by the Audit Officer on the basis that the deduction in respect of the aforesaid provision ought not have been allowed. Simultaneously, the petitioner s assessment for the assessment year 2009-10 was said to be under process and the assessing officer had raised a specific query as regards the provision for liability towards the unredeemed loyalty points. The petitioner is said to have explained in detail on the accounting a .....

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sessment proceedings under Section 147 of the Income-tax Act,1961, on the ground that the provision towards unredeemed loyalty points ought not to have been allowed as a deduction, by virtue of which, there was income which had escaped assessment. In terms of the First proviso to Section 147 of the IT Act, where an assessment under Section 143(3) of the IT Act is completed, reassessment proceedings, according to the petitioner, cannot be initiated after a period of four years from the end of the .....

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Evidently, detailed examination was made and there was an opinion formed at the time of the original assessment and subsequently, during the audit objection raised. Moreover, the financial statements of the petitioner for the period ended 31.03.2008 had clear disclosures on the said provision. Therefore, there can be no justification for reopening of an assessment after four years from the end of the relevant assessment year. The petitioner filed objections as regards the first respondent s jur .....

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titioner and the petitioner had disclosed the material particulars. It is contended that from the perusal of the assessment order, it is seen that the assessing officer had not expressed any opinion on the claim of the petitioner and that it was silent as regards the aspect which the petitioner was claiming that the assessing officer had considered the same before finalizing the assessment. Since it is claimed that as per the Accounting Standards applicable to companies, the petitioner is entitl .....

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ment order dated 16.11.2010. Hence, the assessing officer had no occasion to examine the said objection and reject the same. The contention of the petitioner that it is not a contingent liability, but would have to be considered as an accrued liability, it is contended, is not a correct legal proposition. In the case of loyalty programme, the liability arises only when the claim for redemption is made. Any liability which is not accrued within the year end or there is nothing on record to remote .....

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hat there was an audit objection raised subsequent to the assessment order and therefore, the assessing officer did not have the benefit of addressing a particular aspect, which is highlighted in the audit objection and hence the assessment order being liable for reassessmsent is an incorrect statement, for the reason that there cannot be an audit objection unless there is an assessment order. And as regards the audit objection there is material on record, whereby the assessing officer has repli .....

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experience of such nature of transactions. And the liability or provisions for the unredeemed points was reversed as and when the lift cycle of the unredeemed points expired. Further, as the transactions were entered into by the company with the relevant concerns, in the year ended 31.3.2009, the liability arose in that accounting year since a time limit of 3 years is fixed by those concerns for redeeming the points allotted to each user, the provision made by the assessee was therefore, fair an .....

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