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Income Tax Appellate Tribunal, “A” Bench, Mumbai
Before: Shri Shamim Yahya & Shri Ravish Sood
Appellant by: Shri Vijay Mehta & Shri Anuj Kisnadwala, A.Rs Respondent by: Shri Ravinder Sindhu, D.R Date of Hearing: 14.01.2020 Date of Pronouncement: 25.02.2020 O R D E R
PER RAVISH SOOD, JM
The present appeal filed by the assessee is directed against the order passed by the CIT(A)-28, Mumbai, dated 24.08.2017,which in turn arises from the order passed by the A.O under Sec. 143(3) of the Income Tax Act, 1961 (for short „Act‟), dated 22.03.2013 for A.Y. 2010-11. The assessee has assailed the impugned order on the following grounds of appeal before us: “1.1 The learned Commissioner of Income-Tax (Appeals) - 28, Mumbai, ["Ld. CIT(A)"] erred in directing the Assessing Officer ["the A.O."] to disallow the entire amount of outstanding liability of gift vouchers as on 31.03.2010, as against twenty percent (20%) out of the outstanding liability of gift vouchers disallowed by him. 1.2 It is submitted that in the facts and the circumstances of the case, and in law, the enhancement of assessed income is bad, illegal and void, as mandatory conditions for initiation as well as completion thereof were not fulfilled. 1.3 It is prayed that the enhancement be held as bad, illegal and void. WITHOUT PREJUDICE TO THE ABOVE: 2.1 The Id. CIT (A) erred in directing the A.O. to disallow the entire amount of outstanding liability of gift vouchers as on 3 1.03.2010 amounting to Rs.2,17,97,617/-. 2.1 While doing so, the Id. CIT (A) failed to appreciate that:
2 M/s Akbarallys Department Stores Vs. ACIT-12(3) & CIT(A)-28 (a) Method of Accounting adopted by the Appellant to determine its liability on account of gift vouchers issued was a proper method, consistently and regularly adopted / followed by it over a period of time; and (b) sales (revenue income) with respect to gift vouchers are recognized as and when the vouchers are redeemed by the customers. 2.3 It is submitted that, in the fact and circumstance of the case and in law no disallowance of outstanding balance of gift vouchers as on 31st March, 2010 was called for.
The appellant craves leave to add, alter, delete or modify all or any the above ground at the time of hearing.”
Briefly stated, the assessee which is running a chain of departmental stores in Mumbai, and dealing in a variety of both branded and unbranded products had filed its return of income for A.Y. 2010-11 on 15.10.2010, declaring a total loss of Rs.2,25,66,803/-. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act.
3. On a perusal of the records it was observed by the A.O that the assessee had shown a liability of gift vouchers of Rs.2,17,97,617/- in its „balance sheet‟ for the year under consideration. On being queried as regards the nature of the aforesaid liability, it was submitted by the assessee that customers would purchase „gift vouchers‟ which thereafter would be redeemed by them at a later date by taking items of their choice as against the same. It was submitted by the assessee that the „gift vouchers‟ would be transferred to the „outstanding liability‟ account and not accounted for as revenue in its „books of accounts‟. Further, it was submitted by the assessee that issuance of a „gift voucher‟ fastened an obligation on the assessee to sell at a future date. As regards the period of validity of the „gift vouchers‟, it was stated by the assessee that though the same remained valid for a period of 3 years, but then as a matter business prudence the vouchers were redeemed even after the lapse of the aforesaid period. In the backdrop of the aforesaid facts, the A.O called upon the assessee to explain as to why the liability of the „gift vouchers‟ that have not been claimed for more than 3 years may not be disallowed and the corresponding amount be added to its income for the year under consideration. Rebutting the aforesaid observation of the A.O, it was submitted by the assessee that though the validity period of the „gift vouchers‟ was 3 years i.e the same could be encashed by the customers within 3 years, however, as a matter of business prudence the strict adoption of the aforesaid period of validity could not be adopted as a hard and fast rule. In fact, it was the claim of the assessee that in view of the fierce competition and with an intent to retain the goodwill of the assessee in the market and with the customers, it would in the normal course of 3 M/s Akbarallys Department Stores Vs. ACIT-12(3) & CIT(A)-28 its business honor its encashment obligation in respect of the „gift vouchers‟ which though may not have been redeemed for more than 3 years. It was averred by the assessee that it had at no point of time refused to honor the „gift vouchers‟ which were presented after the expiry date, and would in fact revalidate the same in any one of the ways viz. (i) allowing the customer to make purchases against the expired „gift vouchers‟ by validating the same; or (ii) extending the period of validation of „gift vouchers‟ in case if the customer did not wish to make an immediate purchase. On the basis of the aforesaid facts, the assessee tried to impress upon the A.O that its obligation to redeem the „gift vouchers‟ did not cease despite lapse of time beyond the period for which the „gift vouchers‟ were valid. However, it was admitted by the assessee that small fraction of the „gift vouchers‟ which were issued would not come for encashment as the same may either be misplaced, destroyed by the customer, or the customer would have left the city for good. On a perusal of the records, it was observed by the A.O that the balance outstanding towards current liability of „gift vouchers‟ for the financial year 2007-08, 2008-09 and 2009-10 was Rs.3,22,15,623/-, Rs. 2,92,11,576/- and Rs.21,72,11,576/-, respectively. Also, it was submitted by the assessee before the A.O that taking cognizance of the fact that some part of the „gift vouchers‟ issued would never be presented for redemption for the aforementioned reasons, it had for the first time in F.Y. 2010-11 offered an amount of Rs.52,48,116/- for taxation by reversing the „gift vouchers‟ liability. Also, on a similar footing an amount of Rs.50,86,291/- was offered by the assessee for taxation by reversing the „gift vouchers‟ liability in the F.Y. 2011-12. Further, it was observed by the A.O that while framing the assessment in the assesses own case for A.Y. 2008-09, his predecessor had disallowed the liability of „gift vouchers‟. On appeal, the Tribunal had sustained the addition to the extent the liability was outstanding for three or more than 3 years. In the backdrop of the aforesaid facts, the A.O called upon the assessee to furnish the amount of the „gift vouchers‟ that had been encashed out of those which were issued during the aforesaid financial year. However, the assessee failed to furnish the requisite information, for the reason, that there was no inbuilt system of accounting as per which it could correlate the encashment of the „gift vouchers‟ with the issuance of the same.
On the basis of his aforesaid observations, the A.O was of the view that the assesses liability to honor the „gift vouchers‟ ceased after the expiry of a period of 3 years from the date
4 M/s Akbarallys Department Stores Vs. ACIT-12(3) & CIT(A)-28 of issuance of the same. As such, the A.O held a conviction that after the expiry of a period of 3 years from the date of issuance of the „gift vouchers‟ if the same were not redeemed the amounts embedded in the said vouchers would legally become the amount of the assessee as the purchaser of the vouchers after the aforesaid period would be divested of their right to raise any claim on the basis of the same. Although, the A.O was of the view that though the assessee may revalidate or honor the „gift vouchers‟ even beyond the period of 3 years, however, as per law he was not obligated to do so. On the basis of his aforesaid observations, the A.O was of the view that as after the lapse of a period of 3 years from the date of issuance of the „gift vouchers‟ the assessee remained under no obligation to redeem the „gift vouchers‟, therefore, the liability reflected against the same would become its income. On being confronted with the aforesaid facts, the assessee agreed that on an estimate basis 10% out of the total outstanding liability for the „gift vouchers‟ could be held to have outlived its validity period and ceased to be a liability anymore. However, the A.O taking cognizance of the fact that disallowance to the extent of 20% of the outstanding liability of the „gift vouchers‟ would serve the cause of justice, therein worked out the disallowance at Rs.43,59,524/-. Accordingly, after making the aforesaid addition/disallowance the A.O scaled down the returned loss of the assessee to an amount of Rs.1,82,07,280/-.
Aggrieved, the assessee carried the matter in appeal before the CIT(A). However, the CIT(A) was not persuaded to subscribe to the contentions advanced by the assessee. On the contrary, the CIT(A) being of the view that the total amount of the outstanding liability of Rs.2,17,97,617/- for the „gift vouchers‟ ought to have been disallowed, therein issued a notice under Sec. 251(2) of the Act, dated 18.07.2017, as per which the assessee was called upon to explain as to why an enhancement to the said effect may not be made in its case. As the submissions filed by the assessee did not find favour with the CIT(A), therefore, he confirmed the addition of Rs.43,59,524/-, and also enhanced the same by a further amount of Rs.1,74,38,093/-. Resultantly, the CIT(A) disallowed the entire amount of outstanding liability of „gift vouchers‟ of Rs.2,17,97,617/-.
The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. Before adverting any further, we may herein observe that the appeal filed by the assessee involves a delay of 102 days. The assessee explaining the reasons leading to the 5 M/s Akbarallys Department Stores Vs. ACIT-12(3) & CIT(A)-28 aforesaid delay in filing of the appeal had filed an application seeking condonation of delay, dated 17.03.2018 along with an „affidavit‟ of Shri Juzar Saifuddin Khorakhiwala, partner of the assessee firm. On a perusal of the „affidavit‟, we find, that it is the claim of the assessee that the order of the CIT(A) was received on 04.10.2017 by Ms. Ranjana Jadhav, one of the housekeeping staff of the assessee firm. It is stated by the assessee that as at the relevant point of time extensive repair and renovation was going on at its premises, therefore, temporary make shift arrangement was made to receive the correspondence at its premises. As such, as stated by the assessee, in the course of the aforesaid ongoing repair work some staff from the housekeeping department would receive the correspondence on behalf of the assessee firm. It is stated by the assessee that as the housekeeping staff members were semi-literate and not well versed with handling the correspondence received, therefore, there would be a delay involved on their part in forwarding the documents received by them to the concerned department/persons, and in certain cases the documents would even get misplaced. In the backdrop of the aforesaid facts, it is the claim of the assessee that its chartered accountant, Mr. Shenvi who was looking after the affairs of assessee firm, not having heard anything about the outcome of the appeal from the assessee firm, therefore, as on 09.02.2018 on his visit to the Income-tax department inquired with the office of the CIT(A) about the fate of the appeal. It is stated by the assessee, that on inquiry with the office staff of the CIT(A), it was brought to the knowledge of Mr. Shenvi that the order was passed by the CIT(A) on 24.08.2017 and the same was dispatched and also received by the assessee firm. On the basis of the aforesaid facts, as stated by the assessee, its chartered accountant Mr. Shenvi examined the postal acknowledgment available with the office of the CIT(A) and found that the order was received by Ms. Ranjana Jadhav, a housekeeping staff member of the assessee firm. On being informed about the aforesaid fact, it is stated by the assessee that he made necessary enquiry, wherein it was gathered that though Ms. Ranjana Jadhav had received the aforesaid order, but had misplaced the same. It is the claim of the assessee that Mr. Shenvi immediately on 19.02.2018 applied for a copy of the order passed by the CIT(A), dated 24.08.2017, which was provided to the assessee firm on 08.03.2018. After receiving the copy of the order of the CIT(A), it is stated that involving no further loss of time the appeal was filed with the Tribunal. The ld. Authorized Representative (for short „A.R‟) for the assessee submitted that as the delay in filing of the appeal within the stipulated time period had occasioned on account of the aforesaid compelling
6 M/s Akbarallys Department Stores Vs. ACIT-12(3) & CIT(A)-28 circumstances which were beyond the control of the assessee, therefore, the same may be condoned.
Per contra, the ld. Departmental Representative (for short „D.R‟) vehemently opposed the application filed by the assessee seeking condonation of the delay of 102 days in filing of the present appeal. It was submitted by the ld. D.R that as the assessee had failed to substantiate the authenticity of the reason leading to the delay in filing of the appeal, therefore, the same did not merit acceptance, and the appeal having been filed beyond the stipulated time period prescribed under law was liable to be dismissed on the said count itself. In support of his aforesaid contention the ld. D.R had relied on the judgment of the Hon‟ble High Court of Bombay in the case of Vama Apparels (I) Pvt. Ltd. Vs. ACIT, Central Circle-42 (2019) 261 Taxman 496 (Bom).
We have heard the authorized representatives for both the parties, and also perused the relevant material relied upon by them in context of the issue pertaining to the delay involved in filing of the present appeal by the assessee before us. Admittedly, the appeal filed by the assessee involves a delay of 102 days. As observed by us hereinabove, the assessee had filed an application seeking condonation of the aforesaid delay along with an „affidavit‟ deposing the facts leading to the same. On a perusal of the „affidavit‟ filed by the assessee, we find, that it is the claim of the assessee that as at the relevant point of time extensive repair and renovation was going on at its premises, therefore, it had made temporary make shift arrangement for receiving the correspondence. As such, it is the claim of the assessee that during the aforesaid period the correspondence was received at its premises by some staff from the housekeeping department on its behalf. It is stated by him, that as the members of the housekeeping staff were semi-literate and not well versed with handling the correspondence so received, therefore, the same would lead to delay in forwarding of the documents received by them to the concerned department/persons, and also in certain instances the documents would even get misplaced. On the basis of the aforesaid facts, it is the claim of the assessee that Ms. Ranjana Jadhav, one of the housekeeping staff of the assessee firm had on 04.10.2017 received the order of the CIT(A), but unfortunately having misplaced the same she had failed to forward it to the concerned department of the assessee firm. It is stated by the assessee that it was only pursuant to the fact gathered by its chartered accountant viz. Mr. Shenvi that the CIT(A) had 7 M/s Akbarallys Department Stores Vs. ACIT-12(3) & CIT(A)-28 disposed off the appeal vide his order dated 24.08.2017, which was thereafter served upon Ms. Rajana Jadhav, that the assessee was made aware of the said fact about the disposal of its appeal by the first appellate authority. Although, we are of the considered view that the assessee ought to have put his house in order and remained vigilant as regards the correspondence received from the Income Tax department, but then, in the totality of the facts of the case as had been deposed by the assessee by way of an „affidavit‟, dated 17.03.2018, it can safely be concluded that the delay involved in filing of the present appeal was backed by reasons which does not smack of malafides or a dilatory strategy on the part of the assessee. Accordingly, in our considered view the aforesaid explanation of the assessee as regards the delay involved in filing of the appeal cannot be summarily turned down. Our aforesaid view is fortified by the judgment of the Hon‟ble Supreme Court in the case of Ramnath Sao Vs. Gobardhan Sao (AIR 2002 Supreme Court 1202). Also, we find, that a similar view had also earlier been taken by the Hon‟ble Supreme Court in the case of Collector Land Acquisition Vs. MST Kathiji & Others (1987) 166 ITR 471 (SC). As such, we are of the considered view that as the assessee had came forth with a bonafide explanation as regards the delay in filing of the appeal before us, therefore, the same merits acceptance on our part. Accordingly, keeping in view the aforesaid facts we condone the delay of 102 days involved in filing of the present appeal.
We shall now advert to the merits of the case. As observed by us hereinabove, the assessee in the normal course of its business would issue „gift vouchers‟ to its customers, which thereafter would be redeemed by them towards purchase of merchandise. As such, as per Accounting Standard-9 (AS-9) the sale would be recognised by the assessee not at the time of issuance of the „gift vouchers‟ but only at the time when the property in the goods would thereafter pass on to the buyer. On a perusal of the facts, we are of the considered view that the aforesaid „gift voucher‟ system that was implemented by the assessee was strategically backed by his business prudence in order to facilitate its customers to shop gifts for their friends and relatives. As observed by us hereinabove, since the amount encompassed in the „gift vouchers‟ was not in the nature of a revenue receipt to the assessee at the time on sale of the same, the amount would thus be transferred to an „outstanding liability‟ account, as the same would represent an obligation of the assessee to sell on a future date, i.e against the 8 M/s Akbarallys Department Stores Vs. ACIT-12(3) & CIT(A)-28 redemption of the same. In sum and substance, the amount received by the assessee at the time of issuance of „gift vouchers‟ can safely be characterised as an advance received from its customers. The controversy involved in the present appeal hinges around the disallowance made by the A.O/CIT(A) in respect of the amount outstanding in the „gift vouchers‟ liability in the hands of the assessee during the year under consideration. Although, the A.O adopting a liberal approach had restricted the disallowance to the extent of 20% of the aggregate amount of the outstanding liability of „gift vouchers‟ of Rs.2,17,97,617/-, and had made a consequential addition of Rs.43,59,524/-, however, the CIT(A) by way of an enhancement, had after putting the assessee to notice under Sec.251(2) disallowed the entire amount of the outstanding liability of „gift vouchers‟ of Rs.2,17,97,617/-.
We have given a thoughtful consideration to the facts pertaining to the issue under consideration and are unable to persuade ourselves to subscribe to the view taken by the CIT(A). As observed by us hereinabove, it remains as a matter of fact that the assessee in the normal course of its business for the last many years had adopted the policy of issuing „gift vouchers‟ to its customers, which thereafter would be redeemed on a latter date as against the value of the items purchased. We are unable to find ourselves to be in agreement with the view taken by the CIT(A) that the entire amount of the „gift vouchers‟ liability of Rs.2,17,97,617/- reflected in the „books of accounts‟ of the assessee on 31.03.2009 was to be treated as having been ceased and not outstanding on the said date. As a matter of fact, contrary to the aforesaid view taken by the CIT(A), we find that the department had consistently accepted the aforesaid practice of issuing of „gift vouchers‟ by the assessee and the redemption of the same against the value of the items purchased subsequent thereto. As such, the view taken by the CIT(A) is devoid of any merit and cannot be subscribed on our part. At the same time, we also cannot remain oblivious of the fact that admittedly some of the „gift vouchers‟ issued by the assessee would never be redeemed, for the reason, that the same would have either been misplaced, destroyed or the holder of the same would have shifted to some other town. In fact, our aforesaid view is fortified by the concession of the counsel for the assessee who had agreed that around 10% of the outstanding „gift vouchers‟ on an estimate basis could be held to have out lived its validity period and ceased to be a liability of the assessee any more. Apart from that, we find, that a similar issue had cropped up in the assesse‟s own case for A.Y. 2008-09.
9 M/s Akbarallys Department Stores Vs. ACIT-12(3) & CIT(A)-28 Adopting a similar view, the A.O while framing the assessment for the said year had disallowed 2/3rd of the outstanding liability of the „gift vouchers‟ as on 31.03.2008 amounting to Rs.3,22,15,623/-, and had made a consequential addition/disallowance of Rs.2,14,77,082/- in the hands of the assessee. On appeal, the Tribunal had restricted the disallowance to the extent of the value of the „gift vouchers‟ which were found to be more than 3 years old. The observations of the Tribunal while concluding as hereinabove are reproduced as under: “5. We have considered 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 issued by the assessee which was claimed to have been encashed in the subsequent years. During the year under consideration the CIT(A) has confirmed the addition in respect of vouchers which were more than three years old. As per the figures available on record 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:
Sr. No. Particulars As per alternate working 1. Outstanding balance as on 31.03.2008 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. Vouchers 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.” We finding ourselves to be in agreement with the aforesaid view so taken by the Tribunal, respectfully follow the same. As such, in our considered view the disallowance of the outstanding liability of „gift vouchers‟ in the case of the assessee was supposed to be restricted only to the extent the same were found to be more than 3 years old. Accordingly, we direct the A.O to restrict the disallowance in respect of the „gift vouchers‟ on the same basis as had been adopted by the Tribunal while disposing off the appeal of the assessee for A.Y. 2008-09. Although, the ld. A.R in the course of the hearing of the appeal had furnished a „chart‟ therein working out the value of the „gift vouchers‟ outstanding for more than 3 years, however, in the absence of any supporting documentary evidence the same cannot be summarily accepted on the very face of it. Accordingly, the assessee is directed to furnish the working of the details of the „gift vouchers‟ which are outstanding for more than 3 years on the basis of supporting documentary evidence in the course of the „set aside‟ proceedings before the A.O. As such, the matter is restored to the file of the A.O for the limited purpose of giving effect to our aforesaid
10 M/s Akbarallys Department Stores Vs. ACIT-12(3) & CIT(A)-28 observations. Needless to say, the A.O shall in the course of the „set aside‟ proceedings afford a reasonable opportunity of being heard to the assessee. Accordingly, the order passed by the CIT(A) is „set aside‟ in terms of our aforesaid observations. The Ground of appeal
No. 1 to 3 are allowed for statistical purposes.
11. Resultantly, the appeal filed by the assessee is allowed for statistical purposes in terms of our aforesaid observations. Order pronounced in the open court on 25.02.2020