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Income Tax Appellate Tribunal, DELHI BENCH ‘G’ NEW DELHI
Before: SHRI N.K.SAINI, HON’BLE & SHRI SUDHANSHU SRIVASTAVA
PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER : This appeal has been preferred by the assessee against order dated 28.08.2013 passed by the Ld. CIT (A)-X, New Delhi for assessment year 2008-09.
2.0 Brief facts of the case are that the assessee company is a joint venture non-banking finance company promoted by State Bank of India and GE Capital (Mauritius) Investment Company
(SBI Cards Payment Services Pvt. Ltd.) Ltd. It is engaged in issuance, sales and marketing of credit cards. The return of income was filed declaring a loss of Rs. 8,98,49,289/-. The return was initially processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter called ‘The Act’) and was later selected for scrutiny. The assessment was completed at a taxable income of Rs. 1,33,19,01,833/- after making the following additions / disallowances – (i) Disallowance on account of Reward points 8,52,72,000/- (ii) Disallownce of Credit Investigation expenses 4,90,73,276/- (iii) Disallowance of expenditure on application capture 2,57,61,950/- (iv) Disallowance of advertisement expenses 105,27,85,289/- (v) Card acquisition expenses claimed up front 17,85,92,045/- (vi) Addition on a/c of gain on redemption of shares 11,55,38,563/- 2.1 Aggrieved, the assessee approached the Ld. CIT (A) challenging the additions and disallowances who partly allowed the assessee’s appeal by dismissing assessee’s challenge to disallowance of Rs. 8,52,72,000/- on account of reward scheme points. The Ld. CIT (A) deleted the disallowance of Rs. 4,90,73,276/- made on account of credit investigation expenses.
The Ld. CIT (A) also deleted the disallowance of expenditure of Rs. 2,57,61,950/- on account of application capture expenses. With respect to the disallowance of advertisement expenses of (SBI Cards Payment Services Pvt. Ltd.) 105,27,85,289/-, the Ld. CIT (A) partly sustained the disallowance by holding that an amount of Rs. 1 crore needed to be disallowed in this regard. With respect to disallowance of Rs. 17,85,92,045/- on account of card acquisition expenses the Ld. CIT(A) dismissed the assessee’s challenge. With respect to the disallowance of Rs. 11,55,38,563/- on account of redemption shares of VISA, the Ld. CIT (A) upheld the addition. Apart from this, the Ld. CIT (A) also held that the amount of Rs. 14,81,63,008/- shown as short term capital gain by the assessee on this account was also to be treated as business income.
2.2 Now, the assessee is in appeal before the ITAT and has challenged the various disallowances and additions sustained by the Ld. CIT (A). Following grounds have been raised:-
Disallowance of Provision for reward point redemption On the facts and in the 1.1. circumstances of the case and in law, the Ld. CIT(A) has erred in confirming the disallowance of provision for reward point redemption amounting to Rs. 8,52,72,000/- made by the Assessing Officer (‘Ld. AO’) considering the same as unascertained / contingent liability. That the Ld. CIT(A) has erred in not appreciating the 1.2. fact that the provision for reward point redemption was (SBI Cards Payment Services Pvt. Ltd.) recognized on scientific basis; duly supported by the Actuarial Valuation Certificate and the opinion of the Expert Advisory Committee of the Institute of Chartered Accountants of India. Further, the Ld. CIT(A) has disregarded the fact that the said accounting policy of the Appellant has been duly verified by the statutory auditors as mentioned in Note 15 to the audited financial statements. That the Ld. CIT (A) has not independently examined 1.3. the issue; submissions placed before him; the decisions relied upon by the Appellant and has merely proceeded to conclude based on the orders passed by his predecessors for AY 2006-07 and 2007-08. That the Ld. CIT(A) has erred in not appreciating the 1.4. fact that reliance placed by the Ld. AO on decision of the jurisdictional High Court in the case of CIT vs. Vinitec Corporation Pvt. Ltd. (2005) 278 ITR 337 (Del) in fact supports the claim of the Appellant that where a provision is capable of being construed in definite terms though its actual quantification and discharge is deferred to a future date, it is an allowable expense.
Disallowance of ad-hoc advertisement expenses On the facts and in the circumstances of the case, the 2.1. Ld. CIT(A) has erred in confirming disallowance of advertisement expenses to the extent of Rs. 1 crore on ad hoc basis by regarding the same to be expenses on ‘gifts’ and ‘others’ without giving any opportunity of being heard to the Appellant and without considering the submissions of (SBI Cards Payment Services Pvt. Ltd.) the Appellant. 2.2 That the Ld. CIT (A) has erred in observing that the expense of Rs. 1 crore have not been incurred wholly and exclusively for business purpose and may have been given to persons who are not related to any business activities of the company.
Disallowance of card acquisition expenses 3.1 On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in confirming the disallowance of card acquisition expenses amounting to Rs. 17,85,92,045 made by the Ld. AO on the ground that the Appellant had accounted for these expenses as deferred revenue expenditure in its books of accounts and that these expenses were providing enduring benefit to the Appellant. 3.2 That, the Ld. CIT(A) has erred in merely placing reliance on the order passed by his predecessors for AY 2006-07 without independently examining the issue and distinguishing the decisions relied upon by the Appellant. 3.3 That, the Ld. CIT(A) and the Ld. AO have failed to appreciate that: i. the treatment is books of account is not decisive / conclusive for deciding the taxability of an item in the Act which is a trite law ; and ii. the test of ‘enduring benefit’ is not the conclusive test to decide the nature of expenditure as capital. 3.4 That the Ld. CIT(A) and the Ld. AO have erred in not (SBI Cards Payment Services Pvt. Ltd.) following decisions of the Hon’ble ITAT decided in favor of the Appellant on similar issue for AY 2002-03. 4 Addition made on account of allotment of shares by VISA Inc. 4.1 In the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in confirming the addition of Rs. 11,55,38,563 made by the Ld. AO in respect of shares allotted by VISA Inc as consideration under section 28(iv) of the Act being any benefit or perquisite arising from business of the Appellant. 4.2 That while confirming the disallowance, the Ld. CIT(A) and the Ld. AO have proceeded on incorrect assumptions that the allotment of shares by VISA inc was directly related to the business activities of the Appellant and the allotment was on account of business relations with VISA Inc. 4.3 The Ld. CIT(A) failed to appreciate that in terms of section 28(iv) what was taxable was a benefit or perquisite arising in the course of business i.e. to say the benefit must be in the form of consideration of a transaction between the two parties. 5 Short grant of prepaid taxes On the facts and in the circumstances of the case 5.1. and in law, the Ld. CIT(A) erred in not directing the Ld. AO in granting TDS credit to the extent of Rs. 33,91,887 as claimed by the Appellant in the revised return of income. That the Ld. AO has consequentially erred in levying 5.2. excess interest under section 234B, 234D and withdrawing
(SBI Cards Payment Services Pvt. Ltd.) interest under section 244A of the Act in the order passed under section 143(3) of the Act.”
3.0 At the outset, the Ld. Authorised Representative submitted that ground nos. 1.1 to 1.4 were not being pressed by the assessee as the provision made for reward point redemption has already been allowed by the department on actual basis in the subsequent years.
3.1 With respect to ground no. 2 challenging the ad hoc disallowance of advertisement expenditure and sustained by the Ld. CIT (A) to the extent of Rs. 1 crore, the Ld. Authorised Representative submitted that the issue was covered by the judgment of the Hon’ble Delhi High Court in the assessee’s own case for assessment year 2006-07 wherein the Hon’ble Delhi High Court had allowed the entire advertisement expenditure. A copy of the order of the Hon’ble High Court was placed on record. It was submitted that the observation of the Ld. CIT (A) that the assessee had not furnished proper details was incorrect and the details were available in the paper book filed by the assessee.
3.2 With respect to ground no. 3 pertaining to disallowance of card acquisition expenses it was submitted that this issue was (SBI Cards Payment Services Pvt. Ltd.) also covered by the judgment of the Hon’ble Delhi High Court in assessee’s own case for assessment year 2006-07 wherein the Hon’ble Delhi High Court had allowed the entire credit card acquisition expenditure in the year of incurrence u/s 37(1) of the Act. With respect to ground no. 4 on taxability of allotment of shares by VISA Inc. it was submitted that the issuance of shares is on capital account in the same cannot be taxed as income from business. It was further submitted that out of total shares numbering 1,54,609 shares allotted to the assessee, the assessee had sold 86,565 shares during the year under consideration on which tax had already been paid under the head ‘capital gains’ as short term capital gains and accordingly no further issue of taxability arose on this account. The Ld. Authorised Representative also submitted that the assessee had also filed an additional ground with respect to ground no. 4 as there was a typographical error in the grounds of appeal filed by the assessee.
It was submitted that the addition made by the Ld. CIT (A) was Rs. 26,37,01,557/- which was in advertently taken as Rs. 11,55,38,563/- in the grounds of appeal.
3.3 The Ld. Authorised Representative, with respect to ground no. 5, submitted that the ground pertained to short grant of TDS
(SBI Cards Payment Services Pvt. Ltd.) credit to the extent of Rs. 33,91,887/- and prayed that the issue can be restored to the file of the AO for allowance of the tax credit after proper verification.
4.0 In response, the Ld. Sr. Departmental Representative placed extensive reliance on the order of the Ld. CIT (A) and vehemently argued that the Ld. CIT (A) had rightly sustained the disallowance.
5.0 We have heard the rival submissions and have also perused the material on record. Since ground no. 1 has not been pressed by the assessee, the same is dismissed as not pressed.
5.1 As far as the assessee’s ground no. 2 is concerned, it has been submitted by the Ld. Authorised Representative that the issue is covered by the judgment of the Hon’ble Delhi High Court in assessee’s own case for assessment year 2006-07 in ITA 603/2014 and ITA no. 604/2014. We fully agree with the contention of the Ld. Authorised Representative that the Hon’ble Delhi High Court has allowed advertisement and sales promotion expenditure in AY 2006-07 and has held that the same was to be treated as revenue expenditure. However, we do note that in the present appeal, while sustaining the disallowance to the extent of (SBI Cards Payment Services Pvt. Ltd.) Rs. 1 crore on this account, the Ld. CIT (A) has noted in Para 5.3 (d) of the impugned order that the assessee was not in a position to establish with proper details and documents of various items which were distributed and under which scheme gifts were given to which party and for what purpose. The Ld. CIT (A) has also noted that the expenses shown under the head ‘Gifts and Others’ were not fully supported by adequate documentary evidences and details. Although the Ld. CIT (A) has made an ad hoc disallowance without pointing out any specific instance where the vouchers were not available and the Ld. Authorised Representative has also drawn our attention to the various documentary evidences filed in support of these expenses as available on pages 148,149,151,154, 155,169,171,174 and 176 of the paper book filed by the assesse, it would be in fitness of things that the issue be re-examined by the AO in this regard.
Accordingly, we restore this issue to the file of the AO to be adjudicated afresh after duly considering the evidences which the assessee seeks to rely upon and also after duly considering the ratio of the judgment of the Hon’ble Delhi High Court in the assessee’s own case for assessment year 2006-07. The AO will also provide adequate opportunity to the assessee before
(SBI Cards Payment Services Pvt. Ltd.) adjudicating this issue. Accordingly ground nos. 2.1 and 2.2 stand allowed for statistical purposes.
5.2 Ground no. 3 which challenges the disallowance of card acquisition expenses amounting to Rs. 17,85,92,045/- is squarely covered in favour of the assessee in assessee’s own case by the judgment of the Hon’ble Delhi High Court in assessment year 2006-07. While upholding the order of the ITAT, the Hon’ble Delhi High Court held that the assessee is entitled to treat the same as revenue expenditure in view of section 37(1) of the Act and the right to claim deferred revenue expenditure is given to the assessee and not to the revenue. The Ld. Sr. Departmental Representative also could not point out if there was any difference in the facts of the case in the impugned year and assessment year 2006-07. Accordingly, respectfully following the ratio of the judgment of the Hon’ble Delhi High Court in assessee’s own case for assessment year 2006-07 as aforesaid, we set aside the order of the Ld. CIT (A) on this issue and direct the AO to allow the entire card acquisition expenses of Rs. 17,85,92,045/- as revenue expenditure in the year under consideration. Thus, ground nos. 3.1, 3.2, 3.3 and 3.4 stand allowed.
(SBI Cards Payment Services Pvt. Ltd.) 5.3 Coming to ground no. 4 pertaining to taxing the allotment of shares by VISA Inc. by invoking Section 28(iv) of the Act, it is seen that the transaction in question pertains to assessment year 2008-09 whereas it was only in June 2010 that the Legislature has brought to tax these kind of transactions by introducing Section 56(2)(vii)(a) read with Section 2(24)(xv) of the Act wherein such kind of transactions have been made taxable as income from other sources. However, this amendment is prospective in nature and not retrospective. We also find that the case of the assessee finds support from the judgment of the Hon’ble Andhra Pradesh High Court in the case of CIT vs. K.N.B. Investments Pvt. Ltd. reported in 272 CTR 201 (AP) wherein it has been held that the word used in Section 28(iv) of the Act are ‘arisen from business’ where ‘arisen’ signifies that benefit itself must have arisen. It was held that mere issuance of shares does not result in any benefit. We also note that the assessee has already paid short term capital gains at the rate of 30% on 86565 shares which were sold during the year under consideration. The taxability on the rest of the shares would arise only when such shares are sold. Accordingly, we hold that the lower authorities were not justified in bringing the notional share price to tax and (SBI Cards Payment Services Pvt. Ltd.) further the Ld. CIT(A) had erred in confirming the addition as well as enhancing same to Rs. 26,37,01,571/-. Accordingly we set aside the order of the Ld. CIT (A) on the issue and direct the AO to delete this addition. Thus, ground nos. 4.1, 4.2 and 4.3 along with the additional ground stand allowed.
5.4 As far as ground no. 5 is concerned which challenges the action of the AO in not granting TDS credit to the extent of Rs. 33,91,887/-, we restore this issue to the file of the AO for grant of TDS credit as per law after duly verifying the claim of the assessee and after giving due opportunity to the assessee to present its case. Accordingly, ground no. 5.1 stands allowed for statistical purposes.
5.5 Ground no. 5.2 is a consequential and is not being adjudicated upon.
In the final result, the appeal of the assessee stands partly allowed in terms of our observations and directions contained in the preceding paragraphs.
(SBI Cards Payment Services Pvt. Ltd.) Order pronounced in the open court on 23rd October, 2018.