TRENT LIMITED,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX 2(3)(1), MUMBAI
Facts
The assessee, Trent Limited, engaged in retailing readymade garments, filed its income return for AY 2014-15. The Assessing Officer (AO) made various additions and disallowances. The assessee appealed to the CIT(A), which granted partial relief. Both the assessee and the Revenue have filed appeals before the ITAT.
Held
The Tribunal considered the grounds related to disallowance under Section 14A, brand equity fees, and discounts on gift cards/vouchers. For Section 14A, the Tribunal found that the suo moto disallowance was accepted in previous years and directed acceptance. Regarding brand equity fees, the Tribunal relied on previous ITAT decisions allowing such expenditure. For gift card/voucher discounts, the Tribunal set aside the lower authorities' orders and allowed relief, considering the expenditure as crystallized and not contingent.
Key Issues
Whether the CIT(A) erred in upholding various disallowances made by the AO, including those related to Section 14A, brand equity fees, and discounts on gift cards/vouchers, and whether the Revenue's grounds regarding Section 14A disallowances are justified.
Sections Cited
14A, 40A(2), 92CA, 92BA, 115JB, 37(1), 234B, 234C, 244A, 56
AI-generated summary — verify with the full judgment below
PER PAWAN SINGH JUDICIAL MEMBER:
These cross-appeals by assessee as well as by revenue are directed
against the order of ld. CIT(A)/NFAC dated 30.06.2025 for A.Y. 2014-15.
The assessee in its appeal has raised following grounds of appeal:
“General Grounds 1. On the facts and in the circumstances of the case and in law, the Assessing Officer erred in assessing the total income of the Appellant at Rs 52,46,34,990 as compared to the total income of Rs. 7,14.58.430 computed by the Appellant in the return of income for the said assessment year. - 2 On the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in partly upholding the additions made by the Assessing Officer in the assessment order passed under section 143(3) r.w.s 144C(1) of the Act.
ITA Nos. 5166 & 5242/Mum/2025 Trent Limited
Validity of the assessment order on account of reference to Transfer Pricing Officer u/s 92CA of the Act
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding. the validity of reference made by the Assessing Officer to the Transfer Pricing Officer (TPO) under section 92CA of the Act, thereby upholding that the transaction with Fiora Services Limited would fall within the ambit of specified domestic transactions under section 92BA read with section 40A(2) of the Act and therefore the Assessing Officer was correct in passing the order within the extended time limited allowed under section 153 of the Act.
Disallowance of deduction claimed in respect of discount on Gift cards sold
4 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the disallowance made by the Assessing Officer of discount on unredeemed Gift Cards, on the ground that the gift cards are redeemed in subsequent years and accordingly corresponding discount has to be allowed in the year in which sales are accounted.
5 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating the fact that the discount allowed at the time of sale of gift cards results into upfront lesser realisation of the proceeds and therefore the cash discount has to be recognised in the year of sale of gift card.
Disallowance of deduction claimed in respect of discount on Gift vouchers sold
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the disallowance made by the Assessing Officer of discount on unredeemed Gift vouchers, on the ground that the gift vouchers are redeemed in subsequent years and accordingly corresponding discount has to be allowed in the year in which sales are accounted for.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating the fact that the discount allowed at the time of sale of gift vouchers results into upfront lesser realisation of the proceeds and therefore the cash discount has to be recognised in the year of sale of gift vouchers.
Disallowance of Discount on Gift Cards and Gift Vouchers Sold for computation of Book Profit under Section 115JB
ITA Nos. 5166 & 5242/Mum/2025 Trent Limited
On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in upholding the disallowance of discount on Gift Cards and Gift Vouchers sold while computing book profit under section 115JB of the Act, without appreciating the fact that there was no specific finding in the assessment order for making addition while computing book profits under section 115JB of the Act.
On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in not appreciating the fact that the aforesaid expenditure claimed for accrued liability is not in the nature of any provision or contingent liability and which is also not covered by the items mentioned in Explanation 1 to section 115JB of the Act.
Disallowance of Sales Promotion Discount, Provision for Club West Loyalty Program, and Customer Loyalty Program for Computation of Book Profit under Section 115JB
On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in confirming the addition of Rs 4,42,99,771/- (Sales Promotion Discount), Rs 6,79,80,994/-(Sales Promotion Club West Store Credit Redeemed), and Rs 34,41,382/- (Customer Loyalty Program) while computing book profit under section 115JB of the Act, without appreciating the fact that there was no specific finding in the assessment order for making addition while computing book profits under section 115JB of the Act.
On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in taking contradictory stand by allowing the deduction for the said expenditure, subject to verification by the Assessing Officer, while computing the total income of the Appellant under the normal provisions of the Act and therefore erred in holding that the same is not allowable while computing book profits under section 115JB of the Act.
Deduction of interest charged on income tax against income received from the income-tax Department
On the facts and in the circumstances of the case and in law, the CIT(A) erred in not granting deduction of interest charged under section 234B and under section 234C of the Act against the interest received under section 244A from the Income-tax Department which was offered to tax under section 56 of the Act, and therefore net interest only ought to be charged to tax.”
The Revenue in its appeal has raised following grounds of appeal:
ITA Nos. 5166 & 5242/Mum/2025 Trent Limited
“1. "Whether on the facts and circumstances of the case and in the law the Hon'ble ITAT was justified in ignoring CBDT Circular No. 25/ 2014 dated 11.02.2014 and CBDT Circular No. 23/ 2022 dated 03.11.2022 which provided for disallowance of the expenditure u/s 14A even when tax payer has not earned any exempt income in a particular year?"
"Whether on the facts and circumstances of the case and in the law the Hon'ble ITAT was justified in upholding the decision of the Ld. CIT(A) in view of the Explanation to section 144 inserted vide Finance Act, 2022 wherein it has been clarified that section 14A shall apply and deemed to have always applied in cases where exempt income has not earned, accrued or received during the previous year relevant to assessment year"?
"Whether on facts and in law, the Ld. CITIA) erred in allowing the assessee's claim of deduction of brand equity fees paid to Tata Sons Ltd. as revenue expenditure, without appreciating that the said payment was not incurred wholly and exclusively for the purpose of business of the assessee, and did not result in any direct or tangible benefit to the assessee's retail operations conducted under separate brand names such as 'Westside and 'Landmark', which are independent of the Tata' brand?"
"Whether Ld.CITIA) erred in following the decision of the Hon'ble ITAT in the case of M/s Rallis India Ltd. (ITA No. 5701/Mum/2008) without examining the facts of the assessee's case independently, and without appreciating that the assessee does not prominently use the Tata' brand in its retail operations, and hence the payment of brand equity fees does not have a proximate nexus with the assessee's business income or customer base?"
"Whether Ld. CIT(A) failed to appreciate that the payment of brand equity fees is in the nature of capital expenditure leading to enduring benefit, and is therefore not allowable as a revenue expenditure under Section 37(1) of the Income-tax Act, 1961?"
"Whether on the facts and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs. 8,12,71,939/- made under section 14A read with Rule BD while computing book profit under section 115JB of the Income-tax Act, 1961, by relying on the decision of the Special Bench of the ITAT in the case of Vireet Investment Put. Ltd. vs. CIT (82 taxmann.com 415) however the said decision has been challenged by the Department and is pending adjudication before the Hon’ble High Court.
Whether Ld. CITIA) failed to consider that the disallowance under section 14A represent expenditure relatable to income not forming part of total income under the Act, and such expenditure ought to be considered for the
ITA Nos. 5166 & 5242/Mum/2025 Trent Limited
purpose of computing the book profit under section 115JB in accordance with clause (f) of Explanation I to section 115JB(2).
"Whether Ld. CIT(A) erred in not appreciating that clause (f) of Explanation 1 to section 115.JB(2) specifically requires the addition of expenditure relatable to exempt income to the book profit, and the computation made under Rule &D provides a reasonable basis for determining such expenditure?"
"The appellant craves the leave to add, amend, alter and/ or delete any of the grounds of appeal as above"
Brief facts of the case are that the assessee-company is engaged in the
business of retailing of readymade garments, filed its return of income for
A.Y. 2014-15 on 28.11.2014 declaring income of Rs. 7.14 crores under
normal provision and at Rs. 65.84 crores under section 115JB. The case
was selected for scrutiny. During assessment, the assessing officer noted
that assessee has reported international transaction as well as specified
domestic transaction in its transfer pricing study report. Consequent upon
a reference under section 92CA(3) was made for computation of arm’s
length price with regard to such transaction. The TPO accepted
international transaction with its associate enterprises, however,
transaction between assessee and Fiora Services Limited (FSL) was
considered as covered under section 40A(2)(a). The assessing officer on
receipt of report of TPO proceeded for assessment on various corporate
issues. The assessing officer passed draft assessment order vide order
dated 27.12.2017 passed under section 143(3) r.w.s. 144C(1). The
assessing officer while passing the draft assessment order made following
various additions/ disallowance.
ITA Nos. 5166 & 5242/Mum/2025 Trent Limited
Sl. No. Nature of addition / disallowance Amount 1 Disallowance u/s 14A & added to book profit Rs. 8,12,71,939/- u/s 115JB 2 Interest expenses Rs. 3,37,24,778/- 3 Indirect administrative expenses Rs. 4,75,71,096/- 4 Disallowance u/s 35D Rs. 1,37,05,328/- 5 Interest Income from other sources Rs. 22,37,78,890/- 6 Disallowance discount on gift cards Rs. 3,14,625/- 7 Disallowance on discount of gift vouchers Rs. 8,37,011/- 8 Disallowance on sales promotion discount Rs. 4,42,99,771/- 9 Disallowance on sales promotions store credit Rs. 6,79,80,994/- club west redeemed 10 Customer Loyalty Program Rs. 34,41,382/- 11 Disallowance of Tata Brand Equity Fees Rs. 1,74,96,562/-
Aggrieved by the aforesaid various disallowances, the assessee filed appeal
before ld. CIT(A). The ld. CIT(A) allowed part relief to the assessee on
disallowance under section 14A and on disallowance of brand equity fees
in treating as capital expenditure and all other disallowances were upheld.
Aggrieved by the order of ld. CIT(A) both the parties have filed their
respective appeals. The Revenue has basically challenged part relief to the
assessee on disallowance under section 14A. The assessee is aggrieved by
confirming the various other disallowances.
We have heard the submissions of learned Authorised Representative (ld.
AR) of the assessee and the learned Commissioner of Income Tax –
Departmental Representative (ld. CIT-DR) for the Revenue. First, we have
taken the various grounds of appeal raised by Revenue and inter-
connected grounds of appeal raised by assessee in appeal. Ground no. 1, 2
& 6 to 8 in revenues relates to disallowance under section 14A. Brief facts
relating to disallowance under section 14A are that during assessment, the
assessing officer has noted that assessee has shown exempt dividend
ITA Nos. 5166 & 5242/Mum/2025 Trent Limited
income of Rs. 6,99,349/- and made suo moto disallowance of Rs. 23,935/-
towards direct and indirect administrative expenditure. The assessing
officer recorded that investments for earning exempt income are of Rs.
951.42 crore. The suo moto disallowance was not accepted by assessing
officer. On show cause notice as to why disallowance under section 14A be
not made. Assessee in its reply dated 17.11.2016 stated that they have
made suo moto disallowance of Rs. 23,935/-. The assessee has surplus
fund generated from business as well as raised from share holders for
retailing business. Surplus funds were invested for earning exempt income.
The assessee further stated that similar disallowances were made in earlier
years, however on further appeal, before ld. CIT(A), the assessee was
allowed relief. The assessee filed various orders of ld. CIT(A) or Tribunal.
The assessing officer disregarded the submission of assessee and
computed the disallowance under section 14A by invoking the formula
prescribed in Rule 8D and computed total disallowance of Rs. 8.12 crore
and after allowing set off of suo moto disallowance of Rs. 23,935/-,
disallowed net amount of Rs. 8.12 crore. On appeal before ld. CIT(A), the
assessee submitted that they have only received exempt income of Rs.
6,99,349/-. Break up of exempt income was provided. The assessee also
submitted that in assessee’s own for A.Y. 2008-09 to 2013-14 similar
disallowance was made and on further appeal, the disallowances was
restricted to 5% of the exempt income. The assessee relied on the
decision of Tribunal dated 15.07.2020 in ITA No. 5775/M/2011 as a lead
case in A.Y. 2008-09 to 2013-14. The ld. CIT(A) followed the decision of
ITA Nos. 5166 & 5242/Mum/2025 Trent Limited
Tribunal and directed the assessing officer to allow the exempt income
under section 14A. Thus, Revenue is in appeal before us.
The learned Commissioner of Income Tax – Departmental Representative
(ld. CIT-DR) for the Revenue supported the order of assessing officer. The
CIT-DR submits that assessee has made huge investments for earning
exempt income, thus, assessing officer was justified in making
disallowance in accordance with Rule 8D.
On the other hand, learned Authorised Representative (ld. AR) of the
assessee submits that these grounds of appeal are in fact covered in
favour of assessee. The co-ordinate bench of Tribunal in earlier years has
discussed the issue in detail and accepted the suo moto disallowance. The
assessing officer before invoking the provision of Rule 8D has not recorded
his satisfaction about the suo moto disallowance offered by assessee and
having regard to the accounts of assessee to arrive at the conclusion about
the incorrectness of suo moto disallowance. The ld. AR of the assessee
further submits in assessee’s own case for A.Y. 2012-13, the Tribunal in
order dated 15.07.2022, copy of which is already been placed on record,
has accepted the similar suo moto disallowance in detail discussion.
Further, in A.Y. 2017-18, the similar disallowance was made by assessing
officer and was confirmed by ld. CIT(A). However on further appeal before
Tribunal by following the decision of Tribunal in lead case in ITA No.
5775/M/2024 for A.Y. 2007-08 to 2013-14 dated 15.07.2012 allowed relief
to the assessee on the ground that no proper satisfaction has been
recorded by assessing officer as prescribed under section 14A(2) and
ITA Nos. 5166 & 5242/Mum/2025 Trent Limited
directed to accept the suo moto disallowance. The ld. AR of the assessee
further submits that interest free funds with assessee are in far excess to
the investment made by assessee; such fact is not disputed by assessing
officer. The ld AR of the assessee further submits disallowance made under
section 14A cannot be added to the book profit under section 115JB as has
been held by Special Bench of Delhi Tribunal in ACIT vs Vireet Investments
ltd. (2017) 82 taxmann.com 415 (SB).
We have considered the rival submissions of both the parties and have
gone through the orders of lower authorities carefully. We have also
deliberated on the decision of Co-ordinate Bench of Tribunal in assessee’s
own case for A.Y. 2008-09 to 2013-14 and in A.Y. 2017-18. On careful
perusal of such order and the finding of lower authorities, we find that
these grounds of appeal are covered in favour of assessee, wherein on
similar set of fact, the suo moto disallowance under section 14A of
assessee was accepted. We further find that disallowance made under
section 14A is not to be added for the purpose of computing book profit
under section 115JB as has been held by Special Bench of Delhi Tribunal in
ACIT vs Vireet Investments Ltd. (SB). We find that ld. CIT(A) was allowing
relief to the assessee has followed the decision of Tribunal on similar set of
fact. No contrary facts or law in brought to our notice to take other view.
In the result, ground no. 1, 2 and 6 to 8 are dismissed.
Ground no. 3, 4 & 5 relates to deleting the disallowance of brand equity
fees paid to Tata Sons Ltd. Brief facts leading to additions are that during
assessment, assessing officer noted that in the profit and loss account, the
ITA Nos. 5166 & 5242/Mum/2025 Trent Limited
assessee has debited Rs. 1.75 crore on account of brand equity paid to
Tata Sons Ltd. The assessing officer disallowed such payment by holding
that “Westside” and “Landmark” are well known and establish brand in the
market and does not require to make payment of brand loyalty fees in
absence of any tangible benefit accrued to the assessee. On appeal before
ld. CIT(A), the assessee filed detail written submission. The assessee in its
submission submitted that assessee is a part of Tata Group. Tata is
majority shareholder. Assessee entered into a brand agreement with Tata
Sons Ltd. on 23.12.1999 for use of the business name, marks and
marketing indica, copy of brand agreement was filed. The assessee is
running a chain of retail store under the name of Westside and Landmark.
The assessee uses the work, “A Tata Enterprises” along with his company
name. The assessee also stated that clause 4 of agreement permits the
assessee to use the brand name, marks and marketing indcia, in such a
manner to show a validity of brand name. To support their submissions,
the assessee also relied on the decision of Tribunal in Tata’s Group case
wherein brand equity fees paid to Tata Sons Ltd. has been allowed. The ld.
CIT(A) on considering the submission of assessee noted that allowability of
brand equity fees paid to Tata Sons Ltd. has already been adjudicated by
Mumbai Tribunal in Tata’s Group Companies cases including in Rallies India
Ltd. in ITA No. 5701/M/2008, Tata Autocomp Systems Ltd. ITA No.
7596/M/2012 and Tata Chemicals Ltd. in ITA No. 2956 & 3383/M/2015.
The ld. CIT(A) quoted the relevant part of decision in case of Rallies India
Ltd. (supra). The ld. CIT(A) concluded that nature and purpose of the
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brand equity payment made by assessee is identical in various cases
recorded by him. Tata Sons has entered into standard agreement with
multiple group companies including assessee on similar term. Thus, by
following the order of Tribunal in Tatas Group cases, the assessee was
allowed relief and deleted the disallowance of Rs. 1.74 crore. Aggrieved by
the order of ld. CIT(A), the Revenue is in appeal before us.
The ld. CIT-DR for the revenue relied upon the order of assessing officer
and would submit that assessee is having its own brand value.
On the other hand, the ld. AR of the assessee supported the order ld.
CIT(A). The ld. AR of the assessee submits that assessee has made
payment of brand equity fees to Tata Sons Ltd. pursuant to brand
agreement dated 23.12.1999 for the use of business name, marks and
marketing indcia.
We have considered the rival submissions of both the parties and perused
the orders of lower authorities. We have also seen the orders of Mumbai
Tribunal in Tata’s Group Companies, wherein similar brand equity fees is
allowed by taking view that such expenditure is allowable expenditure
under section 37(1). We find that ld. CIT(A) allowed relief to the assessee
by following the decision of Tata Group cases, wherein similar brand equity
brand fee is allowed. We find that assessee has paid brand equity fees to
Tata Sons pursuant to brand agreement dated 23.12.1999. The existence
of such agreement is not disputed by assessing officer. Thus, we do not
find any infirmity in the order of ld. CIT(A). No contrary fact or law is
ITA Nos. 5166 & 5242/Mum/2025 Trent Limited
brought to our notice to take a different view. In the result, ground no. 3,
4 & 5 are dismissed.
In the result, appeal of the Revenue is dismissed.
Now, adverting to the various grounds of appeal raised by assessee.
Ground no. 1 & 2 are general and needs no specific adjudication. Ground
no. 4 & 5 relates to disallowance of deduction in respect of discount of gift
card sold and ground no. 6 & 7 relates to disallowance of gift voucher sold.
The facts relating to such disallowance are that during assessment, the
assessing officer noted that in the profit and loss account, the assessee
has claimed discount on the sale of gift card and gift voucher of Rs.
16,34,568/- and Rs. 1.04 crore respectively. The assessing officer further
noted that assessee receives advance consideration upon sale of these
instruments. The discounts were claimed as expenditure despite the fact
that sales of goods, against which it was claimed or could be redeemed,
sales are not taken place. The assessing officer was of the view that some
such claim is a contingent liability. On the basis that discount would only
materialise when the cards or vouchers were actually redeemed. Portion /
part of such claim remained unredeemed as on the balance sheet of Rs.
3,14,625/- for gift card and for Rs. 8,37,011/- for gift voucher. The
assessing officer disallowed such amount and added back to the book
profit. Before ld. CIT(A), the assessee submitted that discount offered at
the time of sale of gift cards and vouchers is an actual and irreversible
expenditure as the same cannot be recovered from the customer under
any circumstances. The assessee submitted that there are two scenarios,
ITA Nos. 5166 & 5242/Mum/2025 Trent Limited
one redemption and another expiry. While the discount is utilised on
redemption. In case of expiry no actual discount is ever applied, thus, no
expenses arise. Therefore, the expenditure is certain and not contingent.
The ld. CIT(A) on considering the submission of assessee concurred with
the action of assessing officer. The ld. CIT(A) held that discount offered is
a Revenue expenses but timing of deduction depend on the matching
concept that allows the expenses to be matched with the income when it
is earned. Thus, the discount is an allowable expense when gift cards /
vouchers are actually redeemed. When the assessee company sell the
cards at a price lower than the face value, the “discount” represents an
economic expense to the company in return of upfront cash. Thus,
discount should be recognised in profit and loss account only in the period
when corresponding voucher is redeemed that is when the Revenue is
recognised. Until redemption, the assessee company merely holds cash
against a future obligation, so neither the discount nor any cost of sale is
booked upfront as revenue expenditure. Hence, the assessing officer
rightly disallowed amount attributable to unredeemed gift cards and
vouchers aggregating to Rs. 11,51,363/-. Aggrieved by order of ld. CIT(A),
the assessee has filed present appeal.
The ld. AR of the assessee submits that during the year under appeal ,
the assessee has incurred expenditure of Rs. 16.34 lacs and Rs. 1.04 Crore
on sale of Gift cards and Gift vouchers respectively, at a discount and has
claimed such expenditure as deduction under section 37 of the Act. Out of
total expenditure, discount of Rs. 314,625/- and Rs. 8,37,011/- pertained
ITA Nos. 5166 & 5242/Mum/2025 Trent Limited
to the gift cards and vouchers respectively which were not redeemed /
utilised till 31.03.2014. The AO treated it as contingent liability, according
to him it materialised when actual gifts were purchased by customers and
recorded as sale of gift card. The ld. CIT(A) confirmed the action of ld. AO.
The ld. AR of the assessee while explaining modus operandi of gift cards
and gift voucher e.g. on 1st June 2013, Mr A purchase the gift card from
assessee worth ₹ 1000 for ₹ 900. In view of this gift card purchased, Mr A
can make purchase from assessee worth ₹ 1000 even though he has paid
only ₹ 900 to the assessee. On sale of such gift card, the assessee would
pass entry in its books of account. Entry of book account debit of ₹ 900 in
(balance sheet account), discount of sale gift and account of ₹ 1000 in
(profit and loss account) to gift card account ₹ 1000 (balance sheet
account). The validity of gift card is for one year which is in assesses case
would be 31st May 2014. Accordingly Mr A could purchase any product
worth ₹ 1000 on or before 31st May 2014. Option No. 1, consider a
situation that Mr A purchase a product on 1st May 2014 on making such
purchase, the assessee would pass the entry in its books of account of gift
card debited ₹ 1000, to sales account (profit and loss account) and credit
of ₹ 1000. Options No. 2 consider a situation that Mr A does not purchase
any product by 31 March 2014. In that case, the balance sheet in the gift
card would lapse and the assessee would pass following entry in the books
of account. If card account debited ₹ 1000 to balance sheet written of
(profit and loss account) credit of ₹ 1000. In each of the option the profit
and loss account of the appellant would be credited ₹ 1000. The discount
ITA Nos. 5166 & 5242/Mum/2025 Trent Limited
given by the assessee on sale of gift card that crystallised as soon as the
gift cards are shown and not contingent upon the future sales of the
assessee. In case the gift card is not utilised, the entire amount of ₹ 1000
received is being offered to tax by the assessee in the year when in which
it is underutilised. To support his submission the learned AR of the
assessee relied upon decision of honourable Supreme Court in case of
Taparia Tools Ltd. (2015) 372 ITR 605 (SC), wherein it was held that
though the entire expenditure was incurred in that year, it was the
assessee who wanted to spread over. It was noted by Apex Court that they
are conscious of the principle that normally revenue expenditure is to be
allowed in the same year in which it is incurred, but at the instance of
assessee, who wanted spreading over, the court agreed to allow the
assessee that benefit when it was found there was a continuing benefit to
the business of the company over the entire period. It was held that
normally the ordinary rule is to be applied, namely revenue expenditure
incurred in a particular year is to be allowed in that year. If the assessee
claims that expenditure in that year, the revenue department cannot
denied the same. However, in those cases where the assessee himself
wanted to spread the expenditure over a period of ensuing years, it can be
allowed only if the principle of “matching concept” is satisfied, which upto
now has been restricted to the cases of debentures. The ld. AR submits
that matching concept of accounting cannot be applied in his case as the
assessee has chosen to claim the said expenditure in the year under
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consideration. To support his submissions, the ld. AR of the assessee relied
on following various case laws: DCIT vs Landmark Ltd. (ITA No. 6268/M/2024 dated 07.05.2017), ACIT vs Shoppers Stop Ltd. (ITA No. 1835/M/2010 dated 25.01.2015) ACIT vs Jet Airways India Pvt. Ltd. (ITA No. 4402/M/2008 dated 30.05.2006) 16. On the other hand, the ld. CIT-DR for the Revenue supported the order of
lower authorities. The ld. CIT-DR submits that lower authorities have gave
categorical finding that liability was not crystallised in the year under
consideration.
We have considered the rival submissions of both the parties and perused
the material on record. We have already recorded the finding of AO and
CIT(A) in preceding paras. The ld. AR of the assessee vehemently argued
that the discount given by the assessee on sale of gift card that
crystallised as soon as the gift cards are shown and not contingent upon
the future sales of the assessee. In case the gift card is not utilised, the
entire amount of ₹ 1000 received is being offered to tax by the assessee in
the year when in which it is unutilised. We find that Hon’ble Apex Court in
Taparia Tools Ltd. (supra) held that normally the ordinary rule is to be
applied, namely revenue expenditure incurred in a particular year is to be
allowed in that year. If the assessee claims that expenditure in that year,
the revenue department cannot denied the same. Thus, following the
same principle and the fact that assessee is crediting the amount of
unutilised gift card and gift voucher after the expiry of period if the same
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are not increased. Hence, we set aside the order of lower authorities and
allow relief to the assessee. In the result, ground no. 4 to 7 are allowed.
Ground no. 8 & 9 relates to addition of disallowance of gift voucher and
gift card for computation of book profit. Considering the fact that we have
allowed relief on ground no. 4 to 7, therefore, these grounds of appeal
have become infructuous.
Ground no. 10 & 11 relates to disallowance of sale promotion discount,
provision for club west loyalty programme and customer loyalty
programme for computation of book profit under section 115JB. The ld. AR
of the assessee submits that AO disallowed loyalty card points, however,
ld. CIT(A) allowed subject to verification. But, not given any finding on
book profit. Considering the fact that ld. CIT(A) has already directed for
verification of fact and allowing relief to the assessee, therefore, assessing
officer is directed to pass order for computation of books profit after giving
effect to the order of ld. CIT(A). In the result, these grounds of appeal are
allowed for statistical purpose.
Ground no. 12 relates to deduction of interest charge on income tax
against income received from refund. The ld. AR of the assessee submits
that interest received from the department is offered in the return of
income. The assessee claimed to reduce the interest under section 234C.
To support his submission the ld. AR of the assessee relied upon the
decision of Bombay High Court in DIT vs Bank of America NT and SA in
Income Tax Appeal No. 177 of 2012 dated 03.07.2014.
ITA Nos. 5166 & 5242/Mum/2025 Trent Limited
On the other hand, the ld. CIT-DR for the Revenue supported the order of
lower authorities.
We have considered the submission of both the parties and have gone
through the orders of lower authorities carefully. The assessee has
received interest under section 244A which was offered to tax under
section 56, therefore, net interest ought to have been charged to tax.
Thus, following the decision of Jurisdictional High Court in DIT vs Bank of
America (supra), we direct the assessing officer to allow relief to the
assessee by following the said decision. In the result, this ground of appeal
is allowed.
Ground no. 3 relates to validity of assessment order on account of
reference to TPO and not passing the assessment order in extended time.
Considering the fact that we have allowed relief to the assessee on various
grounds of appeal, therefore, adjudication on this ground of appeal have
become academic
In the result, appeal of assessee is allowed and the appeal of Revenue is
dismissed.
Order was pronounced in the open Court on 30/01/2026.
Sd/- Sd/-
GIRISH AGRAWAL PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER
MUMBAI, Dated: 30/01/2026 Biswajit
ITA Nos. 5166 & 5242/Mum/2025 Trent Limited
Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file. By Order
Assistant Registrar ITAT, Mumbai
