Tribunal rules in favor of assessee on brand fees, discounts,

Tribunal rules in favor of assessee on brand fees, discounts, and book profit adjustments.

Issue

Whether the Assessing Officer can increase a disallowance under section 14A read with Rule 8D if the assessee’s suo motu disallowance was accepted in earlier years.
Whether brand equity fees paid under an undisputed agreement are allowable as revenue expenditure under section 37(1).
Whether expenses disallowed under section 14A can be added back while computing book profits under section 115JB.
Whether discount on the sale of unredeemed gift cards and vouchers is fully deductible in the year of sale.
Whether sales promotion discounts and provisions for customer loyalty programs can be added back to compute book profits under section 115JB.

Facts

For the assessment year 2016-17, the Assessing Officer (AO) rejected the assessee’s suo motu section 14A disallowance and calculated an additional, higher disallowance under Rule 8D. The AO then added this Rule 8D disallowance back to the company’s book profits under section 115JB.
During the same year, the assessee paid a brand equity fee to Tata Sons Ltd. under a business brand agreement. The AO disallowed this deduction, claiming the company’s internal brands did not need it and no direct, proximate benefit was proven.
The assessee-company, operating a retail business, sold gift cards and vouchers at a discount. It claimed the entire discount as a deduction in the year of sale, including the portion tied to instruments that remained unredeemed at the end of the financial year. The AO disallowed the discount on unredeemed vouchers, stating the deduction should only be allowed in the year the voucher is actually redeemed and the sale is finalized.
Additionally, the AO increased the company’s book profits under section 115JB by adding back amounts related to a sales promotion discount and a provision created for its “Club West” customer loyalty program.

Decision

Section 14A and Rule 8D Disallowance: The additional disallowance was deleted. Following the precedent set in the assessee’s own case for earlier years, the suo motu disallowance originally offered by the assessee must be accepted.
Brand Equity Fees: The brand equity fee was held to be a valid, fully allowable revenue expenditure under section 37(1). The existence of the brand agreement for using business names, marks, and marketing indicia was undisputed by the AO, matching the allowed treatment from previous years.
Book Profit Enhancements under Section 115JB: The court ruled that disallowances computed under section 14A read with Rule 8D cannot be added back to calculate book profits under section 115JB. Similarly, the additions made by the AO for the sales promotion discount and the Club West customer loyalty provision were ordered deleted based on prior consistency.
Gift Card and Voucher Discounts: The entire discount offered at the time of selling gift cards and vouchers—including those remaining unredeemed at year-end—was held to be an actual, irreversible expenditure. Following established internal precedent, the discount is fully deductible as a revenue expense in the exact year the instruments are sold.

Key Takeaways

Binding Internal Precedent: When specific accounting treatments and suo motu tax offers have been evaluated and accepted by the Tribunal in an assessee’s previous years, the revenue department must maintain consistency for subsequent years under identical facts.
Book Profit Boundaries: Computations and disallowances designed for regular income tax provisions (like section 14A/Rule 8D) do not automatically apply or overflow into the mechanical computation of book profits under the Minimum Alternate Tax (MAT) framework of section 115JB.
Immediate Deduction for Irreversible Discounts: In retail business models, marketing discounts offered up-front on instruments like gift vouchers represent an absolute and final commercial liability incurred at the point of sale. Their tax deductibility cannot be deferred or linked to the unpredictable future dates when customers choose to redeem them.

IN THE ITAT MUMBAI BENCH ‘E’

Deputy Commissioner of Income-tax

Trent Ltd.^*

Sandeep Gosain, Judicial Member
and Girish Agrawal, Accountant Member

IT Appeal Nos. 5167 & 5243 (Mum) OF 2025
[Assessment year 2016-17]

MAY 12, 2026

Ritesh Misra, CIT DR for the Appellant. Nikhil Tiwari for the Respondent.

ORDER

Sandeep Gosain, Judicial Member.- The aforesaid cross appeals by the Revenue as well as assesse are directed against the impugned order dated 30.06.2025 passed u/s 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre, Delhi (NFAC) for the assessment year 2016-17. The following grounds are reproduced below:

ITA NO. 5243/Mum/2025

“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 14A inserted vide Finance Act, 2022 wherein it has been clarified that section 14A shall apply and deemed to have always applied in cases WHARE exempt income has not earned, accrued OR received during the previous year relevant to assessment year”?

“Whether on facts and in law, the Ld. CIT(A) 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 3 exclusively for the purpose of business of the assessee, and did Rs. 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.CIT(A) 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 8D 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 Virect Investment Pvt. Ltd. v. CIT . However, the said decision has been challenged by the Department and is pending adjudication before the Hon’ble High Court?

Whether Ld. CIT(A) failed to consider that the disallowance under section 14A represents expenditure relatable to income not forming part of total income under the Act, and such expenditure p ought to be considered for the 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 115JB(2) specifically requires the addition of expenditure relatable to exempt income to the book profit, and the computation made under Rule 8D provides a reasonable basis for determining such expenditure?

The appellant craves the leave to add, amend, alter and / OR DLEETE any of the grounds of appeal as above.”

ITA NO. 5167/Mum/2025

“Trent Limited (hereinafter referred to as the Appellant) craves leave to prefer an appeal against the order dated 30 June 2025 passed by the National Faceless Appeal Cope (hereinafter referred to as NFAC or Ld. CIT(A)) under section 250 of the Act on the following grounds, each of which is without prejudice to one another.

General Grounds

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. 92,29,32,640 as compared to the total income of Rs 47,87.47,370 declared by the Appellant in the return of income for the said assessment year.

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) of the Act.

Disallowance of deduction claimed in respect of discount on Gift cards 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 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

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,

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

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 1 15JB 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 1 15JB of the Act.

Disallowance of Sales Promotion Discount and Provision for Club West 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. 17,97,86,294 /- (Sales Promotion Discount) and Rs. 1,09,05,630 /- (Provision for Club West 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

10.

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.”

2. At the very outset, it was pointed out by the Ld. AR that the grounds raised by the Revenue are squarely covered by a series of decisions of the coordinate benches of the ITAT in the assessee’s own case, as well as in various other judgments, which are discussed herein below:

3. Firstly we shall take the Revenue’s appeal i.e. ITA No. 5243/Mum/2025. The Ground Nos. 1 and 2 raised by the Revenue relates to challenging the order of Ld. CIT(A) in allowing relief to the assessee on disallowance under Section 14A of the Act and which according to Ld. AR are squarely covered by the series of decisions of Coordinate Bench of ITAT in assessee’s own case, as well as in various other judgments, and the same are as follows:

(a)

Assessee’s Own Case (AY 2007-08 to 2013-14: Trent Ltd. v. Addl. CIT [IT Appeal No. 5775(MUM) of 2011, dated 15-7-2022]

(b)

Assessee’s Own Case – (AY 2014-15: Trent Ltd. v. Deputy Commissioner of Income-tax [2026] (Mumbai – Trib.)/ITA No. 5166/MUM/2025)

(c)

Assessee’s Own Case – (AY 2017-18: Trent Ltd. v. Dy. CIT [IT Appeal No. 4074 (MUM) of 2024, dated 31-12-2024]

(d)

Assessee’s Own Case – (AY 2018-19: Dy. CIT v. Trent Ltd. (Mumbai – Trib.) ITA No. 5244/Mum/2025)

(e)

Assessee’s Own Case – (AY 2020-21: (supra)Trent Ltd. ITA No. 5245/Mum/2025)

(f)Maxopp

Investment Ltd. v. CIT [2018] 402 ITR 640 (SC)/[2018] 402 ITR 640 (SC)

(g)

Godrej & Boyce Manufacturing Co. Ltd. v. DCIT [2017] (SC)/[2017] 394 ITR 449 (SC)

4. The operative portion of the decision of Coordinate Bench of ITAT in Trent Ltd. (supra) has been reproduced herein below:

Aggrieved by the aforesaid various disallowances, the assessee filed appeal before Id. CIT(A). The Id. 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 Id. 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 (Id. AR) of the assessee and the learned Commissioner of Income Tax Departmental Representative (Id. 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 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 wel 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 id. CIT(A), the assessee was allowed relief. The assessee filed various orders of id. 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 Id. 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 Id. CIT(A) followed the decision of Tribunal and directed the assessing officer to allow the exempt income under section 144. Thus, Revenue is in appeal before us.

The learned Commissioner of Income Tax Departmental Representative (Id. 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 80.

On the other hand, learned Authorised Representative (Id. AR) of the assessee submits that these grounds of appeal are in fact covered in favour of assessee. The coordinate 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 BD 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 Id. 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 Id. CIT(A). However on further appeal before Tribunal by following the decision of Tribunal in lead case in Trent Ltd. v. Addl. CIT [IT Appeal No. 5775(MUM) of 2011, dated 15-7-2022]/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 directed to accept the suo moto disallowance. The Id. 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 Id 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 v. Vireet Investments Itd. (58).

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 11538 as has been held by Special Bench of Delhi Tribunal in ACIT v. Vireet Investments Ltd. (SB). We find that Id. 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.

5. Since the Ld. CIT(A) had already decided this issue following the decisions of the Coordinate Benches of the ITAT in assessee’s own case for AY 2014-15, and even otherwise, the Ld. DR could not place anything on record to controvert or rebut the lawful findings so recorded by the Ld. CIT(A), therefore, we dismiss these grounds raised by the Revenue and uphold the order of the Ld. CIT(A).

6. The Ground Nos. 3 and 4 raised by the Revenue relates to challenging the order of ld. CIT(A) in allowing assessee’s claim of deduction and deleting the disallowance of brand equity fee paid to the Tata Sons Ltd. and according to Ld. AR are squarely covered by the series of decisions of Coordinate Bench of ITAT in assessee’s own case, as well as in various other judgments, and the same are as follows:

(a)

Assessee’s Own Case – (AY 2014-15: Trent Ltd. (supra)

(b)

Rallis India Ltd. v. ACIT [ITA No. 5701/M/2008, dated 30-8-2011])

(c)

Tata Autocomp Systems Ltd. v. ACIT [IT Appeal No. 7596 (Mum) of 2012, dated 12-06-2013]

(d)

Tata Chemicals Ltd. v. DY. CIT [IT Appeal NOs. 2965 & 3383/Mum/2015, dated 22-4-2019]

7. The operative portion of the decision of Coordinate Bench of ITAT in Trent Ltd. (supra) has been reproduced herein below:

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 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 Id. 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 Id. 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 Rallis India Ltd. v. ACIT [ITA No. 5701/M/2008, dated 30-8-2011], Tata Autocomp Systems Ltd. Tata Autocomp Systems Ltd. v. ACIT [IT Appeal No. 7596 (Mum) of 2012, dated 12-06-2013]/ITA No. 7596/M/2012 and Tata Chemicals Ltd. in ITA No. 2956 & 3383/M/2015. The Id. CIT(A) quoted the relevant part of decision in case of Rallies India Ltd. (supra). The Id. CIT(A) concluded that nature and purpose of the 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 Id. CIT(A), the Revenue is in appeal before us.

10.

The Id. CIT-DR for the revenue relied upon the order of assessing officer and would submit that assessee is having its own brand value.

11.

On the other hand, the Id. AR of the assessee supported the order Id. CIT(A). The Id. 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.

12.

We have considered the rival submissions of both the parties and perused the orders of lower authorities. We have also seen the orders of Mumbal 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 Id. 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 Id. CIT(A). No contrary fact or law is brought to our notice to take a different view. In the result, ground no. 3, 4 & 5 are dismissed.

8. Since the Ld. CIT(A) had already decided this issue following the decisions of the Coordinate Benches of the ITAT in the assessee’s own case for AY 2014-15, and even otherwise, the Ld. DR could not place anything on record to controvert or rebut the lawful findings recorded by the Ld. CIT(A), therefore, we dismiss these grounds raised by the Revenue and uphold the order of the Ld. CIT(A).

9. The Ground Nos. 6, 7 and 8 raised by the Revenue relates to challenging the order of Ld. CIT(A) in deleting the disallowance made under Section 14A of the Act read with Rule 8D while computing book profit under Section 115JB of the Act and according to Ld. AR are squarely covered by the series of decisions of Coordinate Bench of ITAT in assessee’s own case, as well as in various other judgments, and the same are as follows:

(a)

Appellant’s Own Case – (AY 2014-15: Trent Ltd. (supra)

(b)

Appellant’s Own Case (AY 2017-18: Trent Ltd. (supra) (Para No. 9 Pg No. 13-15) (Department FPB Page No. 588-590)

(c)

Appellant’s Own Case – (AY 2018-19: Trent Ltd. (supra) ITA No. 5244/Mum/2025)

(d)

Appellant’s Own Case – (AY 2020-21: Trent Ltd. (supra) ITA No. 5245/Mum/2025)

(e)

Hon’ble Special Bench of the Delhi Tribunal in the case of ACIT v. Vireet Investments (P.) Ltd [2017] 165 ITD 27 (Delhi – Trib.) (SB)

10. The operative portion of the decision of Coordinate Bench of ITAT in Trent Ltd. (supra) has been reproduced herein below:

11. Since the Ld. CIT(A) had already decided this issue following the decisions of the Coordinate Benches of the ITAT in the assessee’s own case for AY 2014-15, and even otherwise, the Ld. DR could not place anything on record to controvert or rebut the lawful findings recorded by the Ld. CIT(A), therefore, we dismiss these grounds raised by the Revenue and uphold the order of the Ld. CIT(A).

12. Thus in view of our discussion, the other grounds raised by the Revenue become infructuous and therefore does not need separate adjudication.

Now we take up the appeal filed by the assessee

13. The Ground Nos. 1 and 2 raised by the assessee are general in nature therefore does not require any separate adjudication.

14. The Grounds No. 3 to 8 raised by the assessee relates to challenging the order of Ld. CIT(A) in upholding the disallowance made by the AO on discount on unredeemed gift cards and gift vouchers and according to Ld. AR are squarely covered by the series of decisions of Coordinate Bench of ITAT in assessee’s own case, as well as in various other judgments, and the same are as follows:

(a)

Appellant’s Own Case – (AY 2014-15: Trent Ltd. (supra)

(b)

DCIT v. Landmark Ltd. [ITA No. 6268/M/2024, dated 07-05-2017 ]

(c)

ACIT v. Shoppers Stop Ltd. [No. 1835/M/2010, dated 25-01-2015 ]

(d)

ACIT v. Jet Airways India Pvt. Ltd. [ITA No. 4402/M/2008,dated 30-05-2006 ]

(e)Sports

& Leisure Apparel Ltd. v. Dy. CIT [ITA. No. 3270, 3271 & 3272/Del/2010, dated 28-11-2013]

(f)

HDFC Bank Ltd. v. Dy. CIT [ITA. No. 1783 to 1785/Mum/2023, dated 24-1-2024]

15. The operative portion of the decision of Coordinate Bench of ITAT in Trent Ltd. (supra) has been reproduced herein below:

14.

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 Id. 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, 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 Id. CIT(A) on considering the submission of assessee concurred with the action of assessing officer. The Id. 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 Id. CIT(A), the assessee has filed present appeal.

15.

The Id. 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 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 Id. CIT(A) confirmed the action of Id. AO. The Id. AR of the assessee while explaining modus operandi of gift cards and gift voucher e.g. on 1 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 Rs. 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 1 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 assessee would be credited 1000. 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 underutilised. To support his submission the learned AR of the assessee relied upon decision of honourable Supreme Court in case of Taparia Tools Ltd (SC)/[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 Id. 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 consideration. To support his submissions, the Id. AR of the assessee relied on following various case laws:

DCIT v. Landmark Ltd. (DCIT v. Landmark Ltd. [ITA No. 6268/M/2024, dated 07-05-2017 ]/ITA No. 6268/M/2024 dated 07.05.2017 ),

ACIT vs Shoppers Stop Ltd. (ACIT v. Shoppers Stop Ltd. [No. 1835/M/2010, dated 25-01-2015 ]/ITA No. 1835/M/2010 dated 25.01.2015)

ACIT v. Jet Airways India Pvt. Ltd. (ACIT v. Jet Airways India Pvt. Ltd. [ITA No. 4402/M/2008,dated 30-05-2006 ]/ITA No. 4402/M/2008 dated 30.05.2006 )

16.

On the other hand, the Id. CIT-DR for the Revenue supported the order of lower authorities. The Id. CIT-DR submits that lower authorities have gave categorical finding that liability was not crystallised in the year under consideration.

17.

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 Id. 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 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.

18.

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.

16. Considering the totality of the facts and circumstances, and keeping in view the decisions of the Coordinate Bench of the ITAT, as well as the doctrine of binding precedent and judicial consistency, we allow these grounds raised by the assessee.

17. The Ground Nos. 9 and 10 raised by the assessee relates to challenging the order of Ld. CIT(A) on account of sale promotion discount and provision for Club West Loyalty Program and customer loyalty programe for computation of book profit under Section 115JB of the Act and accordingly to Ld. AR are squarely covered by the decisions of Coordinate Bench of ITAT in assessee’s own case, for the AY 2014-15 and the operative portion of the same is reproduced herein below:

19. 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 Id. AR of the assessee submits that AO disallowed loyalty card points, however, Id. CIT(A) allowed subject to verification. But, not given any finding on book profit. Considering the fact that Id. 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 Id. CIT(A). In the result, these grounds of appeal are allowed for statistical purpose

18. Considering the totality of the facts and circumstances, and keeping in view the decisions of the Coordinate Bench of the ITAT, as well as the doctrine of binding precedent and judicial consistency, we allow the grounds raised by the assessee.

19. In the result, the appeal filed by the Revenue stands dismissed and appeal filed by the assessee stands partly allowed.