TaxTMI 
TaxTMI 
2012 (12) TMI 89
X X X X Extracts X X X X
X X X X Extracts X X X X
....e purchases made by them at the stores of the assessee. The accumulated rewards point can be redeemed by the customers by way of rebate from the sale price while making additional purchases at the assessee's stores. The assessee recognised the liability in respect of reward point earned by the customers by debiting to the Profit & Loss account in the year in which the customers earns reward points. The liability is reversed in the subsequent year, either upon redemption on the reward point or on lapsing of reward points. The accounting policy is consistently followed by the assessee since inception of the "First Citizen" scheme. The Assessing Officer, in the assessment order passed on 31st December 2008, for the assessment year 2003-04, in an order passed under section 143(3) r/w 147, held that the redemption of reward points can be accounted as expenditure, only when it is actually incurred and not prior to that. He disallowed the claim on the ground that the expenditure is an unascertained expenditure. 4. On appeal, the first appellate authority deleted the addition. 5. Before us, the learned Departmental Representative, Mr. C.G.K. Nair, representing the Revenue, submitted that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sing Officer was looking into the wrong notes to accounts. He submitted that the accounting policy does not discuss expenditure and deals only with revenue recognition. He pointed out that the assessee furnished direct marketing expenditure as Annexure-7(iii)(e) and the Assessing Officer examined the same and formed an opinion and, hence, it is a change of opinion. He relied on the judgment of Hon'ble Supreme Court in Kelvinator of India Ltd. v/s CIT, [2010] 320 ITR 0561 (SC), and submitted that the assessment should be held as bad-in-law. 8. In reply, the learned Counsel opposed the contentions and submitted that the Commissioner (Appeals) has dealt with the issue at Para-2.3, of his order and the same should be upheld. 9. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and on a perusal of the papers on record, as well as the case laws cited before us, we hold as follows:- 10. The Commissioner (Appeals) has dealt with the issue of allowability of the claim of assessee on reward points from para-3.3 to 3.3.2 of his order, which is reproduced below for ready reference:- "3.3 I have considered the assessment order and the submission....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d be to see the quality and accuracy of the quantification of the cost to see whether on not the FCC points debited are based on scientific calculation and research. This brings us to the second question. In this respect, I find that the appellant recognizes the liability to the extent of 50% of the points on a conservative basis clued into its past experience suggesting that 50% of the reward points granted were redeemed by the customers. Further, I also note that since the value of reward points also includes gross profit margin for the purpose of quantification of liability, the appellant- reduces the estimated gross profit margin of 30%. I find this process of quantification scientific as it is based on past trends and further, I also find it reasonable since the final liability debited also takes into account the trend of redemption and the gross profit margins. In this view of the matter, the ascertainment of the FCC points is found to be based on sound and reasonable quantification. This being so, the claim cannot be disallowed on the ground that it is an unascertained expenditure. In this respect, the decision 9f1 the Hon'ble Supreme Court in the case Rotork Controls India ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assessee has a scheme known as "frequent flyer programme", Whereby the passengers who frequently use the services of the assessee's airline are permitted to accumulate certain number of miles o their credit........ Any redemption of the accumulated mileage in the subsequent years is debited to the provision account. To track the miles earned by each member, a member is required to mention his "JP Membership Number at the time of making booking or at the time of checking in for a flight based on this information available in the system, the miles are then updated-in each members account. The total number of miles earned is ascertained in the above manner and a provision for the cost of tickets to be issued in future for the unutilized redeemable miles is made in the books of accounts as a liability. Such liability is claimed as revenue expenditure. In our view, the claim of the assessee is based on the liability it has undertaken under the frequent flyer programme. It is not the case of the revenue that the liability provided by he assessee is not in accordance with the scheme operated by the assessee. The liability provided is in respect of variable cost of flying the aircraft. Th....