Flipkart Gets Relief In Rs.1700 Crore Alleged Marketing Intangibles From ITAT

Flipkart wins on alleged Rs.1700 Cr. marketing intangibles & ESOP cross charge as Bangalore ITAT allows Flipkart India's appeal and allows deduction towards ESOP expenditure by following the jurisdictional HC ruling in Biocon. ITAT dismissed Revenue's appeal against CIT(A) order deleting the addition made by the Revenue on account of valuation of marketing intangibles.

Bangalore ITAT division bench comprising George George K as Judicial Member and Smt. Padmavathy S as  Accountant Member relied on Assessee’s own case for Assessment year 2015-16 wherein it was held that the profit margin foregone by the Assessee cannot be held to be an incurred expenditure in creating intangible or goodwill. Therefore, in the light of coordinate bench ruling in Assessee's own case, ITAT finds no reason to interfere with CIT(A)'s order and dismisses Revenue's appeal.

In the matter at hand, assessee filed a loss return of Rs.139.61 Cr. against which it was subjected to the addition of Rs.1708.39 Cr. on account of valuation of marketing intangibles and Rs.15.80 Cr. on account of ESOP expenses.

On ESOP (Employee stock ownership plan) expenses, Assessee contended the followingbefore the ITAT that the expenses:

(i) qualify the conditions prescribed under Section 37, 

(ii) are an unascertained liability and not contingent liability, 

(iii) recognised in accordance with IND AS 102, 

(iv) recognized by following a consistent accounting method year to year 

(v) there is no liability to withhold tax in case of cost to cost reimbursement as per various judicial precedents; 

In the light of the aforementioned ITAT relied on coordinate bench ruling in Novo Nordisk wherein it was held that ESOP expenses incurred on the issue of overseas parent company’s share is to be considered as revenue expenditure and relied on special bench ruling in Biocon (upheld by jurisdictional HC) wherein it was held that the term ‘expenditure’ also includes a loss and therefore, issuance of shares at a discount where Assessee absorbs difference between a price at which it is issued and the market value of the shares would also be expenditure incurred for the purpose of Section 37(1)

Therefore, the bench observed  that expenditure incurred towards ESOP is eligible for deduction under Section 37(1).