The Bangalore Bench of the Income Tax Appellate Tribunal ( ITAT ) observed that the Expenditure incurred by Flipkart towards Employee Stock Ownership Plan ( ESOP ) eligible for deduction under Section 37 of the Income Tax Act, 1961.
The assessee,Flipkart India Private Limited, is a wholesale dealer in various items. During the assessment proceedings, the AO noticed that the assessee has been selling the goods purchased to the resellers/retailers at a price less than the cost price of the assessee.
The AO further noticed that during the year under consideration, the assessee has made a sale of Rs.15,264.42 crores to the retailers and against this, the cost of goods was Rs.15,425.35 crores and accordingly a cash loss of Rs.160.93 crores. The AO considered this as a basis for marketing intangibles and accordingly made an addition towards the same.
The CIT(A) deleted the addition by relying on the decision of the coordinate Bench in assessee’s own case for AY 2015-16, where the Tribunal has held that the profit margin forgone by the assessee cannot be held to be expenditure in creating intangible or goodwill. Aggrieved, the revenue is in appeal before the Tribunal.
Section 37(1) of the Income Tax Act provides that any expenditure, not being in the nature of capital expenditure or personal expenses of the assesseeexpended wholly and exclusively for the purpose of business or profession shall be allowed in computing the income chargeable under “Profits and gains of business or profession.
The Two-Member Bench of the Tribunal comprising of George George K. (Judicial Member) and Padmavathy S (Accountant Member), observed that the expenditure incurred by Flipkart towards ESOP is eligible for deduction under Section 37 of the Income Tax Act, 1961.
The Bench relied upon the decision of the Karnataka High Court in CIT (LTU) vs. Biocon Ltd, wherein it was held that the expression ‘expenditure’ will also include a loss and therefore, issuance of shares at a discount where the assessee absorbs the difference between the price at which it is issued and the market value of the shares would also be expenditure incurred for the purposes of Section 37(1) of the Income Tax Act.”
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