The Bangalore Bench of the ITAT has recently granted relief to the e-com giants Flipkart India by deleting the additions made by the tax department.
While completing assessment proceedings against the assessee, the Assessing Officer held that the losses incurred by the Assessee were to create marketing intangibles assets and therefore the loss to the extent it is created due to predatory pricing should be regarded as capital expenditure incurred by the Assessee and should be disallowed. It was also held that the value of marketing intangibles should be considered as an asset used for the purpose of the business for which the Assessee should be eligible to claim depreciation at 25%.
Relying on the decision in assessees’ own case, the Tribunal observed that the starting point for computing income from the business is the profit or loss as per the profit and loss account of the Assessee, which cannot be disregarded unless certain provisions [Section 145(3)] of the IT Act are invoked. Since the AO has not invoked such provisions, the AO is not empowered to go beyond the book results.
The Tribunal recalled that in that case, it was held that it is settled law that “where a trader transfers his goods to another trader at a price less than the market price and the transaction is a bonafide one, the taxing authority cannot take into account the market price of those goods, ignoring the real price fetched to ascertain the profit from the transaction” and “income which has accrued or arisen can only be subject matter of total income and net income which could have been earned but not earned”. It was held that “the AO was not right in proceeding to ignore the books results of the Assessee and resorting to a process of estimating the total income of the Assessee in the manner in which he did, what can be taxed is only income that accrues or arises as laid down in Sec.5 of the Act. Nothing beyond Sec.5 of the Act can be brought to tax”.
The Tribunal concluded that the action of the Revenue in disregarding the books results cannot be sustained and the further conclusion that the action of the Revenue in presuming that the Assessee had incurred expenditure for creating intangible assets/brand or goodwill is without any basis. Accordingly, the loss declared by the Assessee in the return of income should be accepted by the AO and the action of disallowing the expenses without any basis.
Based on the above findings, the Tribunal granted relief to the assessee and held that the aforesaid conclusion of the Tribunal will equally apply to AY 2012-13 to 2014-15 also as the basis of making the addition in these AYs are also the same as it was made in AY 2015-16.
“The allegation of the revenue regarding the Assessee and M/S.WS Retail Pvt.Ltd., being related parties does not emanate from the order of assessment. The revenue cannot be permitted to take a stand which was not the factual basis on which addition was made by the AO. Even otherwise, there is no basis for the stand taken by the revenue in the grounds of appeal. We, therefore, find no merit in these appeals by the revenue. Respectfully following the order of the Tribunal in Assessee’s own case for AY 2015-16, we uphold the orders of the CIT(A) and dismiss, these appeals by the revenue,” the Tribunal added.
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