Profit Margin Forgone by Flipkart India while Selling Goods cannot be treated as “Expenditure in Creating Intangible or Goodwill”: ITAT [Read Order]

The Bangalore Bench of Income Tax Appellate Tribunal (ITAT) has held that the profit margin forgone by Flipkart India while selling goods could not be treated as expenditure in creating intangible or goodwill.

The assessee Flipkart India Private Limited is engaged in the business of wholesale distribution of books, mobile, media, computers, gaming console and other related accessories, apart from developing technology solutions, website solutions, supply chain management, financial solutions, logistic solutions, engineering & outsourcing solutions for e-commerce business.

 The AO made Addition on account of valuation of marketing intangibles of assessee. On appeal, the CIT(A) deleted the addition made towards valuation of marketing intangible assets by relying on the decision of the coordinate Bench in assessee’s own case.

Ajay Vohra, on behalf of the assessee relied on the order of the coordinate Bench and submitted that since there was no change in the facts in the current year it was covered by that decision.

Neera Malhotra on behalf of the revenue submitted that the CIT(A) ought not to have merely relied on the decision of the ITAT in assessee’s own case for AY 2015-16 to delete the addition without considering the evidence furnished by the AO.

The division Bench of George George K. (Judicial Member) and Padmavathy S, (Accountant Member) dismissed the appeal filed by the revenue referring to the earlier decision that, “In view of our conclusions that the action of the AO in disregarding the books results cannot be sustained and the further conclusion that the action of the AO in presuming that the Assessee had incurred expenditure for creating intangible assets/brand or goodwill is without any basis, we do not think it necessary to deal with the arguments that even assuming that expenditure was incurred by the Assessee the expenditure for building brand or creating intangible or goodwill is revenue expenditure and allowable as deduction. It is also not necessary for us to go into the question of estimation of quantum of expenditure on creating intangibles, in view of the above conclusions.”

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