DCIT Vs Flipkart India Pvt Ltd (ITAT Bangalore)
Marketing Intangibles Theory Rejected Again; ₹6,006 Cr & ₹4,016 Cr Additions Deleted—ESOP Cross-Charge Also Allowed
Profit Foregone Is Not Capital Expenditure—Intangibles Theory Rejected Once More & ESOP Cross-Charge Is Employee Cost—Allowed u/s 37; No TDS u/s 195
ITA Nos.1394 & 1395/Bang/2025 – AYs 2020-21 & 2021-22 – Order dated 04.12.2025
Revenue filed appeals challenging CIT(A)’s deletion of massive additions made by AO on two counts:
(1) Alleged creation of marketing intangibles—AO treated discounts/losses (goods sold below cost) as capital expenditure for creation of brand value, capitalised them & added ₹6,006 Cr (AY 2020-21) & ₹4,016 Cr (AY 2021-22) after depreciation adjustments.
(2) ESOP cross-charge disallowance of ₹147 Cr (AY 2020-21) & ₹159 Cr (AY 2021-22), claiming it to be contingent liability & liable for TDS u/s 195.
CIT(A) deleted both additions relying on earlier years’ Tribunal decisions in Flipkart’s favour. Revenue appealed.
Tribunal examined entire record, including detailed reasoning extracted across pages 6–16, & held:
1. Marketing Intangibles Allegation Has No Legal Basis
- AO presumed that selling goods below cost to unrelated retailers creates brand/goodwill.
- Tribunal reiterated earlier ruling (AYs 2015-16 & 2017-18) that foregone profit is not expenditure, cannot be deemed to create intangibles, & cannot be taxed without specific deeming provision.
- AO never invoked s.145(3); hence book results cannot be discarded.
- Tribunal reaffirmed that what could have been earned cannot be taxed—relying on Calcutta Discount Co, A. Raman & Co, A. Khader Basha, etc.
Accordingly, additions on “marketing intangibles” were rightly deleted by CIT(A).
