Case Law Details
JCIT Vs Flipkart India Pvt. Ltd. (ITAT Bangalore)
Conclusion: AO was not justified in holding that losses incurred by assessee due to selling goods at less than cost price to e-commerce operators was to create marketing intangibles assets and therefore the loss to the extent it was created due to predatory pricing should be regarded as capital expenditure incurred by assessee and should be disallowed because where a trader transferred his goods to another trader at a price less than the market price and the transaction was a bonafide one, the taxing authority could not take into account the market price of those goods, ignoring the books results of assessee and resorting to a process of estimating total income of assessee in the manner in which he did, what could be taxed was only income that accrues or arises as laid down in Sec.5, nothing beyond Sec.5 could be brought to tax.
Held: Assessee was a wholesale dealer and acquired goods from various persons and immediately selling the goods to retail sellers and others, who subsequently would sell those goods as sellers on internet platform under the name ‘Flipkart.Com’. AO was of the view that the action of assessee in selling goods at less than cost price was not a normal business practice. AO thereafter concluded that the losses incurred by assessee was to create marketing intangibles assets and therefore the loss to the extent it was created due to predatory pricing should be regarded as capital expenditure incurred by assessee and should be disallowed. AO was however gracious in holding that the value of marketing intangibles should be considered as an asset used for the purpose of business for which assessee should be eligible to claim depreciation at 25%. Assessee replied that no part of purchases by an enterprise carrying on trading business could be considered as capital expenditure and expenses incurred did not create any asset of an enduring advantage. It was held 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 not income which could have been earned but not earned”. AO was not right in proceeding to ignore the books results of assessee and resorting to a process of estimating total income of assessee in the manner in which he did, what could be taxed was only income that accrues or arises as laid down in Sec.5. Nothing beyond Sec.5 could be brought to tax”. There was no expenditure which was incurred by the Assessee and one cannot proceed on the basis of a presumption that profit forgone was expenditure incurred and further that expenditure incurred was for acquiring intangible assets like brand, goodwill etc. Accordingly, the loss declared by assessee in the return of income should be accepted by AO and the action of disallowing the expenses was without any basis.
FULL TEXT OF THE ITAT JUDGEMENT
These are appeals by the Revenue against three orders dated 23.7.2018, 7.8.2018 & 7.8.2018, all by CIT(Appeals)-3, Bengaluru, relating to assessment years 2012-13, 2013-14 & 2014-15.
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