ITAT rules in favour of Flipkart on alleged ₹1,700 crore marketing intangibles


Bangalore Income Tax Appellate Tribunal (ITAT) allows Flipkart appeal to allow deductions towards ESOP expenditure.

The company filed a loss return of ₹139.61 crore, against which it was subjected to the addition of ₹1,708.39 crore on account of the valuation of marketing intangibles and ₹15.80 crore on account of ESOP expenses. 

Division Bench of Bangalore ITAT comprising Shri George George K, Judicial Member, and Smt. Padmavathy S, Accountant Member ruled, “With regard to revenue’s appeal on marketing intangibles, ITAT relies on Flipkart’s case for AY 2015-16 wherein it was held that the profit margin foregone by the company cannot be held to be an incurred expenditure in creating intangible or goodwill. Thus, ITAT finds no reason to interfere with the commissioner of income-tax’s order and dismisses revenue’s appeal.” 

ESOP expenses

On ESOP expenses, Flipkart contended before ITAT that the expenses qualify the conditions prescribed under Section 37, and are an unascertained liability and not contingent liability. The bench added that the expenses are also recognised in accordance with Indian Accounting Standard 102, among other observations. 

ITAT relied on a coordinate bench ruling in Novo Nordisk wherein it was held that ESOP expenses incurred on the issue of overseas parent company’s share is to be considered as revenue expenditure. 

The bench also relied on a special bench ruling in Biocon (upheld by jurisdictional HC) wherein it was held that the term ‘expenditure’ also includes a loss and therefore, issuance of shares at a discount where the company absorbs the difference between a price at which it is issued and the market value of the shares would also be expenditure incurred for the purpose of Section 37(1). Accordingly, the bench held that expenditure incurred towards ESOP is eligible for deduction under Section 37(1). 

Flipkart did not respond to businessline queries on this development. 

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