TaxTMI 
TaxTMI 
2025 (12) TMI 1755
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....ase was right in holding that the goods purchased by the assessee and sold in its portal at lesser the cost, the difference would not amount to creation of intangible asset, especially in the circumstances when such sale was controlled transaction and recorded perverse finding? 2. Whether the Ld. CIT(A) was correct in holding that the retailers or the unrelated parties without any basis in order to arrive at a conclusion that the goods sold by the assessee at the lesser the cost, the difference between the purchase price and the sale price cannot be considered as expenditure incurred towards acquisition of intangible assets in the form of brand value, Goodwill? 3. Whether the difference of the sale price and the purchase cost can be considered as expenditure for acquisition of intangible asset in the form of brand value. Goodwill, Etc., especially in the circumstance, when the assessee was declaring losses, whereas the share value of the assessee company was increasing? 4. Whether the Ld. CIT (A) was correct in relying on ITAT finding that there is no acquisition of intangible asset as the same is not recognized in the books of accounts when the licence a....
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....8.2024 determining the total income of the assessee at Nil. 7. Similarly for AY 2021-22 the return of income filed by the assessee on 13.3.2022 at Nil income determining carry forward losses of Rs. 2442 cores is assessed at Rs. Nil. However, there was identical addition of Rs. 4016,81,72,341 on account of capitalisation of marketing intangibles and Rs. 159,34,47,545 on account of ESOP cross-charge. 8. The assessee preferred appeal against both the above orders before the ld. CIT(A). The ld. CIT(A) following the decision of the coordinate Bench in assessee's own case for AY 2015-16 & 2017-18 relating to addition on account of creation of marketing intangibles held that the issue was covered in favour of the assessee and deleted the addition. 9. With respect to ESOP expenditure, he deleted the addition based on the decision of coordinate Bench in the assessee's own case for AY 2017-18 wherein the coordinate Bench allowed the expenditure incurred on reimbursement of ESOP expenses to the holding company in Singapore. Accordingly both the issues were decided in favour of the assessee and therefore the Revenue is aggrieved with the appellate orders and is in appeals before us. ....
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....anies chosen by the AO. On the revenue's appeal, the learned DR relied on the order of the AO and pleaded that the computation of expenses on creating intangibles as done by the AO should be restored. 50. We have given a very careful consideration to the rival submissions. As far as the Assessee's appeal is concerned, the issue that arises for consideration is as to whether the determination of total income as done by the AO was justified in the facts and circumstances of the case. The Assessee as we have seen is a wholesale trader. He purchases goods for the purpose of trading at say Rs. 100/- from unrelated parties. He sells it to retailers at Rs. 80/-. The retailers are also unrelated parties. The retailers sell the goods through the Assessee's web portal "flipkar.com". The trading by the retailers to the end user is through E-Commerce. The customers browse the website and see the various products and place orders electronically. The products are delivered physically to the customers at their desired place. The payment is also made electronically or by cash at the point of deliver to the customers. As far as the Assessee is concerned it deals only with retai....
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....ome from whatever source derived which(a) is received or is deemed to be received in India in such year by or on behalf of such person; or(b) accrues or arises or is deemed to accrue or arise to him in India during such year; or(c) accrues or arises to him outside India during such year. Sec. 2(24) of the Act defines income by laying down that income includes and lists out several categories of receipts which can be characterised as income. The definition is inclusive definition and therefore what can be regarded by ordinary connotation of the said term as income can be regarded as income even though they do not fall within any of the categories of income set out in various sub-clauses of Sec. 2(24) of the Act. The aspect to be noted is that there should be income and its receipt or accrual because it is only income which accrues or arises that can be subject matter of total income u/s. 5 of the Act. Sec. 14 lays down that income for the purpose of computation of total income has to be classified under the following heads of income viz., Salaries, Income from house property, Profits and gains of business or profession, Capital gains and Income from other sources. Sec. 28 of the Act....
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....case of A. Raman & Co. (supra), 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. The decision of the Hon'ble Karnataka High Court in the case of A. Khader Basha (supra) is squarely applicable to the facts of the present case. The facts of the Assessee's case and the facts of the case decided by the Hon'ble Karnataka High Court were identical. The Hon'ble Karnataka High Court held following Hon'ble Supreme Court decision in the case of Calcutta Discount Co. Ltd. (supra), that where a trader transfers his goods to another trader at a price less than the market price and the transaction is a bona fide 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. The Hon'ble Court explained that the only exception was if Section 40(A)(2)(a) of the Act applies viz., where the parties to the transaction are related. Following the aforesaid decisions, we hold that the AO was not right in proceeding to ignore the books results of the Assessee and resorting to a process of estimati....
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....he intangible/brand or goodwill which will be generated in the long run. Therefore to the extent profits are foregone by the Assessee, the Assessee can be deemed to have incurred expenditure on creating intangibles/brand or goodwill and such expenditure has to be regarded as capital expenditure and added to the total income of the Assessee. 55. We find no basis for the above conclusions of the AO. The first presumption of the AO is that the Assessee had incurred expenditure. As rightly contended by the learned counsel for the Assessee there was no accrual of any liability on account of any expenditure or actual outflow of funds towards expenditure. One cannot proceed on the basis of presumption that the profit foregone is expenditure incurred and further that expenditure so incurred was for acquiring intangible assets like brand, goodwill etc. As pointed by the Hon'ble Supreme Court and the Hon'ble Bombay High Court in the case of B.C. Srinivasa Setty (supra) and Evans Frazer (supra), for creation of intangibles like say goodwill it is not possible to ascertain in terms of money the cost of acquisition of goodwill; it is equally impossible to ascertain in terms of ....
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....at there was an expenditure of a capital nature incurred by the Assessee in arriving at a loss as declared in the return of income and further disallowing such expenditure and consequently arriving at a positive total income chargeable to tax is without any basis and not in accordance with law and the said manner of determination of total income is hereby deleted." 16. Respectfully following the above decision of the Tribunal, we find no reason to interfere with the order of the CIT (Appeals) and uphold the same. The grounds taken by the revenue are dismissed. 14. The ld. counsels before us agreed that there is no change in the facts and circumstances of the case and therefore respectfully following the decision of the coordinate Bench in assessee's own case for earlier years, we hold that the discounts offered by the assessee could not be held to be capital expenditure incurred by the asse for creating marketing intangibles. Accordingly these grounds are dismissed. 15. With respect to ground Nos. 5 & 6, regarding cross-charge of ESOP expenditure, we find that the coordinate Bench in para 10 categorically held that such expenditure is allowable to the assessee u/s. 3....
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....ployee cost. The law by now is well settled by the decision of the Special Bench of the ITAT Bangalore in the case of Biocon Ltd. v. Dy. CIT [2013] 35 taxmann.com 335 and other connected appeals, by order dated 16-7-2013, wherein it was held that expenditure on account of ESOP is a revenue expenditure and had to be allowed as deduction while computing income. The Special Bench held that the sole object of issuing shares to employees at a discounted premium is to compensate them for the continuity of their services to the company. By no stretch of imagination, we can describe such discount as either a short capital receipt or a capital expenditure. It is nothing but the employees cost incurred by the company. The substance of this transaction is disbursing compensation to the employees for their services, for which the form of issuing shares at a discounted premium is adopted. 19. In the present case, there is no dispute that the liability has accrued to the assessee during the previous year. The only question to be decided is as to whether it is the expenditure of the assessee or that of the parent company. We are of the view that the observations of the CIT (A) in para 5.....
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....essee as laid down by the Hon'ble Supreme Court in the case of Sassoon J. David& Co. (P.) Ltd. (supra). 21. The reference by the CIT (A) to the provisions of sec. 40A(2)(b) of the Act is again without any basis. The price of the shares of NNAS is arrived at by applying the average market price for the period 3rd October, - 17 the October, 2005 in the Copenhagen Stock Exchange. The price so arrived at and the price at which shares are issued to the employees of the Assessee is the benefit which the employees get under the ESOP. The Assessee or its parent company can never influence the stock market prices on a particular date. There is no evidence or even a suggestion made by the CIT (A) in his order. There is no basis to apply the provisions of sec. 40A(2)(b) of the Act. 22. With regard to the decision of the ITAT in the case of Accenture Services (P.) Ltd. (supra), we find that the facts of the case of Accenture Services (P.) Ltd. (supra) are identical. In the case of Accenture Services (P.) Ltd. (supra), the facts were that the assessee company incurred certain expenses on account of payments made by it for the shares allotted to its employees in connection ....
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....expenditure in question is wholly and exclusively for the purpose of the business of the assessee and the fact that the parent company is also benefited by reason of a motivated work force would be no ground to deny the claim of the assessee for deduction, which otherwise satisfies all the conditions referred to in section 37(1) of the Act. The decision of the Hon'ble Supreme Court in the case of Sassoon J. David & Co. (P.) Ltd. (supra) and the Hon'ble Karnataka High Court decision in the case of Mysore Kirloskar Ltd. (supra) clearly support the plea of the assessee in this regard. 24. We are of the view that in the facts and circumstances of the present case, the expenditure in question was wholly and exclusively for the purpose of the business of the assessee and had to be allowed as deduction as a revenue expenditure. 25. For the reasons given above, we direct the expenditure be allowed as deduction." 9. We also notice that the issue of whether ESOP cross charge expenses are allowable u/s. 37 of the Act has already been decided by this Tribunal in favour of the assessee in the case of Biocon Ltd. (supra) which has also been affirmed by the Hon&....