The Bangalore bench of the Income Tax Appellate Tribunal (ITAT) has refused to recall its order passed in last year April holding in favour of the E-commerce giants Flipkart wherein the Tribunal quashed a109.52 crore tax demand from the income tax department against the Company.
Earlier, the department took a view that e-commerce companies should restructure their marketing expenses and discounts as capital expenditure and not as revenue expenditure. According to them, the Capital expenditure has to be spread over four to 10 years. according to them, the money spent on discounting and marketing is a cost incurred to increase the company’s brand value.
Later, the Commissioner of Income Tax (Appeals) observed that the said expenses are capital in nature for which deduction is not permissible under the Income Tax Act, 1961.
In February, while disposing of the stay petition, the same bench asked Flipkart to deposit Rs 55 crore and provide bank guarantees to the tune of Rs 55 crore. The order of ITAT in April mandated the repayment of the refund to the Flipkart.
Before the Tribunal, the Revenue filed a miscellaneous petition contending that the entire conclusion of the Tribunal is based on the fact that M/S.WS Retail Services Pvt. Ltd., to whom the products are sold by the Assessee after its purchase is based on the fact that the transaction between the Assessee and M/S.WS Retail Services Pvt.Ltd. was an uncontrolled transaction whereas the fact is that there was an agreement between Assessee and M/S.WS Retail Services Pvt.Ltd. and the terms of the said agreement provide that M/S.WS Retail Pvt.Ltd. shall sell the products sold by the Assessee to it only through the web portal “Filpkart.com”. Therefore the transaction between Assessee and M/S.WS Retail Services Pvt.Ltd., cannot be said to be an uncontrolled transaction.
It was further contended that since the transaction between the Assessee and M/S.WS Services Retail was not in the nature of the uncontrolled transaction, the profits foregone by the Assessee was only with an intention of acquiring an intangible asset in the form of goodwill/brand value and the same was correctly held to be capital expenditure by the revenue authorities.
The Tribunal noted that the DR was unable to explain the relevance of the documents now sought to be filed before us for deciding the issue that was for consideration before the AO.
“As we have already mentioned these documents were neither the basis of assessment or the basis of conclusions by the CIT(A) for its conclusions on the addition that was in a challenge before the Tribunal. These documents were never sought to be relied upon by the learned DR when the appeal was heard nor was there any allegation of any hidden transaction requiring examination by the Tribunal after lifting the corporate veil. These documents could not have been relied upon by the learned DR when the appeal was argued for the reason that these documents were not the basis on which the assessment and the addition challenged before the Tribunal was made by the AO and confirmed and enhanced by the CIT(A). Even in the allegation in the MA is that the Assessee has failed to place the documents now sought to be filed before Tribunal by the Revenue. The conclusions drawn by the Tribunal which have been extracted in Paragraph-5 of this order will hold good and these documents will have no impact on the conclusions drawn by the Tribunal. Therefore, there exists no relevancy of these documents now sought to be filed with regard to the issue that was decided by the Tribunal. The revenue cannot seek to raise a totally new basis of assessment in an MA and on a possibility of the existence of a hidden transaction after lifting the corporate veil. It cannot, therefore, be said that there was mistake apparent from the record which calls for rectification u/s.254(2) of the Act,” the Tribunal said.
