CASE BRIEF

CASE NAME AND CASE LAW:

M/S Flipkart India (P) Ltd vs. Assistant Commissioner of
Income Tax [ITA No. 202/Bang/2018] Section 145(3) of the
Income Tax Act, 1961
FACTS:
The Assessee, Flipkart India (P) is engaged in the business of
wholesale trader/ distributor of books, mobiles, computers and
related accessories. It sells these goods at a price is lower than
its purchase price thereby incurring huge losses. The Assessee
had filed a return of income tax declaring a loss of
7,96,34,36,863 INR. However, the Income-tax department
concluded that strategy was to establish customer goodwill and
brand value in the long run and contended that the selling
goods at less than cost price is not a business practice. The
returned loss was converted in to a positive income and tax
officer allowed depreciation of 25% of such income.
ISSUE:
Whether discount offered by Assessee on goods sold to
retailers created a goodwill for the Assessee and accordingly
were they not deductible as revenue expenditure?
JUDGEMENT:
The Bangalore Bench of Income Tax Appellate Tribunal (ITAT)
on 25 April, 2018 has provided relief to the Assessee and held
that discount offered to retailers is allowable as revenue
expenditure. The discounted offered cannot be construed as an
expenditure incurred for acquiring/ creating brand. Accordingly,
the tax officer was not empowered to do so.