AI Insights
The case involves Flipkart India Private Limited, which filed a Miscellaneous Petition seeking rectification of mistakes in a consolidated order by the Income Tax Appellate Tribunal, Bangalore. The mistakes pertained to the description of the assessee's business activities and the non-adjudication of specific grounds concerning the deductibility of ESOP expenditures. The Tribunal acknowledged the errors and corrected the factual inaccuracies, aligning the description of the assessee's business with the actual operations. Additionally, the Tribunal addressed the unadjudicated grounds by ruling in favor of the assessee based on precedents that ESOP cross charges to a parent company do not constitute income and thus are not subject to withholding tax under section 195 of the Income Tax Act.
Appeal details
Counselvise Citation
[2023] 140 COUNSELVISE.COM (IT) 125222 (ITAT-BANGALORE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 month(s) 25 day(s)
Appellant
Respondent
Appeal Type
Miscellaneous Application
Pronouncement Date
20-07-2023
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
C
Next Hearing Date
20-07-2023
Assessment Year
2017-2018
Appeal Filed On
25-05-2023
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH : BANGALORE BEFORE SHRI GEORGE GEORGE K, VICE PRESIDENT AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER MP No.159/Bang/2023 (in ITA Nos.1141, 1115/Bang/2022) Assessment Year : 2017-18 M/s. Flipkart India Private Limited, Alyssa, Begonia and Clover, Embassy Tech Village, Devarabeesanahalli, Outer Ring Road, Bengaluru – 560 103. PAN : AABCF 8078 M Vs. ACIT, AO AS Special Range – 3, Bengaluru. APPELLANT RESPONDENT Assessee by:Shri.Ajay Vohra, Sr. Advocate Revenue by :Shri.V. Parithivel, JCIT(DR)(ITAT), Bengaluru. Date of hearing:21.07.2023 Date ofPronouncement:21.07.2023 O R D E R Per George George K, Vice President: This Miscellaneous Petition (MP) at the instance of the assessee is seeking rectification of certain mistakes in the consolidated order of the Tribunal dated 09.03.2023 in ITA No.1115/Bang/2022 (Revenue’s Appeal) and ITA No.1141/Bang/2022 (assessee’s appeal). The relevant Assessment Year 2017-18. MP No.159/Bang/2023 (in ITA Nos.1141, 1115/Bang/2022) Page 2 of 6 2. We shall first examine the error that has crept in the Revenue’s appeal. 3. ITA No.1115/Bang/2022 (Revenue’s appeal) In the above appeal, ground Nos.1 to 5 were dealing with the deletion of addition of Rs.2775,52,85,030/- made by the AO by treating the business loss suffered by the assessee as capital expenditure incurred for generation of alleged marketing intangibles. The said grounds were dismissed by the Tribunal vide paragraphs 15 and 16 of the impugned order dated 09.03.2023. While recording the facts relevant for the aforesaid grounds of appeal, the Tribunal in para 11 of the appellate order has recorded as under: "The assessee is a wholesale dealer in various items. It purchases goods from various persons and sells the same immediately to retail seller like M/s. WS Retail Services P. Ltd. and M/s. Flipkart Online Services P. Ltd....”. 4. The learned AR submitted that in the year under appeal, the correct facts were the assessee had sold goods to various independent customers, which was duly brought to the notice of the AO vide submissions dated 09.02.2021 (pages 155 to 213 of the Paper Book at page 172). In view of the factual error committed in the aforesaid sentence in para 11, it was stated that the same may be substituted to read as under: "It purchases goods from various persons and sells the same immediately to various independent customers." 5. The learned DR did not have any objection to the above mentioned correction. MP No.159/Bang/2023 (in ITA Nos.1141, 1115/Bang/2022) Page 3 of 6 6. Accordingly, the sentence in para 11 viz., “It purchases goods from various persons and sells the same immediately to retail seller like M/s. WS Retail Services P. Ltd., and M/s. Flipkar Online Services P. Ltd.” is substituted to read as under: "It purchases goods from various persons and sells the same immediately to various independent customers." 7. There is no other grievance in the MA filed by the assessee in so far as the Revenue’s appeal is concerned. Therefore, we proceed to consider the error that has crept in assessee’s appeal. 8. ITA No.1141/Bang/2022 (assessee’s appeal) The learned AR submitted that while disposing off ground Nos.1 to 3 of the assessee’s appeal on deductibility of ESOP expenditure, the Tribunal, while recording the submissions of the assessee in para 6, had inadvertently recorded in para 6(ii) as under: "It is an unascertained liability and not a contingent liability” 9. It was stated the submission of the assessee was to the effect that ESOP expenses were ascertained liability and not contingent liability. It was stated that the above inadvertent typographical error may be rectified. MP No.159/Bang/2023 (in ITA Nos.1141, 1115/Bang/2022) Page 4 of 6 10. The learned DR did not have objections with regard to the correction of the above error. Accordingly, we correct the para 6(ii) as under: “It is an ascertained liability and not a contingent liability” 11. The next grievance of the assessee is regarding non-adjudication of ground Nos.4 to 10 which deals with disallowance of ESOP cross charges under section 40(a)(i) of the Act for alleged default for non-deduction of tax at source. In this context, the learned AR submitted that elaborate arguments were advanced by both sides with respect to the above grounds and further written submission was also filed on 22.03.2023 by the assessee covering the above issue raised in grounds 4 to 10. It was stated however that the aforesaid grounds have not been adjudicated although the same has been recorded in para 4 of the impugned order of the Tribunal dated 09.03.2023. Accordingly, it was submitted that the impugned order may be recalled to the limited extent of non-disposal of grounds 4 to 10 and the same may be disposed off on merits. 12. As regards the merits of issue raised in grounds 4 to 10, the learned AR submitted that the issue is squarely covered in favour of the assessee by order of ITAT in the case of Hewlett Packard (India) Software Operation Pvt. Ltd., in IT(TP)A No.213/Bang/2021, order dated 18.01.2023. 13. The learned DR was duly heard. 14. We have heard the rival submissions and perused the material on record. Ground Nos.4 to 10 deals with disallowance of ESOP charges under section 49(a)(i) of the Act for alleged default for non-deduction of tax at source under section 195 of the Act. It is MP No.159/Bang/2023 (in ITA Nos.1141, 1115/Bang/2022) Page 5 of 6 well settled law that reimbursement per se do not constitute income in the hands of the recipient. Thus, once it is established that reimbursement made by the assessee to its holding company viz., FKS, is not chargeable to tax under the Act. Therefore, the assessee cannot be made liable to withholding tax on the reimbursement under section 195 of the Act. Further, the Hon’ble Apex Court in the case of GE India Technology Centre Pvt. Ltd., Vs. CIT (2010) 327 ITR 456 (SC), while interpreting the provisions of 195 of the Act had categorically held that if the payment does not contain an element of income, the payer cannot be held liable to deduct tax on such payments under section 195 of the Act. The above said principle has been consistently followed by the various judicial pronouncements as under: Engineering Analysis Centre of Excellence (P) Ltd., Vs. CIT [2021] 125 taxmann.com 42 (SC) CIT Vs. Kalyani Steels Ltd., [2018] 91 taxmann.com 359 (Karnataka). 15. On similar set of facts, the Co-ordinate Bench of the Tribunal in the case of Hewlett Packard (India) Software Operation Pvt. Ltd., (supra) had held that cross charges of ESOP expenses to the parent company cannot be subjected to withholding of tax under section 195 of the Act. The Tribunal followed its Co-ordinate Bench’s order of the Tribunal in Novo Nordisk India (P) Ltd., Vs. DCIT [2014] reported in 42 taxmann.com 168 (Bangalore – Trib) and Global e-Business Operations (P) Ltd., Vs. DCIT [2022] reported in 145 taxmann.com 413 (Bangalore – Trib.). 16. In view of the aforesaid reasoning and judicial pronouncement, we hold that for reimbursement / cross charges of ESOP expenses to FKS will not be liable for MP No.159/Bang/2023 (in ITA Nos.1141, 1115/Bang/2022) Page 6 of 6 withholding of tax under section 195 of the Act. Consequently, the provisions of section 40(a)(i) of the Act does not have application. It is ordered accordingly. 17. In the result, grounds 4 to 10 are allowed. 18. In the result, MA filed by the assessee is allowed. Pronounced in the open court on the date mentioned on the caption page. Sd/- Sd/- (LAXMI PRASAD SAHU) (GEORGE GEORGE K) Accountant Member Vice President Bangalore, Dated: 21.07.2023. /NS/* Copy to: 1.Appellants2.Respondent 3.CIT4.CIT(A) 5.DR 6. Guard file By order Assistant Registrar, ITAT, Bangalore.
Mehul