The Income Tax Appellate Tribunal (ITAT) has rejected the argument of Income-tax department which demanded taxes worth over a hundred crore rupees from Flipkart.
The revenue department demanded taxes of about Rs 110 crore on an estimated profit of Rs 408 crore for the financial year 2015-16, when Flipkart originally reported a loss of Rs 796 crore.
The revenue department argued the Indian e-commerce major should pay the extra taxes as discounts offered by the e-commerce platform on products come under capital expenditure.
Flipkart in its tax return filings claimed that discounts are the expenses which the company incurs on year on year basis to sell its products and retain its market share. Thus, entire amount of such expenses is deductible as tax expense.
However, the Income-tax department took it otherwise. In its view, such discounts were ‘capital expenditure’ which created ‘brand value’ and ‘marketing intangibles’ for Flipkart. It claimed entire amount of such expenses was ‘not deductible’ as tax expense and has to be capitalized.
The recent decision by the ITAT brings reliefs to other e-commerce platforms in India which offer heavy discounts on products. However, the Income-tax department can still challenge the verdict in the higher court.
Another e-commerce behemoth Amazon is also involved in a similar battle with the Income-tax department.
In January, Flipkart lost an appeal against the revenue department over the reclassification of marketing expenditure and discounts as capital expenditure.
The development was first reported by the ET.