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Discounts cannot be treated as capital expenditure for calculating profit: Flipkart to I-T Appellate Tribunal

Team SoOLEGAL 12 Apr 2018 5:04pm

Discounts cannot be treated as capital expenditure for calculating profit: Flipkart to I-T Appellate Tribunal

Bangalore: Recently I-T department had raised a tax demand of Rs 110 crore against Flipkart for FY15-16.The company filed a plea with IT Appellate Tribunal(ITAT) for stay against the order which was not granted. However, it has again approached the ITAT, this time arguing that this demand amounts to tax on 'fictional income'.

“Nothing in the IT Act mandates that a product has to be sold at a particular price, and revenue not earned (by virtue of giving discounts) cannot be treated as capital expenditure,” said Percy Pardiwala, a senior advocate representing Flipkart during the hearing.

There has been a deep dispute between e-commerce companies and IT department on what constitute’s capital expenditure and what revenue. This has led to series of litigation between IT department and Ecommerce companies. Change in model of calculation of expenditure can lead to huge tax implications.

Flipkart's argument was countered by IT Counsel C.H. Sundar Rao, who said that Flipkart provides these discounts to grab higher market share which ultimately leads to higher valuation for the company. So company benefits financially from discounts.

In response, however, Pardiwala stated that the e-commerce company’s aim was to earn profits in the long-run, for which discounts are an essential part of its marketing strategy.

During hearing, the IT counsel also raised the issue of transactions done by Flipkart with its subsidiaries like Flipkart Internet.

The entire E-commerce industry is keenly awaiting the outcome of this case as it would have implications for all of them.

 

Tagged: ITAT   Flipkart   Ecommerce  
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