ITAT rejects Rs 110 crore tax demand on Flipkart

Team SoOLEGAL 26 Apr 2018 12:15pm

ITAT rejects Rs 110 crore tax demand on Flipkart

Bengaluru: In a decision which will have wide ramifications for the entire Ecommerce industry,the Income Tax Appellate Tribunal (ITAT) ruled in favour of Flipkart in a case where I-T department had raised a demand of Rs 110 crore for the financial year 2015-16 on Flipkart  treating the discount offered by the ecommerce site as promotional incentive which is to be treated as deemed income. ITAT upheld the appeal of the company to not reclassify its marketing and discounting expenses as capital expenditure. The order was given  by the tax tribunal's bench of N V Vasudevan and Jason P. Boaz and will have bearing for the entire ecommerce sector.

Before the Tribunal ,the counsel for Flipkart Percy Pardiwala argued that it cannot pay taxes on what it terms as 'fictional income' where as I-T department  counsel C. H. Sundar Rao argued that Flipkart earned ‘an enduring benefit’ via aggressive cash discounts, which in turn resulted in it incurring losses. It is doing so as to  enjoy higher market share, which ultimately leads to higher valuation, so these discounts needs to be treated as deemed income and hence they need to pay tax. Simple contention put forth by Flipkart was revenue which is not earned can not be treated as income.Flipkart Said it is not treating marketing and discounting expenses as capital expenditure as part of its broader strategy and brand building.

If I-T department wishes ,it can challenge the decision in higher courts. Amazon, the American giant has also faced similar demands from I-T department and this order will make Amazon's case stronger.

Tagged: ITAT   Flipkart   Ecommerce   I-T   Amazon  
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