Flipkart Wins Tax War Against Govt;  IT Dept. Will Refund Them Rs 55 Crore With Interest!

This is a win, which will have a major impact across the entire spectrum of e-commerce industry in India.

Flipkart has officially won the first round of tax war against Govt. Now, Income Tax Dept. has been ordered to pay them Rs 55 crore which they paid in tax, with interest.

Will this decision by Income Tax Appellate Tribunal set a new precedent for the e-commerce industry?

Flipkart Wins Tax War!

In the ongoing tax war in which Flipkart had challenged Income Tax Department’s demand for Rs 109.52 crore, Flipkart has won.

Income Tax Appellate Tribunal, which deals with tax issues under Direct Taxes Acts, has ruled that Flipkart is being incorrectly taxed.

In their ruling, IT Appellate Tribunal has ordered Income Tax Department to refund Rs 55 crore to Flipkart, which was deposited by them prior to this case.

Why Is This Judgement Important For E-commerce Industry?

The case is related with Rs 796 crore loss, which Flipkart incurred in 2015-16, after providing heavy discounts and offers to lure customers.

Income Tax Dept. had argued that this loss should be treated as capital expenditure, and hence, should be taxed. Rs 109.52 crore as tax for this expense or rather loss was demanded.

Flipkart had vehemently opposed this tax demand, saying that this cannot be treated as capital expenditure, as it is not something related to Intellectual Property or assets.

They said,

“The volume of sales was very low. One of the ways to increase volume of sales and attract buyers to e-commerce was to offer discounted prices,”

Flipkart had filed a case with IT Appellate Tribunal, asking them to treat this expenses incurred on discounts as a revenue expense.

Flipkart had argued:

“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,”

What IT Appellate Tribunal Said?

The Bangalore bench of IT Appellate Tribunal, in their ruling, said,

“One cannot proceed on the basis of presumption that the profit foregone is expenditure incurred and further that expenditure so incurred was for acquiring intangible assets like brand, goodwill etc,”

Hence, they dismissed the logic of ‘capital’ being created via discounts and supported Flipkart’s arguments that the expense was revenue based.

This can set a new precedent when it comes to taxation for e-commerce industry, which is still in nascent stage, and Income Tax authorities are still figuring out how to optimally tax them.

At least the discount factor will be kept aside now, e-commerce companies can freely offer discounts and cashbacks for their users, without worrying about taxation.

This is a win for consumers as well.

We will keep you updated, as we receive more information.