The income tax case against Flipkart pertaining to the year 2015-16 has now reached the High Court following the order by the Income Tax Appellate Tribunal (ITAT) which went in favour of the e-commerce company, as per a report in the Economic Times. The company was issued a notice by the Income Tax department stating that it had incurred losses on its marketplace due to deep discounting practices which were meant to popularise its business and to acquire more customers on its platform. These expenditures on discounts must therefore be treated as receiving enduring benefits and therefore be capitalised. By claiming them as losses in the current account, the company was under-declaring its losses; this is the contention of the income tax authorities.
Flipkart has taken a stand that the way the income is being computed by the IT department is fictional in nature and it cannot be called upon to pay income tax on fictional income. From a narrow legal perspective, the Indian tax laws do stipulate that if an expenditure incurred by an income tax assessee is offering enduring benefit, then that expenditure cannot be added to that year’s expenditure and taken to the losses column. Instead, such expenses have to be taken to the capital expenditure head for future adjustments.
Now that the matter has been taken to the courts, one can expect a long drawn out process with adjournments being sought by both sides. This could become a landmark case as far as the e-commerce segment is concerned since “deep discounting” is frequently quoted in the public domain with even the Commerce Minister Piyush Goyal joining in.