The Income Tax Appellate Tribunal (ITAT) rejected Indian tax authorities decision on Flipkart to pay INR 110 crores on the discounts offered by Flipkart in their capital expenditure account.
As per the law, the tax authority targeting and demonstrating how e-commerce companies asked for tax exemption from earnings generated through discounted products, which deduct their taxable earnings considerably.
However, the ITAT rejected the request of the tax government amounting Rs 110 crore from Flipkart for their year ended 31 March 2016 tax filings.
This is the first favorable ruling given by the tax tribunal on this litigative matter and will certainly give relief to e-commerce companies across the country incurring similar expenditure
Rakesh Nangia, managing partner at law firm Nangia & Co
The Bengaluru-based company claimed that discounts were offered on a wide selection of products to remain competitive and relevant in the current market demand, therefore, making the entire amount tax-deductible. Nevertheless, the tax department argued expenses on providing discounts allowed the company create brand value and was actually a marketing strategy from Flipkart to gain considerable market shares. Consequently, these expenses should be treated as capital expenditure.
The verdict from ITAT fell on Wednesday but the final order has not yet been posted on its website. The tax department can still challenge the order by taking the issue to a higher court. Tax officials opted not to comment on the decision for it has not reached them yet.
This is the first favorable ruling given by the tax tribunal on this litigative matter and will certainly give relief to e-commerce companies across the country incurring similar expenditure.