ITAT ruling gives Flipkart Rs 110 crore tax relief

By

Maverick Martins

Published
Apr 26, 2018

In a major relief to Flipkart and other e-commerce firms in India, the country’s tax court has ruled in favour of Flipkart which will allow them to classify discounts on products as tax-deductible advertisement and marketing expenses.
 

The ruling in favour of Flipkart has given the e-commerce major a relief of Rs110 crore (approx $ 16.5 million) that the tax department was seeking for the year ended 31 March 2016.
 
The income tax appellate tribunal (ITAT) also rejected the government’s move to reclassify discounts offered by Flipkart as capital expenditure, a move that would have prevented the online retailer from claiming tax deductions.

Rakesh Nangia, managing partner at law firm Nangia & Co, speaking to the Mint said, “The ruling will set a precedent for taxation of e-commerce firms. Product discounting, advertisement and marketing expenses constitute a major portion of expenses of e-commerce companies, which such e-commerce companies incur on a day-to-day basis. This is the first favourable ruling from the tax tribunal on this litigative matter and will certainly give relief to e-commerce companies across the country incurring similar expenditure”.
 
Even though the ruling has been in favour of e-commerce firms, the tax depart still has an option of challenging the verdict in a higher court.

E-commerce companies have come under the scanner off late with even the Retailers Association of India (RAI), a group that represents brick-and-mortar retail stores across the country seeking government’s intervention on the alleged violation of norms by etailers.
 
The retailers also believe that the online marketplaces are influencing prices on their platforms and illegally funding “abnormal discounts” and are thus in violation of foreign investment norms of the land. The retailers are also considering legal action against the e-commerce majors.