Taxman Wrong In Asking E-Commerce Firms To Reclassify Discounts: Mohandas Pai

Bengaluru: IT veteran and tech investor T V Mohandas Pai has said the tax authorities are wrong in asking e-commerce giants to reclassify discounts as capital expenditure because discount is an event which does not create enduring value or a capital asset.

"A deep discount is an event, it does not create enduring value nor a capital asset. Hence tax authorities are wrong in asking e-commerce giants (Flipkart and Amazon) and start-ups to reclassify discounts as capital expenditure. This is a tax and accounting issue," he told news agency Press Trust of India.

He was replying to a query on why e-commerce giants like Flipkart and Amazon should be exempted from reclassification because they make huge profits, but allegedly show losses.

Last year, the Income Tax Department had asked e-commerce companies to restructure their marketing expenses under capital expenditure.

Mr Pai said that if discounts are withdrawn, business would disappear as people shop for discount on sales.

"This is another case of misinterpretation by the tax authorities. Government should stop such harassment of business and such tendencies of misinterpreting by tax authorities," he said.

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Another IT veteran and tech investor V Balakrishnan said the courts will take the final decision on the issue of reclassification of discounts as capital expenditure based on facts.

"I think discount is clearly a revenue expense and capital expense, but this is part of assessment procedure... ultimately courts will decide on this (reclassification of discounts as capital expenditure) based on facts," he said.