Flipkart challenges I-T department's Rs 110 crore tax imposition

Flipkart has opposed the Income Tax department’s imposition of a Rs 110 crore tax for FY 2015-2016.

A report in The Economic Times stated that the tax was imposed based on the reclassification of the discounts and marketing costs that Flipkart gave on its products. This reclassification was from that of a revenue expenditure to a capital expenditure.

The report further states that the case is important as it could decide the future taxation of other consumer internet startups.

The revenue department’s rationale was that Flipkart enjoyed a significant market valuation on account of its intangible assets despite its losses incurred.

Senior advocate Percy Pardiwala made the argument in front of the Income Tax Appellate Tribunal that there are no stipulations in the IT act that call for a product to be sold at a particular price and that any revenue not earned by the virtue of giving discounts cannot be taxed.

If Flipkart categorises these expenses as a capital expenditure, the company would be at a profit of Rs 408 crore for the financial year 2015-16, which could be taxed at Rs 110 crore, as opposed to the Rs 796 crore loss Flipkart reported for that period.