In a complete flip-flop, Income Tax Appellate Tribunal (ITAT) has given relief to Flipkart from revenue authorities’ demand of Rs 110 crore in taxes, reports The Economic Times.  Paradoxically in February, the income tax tribunal had refused the Flipkart’s appeal to stay the tax demand after the e-commerce platform was asked to reclassify discounts and marketing spend as capital expenditure.

The details of the ruling have not been made public so it is unclear if this is a one-time tax amnesty or if the original ruling with regards to classification of discounts has been reversed.

E-commerce companies categorise discounts and marketing costs as revenue expenses, spending on factory construction is considered a capital expenditure. With discounts being classified revenue expenses companies can show a net loss in earnings, therefore, be exempt from paying domestic taxes. The previous ruling reclassified discounts as capital expenditure which meant companies like Flipkart will be considered a profit making company and liable to pay taxes.

The revenue authorities demanded taxes of about Rs 110 crore on an estimated profit of Rs 408 crore for the financial year 2015-16 when Flipkart originally reported a loss of Rs 796 crore.

Note that in January also, Flipkart had lost an appeal against the Income Tax (IT) department over the above issue. The appeal had then been turned down by the Commissioner of Income Tax (Appeals), Bengaluru. Later Flipkart filed an appeal to ITAT, which was refused (Feb) to stay the tax demand. Flipkart asked the stay on tax demand “because it would cause financial hardships for the company”.

Un-level playing field

This decision might set a precedent in favour of e-commerce companies like Amazon, Ola, Uber, Snapdeal, Shopclues etc. These e-commerce players will be able to attract more shoppers with steep discounts. However, note that steep discounts by these players are not considered fair by the market. There is already an ongoing battle between e-tailers and retailers. Offline retail players and bodies have continuously notified about the malpractices or unfair practices of e-commerce player for not maintaining level playing field.

Note that, in March 2016,  the Indian government’s Department of Industrial Policy and Promotion has said that “E-commerce entities providing marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain a level playing field”.

E-commerce national policy

The government is expected to come out with an e-commerce policy framework within six months to address issues such as physical and digital infrastructure, regulatory regime, taxation policy, data flows, server localisation, intellectual property rights protection, FDI, technology flows, etc.