Flipkart Get Relief As Delhi HC Stays Tax Dept’s Appeal Of A Likely Evasion

In a major relief for Flipkart, Delhi High Court (HC) has reportedly stayed the reassessment proceedings initiated by Income Tax Department against the ecommerce giant’s marketplace arm. 

According to Bloomberg Quint, an HC bench, comprising Justices Rajiv Shakdher and Girish Kathpalia, stayed the IT Department’s order, which pertained to the fiscal year 2019-20 (FY20), and scheduled the matter for the next hearing on December 6.

At the heart of the matter is the INR 3,000 Cr investment by Singapore-based Flipkart Marketplace into its Indian arm Flipkart Internet. The department construed the pumping of funds via Singapore as an avoidance of tax by the ecommerce firm, and, as such, commenced a reassessment process against Flipkart. 

Arguing before the HC, a Flipkart Marketplace counsel said that the investment in Flipkart Internet could not be seen as an escapement of income unless the assessing officer prima facie believes that the matter is, at least, a case of round-tripping.

While noting that similar questions of law are being debated by different courts in several other cases, the HC bench issued a notice to the Income Tax Department. The court directed the department to file its counter-affidavit on the matter in the next eight weeks. 

The move is a major reprieve for Flipkart, which has been embroiled in multiple tax-related cases across the country. In March this year, the Bengaluru bench of the Income Tax Appellate Tribunal (ITAT) granted tax relief of INR 1,700 Cr to Flipkart and allowed it to take tax deductions on its ESOP and marketing expenses.

In February, the Karnataka High Court also granted the ecommerce major’s Indian arm an interim tax relief in connection with the INR 1,100 Cr demand issued by the Commissioner of Income Tax (Appeals) for assessment years 2016-17 and 2018-19. 

The stay on reassessment proceedings offer a major reprieve for Flipkart at a time when it has been making heavy losses and even doling out $700 Mn worth of ESOP cash payouts. 

The Walmart-backed company’s marketplace arm, Flipkart Internet, standalone net loss zoomed 1.5X to INR 4,361 Cr in FY22, up from INR 2,881.3 Cr in FY21. During the same period, its total income jumped 31% YoY to INR 10,659 Cr in FY22 compared to INR 8,115 Cr in FY21.

Despite this, Flipkart continues to be a dominant player in the Indian ecommerce ecosystem and is a priced jewel in Walmart’s India kitty. With much going on at the ecommerce giant, the stay has come at an opportune time for one of the biggest names in the Indian startup ecosystem.