IPO-Bound Pine Labs Faces Tax Demands & Auditor Concerns

IPO-bound fintech major Pine Labs is currently grappling with multiple tax and legal challenges in India, amounting to over INR 300 Cr in GST-related claims, as per its draft red herring prospectus (DRHP). 

The most recent development came in February 2025, when the Joint Commissioner in Bangalore upheld a tax demand of INR 214.1 Cr (excluding interest and penalties) raised by GST Intelligence, Mumbai. 

In August 2024, the GST authorities alleged that Pine Labs wrongly availed GST credits between July 2017 and March 2024. The credits were tied to co-branding activities, product listing fees on online platforms, and advertising for gift card sales. Pine Labs has contested the order. 

In August last year, a separate GST audit for FY20 led the Deputy Commissioner of Commercial Taxes to raise a tax demand of INR 19.2 Cr. However, Pine Labs believes that only INR 17 Lakh may be payable on non-payment of interest on delay in issue of invoices.

The company has appealed against the demand and paid INR 1.93 Cr under protest.

Apart from that, in August 2018, the GST authorities found that Pine Labs did not pay service tax from 2012-2017 on breakage revenue, reverse charge on services procured from non-taxable territory and on common input reversal. In 2021, a demand of INR 13.87 Cr was raised in the matter.

All in all, Pine Labs said it has an estimated potential interest liability of around INR 95.5 Cr.

Auditors’ Red Flag 

Apart from GST issues, Pine Labs’ audit reports for FY22, FY23, and FY24 highlight some concerns around internal financial controls, audit trail compliance, and delays in statutory payments.

In the FY24 report, auditors flagged that the audit trail features in Pine Labs’ accounting software were not fully enabled. Some non-editable fields in the general ledger and revenue processes lacked audit trails, and direct data changes at the database level were not logged.

For six revenue-related systems and one payroll system run by a third party, auditors couldn’t confirm if audit trails were active throughout the year. One subsidiary’s general ledger software had no audit trail at all. Auditors also said they lacked enough information to verify full compliance and could not confirm if active logs had remained untampered.

The FY24 report also included observations under the Companies (Auditor’s Report) Order, 2020. Pine Labs had taken working capital loans of over INR 50 Cr secured against current assets. The auditors noted that while the company filed quarterly statements with banks as required, some of these were later revised. 

In FY23, the auditors found that the company had not maintained an adequate general IT control (GITC) environment for key applications. The control processes were either poorly designed or not implemented correctly. The auditors also pointed to weaknesses in user access controls, change management, and batch processing systems. 

“The company continued to address the… gaps in GITC by enhancing its control environment through various measures including implementation of enhanced software and tools for monitoring, training of staff, and improved documentation… while the company’s GITC internal control environment has improved, the management is committed to address all the control deficiencies relating to GITCs,” the DRHP read.

High Attrition Rate

Besides, Pine Labs’ attrition rate showed a rising trend during FY22 to FY24. Its overall attrition rate stood at 39.2% in FY24, 33.8% in FY23 and 31.9% in FY22. 

Notably, earlier this month, Pine Labs Group CFO Marc Mathenz resigned, citing personal reasons. Before Mathenz, Pine Labs’ ex-CBO Sudarshan Naganath Kumar, who was appointed chief advisor in 2023, also resigned from his position in March this year. 

The fintech unicorn, which filed its DRHP today, is looking to raise up to INR 2,600 Cr ($304 Mn) via a fresh issue of shares and an offer for sale of up to 14.78 Cr shares. The OFS will see Peak XV Partners, Mastercard, Paypal, among others, pare their stake in the company.

On the financial front, the fintech major’s revenue grew 32.9% to INR 1,675.6 Cr in the first nine months of FY25 (9M FY25) from INR 1,260 Cr in the year-ago period. Pine Labs also turned profitable, reporting a profit of INR 26.1 Cr against a net loss of INR 151.6 Cr in the same period last year.