Karnataka High Court Grants Interim Stay To Flipkart India On Rs 1,100 Crore Tax Demand Case

The court has  additionally said in an interim order that no coercive action should be taken against the company till the next hearing on the matter on February 24

Karnataka High Court on Wednesday granted an interim stay over a tax demand of around Rs 1,100 crore on Flipkart India. The court has  additionally said in an interim order that no coercive action should be taken against the company till the next hearing on the matter on February 24.

Flipkart India has argued that the appellate orders have been passed in violation of the principles of natural justice as the documents forming the basis of the findings were not provided to the company for rebuttal.

“The submission on behalf of the respondents (tax department) is that there cannot be any prohibition in law against issuance of notice, but during the appeal period, no coercive measures may be taken and as such, coercive measures will not be taken. This assurance shall be in force until the next date of hearing, and the office is directed to re-list this petition on 24.02.2023,” the HC said.

The matter is related to the assessment years of 2016-17 and 2018-19.

The e-commerce retailer has preferred writ petitions against the demand notices issued by the CIT(A), who upheld the addition of capitalising discounts as marketing intangibles and disallowing employee stock options (ESOP) cross charges amounting to about Rs 4,500 crore and Rs 180 crore, respectively, for the time period mentioned above.

Flipkart argued that the issue of capitalisation of marketing intangibles was already decided in its favour by the Income Tax Appellate Tribunal (ITAT) Bangalore for the assessment year 2015-16.

Meanwhile, it also contends that the coordinated bench ruling in Biocon, as well as by the Madras HC and Delhi HC rulings in PVP Ventures and NDTV, respectively, cover the allowability of ESOP cross charges in its favor.

The company's grievance is that no reasonable time was provided to deposit the demand.

Flipkart's losses widened to over Rs 7,800 crore in the financial year 2021-22 based on performance of its business-to-business unit Flipkart India and B2C e-commerce unit Flipkart Internet, according to regulatory filings. According to filings, the combined loss of both entities stood at Rs 5,352 crore in the financial year 2020-21.