K'taka HC grants interim relief to Flipkart in Rs 1,100-cr tax demand case

The Karnataka High Court has granted an interim stay on a tax demand of around Rs 1,100 crore against Flipkart India over issue of capitalisation of marketing intangibles.

The matter pertains to assessment years (AYs) 2016-17 and 2018-19, where the commissioner of income-tax appeals (CIT-A) had capitalised discount as marketing intangibles and disallowed employee stock options (ESOPs) amounting to about Rs 4,500 crore and Rs 180 crore, respectively, for the two assessment years.

In an interim order, the high court directed that no coercive action should be taken against the e-commerce major till February 24 (the next date of hearing). The order is not yet uploaded. 

“The submission on behalf of the respondents (tax department) is that there cannot be any prohibition in law against issuance of a notice. However, 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,” the court said.

The assessee (Flipkart) argued that the matter was already decided in its favour by the income-tax appellate tribunal (ITAT) Bengaluru on the same issue earlier during assessment year 2015-16.

It further contended that even ESOPs cross charges are being covered by the coordinate Bench ruling in Biocon and also by Madras HC as well as Delhi HC rulings in PVP Ventures and NDTV, respectively.

“The appellate orders were passed in gross violation of the principles of natural justice as the documents forming the basis of findings were not provided. And also, it was not given a reasonable time window to deposit the demanded tax,” said the e-commerce major.

The assessee also underscores violation of judicial discipline and consistency as the ITAT, for AYs 2012-13 to 2015-16, passed orders favouring them on the underlying issues and even CIT-A’s order for AY 2017-18 favours the assessee.

Flipkart’s grievance is that no reasonable time has been provided to deposit the demand and there is no justification to provide only four days for this purpose.

“It seems that Flipkart has got an interim relief against these high-pitched tax demands from the Karnataka HC. One would have to look at the order.

But the HC seems to have taken cognizance of the fact that the tax demand was required to be deposited in a very short period of time,” said Amit Maheshwari, tax partner, AKM Global, a tax and consulting firm.

HC typically grants relief in such cases where principles of natural justice are not followed.

Lately, there have been many cases where taxpayers have been given very less time to produce documents, not shown evidence, and hence, deprived of the chance to provide a rebuttal. And, they were not provided adequate opportunity to be heard, Maheshwari added.