Income Tax Department ask Online Stores to reclassify discounts as capital expenditure

Sushubh

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Flipkart: Income Tax department asks Flipkart to reclassify discounts as capital expenditure - The Economic Times

this is a pretty big deal i think.

If that happens, companies such as Flipkart and Amazon that incur substantial marketing costs could be deemed as being profitable and therefore liable to pay 30% tax. Flipkart didn't respond to an email sent on Thursday. A senior executive at the company, however, confirmed the development and added it's looking to challenge the order at the Income Tax Appellate Tribunal (ITAT) in the next few days.
For instance, a company incurs Rs 100 crore in marketing costs. If classified as revenue expenditure, this will be deducted in one financial year. If classified as capital expenditure and amortisation of 10% is applied over 10 years, then only Rs 10 crore will be deducted in a financial year. In the second scenario, the company will end up making a profit and have to pay 30% annually.
Experts said the revenue department's stand will hit startups and ecommerce companies and that it appears to dictate how entrepreneurs must conduct their businesses. "The tax department is obviously picking on the companies' oft-repeated claim that the discounts are aimed at accruing market share for future profitability, but it's highly unlikely that such reasoning will stand scrutiny in courts," said Abraham C Mathews, a Supreme Court advocate. "Supreme Court rulings have held that even if the benefit is of enduring nature, it can be classified as revenue expense."
 

Sushubh

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seems similar to government asking for tax money on free services provided to bank customers if they maintain minimum balance.
the customer is not paying for it. why the heck should the company pay tax on that?
 

amish

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Government claims that direct tax collection increased by some 19%

If tax collection has increased why does it keep adding this tax and that tax?

It already has 19% more money than previous year - so its not like government is running out of money.