Flipkart VS Revenue : Analysis on Capital vs Revenue Expenditure

Overview: It has been reported that e-commerce giant Flipkart (“Tax Payer”) has lost an appeal against Income-tax department (“Tax Authority”) for issue regarding classification of marketing expenditure and discounts. The First appellate authority (Commissioner of Income-tax) opined that such marketing expenditure and deep discounts cannot be treated as revenue expenditure as it was incurred to build brand value of the Company and thus, should be re-classified as capital expenditure. As per media report Tax Authority is of the view that apart from influencing customer behavior, such high spending by e-commerce operators results in improving the goodwill and thereby creating intangible asset for the Company, and hence, should be reclassified as capital expenditure. In light of the above we have deliberated on some of the key issues related to the topic.…