DCIT CC -1(4), BENGALURU, BENGALURU vs. INSTAKART SERVICES PVT LTD, BENGALURU

ITA 531/BANG/2025Status: DisposedITAT Bangalore18 December 2025AY 2018-1946 pages
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What did the Tribunal hold?

On the issue of business loss for AY 2016-17, the Tribunal noted that the assessee acquired an ongoing business and that it charged Flipkart significantly lower rates than it paid to third-party vendors. The AO concluded that the losses were a result of deliberate decisions to benefit the group. However, the judgment excerpt provided does not contain the Tribunal's decision on this specific issue. Regarding the disallowance of manpower expenses (Rs. 19.90 crores), the Tribunal held that the absence of a vendor at its address during a later inquiry does not invalidate contemporaneous evidence. The assessee provided agreements, invoices, payroll registers, PF/ESI challans, and bank payment advices, demonstrating services were rendered and payments were made through banking channels with TDS deduction. The Tribunal cited the Calcutta High Court ruling in Diagnostic vs. CIT, stating that subsequent non-traceability of a supplier cannot invalidate genuine purchases. The Tribunal also noted that similar expenses from other vendors were accepted and that the assessee was incurring significant business losses, making the booking of bogus expenses unlikely. Therefore, the disallowance was deemed unjustified, and the AO was directed to delete the addition. On the issue of ESOP expenditure for AY 2017-18 and 2018-19, the Tribunal noted that the issue was identical to a previously decided appeal (ITA No. 530/Bang/2025) where the revenue's appeal was dismissed. Therefore, the revenue's appeal for these assessment years was also dismissed.

What were the facts?

The assessee, Instakart Services Pvt. Ltd., is a private company engaged in logistics and courier services. For assessment years 2016-17 to 2018-19, the assessee declared significant business losses. The Assessing Officer (AO) initiated scrutiny, questioning the large losses incurred, especially in the initial years of operation. The assessee explained that it was incorporated in June 2015 and the losses were due to competitive pricing for customers like Flipkart, high vendor costs, and initial operational complexities. The AO noted that the assessee acquired an established business from a group entity, WS Retail Pvt Ltd, and that 90% of its business was with Flipkart. The AO observed that the assessee charged Flipkart significantly lower rates than it paid to third-party vendors like Blue Dart, suggesting the business was not profit-driven but designed to benefit the group. The CIT(A) passed an order against which both the assessee and the revenue filed appeals.

What were the issues?

1. Whether the Tribunal had to decide if the CIT(A) erred in confirming the disallowance of business loss claimed by the assessee for Rs. 772,75,51,806/- for AY 2016-17, under Section 37(1) of the Income Tax Act, 1961. The assessee argued that the losses were due to initial market challenges, competitive pricing to customers like Flipkart, and high vendor costs, as it was the first year of operations. The revenue contended that the assessee acquired an established business, charged group company Flipkart at below-market rates while paying higher rates to vendors, indicating a lack of profit motive and deliberate loss booking. 2. Whether the Tribunal had to decide if the CIT(A) erred in allowing the claim of ESOP Expenditure for AY 2017-18 and 2018-19, under Section 37(1) of the Income Tax Act, 1961. The revenue argued that the CIT(A) erred in allowing the claim. The assessee's arguments are not explicitly detailed for this issue in the provided text, but the revenue's appeal is based on challenging the allowance.

Which sections of the Income-tax Act were involved?

Section 37(1),Section 133(6),Section 194C

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Income Tax Appellate Tribunal, ‘A’ BENCH, BANGALORE

Before: SHRI WASEEM AHMED & SHRI KESHAV DUBEY

For Appellant: Shri Ajay Voh, Shri ra, Sr. Advocate and Ms. Ankita
For Respondent: Shri Shivanad
Hearing: 11.11.2025Pronounced: 18.12.2025

Heard together (2 matters)

S.A No.25/Bang/2025
ITA No.496/Bang/2025

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PER WASEEM AHMED, ACCOUNTANT MEMBE

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