ITAT Bengaluru, December 18, 2025 : The Bengaluru Bench of the Income Tax Appellate Tribunal has delivered a significant ruling in favour of Instakart Services Private Limited, a logistics arm of the Flipkart group, allowing it to claim business losses aggregating to ₹772.25 crore for Assessment Years 2016–17 to 2018–19. The Tribunal set aside the disallowances made by the tax department, holding that genuine losses incurred in the ordinary course of business cannot be denied merely because the venture did not show profits in its initial years.
The appeals were decided by a Bench comprising Judicial Member Keshav Dubey and Accountant Member Waseem Ahmed. In its detailed order pronounced on 18 December 2025, the Tribunal observed that losses in the formative years of a business, particularly in start-ups and e-commerce logistics enterprises, are neither abnormal nor indicative of tax avoidance. According to the Tribunal, the Income Tax Department cannot replace the commercial judgment of an entrepreneur with its own assumptions about how a business should operate.
Instakart was incorporated in June 2015 and began its logistics and allied services operations in Assessment Year 2016–17. In its first year, the company reported substantial losses, which it attributed to heavy upfront investments in infrastructure, manpower, technology, and nationwide logistics networks. The company explained that it adopted aggressive pricing strategies to build scale and reach in a highly competitive e-commerce logistics market, while simultaneously incurring high vendor and operational costs.
The Assessing Officer rejected these explanations and treated the losses as artificial. The Revenue alleged that Instakart had under-charged its principal customer, Flipkart, while overpaying third-party logistics vendors, thereby shifting costs within the group. On this basis, the entire business loss of ₹772.75 crore was disallowed and treated as notional income. This view was upheld by the Commissioner of Income Tax (Appeals), who concluded that the losses were the result of cost-shifting arrangements rather than genuine business exigencies.
Before the Tribunal, Instakart challenged these findings and demonstrated that the rates charged to Flipkart during the relevant years were the same as those charged to unrelated third-party customers. Detailed rate charts were placed on record to show parity in pricing. The company also highlighted that its loss ratio sharply declined over time, falling from 209 per cent in Assessment Year 2016–17 to 20 per cent and 7 per cent in the following two years. According to the assessee, this trend clearly reflected the commercial viability of its business strategy once scale was achieved.
The Tribunal accepted these submissions and noted that all expenses were duly recorded in audited accounts, with no defects pointed out by the Revenue under Section 145(3) of the Income Tax Act. It held that, in the absence of any finding of suppressed revenue or inflated expenditure, the tax authorities had no power to disregard the book results and re-characterise real business losses as hypothetical income.
Addressing the allegation of profit shifting, the Tribunal found that the factual foundation of the Revenue’s case collapsed once it was established that Instakart charged identical rates to both related and unrelated customers. It further observed that the gap between customer billing and vendor payments reflected additional operational and logistical costs inherent in running a nationwide e-commerce delivery network, and could not, by itself, justify disallowance of losses.
The Bench also took judicial notice of the broader industry context, observing that well-known e-commerce and delivery companies such as Zomato, Amazon, Swiggy, and Zepto have reported heavy losses in their early years despite scale and brand recognition. The Tribunal held that lack of immediate profitability cannot be equated with lack of profit motive.
On ancillary issues, the Tribunal upheld the allowability of Employee Stock Ownership Plan (ESOP) expenses, holding that ESOPs constitute a legitimate form of employee compensation and are deductible as business expenditure. It relied on earlier coordinate Bench decisions, including in the case of Flipkart India Pvt. Ltd. The Tribunal also deleted disallowances relating to manpower costs, ruling that payments made through banking channels with proper tax deduction at source cannot be disallowed merely because a vendor was later found to be non-existent. Genuineness, it held, must be examined at the time services were actually rendered.
Accordingly, the Tribunal allowed all three appeals filed by Instakart and dismissed the Revenue’s appeals in their entirety. The ruling reinforces the settled principle that genuine start-up losses incurred in the course of business cannot be converted into notional income in the absence of concrete evidence of tax abuse.
Case Reference : Appearance: For the Assessee, Senior Advocate Ajay Vohra appeared along with Advocates Kishore Kunal, Ankita Prakash, and Anuj Kumar; for the Revenue, Shivanad Kalakeri, CIT appeared; Cause Title: Instakart Services Private Limited vs. The Assistant Commissioner of Income Tax; Case Number: ITA No. 496/Bang/2025; Coram: Judicial Member Keshav Dubey and Accountant Member Waseem Ahmed.
