Income Tax Department Issues INR 158 Cr Demand Notice to Swiggy

The Income Tax (I-T) Department has issued a tax demand notice to foodtech giant Swiggy, requesting payment of an additional INR 158.25 Cr. According to Swiggy's exchange filing, the company is accused of improperly taking deductions for "cancellation charges paid to merchants". The violations include firstly, Section 37 of the Income Tax Act of 1961 prohibits cancellation charges paid to merchants. Secondly, the submission stated that interest income on the income tax refund had not been given for taxation. The supplementary demand notice, which was issued by the Central Circle of the IT department's Bangalore office, covers the time frame of April 2021–March 2022. Swiggy stated that it is taking the required actions to safeguard its interests in the interim. Swiggy said it is pursuing the required actions to safeguard its interests through review and appeal since it feels it has compelling reasons against the order. Additionally, the foodtech company thinks that its "financials and operations" won't be significantly impacted by the demand notice.

Another Day at the Office for Swiggy

The business has previously been served with tax notices. Just one week ago, the Income Tax Department office in TDS Circle, Bengaluru, sent Swiggy an income tax demand notice for INR 99 lakh for the April 2017–March 2018 period. A demand notice for INR 326.7 Cr was also issued by the GST department in 2023 to the Sriharsha Majety-led business for the July 2020–March 2022 period. The business has challenged the notice in an appeal. Zomato, Swiggy's competitor, has also received a barrage of tax letters. An INR 401.70 Cr GST demand letter and an interest penalty of the same amount were sent to the Deepinder Goyal-led company in December of last year.

Trouble Continues for Swiggy

Swiggy has been attempting to fizz off fires on several fronts, and this is the latest blow from the tax authorities. The company's bottom line has suffered due to excessive capital burn and fierce competition in the rapid commerce sector. In Q3 FY25, Swiggy's net loss increased 39% to INR 799 Cr from INR 574.4 Cr in the same quarter last year. From INR 3,048.6 Cr in Q3 FY24 to INR 3,993.1 Cr in the reviewed quarter, operating revenue increased by 31%. The company's shares have been declining due to growing losses and heightened competition. Year-to-date (YTD), the stock has dropped by almost 38%. BofA Securities downgraded Zomato and Swiggy this week, pointing to significant losses in rapid commerce and slower growth in their meal delivery business. The broking firm lowered Swiggy's price target from INR 420 per share to INR 325 and downgraded its recommendation from "Buy" to "Underperform".