Principal vs Agent Assessment for E-Commerce Revenue

Question

Shop-Kart Private Limited operates an online marketplace that enables independent sellers to list and sell their products through its mobile application and website. During the financial year 2025–26, customers placed orders worth ₹5 crore through the platform. In every transaction, the customer pays Shop-Kart directly, which then remits the amount to the respective sellers after deducting its agreed commission of 12%. Accordingly, Shop-Kart retained ₹60 lakh as commission income during the year.

Under the contractual arrangement between Shop-Kart and the sellers, the ownership of goods remains with the sellers until the products are delivered to the customers. The sellers independently set the selling prices of their products and are responsible for replacing defective goods or issuing refunds for returns. Further, any credit losses arising from customers are contractually borne by the sellers. Shop-Kart does not purchase the goods before sale, nor does it maintain an inventory of the products listed on its platform. However, to enhance customer experience, it arranges delivery through third-party logistics partners and collects the entire sale consideration from customers before remitting the balance amount to the sellers after retaining its commission.

While finalising the financial statements, the finance department encountered a difference of opinion regarding the presentation of revenue. One group argued that since Shop-Kart receives the entire sale consideration from customers and the transaction is executed through its platform, the company should recognise the full ₹5 crore as revenue and account for the amount remitted to sellers as cost of sales. Another group, however, contended that Shop-Kart merely facilitates transactions between buyers and sellers and therefore should recognise only the commission it retains as revenue.

In the above circumstances, should Shop-Kart recognise revenue of ₹5 crore on a gross basis or ₹60 lakh on a net basis?

Relevant Provisions

Guidance Note on Accounting by E-commerce Entities

Para 30 of Guidance Note

The question of gross versus net revenue and cost recognition ordinarily arises in connection with e-commerce companies that distribute or resell third-party products or services. This issue typically arises in B2C sites. Often, there may be regulatory restrictions on whether an entity can sell its products directly to end-customers. This can also affect the presentation of revenue in the books of B2B and B2C companies, on a gross or net basis.

Para 31 of Guidance Note

In assessing whether revenue should be reported on a gross basis with separate recognition of cost of sales or on a net basis, under AS 9, it should be considered whether the e-commerce entity:

(a) acts as a principal in the transaction, i.e., it assumes significant risks and rewards of ownership, such as the risk of loss in collection, delivery, or returns; or

(b) acts as an agent or broker for the sale of goods or the rendering of services, i.e., does not assume significant risks and rewards of ownership; compensation being commission or fee. In this case, the e-commerce entity is merely engaged in providing the service of bringing the purchaser and the seller together.

Click Here To Read The Full Story