2011 (3) TMI 223 - AT - Income Tax

Stay application - Recomputation of deduction u/s 10A - Determination of ALP - The additions made by the Assessing Officer are on account of recomputation of deduction under section 10A and with respect to transfer pricing adjustments, which is debatable in nature - In this circumstances of the case, grant stay in the matter with a direction to the assessee-company to make a payment of Rs. 50,00,000 in two monthly instalments - Subject to this condition, stay is granted for a period of 120 days from the date of this order or till the disposal of the appeal, whichever is earlier - Thus, the stay application is partly allowed.

Summary

Issues:
1. Stay application against outstanding demand for assessment year 2006-07.
2. Recomputation of deduction under section 10A and transfer pricing adjustments.
3. Grant of stay with conditions.

Analysis:

Issue 1: Stay Application
The assessee-company filed a stay application against the outstanding demand of Rs. 2,88,87,746 for the assessment year 2006-07. The company provided contract software research and development services to its associated enterprise. The Assessing Officer assessed the total income at Rs. 5,57,29,981 and determined the total tax at Rs. 2,71,03,820, making adjustments for internet and onsite expenses and arms length price (ALP) as per the Transfer Pricing Officer's order.

Issue 2: Recomputation of Deduction and Transfer Pricing
The assessee representative argued that the Assessing Officer's order, following the DRP's directions, was not in line with legal principles and judicial precedents. The representative contended that the assessment was unreasonably high and challenged the reduction of foreign exchange expenditure from export turnover without a corresponding adjustment to total turnover. Additionally, the determination of ALP was deemed debatable and dependent on case facts. The Tribunal found the additions debatable, especially regarding deduction under section 10A and transfer pricing adjustments. Consequently, the Tribunal granted a stay with a payment condition of Rs. 50,00,000 in two instalments, valid for 120 days or until the appeal's disposal.

Issue 3: Grant of Stay with Conditions
After considering the submissions and case circumstances, the Tribunal granted a stay with a payment condition and set a hearing date for the appeal. The stay was contingent on the assessee making payments in two instalments before March and April 2011. The Tribunal informed both parties of the hearing date in the open court, eliminating the need for separate notices. Ultimately, the stay application was partly allowed, providing temporary relief to the assessee-company.

This detailed analysis outlines the legal judgment involving the stay application, recomputation of deductions, transfer pricing adjustments, and the subsequent grant of stay with specified conditions by the Tribunal.