2011 (2) TMI 302 - AT - Income Tax

Stay Application - As per the application assessee is in arrears of the demand to the tune of 28.15 Crores (rounded off) - Income tax Act has conferred certain powers on the Income tax Authorities for discharging and one such power relates the matters of stay of the demand It does not make any difference whether the assessee filed any application before the Revenue and not awaited their decisions before filing application before the Tribunal or directly approaching the Tribunal without even filing the applications before the Revenue authorities when there exists threat of coercive action by the AO Transfer pricing - It is the law of the land that Transfer Pricing provisions apply to the AE transaction - In any case as per the summary chart prepared by the assessee Rs. 17.62 Crores is not a high-pitched demand and hence it is collectible demand and the tax component of the same is determined at Rs 10.83 Crores - In so far as the merits of the issue are concerned the issue in question revolves around transfer pricing issues and without hearing the parties in dispute no prima facie view can be expressed on merits favouring the either side of the dispute Out of the total demand of Rs 28.15 crores only the demand of Rs 17.62 crores is the collectible demand and it includes Rs 10.83 crores of tax component the assessee shall pay 50% of the sum of Rs 10.83 crores ie Rs 5.42 crores immediately either by way of adjustment of refunds or otherwise at the option of the assessee - In the result the stay application is allowed pro-tanto

Summary

Issues Involved:
1. Maintainability of Direct Stay Application (DSA) before the Tribunal.
2. High-pitched assessment and denial of deduction under section 10A(7).
3. Application of Transfer Pricing guidelines to non-AE transactions.
4. Hardship in paying the impugned arrears of demand.
5. Request for stay of demand till the appeal is decided by the Tribunal.

Issue-wise Detailed Analysis:

1. Maintainability of Direct Stay Application (DSA) before the Tribunal:
The Tribunal considered whether the assessee was prohibited from approaching it directly for a stay of recovery of demand without first approaching the revenue authorities. The Tribunal referred to various decisions, including those of the Calcutta High Court and other Tribunal benches, which established that it is not necessary for the assessee to approach the Commissioner of Income Tax before seeking a stay from the Tribunal. The Tribunal cited the case of Vodafone Essar Limited, where it was held that the Tribunal has jurisdiction over DSAs. The Tribunal concluded that DSAs are maintainable even if the assessee did not await the revenue authorities' decision, especially in cases where there is a threat of coercive action by the AO.

2. High-pitched assessment and denial of deduction under section 10A(7):
The assessee was aggrieved by the high-pitched assessment, where the assessed income was Rs. 75 Crores against the returned income of Rs. 20.7 Crores. The assessee also contested the denial of deduction claimed under section 10A(7). The Tribunal acknowledged the assessee's grievances but did not delve into the merits of these issues at this stage, focusing instead on the stay application.

3. Application of Transfer Pricing guidelines to non-AE transactions:
The assessee argued that the demand of Rs. 9.98 Crores related to the incorrect application of Transfer Pricing principles to non-AE transactions. The Tribunal noted that Transfer Pricing provisions apply to AE transactions, implying that the demand related to non-AE transactions may not be collectible. The Tribunal found that the demand of Rs. 17.62 Crores, including Rs. 10.83 Crores of tax, was not high-pitched and thus collectible.

4. Hardship in paying the impugned arrears of demand:
The assessee highlighted the hardship in paying the arrears of demand, which included a tax component of Rs. 17.03 Crores and an interest component. The Tribunal considered the liquidity of the assessee's funds, the creditworthiness to outsource funds, and the pending refunds amounting to more than Rs. 11 Crores. The Tribunal acknowledged the assessee's financial constraints and the potential adverse effects on business operations due to coercive actions by the AO.

5. Request for stay of demand till the appeal is decided by the Tribunal:
The Tribunal granted a conditional stay of demand for six months, subject to certain conditions:
- The assessee was directed to pay 50% of the collectible tax component of Rs. 10.83 Crores, amounting to Rs. 5.42 Crores, either by way of adjustment of refunds or otherwise.
- The Revenue was instructed to hold on to the balance of refunds as a guarantee until the appeal's disposal.
- The Tribunal allowed the assessee's request for an early hearing of the appeal, scheduled for 06th April 2011, and directed the parties not to seek frivolous adjournments.

Conclusion:
The Tribunal allowed the stay application pro-tanto, acknowledging the maintainability of DSAs, the assessee's grievances regarding high-pitched assessment and Transfer Pricing application, and the financial hardship in paying the arrears. The Tribunal provided conditional relief to the assessee, ensuring that the appeal would be heard promptly.