2011 (12) TMI 358 - AT - Income Tax

Application for stay of recovery - Revised return - ld. counsel for the assessee brought to our notice that the two major additions which has given rise to the outstanding demand are the disallowance of claim u/s. 80IA of the Income Tax Act 1961 (the Act) of 179, 70, 52, 324/- and the addition made by way of transfer pricing adjustment in respect of an international transaction of 447, 76, 89, 010 - It was further submitted that in various tax disputes the assessee has already paid a sum of 1700 crores to the Income Tax Department where matters are pending for adjudication before various appellate authorities - Held that on the two major issues highlighted by the ld. counsel for the assessee before us there is a prima facie case made out by the assessee - The OECD guidelines also seem to support the plea of the assessee. It was submitted by the ld. counsel for the assessee that a sum of 35 crores towards outstanding demand has already been paid by the assessee - the appeal of the assessee is directed to be fixed for out of turn hearing on 14/2/2012

Summary

Issues:
Stay of recovery of outstanding demand of Rs. 285,64,83,217.

Analysis:
1. The assessee, a company providing various telecommunication services, filed a return of income for the assessment year 2007-08, initially declaring a total income of Rs. 427,72,07,814, later revised to Rs. 441,91,76,049. The revenue made several disallowances and adjustments, leading to an outstanding demand of Rs. 285,64,83,218. The major disallowances included u/s. 80IA and transfer pricing adjustments.

2. Regarding the disallowance u/s. 80IA, the assessee claimed deductions for internet and national long distance services undertakings. The revenue disallowed the claim stating that the deductions were not applicable as the company commenced operations before 1995. The assessee argued that the undertakings were separate entities eligible for deductions, supported by investments and employment details, challenging the AO's reliance on a Special Bench decision.

3. The transfer pricing adjustments were made for international telecommunication services. The assessee contended that mark-up on pass-through costs was incorrect as no value-added services were provided on those costs. They highlighted global pricing regulations, the nature of their services under the ILD license, and the Delhi ITAT's decision on mark-ups.

4. The Tribunal found a prima facie case in favor of the assessee on both issues. Dissenting views in the Special Bench decision and the Delhi ITAT's ruling supported the assessee's arguments. Considering the substantial outstanding demand, the Tribunal granted a stay subject to the condition of paying Rs. 50 crores by a specified date, with the appeal scheduled for an expedited hearing.

5. The Tribunal balanced the assessee's prima facie case, convenience, and financial hardship, leading to the decision to grant a stay on recovery, acknowledging the debatable nature of the issues and the substantial impact on the assessee's financial position. The stay was contingent upon the partial payment of the outstanding demand and adherence to procedural requirements for the upcoming appeal hearing.