2013 (12) TMI 1104 - AT - Income Tax

Stay of demand Transfer pricing adjustment - Held that - Adjustment has been made with respect to entire average capital employed in the business company whereas, the adjustment as per law, is required to be made only with respect to transaction with the AE - The recovery of the demand is stayed for a period of six months or till the disposal of appeal, whichever comes earlier Decided in favour of assessee.

Summary

Issues: Stay of demand for assessment year 2008-09 based on transfer pricing adjustment.

Analysis:
The stay application was filed by the assessee seeking a stay of demand for the assessment year 2008-09 due to a transfer pricing adjustment made by the Assessing Officer (AO). The total demand amounted to Rs. 2,09,80,592/-, which was fully disputed by the assessee in the appeal before the Tribunal. The adjustment was related to transactions with associate enterprises, leading to a significant increase in the assessed total income. The assessee argued that the adjustment should only apply to transactions with the associate enterprise, not the entire sales amount or capital employed. The Transfer Pricing Officer (TPO) had recommended a substantial adjustment, which was later reduced by the Dispute Resolution Panel (DRP). The assessee contended that the adjustment, if correctly calculated, would result in a much lower tax liability of Rs. 12,71,128/-. Financial hardship was also highlighted due to the substantial addition compared to the declared income. The assessee proposed to pay the demand based on the adjustment related to transactions with the associate enterprise, amounting to Rs. 12.71 lakhs.

The Departmental Representative (DR) argued in favor of upholding the orders of the lower authorities, suggesting that the assessee should be liable to pay a higher amount. After considering the submissions and examining the records, the Tribunal observed that the demand was primarily based on a transfer pricing adjustment that was incorrectly applied to the entire average capital employed instead of just the transactions with the associate enterprise. Acknowledging the prima facie case made by the assessee, the Tribunal granted a stay of demand subject to the payment of Rs. 20 lakhs by the assessee. The recovery of the demand was stayed for six months or until the appeal's disposal, with the provision that if the assessee sought an adjournment on the hearing date, the stay would be automatically vacated. The appeal was scheduled for a specific date, and no formal notice was deemed necessary.

In conclusion, the Tribunal allowed the stay petition of the assessee with specific directions, emphasizing the need for partial payment and adherence to the scheduled hearing date. The decision aimed to address the disputed transfer pricing adjustment issue and provide temporary relief to the assessee while ensuring compliance with the legal procedures and timelines.