2024 (4) TMI 1131 - AT - Income Tax

Stay of Outstanding Demand - attachment orders passed - Contention of assessee that department s interest is already protected by the attachment and hence absolute stay may be granted - HELD THAT - As per section 254(2A) of th Act the Tribunal may after considering the merit of the application made by the assessee pass an order of stay in any proceedings in relating to an appeal u/s sub-section (1) of section 254 of the Act for a period of not exceeding 180 days from the date of such order subject to the condition that assessee deposits not less than 20% of the amount of tax interest fee penalty or any other sum payable under the provisions of this Act or furnishes security of equal amount in respect thereof and the Appellate Tribunal has to dispose off the appeal within the said period of stay specified in the order. In our opinion once a statutory provision specifically provides that the Tribunal can only grant a stay subject to deposit of not less than 20% of disputed demand or furnishing of security of equal amount thereof it is not open to this Tribunal to grant stay in violation of those basic provisions as the Tribunal being a creation of the statute and we are not in a position to question the provisions of this section 254(2A) of the Act. At this point it is pertinent to mention ratio laid down in the case of CIT Vs Hindustan Bulk Carrier 2002 (12) TMI 10 - SUPREME COURT A construction which reduces the statute to a futility has to be avoided. A statute or any enacting provision therein must be so construed as to make it effective and operative on the principle expressed in maxim ut res magis valeat quam pereat i.e. a liberal construction should be put upon written instruments so as to uphold them if possible and carry into effect the intention of the parties. Applying this principle and in the case of ACIT Vs Papillon Investments Pvt Ltd 2009 (8) TMI 832 - BOMBAY HIGH COURT observed that That is certainly not an interpretation which can be termed as ut res magis valeat quam pereat i.e. to make the statute effective rather than making it redundant. Thus as it is discernable that it is not be open to this Tribunal to grant a blanket stay as argued by the ld. Senior Counsel as it would be contrary to the scheme of Act as visualized under the first proviso to section 254(2A) of the Act. In the present facts of the case as pointed out by the ld. Senior Counsel out of total attachment of Rs.5551, 27, 15, 824/- by Enforcement Directorate as well as by Income Tax authorities an amount of Rs.3700 Crores has been attached by both authorities and there was overlapping attachment. In our opinion as of now the interest of the revenue is fully secured against quantified demand of Rs.2193, 90, 42, 357/- for the present assessment year i.e. 2018-19. Being so till this attachment continues the assessee is not required to make any further payment and/or furnish any further securities. In the event the attachment of above Bank Accounts as mentioned in earlier para stands vacated or revoked or disturbed or modified by any orders of Court or authorities the assessee then shall deposit not less than 20% of Rs.2193, 90, 42, 357/- or furnish security amounting to not less than 20% of the outstanding liability within two weeks from the date of such removal or vacating or revoking or modifying the attachment of the bank accounts mentioned in earlier para of this order. The assessee shall fully cooperate in speedy disposal of appeal before this Tribunal and will not seek any unnecessary adjournments of the hearing before the bench at any point of time and the assessee shall not resort to any dilatory tactics in such event the stay will be automatically vacated forthwith. This stay order will be in operation for 180 days from the date of this order or till the disposal of related appeal or till further orders of this Tribunal whichever is earlier as the case may be. The Registry is directed to post related appeal for hearing on 18/04/2024. No further notice of hearing be issued to both the parties.Stay application of the assessee is allowed.

Summary

Issues Involved:

1. Stay of outstanding demand.
2. Transfer Pricing Adjustments.
3. Disallowance of expenses.
4. Provisional attachment of fixed deposits.
5. Legal provisions and tribunal's power to grant stay.

Summary:

1. Stay of Outstanding Demand:
The assessee filed a stay petition seeking a stay of the outstanding demand of Rs. 2193,90,42,363/-, which includes disputed tax demand of Rs. 1402,86,00,158/- and interest u/s 234B & C of Rs. 791,04,42,205/-. The demand was raised by the AO in the final assessment order dated 11.01.2024 for A.Y. 2019-20, against which the assessee has appealed before the Tribunal.

2. Transfer Pricing Adjustments:
The assessee, a subsidiary of Xiaomi Singapore Pte. Ltd., engaged in the distribution of Xiaomi products in India, faced adjustments by the TPO. The TPO made an adjustment of INR 1073,25,46,749 for royalty paid to Qualcomm and INR 96,12,19,300 for AMP brand promotion expenses. The TPO used TNMM as the most appropriate method for benchmarking, but the assessee disagreed with the TPO's analysis and adjustments.

3. Disallowance of Expenses:
The AO issued a draft assessment order proposing additions from a corporate tax perspective, including disallowance of royalty expenses to Qualcomm and Xiaomi Mobile. The DRP upheld the adhoc disallowance on account of BoM cost inflation proposed by the AO, despite the assessee's objections and a remand report suggesting a lower disallowance amount.

4. Provisional Attachment of Fixed Deposits:
The assessee's fixed deposits totaling INR 3,700 crores were provisionally attached by the Income Tax Authority and the Enforcement Directorate. The Karnataka High Court set aside the provisional attachment order dated 11 August 2022 but imposed conditions on the assessee. A subsequent provisional attachment order dated 29 December 2022 was also challenged by the assessee.

5. Legal Provisions and Tribunal's Power to Grant Stay:
The Tribunal, considering section 254(2A) of the Act, noted that it can grant a stay subject to the deposit of not less than 20% of the disputed demand or furnishing of security of equal amount. The Tribunal observed that the interest of the revenue is fully secured against the quantified demand due to the existing attachment of Rs. 3700 Crores. Therefore, the Tribunal granted a stay on the condition that if the attachment is vacated or modified, the assessee shall deposit or furnish security for 20% of the outstanding liability within two weeks.

Conclusion:
The Tribunal granted the stay application for 180 days or until the disposal of the related appeal, with the condition that the assessee deposits 20% of the outstanding liability if the attachment is vacated or modified. The assessee is required to cooperate in the speedy disposal of the appeal and not seek unnecessary adjournments.