2016 (9) TMI 808 - AT - Income Tax

Grant of stay for outstanding demand - prima facie case - addition made on account of payment on account of Management Support Services - Held that - Assessee has a prima facie case. In respect of the payments made under MSSA as well as payment for IT service, the evidence regarding benefit received by the Assessee have not been considered by the DRP. The circumstance that in respect of MSSA receipt by the holding company KPNV, the revenue has accepted that the Assessee has received benefit from services provided by KPNV to the Assessee, also shows that the stand taken by the revenue is contradictory. Even in respect of the software development services, the ALP determined by the revenue in the light of the decisions rendered by the Tribunal, may not be ultimately sustained. In the given circumstances, we are of the view that the Assessee has made out a prima facie case for grant of stay. The balance of convenience is in favour of the Assessee as substantial outstanding demand has been paid by the Assessee. The Assessee will also be put to hardship if the order of stay is not granted. The revenue is at liberty to appropriate the adjustment of refunds due to the Assessee as agreed by the learned counsel for the Assessee. We therefore grant an order of stay of recovery of outstanding demand arising out of the Assessment for AY 2009-10 & 2011-12 for a period of 6 months from this day or till disposal of the Appeals of the Assessee, whichever is earlier. The appeal of the Assessee is directed to be fixed out of turn for hearing on 29.9.2016

Issues Involved:
1. Stay of recovery of outstanding demand for AY 2011-12 and AY 2009-10.
2. Transfer Pricing Adjustments.
3. Corporate Tax Adjustments.
4. Determination of Arm's Length Price (ALP) for Management Support Services Agreement (MSSA) and IT services.
5. Adjustments related to Software Development Services.

Detailed Analysis:

1. Stay of Recovery of Outstanding Demand:
The Assessee filed petitions for stay of recovery of outstanding demands of ?42,71,97,219/- and ?118,66,04,240/- arising from assessment orders for AY 2009-10 and AY 2011-12 respectively. The Tribunal decided to pass a common order for both petitions.

2. Transfer Pricing Adjustments:
For AY 2011-12, the Transfer Pricing Officer (TPO) made adjustments totaling ?291,03,81,532/- for Management Support Services, Software Development Services, IT Services, and AMP Expenses. The Dispute Resolution Panel (DRP) granted partial relief, reducing the adjustments to ?222,54,56,332/-. For AY 2009-10, the TPO made adjustments of ?1,891,282,392/-, which the DRP revised to ?1,794,382,392/-.

3. Corporate Tax Adjustments:
The DRP granted relief for payments to clubs, lease rent on motor vehicles, and loan waived off but upheld the disallowance for depreciation on moulds. The total corporate tax adjustments were ?10,82,73,271/-.

4. Determination of ALP for MSSA and IT Services:
The Assessee argued that payments under MSSA to Koninklijke Philips N.V. (KPNV) were for services including commercial, accounting, auditing, financial, and marketing support, and were charged at cost plus 10%. The DRP had previously questioned the benefit received from these services. The Tribunal noted the contradictory stance of the Revenue, which accepted the benefit in the hands of KPNV but not in the hands of the Assessee.

5. Adjustments Related to Software Development Services:
The DRP, for AY 2011-12, rejected some comparable companies chosen by the TPO and accepted others chosen by the Assessee. The Assessee contended that if the correct comparables were used, no addition would be necessary. Similar arguments were made for AY 2009-10.

Tribunal's Decision:
The Tribunal found that the Assessee had a prima facie case, noting that the DRP had not considered evidence regarding the benefit received from MSSA and IT services. The Tribunal also highlighted the contradictory stance of the Revenue on the benefit received from KPNV. Given these circumstances, the Tribunal granted a stay of recovery for six months or until the disposal of the appeals, whichever is earlier. The appeals were scheduled for hearing on 29.9.2016. The Tribunal emphasized that none of the observations made should be considered as an opinion on the merits of the case.

Conclusion:
The stay petitions were allowed, and the Tribunal acknowledged the Assessee's prima facie case and the balance of convenience in favor of granting the stay. The Tribunal also directed that the appeals be heard out of turn.

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