2016 (11) TMI 1018 - HC - Income Tax

Adoption of Bright Line Test - TPA - Held that - This Court had categorically ruled against the adoption of the Bright Line Test while deciding host of issues, including Advertising, Marketing and Promotion expenditure (AMP) in the context of benchmarking international transactions while determining the Arm s Length Price (ALP). In the circumstances, the assessment and the order to the extent it resulted in substantial additions and the demand in question could not have been enforced pending the assessee s appeal before the ITAT. The respondents are, therefore, directed to keep the demand in abeyance and not take any coercive measures till the final decision by the ITAT in the assessee s appeal. The final order of the ITAT shall be given due tax effect. Nothing in this order shall preclude the contentions of the parties on the merits of the pending appeal.

Summary

Issues:
1. Quashing of demand by revenue based on Bright Line Test adopted by Assessing Officer.
2. Enforceability of demand in light of the later decision disapproving the Bright Line Test.
3. Direction to keep demand in abeyance pending appeal before ITAT.

Analysis:
1. The petitioner sought to quash a demand of over &8377;33.65 crores by the revenue, contending that the Assessing Officer (AO) used the "Bright Line" Test from LG Electronics v. CIT, which was disapproved later by Delhi High Court in Sony Ericsson Mobile Communications India Private Limited v. CIT 374 ITR 118.

2. The revenue's counsel argued that the ITAT's order for a 20% pre-deposit was justified. However, the High Court had already ruled against the Bright Line Test in various contexts, including Advertising, Marketing, and Promotion expenditure (AMP) for determining the Arm's Length Price (ALP).

3. Given the High Court's stance against the Bright Line Test, the assessment resulting in substantial additions and the demand could not be enforced while the appeal was pending before the ITAT. Thus, the court directed the revenue to suspend the demand and refrain from coercive measures until the ITAT's final decision. The ITAT was also instructed to expedite the pending appeal for the relevant assessment year, preferably by the end of December 2016.

In conclusion, the writ petition was allowed, and the demand was to be kept in abeyance until the ITAT's final decision, with due tax effect to be given to the ITAT's order. This judgment highlights the significance of adhering to judicial decisions and ensuring fair treatment in tax assessments.