2019 (5) TMI 859 - HC - Income Tax

Rejection of stay of demand - application of comparables in transfer pricing - HELD THAT - Out of seven companies which are taken as comparables, some of them stood excluded by the Tribunal in respect of the previous year and some of them were excluded by the DRP itself. This aspect has not been taken into account by the Tribunal. Therefore, we are of the view that this case would not fall under the category of a case where the application for stay deserved to be rejected outright. Outright rejection of the application for stay is not proper, we may in normal circumstances remand the matter back to the Tribunal for a fresh consideration of the application for stay. But, the same would motivate the Tribunal only to take up the application for stay first, leading to another round of litigation. Instead of having one more round of litigation at the stage of stay application, we think it better to put the petitioner on terms for the grant of stay. The total liability fixed under the order of assessment i.e., pending appeal before the Tribunal is ₹ 39,92,21,960/-. It is seen that there are also interest components under Section 234B and 234C. Writ Petition is disposed of directing the petitioner to pay a sum of ₹ 4,00,00,000/- (Rupees Four Crores) within a period of four weeks from the date of receipt of a copy of this order. Upon such payment is made, there will be an interim stay of collection of the balance of tax. However, the Tribunal shall endeavour to expedite the hearing of the appeal.

Summary

Issues:
1. Rejection of application for stay pending disposal of first appeal before Income Tax Appellate Tribunal.
2. Challenge to the rejection of stay order based on comparables in transfer pricing and financial difficulty.
3. Consideration of balance sheet vs. cash flow statement in rejecting stay application.

Analysis:
1. The petitioner filed a Writ Petition aggrieved by the rejection of an application for stay pending disposal of a first appeal before the Income Tax Appellate Tribunal. The petitioner had suffered an order of assessment under the Income Tax Act, 1961, with a liability of ?39,92,21,960 imposed by the said order. The Tribunal rejected the prayer for stay citing no financial difficulty on the part of the assessee, leading to the petitioner approaching the High Court.

2. The petitioner challenged the rejection of stay order by highlighting a previous Tribunal's decision in a similar case where the matter was remanded back to the Assessing Officer due to incomplete document submission. The issue revolved around the application of comparables in transfer pricing, where the Tribunal had excluded certain companies from consideration. The petitioner contended that the Tribunal failed to consider the exclusion of certain comparables in the current case, indicating an inconsistency in decision-making.

3. The petitioner's second contention was regarding the Tribunal's reliance on the cash flow statement instead of the balance sheet in rejecting the stay application. The department, represented by learned Senior Counsel, argued that the Tribunal's previous decision should not be considered a precedent and emphasized that financial hardship should be substantiated through the fund flow statement, not the balance sheet. However, upon careful consideration, the High Court found that the exclusion of certain comparables from previous cases was not factored into the current decision, indicating an oversight by the Tribunal.

4. The High Court concluded that the case did not warrant an outright rejection of the stay application. Instead of remanding the matter back to the Tribunal for fresh consideration, which could lead to prolonged litigation, the Court directed the petitioner to pay a sum of ?4,00,00,000 within four weeks. Upon payment, an interim stay of tax collection would be granted, with a directive for the Tribunal to expedite the appeal hearing. The Court disposed of the Writ Petition with no order as to costs, closing any pending miscellaneous petitions in the matter.