2020 (1) TMI 1138 - HC - Income Tax

Stay petition against recovery proceedings - Whether Prima facie case requires positive evidence of certainty of victory? - claim of deduction of Agency Commission towards third party disallowed - Whether the Hon ble Tribunal erred in holding that decision of the Co-ordinate Benches of Hon ble ITAT, holding the arms-length value under the Agency Agreement to be valid, is not a prima facie case for the grant of stay against recovery proceedings? - HELD THAT - The amount demanded, even as per the appellant is ₹ 1,98,90,582/- in the narration of facts at Paragraph No.11. He has already paid a sum of ₹ 75 lakhs. The issue with regard to the claim for deduction of Agency Commission has to be decided only by the Tribunal. Pending disposal, what has to be seen is whether prima facie case has been made out by the appellant or not. In the view of the Tribunal, prima facie case is not made out. However, taking into consideration of the previous history and the fact that the appellant has already paid a sum of ₹ 75 lakhs, this Court is of the opinion that the interest of justice would be subserved by directing the appellant to pay a further sum of ₹ 25 lakhs. Hence, the appellant is hereby directed to pay a sum of ₹ 25 Lakhs within a period of four weeks from the date of receipt of the copy of this order. On such payment, there shall be an order of stay till the disposal of the appeal.

Summary

Issues:
Appeal against dismissal order in stay petition challenging Dispute Resolution Panel's decision on deduction of Agency Commission.

Analysis:
The appellant, a manufacturer and exporter, contested the disallowance of deduction for Agency Commission paid to a foreign entity by the assessment officer. The Dispute Resolution Panel upheld the disallowance, leading to an appeal before the Income Tax Appellate Tribunal. A stay petition was filed by the appellant, which was initially dismissed but later remanded by the High Court to the Tribunal for a reasoned decision. The Tribunal, after hearing both parties, found that a prima facie case was not established by the appellant, despite partial relief granted in previous years.

The substantial questions of law admitted for consideration included the requirement of positive evidence for a prima facie case, the validity of arms-length value under the Agency Agreement, and the correct application of the prima facie case test by the Tribunal. The Tribunal noted that the appellant had already paid a significant portion of the demanded amount, but the issue of deduction of Agency Commission was to be decided by the Tribunal. Considering the appellant's payment and previous relief granted, the High Court directed the appellant to pay an additional sum within a specified period for a stay on the assessment order till the appeal's disposal.

In conclusion, the Tax Case Appeal was disposed of with the direction for the appellant to make a further payment to secure the stay. The High Court balanced the interests of justice by requiring the appellant to pay an additional sum while granting a stay on the assessment order till the appeal was resolved. The judgment clarified the necessity of establishing a prima facie case and the Tribunal's role in deciding on the deduction of Agency Commission, emphasizing the importance of reasoned decisions and previous case history in tax matters.