2017 (4) TMI 1139 - AT - Income Tax

Stay on collection/ recovery of the disputed demands - Held that - Coming to our view so far as prima facie merits of the appeal, about which we must be satisfied before granting a stay on related demands impugned before us, are concerned, suffice to say that, on the face of it, the appeal before us does not appear to be frivolous appeal, and based on our understanding, on the basis of this limited discussion, the assessee, therefore, has a prima facie arguable case. The assessed income in this case is more than seventy times the returned income, and the impugned additions are in respect of contentious points. In our considered view the balance of convenience is in favour of partial stay on collection/ recovery of disputed demands. We, therefore, deem it fit and proper to grant a stay on collection/ recovery of the disputed demands, for a period of six month from the date of this order, till pronouncement of the order on the related appeal, or till further orders- whichever is earlier, on the condition that (a) the assessee will deposit a sum of ₹ 60 crores within two weeks from the date of this order being pronounced in the open court, the assessee will pay further amount of ₹ 20 crores within four further weeks, i.e. six weeks from the date of this order, and yet another ₹ 20 crores in four more weeks, i.e. ten weeks from the date of this order; (b) the assessee will give a corporate guarantee, to the satisfaction of the Assessing Officer, within the two weeks from the date of this order, for the balance amount; and that (c) the assessee, as also the revenue, will fully cooperate in expeditious disposal of the appeal, and will not seek any adjournment on any grounds whatsoever, other than the grounds on which the bench is satisfied about the grounds being wholly unavoidable and bonafide.

Issues Involved:
1. Stay on collection/recovery of disputed tax and income tax demands.
2. Arm's length price adjustment on termination of call options.
3. Depreciation on goodwill disallowed.
4. Disallowance under section 14A.
5. Disallowance of entrance fees to club and subscription fees.
6. Prima facie merits of the appeal and balance of convenience for granting stay.

Issue-wise Detailed Analysis:

1. Stay on Collection/Recovery of Disputed Tax and Income Tax Demands:
The assessee sought a stay on the collection/recovery of disputed tax demands totaling ?837.84 crores for the assessment year 2012-13. The Tribunal was tasked with deciding whether to grant this stay pending the appeal.

2. Arm's Length Price Adjustment on Termination of Call Options:
The primary issue, accounting for over 98% of the disputed amount, was the arm's length price (ALP) adjustment of ?1,588.85 crores due to the termination of call options. The assessee, a wholly-owned subsidiary of a Mauritian company, terminated a framework agreement and paid ?21.25 crores as termination fees. The revenue contended that the termination resulted in undue loss to the assessee and corresponding gain to Vodafone International Holdings BV (VIH-BV), arguing that the assessee should have been compensated adequately instead of paying the termination fees. The TPO and DRP determined that the assessee should have been paid ?1,588.85 crores, not ?21.25 crores, as termination fees.

3. Depreciation on Goodwill Disallowed:
An amount of ?19.53 crore was disallowed as depreciation on goodwill. This issue was part of the total disputed additions made by the Assessing Officer.

4. Disallowance under Section 14A:
The Assessing Officer disallowed ?8.30 crores under section 14A of the Income Tax Act, which pertains to the disallowance of expenditure incurred in relation to income not includible in total income.

5. Disallowance of Entrance Fees to Club and Subscription Fees:
An amount of ?53.82 lakhs was disallowed as entrance fees to the club and subscription fees. This formed part of the overall additions contested by the assessee.

6. Prima Facie Merits of the Appeal and Balance of Convenience for Granting Stay:
The Tribunal considered whether the appeal had prima facie merits and whether the balance of convenience favored granting a stay. The Tribunal noted that the appeal did not appear frivolous and that the assessed income was significantly higher than the returned income, indicating contentious points. The Tribunal granted a stay on the collection/recovery of the disputed demands for six months or until the appeal was decided, subject to certain conditions:
- The assessee was required to deposit ?60 crores within two weeks, ?20 crores within six weeks, and another ?20 crores within ten weeks from the date of the order.
- The assessee had to provide a corporate guarantee for the balance amount within two weeks.
- Both parties were to cooperate in the expeditious disposal of the appeal without seeking unnecessary adjournments.

The Tribunal also granted an out-of-turn hearing for the appeal, scheduled for 3rd May 2017, and directed the parties to file all requisite documents in advance.

Conclusion:
The stay petition was allowed with specific conditions, and the appeal was granted an out-of-turn hearing. The Tribunal refrained from making any observations on the merits of the case at this stage, focusing instead on the procedural and preliminary aspects of the stay petition.

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