2024 (10) TMI 170 - AT - Income Tax

Stay the recovery of outstanding demand - revised demand after TPO passed the rectification order u/s 154 - HELD THAT - The apparent mistake that is sought to be rectified is that the assessee had filed a loss return. However, in the Final Assessment Order concluded under section 143(3) r.w.s. 144C(13) of the Act, Nil income is taken as the starting point. Since the assessee had declared a loss in the income tax return, the same has to be taken as the starting point of computation of the assessed income. The aforesaid action of the AO has resulted in increased assessed income to Rs. 37,38,03,079/- and consequently tax demand by Rs. 20,25,83,329/-. In view of the facts of the case, AO is directed to dispose off the rectification application in a time bound manner. TPO has made an adjustment with respect to the entire turnover of the assessee in the construction equipment segment. It is a settled principle of law that adjustment, if any, is to be restricted to the international transactions undertaken by the assessee. In this context, we rely on the judgment of Hindustan Unilever Ltd. 2016 (7) TMI 1245 - BOMBAY HIGH COURT .The SLP filed by the Revenue against the aforesaid judgment of the Hon ble Bombay High Court has been dismissed by the Hon ble Apex Court in Special Leave 2018 (10) TMI 1611 - SC ORDER . The assessee had submitted a revised working of collectable outstanding demand if the TP adjustment is restricted to the international transactions undertaken by the assessee, the rectification applications filed by the assessee if the same are disposed off, etc. On perusal of revised working of collectable outstanding demand, we find that the demand would be reduced to Nil after taking into account the TDS credits. DR was unable to controvert the above computation of tax demand which is placed on record. Therefore, we deem it appropriate to grant stay of the outstanding demand provided assessee undertakes before the AO not to sell assets worth atleast an amount equal to the total tax demand that is raised as per the Final Assessment Order passed under section 143(3) r.w.s. 144C(13). If the assessee satisfy the above condition, the stay shall be effective for a period of 180 days from the date of this Order or till the disposal of the appeal, whichever is earlier. The assessee shall not seek adjournment of hearing of the appeal without compelling reasons. With these observations, we dispose off the aforesaid stay application.

Summary

Issues:
1. Stay of recovery of outstanding demand under Rule 35A of the Income Tax Appellate Tribunal Rules, 1963.
2. Rectification application for starting point of assessed income.
3. Transfer Pricing adjustments and rectification applications.
4. Arbitrarily levied interest and higher interest under sections 234A and 234B.
5. Adjustment by Transfer Pricing Officer and rectification applications.
6. Restriction of Transfer Pricing adjustment to international transactions.
7. Granting stay on outstanding demand.

Analysis:
1. The Stay Petition sought to halt the recovery of an outstanding demand of Rs. 97,40,95,175, which was revised to Rs. 61,76,06,126 after a rectification order by the Transfer Pricing Officer (TPO) under section 154 of the Income Tax Act.

2. The case involved the discrepancy in the starting point of assessed income, where the assessing officer considered a Nil income instead of the reported loss of Rs. 37,38,03,079. The applicant filed a rectification application to rectify this mistake.

3. Various Transfer Pricing adjustments were made, including adjustments on manufacturing segment, trading segment, and interest on delayed receivables. The applicant filed rectification applications for these adjustments, contesting the calculations made by the TPO.

4. The applicant challenged the arbitrarily levied interest and higher interest under sections 234A and 234B, claiming these charges were erroneous and unsustainable.

5. The TPO's adjustments on the entire turnover of the applicant in the construction equipment segment were questioned, as adjustments should be limited to international transactions. The applicant filed rectification applications to correct these adjustments.

6. The Tribunal directed the assessing officer to dispose of the rectification application concerning the starting point of assessed income and to restrict Transfer Pricing adjustments to international transactions only.

7. After reviewing the revised working of collectable outstanding demand, the Tribunal found that the demand would be reduced to Nil after considering TDS credits. The stay on the outstanding demand was granted with conditions for asset sale and appeal hearing adjournments.