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TMI Blog2024 (4) TMI 1131X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the Tribunal can only grant a stay subject to deposit of not less than 20% of disputed demand, or furnishing of security of equal amount thereof, it is not open to this Tribunal to grant stay in violation of those basic provisions as the Tribunal being a creation of the statute and we are not in a position to question the provisions of this section 254(2A) of the Act. At this point, it is pertinent to mention ratio laid down in the case of CIT Vs Hindustan Bulk Carrier [ 2002 (12) TMI 10 - SUPREME COURT] A construction which reduces the statute to a futility has to be avoided. A statute or any enacting provision therein must be so construed as to make it effective and operative on the principle expressed in maxim ut res magis valeat quam pereat i.e., a liberal construction should be put upon written instruments, so as to uphold them, if possible, and carry into effect the intention of the parties. Applying this principle, and in the case of ACIT Vs Papillon Investments Pvt Ltd [ 2009 (8) TMI 832 - BOMBAY HIGH COURT] observed that, That is certainly not an interpretation which can be termed as ut res magis valeat quam pereat, i.e., to make the statute effective rather than ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- which comprises of the following: a) Outstanding disputed demand of tax - Rs.1402,86,00,158/- b) Interest u/s. 234 B & C - Rs. 791,04,42,205/- ---------------------------- Total - Rs.2193,90,42,363/- ---------------------------- It is submitted that the above demand has been raised by the Ld.AO in the final assessment order dated 11.01.2024 passed u/s. 143(3) r.w.s. 144C(13) of the act for A.Y. 2019-20 against which the assessee has already preferred an appeal before this Tribunal in IT(TP)A No. 213/Bang/2024. 2.1 The facts of the case are that the assessee is a subsidiary company of Xiaomi Singapore Pte. Ltd. (`Xiaomi Singapore') (99.95% holding) which in turn is a subsidiary of Xiaomi Corporation. During the year, the Assessee was engaged in the business of distribution of Xiaomi products in India [authorized by Xiaomi Technology Company Limited ('Xiaomi Inc), Xiaomi Communications Co. Ltd ('Xiaomi Communications), Zhuhai Xiaomi Communications Co. Ltd ('Zhuhai Xiaomi) and Xiaomi HK Limited ('Xiaomi HIQ 1, which includes mobile phones, mobile phone accessories and peripherals, other consumer electronic products and gadgets, lifestyle products, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ior Advocate Shri A. Shankar submitted the brief summary of proceedings relevant for AY 2018-19 as follows:- a) The Assessee was incorporated on 7 October 2014 and has its registered office at Bengaluru, Karnataka. The Assessee filed its return of income under section 139(1) of the Act for AY 2019-20 declaring a total loss of INR 207,76,84,660/-. The return was processed under section 143(1) of the Act on 08/02/2021 wherein the loss of INR 207,76,84,660/- was determined along with a tax refund at INR 57,92,29,178/-. b) The case was selected for assessment vide notice dated 31/03/2021 issued under section 143(2) of Act by the Ld. Assessing Officer (`A0'). Thereafter, a reference was made to the Ld. Transfer Pricing Officer (`TP0') in respect of the international transactions of the Assessee. Various notices were issued by the Ld. AO/ TPO calling for details/ information during the course of the assessment and the Assessee has filed its responses/ submissions from time to time. Further, a reference to FT and TR was also made in this case by the CIT(TP) -- 2, Bangalore on 12/01/2022 the acknowledgement to which was received on 22/01/2022. c) The Ld.TPO issued a show ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the advertisement expenses of the assessee. However, given that adjustment of Royalty to Qualcomm and AMP gets subsumed under distribution segment (considering a net adjustment under a combined transaction approach instead of transaction-wise adjustments), the Ld. TPO has not made any adjustment in respect of payment of Royalty and AMP expenditure. 2.7 The Ld.Senior Counsel submitted that the Ld.TPO reduced the amount of sales reward received from Xiaomi HK from the overall adjustment under distribution segment. The TPO has alleged that need benefit test is not met for interest on ECB; however, no adjustment on account of the same was made as the assessee had voluntarily disallowed the said amount under Section 94B. 2.8 And that the Ld. TPO performed an independent search of comparable companies for the distribution segment, Testing and Debugging services and support service segment rejected certain comparable companies selected by the assessee and introduced additional comparables. 3. Proceedings before the Ld.AO 3.1 The ld. Senior Advocate Shri A. Shankar submitted that during the course of the assessment proceedings, the Ld. AO sought various details with respect to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that with respect to the issue of adhoc disallowance under section 37 of the on the account of alleged BoM cost inflation, it was highlighted that the disallowance made by the Ld. AO is a duplicate adjustment since the Ld. TPO during the course of transfer pricing proceedings had tested the distribution segment (inter-alia including purchase cost debited in the books of the Applicant) and accordingly, the Ld. AO has undertaken an arm's length adjustment under the guise of section 37 of the Act. Without prejudice, it was argued that the adhoc disallowance on account of alleged BoM cost was computed on the purchases made from local third party manufacturers and not on the BoM cost details provided by the Applicant. Accordingly, in any case, the disallowance needs to be reduced. 4.5 He further submitted that it was requested vide letter dated 21 December 2023 before the Ld. DRP, wherein the Applicant requested (without admitting) that, where disallowance is to be computed on alleged BoM cost inflation the same should be computed on the net basis (i.e., BoM Cost * 8/108). 4.6 The Ld.Sr. Counsel submitted that Ld.DRP sought a remand report from the Ld. AO in relation to ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 845,44,81,817 2 Disallowance on account of alleged BoM cost inflation 2369,66,80,078 Total adjustments / additions 4215,11,61,895 6. The Ld.AO also issued demand notice u/s. 156 of the act dated 11.01.2024 wherein a demand of Rs.213,90,42,363/- has been raised. 7. The Ld.Sr.Counsel submitted that on 24.12.2021, DDIT(Investigation), Wing - 1(1), Bangalore has passed an order u/s. 132(3) of the act. Temporarily a restraining / seizing the fixed deposits of assessee totaling to Rs. 3,700 cores (approx.) i.e. Rs. 2,600 crores (approx.) with HSBC Bank Account No. 073- 161671-001 & Rs. 1,100 crores (approx.) with Citi Bank having Account No. 521656018. 8. On 18 February 2022, the Deputy Director of Income Tax (Investigation), Unit 1(1), Bengaluru passed two evenly dated orders under section 132(9B) of the Act whilst provisionally attaching the fixed deposits of Petitioner totalling to INR 3,700 crores viz. INR 2,600 crores with HSBC Bank (Account No. 073-161671001) and 1NR 1,100 crores with CITI Bank (Account No. 521656018). It was also directed that subject to the normal operation of the bank accounts, the Assessee was prohibited from using the amount lying in the bank account o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest of the revenue already stands protected with respect to the demand determined as payable by the Ld. AO. 11. Further, the ld. Senior Counsel submitted that the bank account of the assessee has been attached by Enforcement Directorate as well as by Income Tax Authority u/s 281B of the Act. 12. The Ld.Sr. Counsel submitted that based on the above facts and the attached amounts that is already under the custody of the revenue, this Tribunal has granted stay for A.Y. 2018-19 in S.P. No. 32/Bang/2023 vide order dated 09.08.2023. The Ld.Sr.Counsel also referred to the submissions of the DR therein in para 3 wherein the demand was crystallized as on the date for the assessment years 2016-17 to 2021-22. The Ld.Sr. Counsel thus submitted that the entire issue of stay is covered by the said order passed in assessee's own case for A.Y. 2018-19 (supra). He submitted that the details of the bank accounts u/s. 281 as agreed by the Ld.DR in said order passed for A.Y. 2018- 19 (supra) reproduced in Para 3.1 therein are as under: a. HSBC Bank A/c number 073-161671-001 - Rs.2600,00,00,000 b. Citi Bank A/c Number 521656018 - Rs.1100,00,00,000 13. He thus submitted that the above amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the financial hardship of the assessee to be seen to grant the stay and he submitted that if the assessee pays 20% of the outstanding demand, the stay may be granted in terms of section 254(2A) of the Act since the attachment of various bank accounts not only by the Income Tax department but also by Enforcement Directorate and there was overlapping attachment of bank accounts to the tune of Rs.3700 Crores. Hence, absolute stay shall not be given to the assessee. Further, ld. D.R. submitted that after insertion of provision to section 254(2A) of the Act, the power of the Tribunal is restricted to grant stay and there should be a payment of 20% disputed demand of tax or acquiring of security thereof, and the Tribunal cannot grant blanket or absolute stay. Thus, he opposed granting of absolute stay in this case. 17. We have heard the rival submissions and perused the materials available on record. In this case, the total demand outstanding for the assessment year under consideration is Rs.2193,90,42,357/-. The contention of the ld. Senior Counsel is that the department's interest is already protected by the attachment and hence, absolute stay may be granted. 18. As per section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is treated as a failure to furnish a return of income under section 22. By reason of this fiction the notice required to be given under section 22 must be deemed to have been given, and the assessee must be deemed to have failed to comply with it. Thus section 28 of the Act would apply on its own terms. The Income-tax officer is, therefore, competent to impose a penalty under section 28 read with section 18A(9)(b) in respect of a failure to submit an estimate under section 18A(3). It is a rule of interpretation well settled that in construing the scope of a legal fiction it would be proper and even necessary to assume all those facts on which alone the fiction can operate. A construction which defeats the very object sought to be achieved by the Legislature must, if possible, be avoided." For this reason alone, the interpretation canvassed by the assessee is to be rejected. The view so taken has been affirmed by the Hon'ble Bombay High Court, in the judgment reported as CIT Vs Papillon Investments Pvt Ltd reported in (2012) 4 SOT 234. 21. The power of this Tribunal to grant stay u/s 254(2A) of the Act is to be read with 254(1) of the Act and either of the section cann ..... X X X X Extracts X X X X X X X X Extracts X X X X
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