Income Tax Appellate Tribunal - Bangalore
M/S. Xiaomi Technology India Private ... vs Deputy Commissioner Of Income Tax, ... on 9 August, 2023
SP No.32/Bang/2023
M/s. Xiaomi Technology India Pvt. Ltd., Bangalore
IN THE INCOME TAX APPELLATE TRIBUNAL
"B'' BENCH: BANGALORE
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
AND
SMT. BEENA PILLAI, JUDICIAL MEMBER
SP No.32/Bang/2023
(Arising out of IT(TP)A No.455/Bang/2023
Assessment Year: 2018-19
M/s. Xiaomi Technology India Pvt. Ltd.
Orchid (Block E), Ground Floor
Embassy Tech Village Deputy Commissioner of Income-
Marathalli Outer Ring road tax
Vs.
Bellandur SO, Kadabeesanahalli Central Circle-2(1)
Bengaluru 560 013 Bengaluru
PAN NO : AAACX1645B
APPELLANT RESPONDENT
Appellant by : Shri A. Shankar, Sr. Counsel i/b
M/s. AZB & Partners
Respondent by : Shri Srinivasa Karthi Devara, D.R.
Date of Hearing : 07.08.2023
Date of Pronouncement : 09.08.2023
ORDER
PER CHANDRA POOJARI, ACCOUNTANT MEMBER:
By way of this stay application, the assessee seeks stay of outstanding disputed demand of Rs.1833,22,78,898/-, which comprise of the following:-
Outstanding disputed demand of tax -Rs.1131,21,44,700/- Interest on it u/s 234B &234C -Rs. 702,01,34,198/-
Total -Rs.1833,22,78,898/-
2. It was submitted that this demand has been raised by the ld. AO vide final assessment order dated 29.5.2023 passed u/s 143(3) r.w.s. 144C(13) of the Income-tax Act,1961 ['the Act' for short] for the assessment year 2018-
19, against which assessee filed appeal before this Tribunal in IT(TP)A No.455/Bang/2013.
SP No.32/Bang/2023M/s. Xiaomi Technology India Pvt. Ltd., Bangalore Page 2 of 21 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, and services. The major portion of the handheld mobiles, power banks, spares and related products sold in India by the Assessee are purchased from Indian third-party manufacturers viz. Rising Stars Mobile India Private Limited (`RSM') and Hipad Technology India Private Limited ('Hipad'). The Assessee being the Distributor of such locally manufactured handheld mobiles and other related products in India has obtained license for use of proprietary technology owned / licensed by Beijing Xiaomi Mobile Software Co. Ltd. (`Xiaomi Mobile'), Qualcomm Inc. and Qualcomm Technologies Inc. which is essential for selling these products in India. The Assessee has entered into an agreement with Xiaomi Mobile for obtaining right to use licensed technologies (related to hardware and software) and in terms thereof has paid 2% royalty on the revenue generated from sale of locally procured mobile phones. Further, the Assessee has entered into agreement with Qualcomm Inc. for use of Qualcomm Inc.'s Standard Essential Patents (SEPs) and related Intellectual Properties (`IPR') and has paid royalty in relation to sales made to unlicensed end users in India. Further, the Assessee has also availed optional software from Qualcomm Technologies Inc. and has also paid royalty on the same. For the sake of convenience, both Qualcomm Inc. and Qualcomm Technologies Inc. are collectively referred to as `Qualcomm' hereinafter.
SP No.32/Bang/2023M/s. Xiaomi Technology India Pvt. Ltd., Bangalore Page 3 of 21 2.2 A summary of the relevant related parties / deemed international transactions during the year is tabulated below:
2.3 The ld. Senior Advocate Shri A. Shankar submitted that all the aforementioned transactions being closely inter-linked with the Assessee's distribution business, were aggregated and transaction net margin method (`TNMM') was considered as the most appropriate method and the ratio of SP No.32/Bang/2023 M/s. Xiaomi Technology India Pvt. Ltd., Bangalore Page 4 of 21 operating profit to operating sales was considered as the Profit Level Indicator (`PLI') for benchmarking the same. The ld. Senior Counsel further submitted that the purchase of finished goods and the royalty expenses were included in the operating cost incurred by the Assessee with respect to its distribution activities and consequently, the arm's length margin for the subject year was computed as per TNMM.
• Pictorial presentation of international transaction disputed by Ld. AO / TPO:
2.4 The ld. Senior 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 2018-19 declaring a total income of INR 4,66,79,51,640/-. The return was processed under section 143(1) of the Act on 18 November 2019 wherein the income of INR SP No.32/Bang/2023 M/s. Xiaomi Technology India Pvt. Ltd., Bangalore Page 5 of 21 468,03,43,850 was determined along with a tax refund at INR 21,54,84,534.
b) The case was selected for assessment vide notice dated 22 September 2019 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 20 July 2021 the acknowledgement to which was received on 29 July 2021.
c) Meanwhile, on 21 December 2021, in terms of section 132 of the Act, search was commenced on the Assessee by the investigation wing of the income-tax department. Statements were recorded during the search proceedings and hard disk / laptop were seized / data back-up was taken. Mahazar was recorded. Panchnama was recorded, whilst noting that on 26 December 2021 at 3:00 P.M. the proceedings were closed as temporarily concluded for the day to be commenced subsequently for which purpose seals were placed on the "Finance Store" behind Supply chain and Finance Section on 3rd Floor of the Building.
d) On 17 February 2022 and 18 February 2022, the search was concluded on the Assessee and final Panchnama was recorded by the search party of income-tax department. Further, list of inventory of account books etc. found and seized was recorded.
Transfer pricing
e) Ld. TPO issued a show cause notice dated 21 July 2022 proposing upward adjustments to the Assessee's international transactions relating to payment of royalty, AMP expenses and distribution activities. In response to the show-cause notice, detailed submissions SP No.32/Bang/2023 M/s. Xiaomi Technology India Pvt. Ltd., Bangalore Page 6 of 21 were filed explaining its business model and justifying the reasons as to why certain comparable companies proposed by the Ld. TPO should not be accepted, why royalty payment made to Xiaomi Mobile and Qualcomm should be considered to be at arm's length and as to why a separate adjustment for AMP expenses is not warranted.
f) The Assessee explained that it had entered into various international transactions and deemed international transactions for distribution and the expenses incurred including royalty and marketing expenses are part of the Operating cost. Further, it was submitted that the Assessee in its TP study compared the entity wide operating margin earned by it with that of comparable companies under TNMM approach.
g) Pursuant to the Assessee's responses to the notices issued by the Ld. TPO, the Ld. TPO passed an order dated 30 July 2022 making the adjustments amounting to INR 16,83,24,13,391 to the ALP of the international transactions relating to reimbursement of royalty, interest on delay in receipt of reimbursement of royalty and AMP expense. In doing so, the Ld. TPO alleged that payment-of royalty to Qualcomm by the Assessee was not its obligation, and that the AE should have reimbursed the Assessee towards the same. Accordingly, the Ld. TPO treated royalty paid as a reimbursement receivable by the Assessee and imputed interest for delay in collection.
h) The Ld. TPO accepted that Assessee is a distributor of Xiaomi products and accordingly undertook a benchmarking analysis and quantified an adjustment w.r.t the distribution segment on TNMM basis. However, in the TP order, in addition to benchmarking the Distribution Segment on entity level, the Ld. TPO has also adopted a transaction by transaction approach and made adjustment on account of specific transactions undertaken by the Assessee. While Ld. TPO did quantify an adjustment w.r.t the distribution segment, however no SP No.32/Bang/2023 M/s. Xiaomi Technology India Pvt. Ltd., Bangalore Page 7 of 21 separate addition was made as the Ld. TPO was of the view that same was subsumed other additions.
i) Effectively, the Ld. TPO computed TP adjustment under two approaches, viz., entity wide and transaction wide and chose the approach which resulted in higher quantum of adjustment.
j) Accordingly, the Ld. TPO passed an order under section 92CA of the Act dated 30 July 2022 making the following adjustments:
Adjustment u/s 92CA of the Act Particulars (Amount in INR) Adjustment on account of Xiaomi Mobile royalty 4,46,87,38,377 Adjustment on account of Qualcomm royalty 10,84,46,87,209 Interest on re-imbursement of royalty receivable 74,17,76,605 from AE (secondary adjustment) Distribution segment adjustment No quantitative adjustment proposed (refer Note) AMP brand promotion expenses 77,72,11,200 Total adjustment made by the Ld. TPO 16,83,24,13,391 2.4.1 The Ld. TPO has also computed an adjustment of INR 4,49,97,12,763 for the distribution activity carried out by the Assessee by undertaking a fresh comparable search and re-computing the arm's length TNMM margins.
Further, pursuant to directions of the Ld. DRP, the TPO has reduced the adjustment to INR 4,29,32,98,071. However, the Ld. TPO has held that the distribution segment adjustment gets subsumed into the other adjustments (as the operating margins of distribution segment will increase as a result of other TP adjustments) and thus, no quantitative adjustment for the distribution segment was made.
SP No.32/Bang/2023M/s. Xiaomi Technology India Pvt. Ltd., Bangalore Page 8 of 21 Proceedings before the Ld. AO 2.5 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 business of the Assessee. It was highlighted that the Assessee was engaged in the business of distribution and was purchasing finished goods from local third party manufacturers and overseas AEs for the purpose of distribution.
2.6 He submitted that various notices were issued by the Ld. AO which were duly responded. The Ld. AO also asked the Assessee to show cause as to why the royalty expenses pertaining to Qualcomm and Xiaomi Mobile, should not be disallowed as they were not for the purpose of business of the Assessee. Detailed explanations were filed to substantiate that such expenses were incurred by the Assessee and were for the purpose of the business and that there was no double payment of Royalty i.e., such royalty for products sold in India was only paid by the Assessee. It was also highlighted that commercial expediency cannot be tested by the Ld. AO as per the settled judicial principles. Further, vide submission filed on 26 September 2022, the Assessee filed detailed response / explanation in relation to the following issues:
o Adjustment of purchase price of finished goods on account of alleged BoM inflation o Disallowance of testing and debugging expenses.
2.7 The ld. Senior Counsel submitted that the Ld. AO did not agree with the contentions of the Assessee and issued a draft assessment order under section 143(3) read with section 144C(1) of the Act dated 28 September 2022 and proposed the following additions from a corporate tax perspective:SP No.32/Bang/2023
M/s. Xiaomi Technology India Pvt. Ltd., Bangalore Page 9 of 21 o Disallowance of royalty paid to Qualcomm and Xiaomi Mobile being not for the purpose of business of the Assessee** -- INR 15,24,29,14,504.
o Testing and debugging expenses, being not for the purpose of business of the Assessee--INR 7,05,27,820 o Adhoc adjustment of purchase price of finished goods on account of alleged BoM inflation --1NR 16,37,68,83,555 ("Since, Ld. TPO had already proposed adjustments on account of Qualcomm and Xiaomi Mobile royalty, no separate quantitative disallowance was made by the AO in the draft assessment order.) 2.8 The ld. Senior Counsel submitted that various adjustments / additions proposed by the Ld. TPO/ Ld. AO** are summarised in the below mentioned table for our reference:
S. No. Particulars Amount (in INR)
1 Transfer Pricing Adjustment as per order
16,83,24,13,391
passed by the Ld. TPO
2 ,Testing and debugging expenses 7,05,27,820
3 Adhoc adjustment of purchase price of
16,37,68,83,555
finished goods on account of alleged BoM
Total additions 33,27,98,24,766
**As rectified by Corrigendum to the draft assessment order dated 28 December 2022.
Proceedings before the DRP 2.9 Aggrieved by the aforesaid draft assessment order, the Assessee filed objections dated 27 October 2022 before the ld. Dispute Resolution Panel (`DRP'). An additional ground of objection dated 10 March 2023, pertaining to dual adjustment on account of 'provision for gratuity' was also filed before the DRP.
2.10 He submitted that the detailed objections and submissions were filed with the Ld. DRP highlighting the arguments against the adjustments SP No.32/Bang/2023 M/s. Xiaomi Technology India Pvt. Ltd., Bangalore Page 10 of 21 proposed by the Ld. AO/ TPO. With respect to the issue of double disallowance of purchase 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 Assessee) and accordingly, the Ld. AO has undertaken an arm's length adjustment under the guise of section 37 of the Act. It was highlighted that such action of the Ld. AO is incorrect and the same should be deleted. A submission was also filed with the Ld. DRP. with respect to double disallowance on account of adhoc adjustment of purchase price alleging mark-up on BoM and transfer pricing adjustment on account of Qualcomm royalty expenses.
2.11 The ld. Senior Counsel further submitted that the ld. DRP sought a remand report from the Ld. AO in relation to adhoc adjustment of purchase price alleging mark-up on BoM and also from Ld. TPO in relation to the transfer pricing adjustment on account of Qualcomm royalty expenses. The Ld. AO in his remand report dated 24 April 2023 admitted that the same is a duplicate adjustment as there is an overlap in respect of the adjustments made by the Ld. TPO under distribution segment and the additions made by the Ld. AO in relation to adjustment of the purchase price. Further, the Ld. TPO also submitted its remand report dated 25 April 2023. In response to the same, the Assessee filed a letter dated 26 April 2023 before the Ld. DRP, wherein the Assessee requested the DRP to delete the adjustments proposed by the Ld. AO on account of adhoc adjustment of purchase price alleging mark-up on BoM [given that the Ld. AO admitted that the disallowance is an overlap to the adjustment made by the Ld. TPO]. However, in complete ignorance of the Assessee's objections, contentions and submission, the Ld. DRP passed its directions dated 28 April 2023 under section 144C of the Act. However, with respect to the double disallowance on account of adhoc adjustment of purchase price alleging mark-up on BoM, the Ld. DRP has also accepted that there is an overlap in the adjustment proposed by the Ld. TPO and the Ld. AO. However, no SP No.32/Bang/2023 M/s. Xiaomi Technology India Pvt. Ltd., Bangalore Page 11 of 21 relief has been granted by the Ld. DRP. The relevant para of the order of the Ld. DRP is reproduced below for your ease of reference:
"With regard to Assessee's contention that the adjustment made by the TPO in the distribution segment wherein all costs including the BOM cost are .forming part of the operating cost and hence the disallowance made by the AO amounts to double disallowance - The Panel had called for a report from the Assessing Officer on this issue and the AO vide his report dated 25.04.2023 stated as following - "It is also submitted that there will be overlapping in respect of the adjustment made by TPO under Distribution segment and the addition made by the AO in respect of inflation of bill of materials cost." However, no workings are available either in the TPO's order or the AO's draft order neither was it submitted before the Panel by the Assessee. Hence, the Panel is constrained from giving any quantitative relief in the absence of the working on the extent to which this proposed disallowance under AO's order is overlapping the adjustment to the distribution segment made by the TPO."
2.12 The ld. Senior Counsel submitted that it may be relevant to note that the Ld. DRP has erred in issuing its directions dated 28 April 2023 manually without the Document Identification Number (`DIN') on the body of such directions, in contravention of specific instructions of CBDT vide Circular No.19/2019 dated 14 August 2019, hence rendering subsequent assessment proceedings as null and void in the eyes of the law. Consequent to directions passed by the ld. DRP, the Ld. TPO passed the Order Giving Effect (`OGE') to the DRP directions on 19 May 2023 the Ld. AO passed the final assessment order ("the impugned order") under section 143(3) r.w.s. 144C of the Act on 29 May 2023, wherein the following adjustments/ disallowances were made:
S. No. Particulars Amount (in INR)
1 Transfer Pricing Adjustment as per order passed by
16,83,24,13,391
the Ld. TPO
2 Testing and debugging expenses 7,05,27,820
3 Adhoc adjustment of purchase price alleging mark-up
on BoM and transfer pricing adjustment on account 16,37,68.83.555
of Qualcomm royalty expenses
Total additions 33,27,98,24,766
2.13 Consequently, the Ld. AO issued a demand notice under section 156 of the Act dated 29 May 2023 wherein a demand of INR 18,33,68,75,690 SP No.32/Bang/2023 M/s. Xiaomi Technology India Pvt. Ltd., Bangalore Page 12 of 21 was raised. Thereafter, the Ld. AO has passed rectification order dated 05 June 2023 and 07 June 2023 [to correct the mistake apparent from record in relation to the double disallowance of gratuity]. While passing the rectification orders, the Ld. AO erred in not granting the entire credit of prepaid taxes and incorrect levy of interest under section 234B and section 234C of the Act. Consequently, a demand of INR 18,33,22,78,898 (including interest) has been incorrectly raised on the Assessee.
2.14 The ld. Senior Counsel submitted that a rectification application dated 15th June 2023 under section 154 of the Act has been filed with the Ld. AO which is pending disposal. At this juncture, he submitted that it is relevant to highlight that on 24 December 2021, the Deputy Director of Income Tax (Investigation), Unit 1(1), Bengaluru passed an order under section 132(3) of the Act whilst temporarily restrained / seized the fixed deposits of the Assessee totalling to INR 3,700 crores viz. INR 2,600 crores with HSBC Bank (Account No. 073-161671-001) and INR 1,100 crores with CITI Bank (Account No. 521656018). 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 only up to the balance as on the date of this order. In the meanwhile, on 29 April 2022 in pursuance to an ongoing investigation a seizure order under section 37A of FEMA was passed by the Enforcement Directorate. On 11 August 2022, an order under section 281B of the Act was passed by the Ld. AO, whilst provisionally attaching the fixed deposit of the Assessee totalling to INR 3,700 crores viz. INR 2,600 crores with HSBC Bank (Account No. 073-161671-001) and INR 1,100 crores with CITI Bank (Account No. 521656018) for a period of 6 months on the pretext to protect the interest of revenue. The said attachment SP No.32/Bang/2023 M/s. Xiaomi Technology India Pvt. Ltd., Bangalore Page 13 of 21 was based on the findings of investigation wing (which is an internal record of income-tax department) and finding of the Ld. TPO. On 18 August 2022 the Assessee filed a writ petition (No. 16692 of 2022 T-IT) before the Jurisdictional Karnataka High Court challenging the aforesaid order of provisional attachment. On 16 December 2022, the Jurisdictional Karnataka High Court vide a detailed judgment allowed the writ petition of the Assessee in Writ Petition No. 16692 of 2022 (T-IT) and set aside the order of provisional attachment dated 11 August 2022, whilst noting the multiple counts on which the said order was illegal, however, for balancing the equities the Jurisdictional Karnataka High Court imposed certain conditions on the Assessee.
2.15 The ld. Senior Counsel submitted that on 29 December 2022, another order of provisional attachment under section 281B of the Act was passed against the Assessee, whilst provisionally attaching the fixed deposit totalling to INR 3,700 crores viz. INR 2,600 crores with HSBC Bank (Account No. 073- 161671-001) and INR 1,100 crores with CITI Bank (Account No. 521656018) for a period of 6 months on the pretext to protect the interest of revenue. The provisional attachment was made in respect to the likely tax demand of INR 6871,06,59,320 which may arise post conclusion of assessment proceedings in respect to AYs 2018-19 to 2021-22. The said order has been challenged by the Assessee before the Hon'ble Karnataka High Court vide WP 3004 of 2023.
2.16 Thus, it is relevant to note that the provisional attachment order dated 29 December 2022, the FDs of the Assessee to the tune of INR 3,700 crores have been alreadv attached by the Ld. AO, which is significantly more than the demand raised for the subject year. Accordingly, the interest of the revenue already stands protected with respect to the demand determined as payable by the Ld. AO.
2.17. 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 as of now as below:-
SP No.32/Bang/2023M/s. Xiaomi Technology India Pvt. Ltd., Bangalore Page 14 of 21 Attached Bank Accounts Not Attached Bank Accounts SP No.32/Bang/2023 M/s. Xiaomi Technology India Pvt. Ltd., Bangalore Page 15 of 21 2.18. Further, he submitted that the issue in dispute is entirely covered in favour of the assessee by various judgements of Tribunal as well as by High Courts and as such absolute stay may be granted. He relied on order of the coordinate bench of Delhi Tribunal in the case of M/s. Ebro India Pvt. Ltd.
Vs. ACIT in SA No.158/Del/2022 (in ITA No.1291/Del/2022) for the AY 2018-19 vide order dated 24.6.2022 and also in the case of Oppo Mobiles India Pvt. Ltd. Vs. DCIT, New Delhi in SA Nos.355 & 356/Del/2022 (in ITA Nos.2548 & 2549/Del/2022) for the AYs 2017-18 & 2018-19 vide order dated 27.10.2022, wherein absolute stay has been granted by observing as under:-
"4. We have considered rival submissions and perused the material available on record.
5. Though, at this stage, we are not supposed to go into the merits of the issues giving rise to the present demands, which has to be considered at the time of hearing of the appeals, however, we are convinced that assessee has made out a strong prima facie case.
6. On perusal of the final assessment orders, it is observed that DIN has not been mentioned. Therefore, as per the extant CBDT circular, referred to elsewhere in the order, such orders are to be declared as non est and never been issued. Though, we agree with learned Departmental Representative that these aspects have to be thrashed out by the parties at the time of full length hearing of the appeals, however, there is good ground for grant of absolute stay on recovery of demands as prima facie case and balance of convenience are in favour of the assessee. Accordingly, we direct the Assessing Officer to stay his hands from recovery of the outstanding demand pertaining to the impugned assessment years for a period of 180 days from the date of this order or till the disposal of the appeals, whichever is earlier."
3. On the other hand, the ld. D.R. submitted that the crystalised demand as on date for the assessment years 2016-17 to 2021-22 is as follows:
Interest (234A,234B Demand paid AY Tax+Surcharge+Cess and Prepaid taxes Total demand till date (Rs.) 234C)(Interest (Rs.) (Regular Tax) withdrawn u/s (Rs.) 244A) (Rs.) 2016-17 50,90,09,301 30,90,47,909 81,80,57,210 33,29,62,994 2017-18 153,97,89,193 53,12,74,058 69,02,11,707 138,08,51,540 27,61,70,308 2018-19 1313,44,17,618 702,01,34,198 182,22,72,918 1833,22,78,898 2020-21* 2,27,520 2021-22* 13.74,630 Total 1518,32,16,112 786,04,56,165 251,24,84,625 2053,27,89,798 60,91,33,302 SP No.32/Bang/2023 M/s. Xiaomi Technology India Pvt. Ltd., Bangalore Page 16 of 21 Further, he submitted that for AY 2020-21 and 2021-22 the demand mentioned is demand raised in 143(1)(a) order by CPC.
3.1 The ld. D.R. submitted the details of bank accounts attached u/s 281 of the Act as follows:-
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 According to the ld. D.R., the sum total of the demands spanning across all the assessment years (excluding interest) and 20% of Principal amount - The sum total of all the demands (excluding interest for assessments completed u/s 143(3) r.w.s. 144C(13) is Rs.1518,32,16,112 and 20% of the same works out to Rs.303,66,43,222/-. 3.2 Further, he submitted that draft assessment orders have been issued to the assessee for AYs 2019-20 to 2021-22, the assessee has filed objections with ld. DRP, the proposed total income as per the draft assessment orders is as under:
AY 2019-20 - Rs.4030,11,79,736
AY 2020-21 - Rs.5308,58,76,328
AY 2021-22 - Rs.4437,41,09,366
3.3. In addition to this, the ld. D.R. submitted that the question of deciding the issue on merit only arises during the adjudication of appeal not at the stage of hearing of the stay petition. According to him, only prima facie case along 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 SP No.32/Bang/2023 M/s. Xiaomi Technology India Pvt. Ltd., Bangalore Page 17 of 21 blanket or absolute stay. Thus, he opposed granting of absolute stay in this case.
4. 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.1833,22,78,898/-. 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.
4.1. As per section 254(2A) of th Act, the Tribunal may after considering the merit of the application made by the assessee, pass an order of stay in any proceedings in relating to an appeal u/s sub-section (1) of section 254 of the Act, for a period of not exceeding 180 days from the date of such order subject to the condition that assessee deposits not less than 20% of the amount of tax, interest, fee, penalty, or any other sum payable under the provisions of this Act, or furnishes security of equal amount in respect thereof and the Appellate Tribunal has to dispose off the appeal within the said period of stay specified in the order. In our opinion, once a statutory provision specifically provides 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 by Hon'ble Supreme Court in the case of CIT Vs Hindustan Bulk Carriers [(2003) 259 ITR 449 (SC)], "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. [ Broom's Legal Maxims (10th Edition), page 361, Craies on Statutes (7th Edition) page 95 and Maxwell on Statutes (11thEdition) page 221.] SP No.32/Bang/2023 M/s. Xiaomi Technology India Pvt. Ltd., Bangalore Page 18 of 21 Applying this principle, a coordinate bench of this Tribunal, and in the case of ACIT Vs Papillon Investments Pvt Ltd [(2005) 4 SOT 234 (Mum) had 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 making it redundant. The Hon'ble Supreme Court, in the case of S. Teja Singh (35 ITR 408) (SC) held as under:
"By a legal fiction the failure of a person not hitherto assessed to send an estimate of tax payable by him in accordance with section 18A(3) of the Income-tax Act 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 jurisdictional High Court, in the judgment reported as CIT Vs Papillon Investments Pvt Ltd [(2012) 4 SOT 234 (Mum).
4.2. 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 cannot be read on standalone basis, otherwise it would make these provisions redundant. This principle has been discussed by the coordinate bench in the case of Hindustan Lever Ltd. Vs. Deputy Commissioner of Income-tax reported in 197 ITD 802 (Mum). It is further held in the decision of Hindustan Lever Ld. cited (supra) that even though all the issues are covered by the binding judicial precedents in favour of the assessee, a conditional stay may be granted directing the AO to grant stay on collection/recovery of the demand impugned in the appeal. Thus, it is discernable that it is not be open to this Tribunal to grant a blanket stay as argued by the ld. Senior Counsel, as it SP No.32/Bang/2023 M/s. Xiaomi Technology India Pvt. Ltd., Bangalore Page 19 of 21 would be contrary to the scheme of Act as visualized under the first proviso to section 254(2A) of the Act.
4.3. Thus, from the above discussion, in our opinion, the provision of the law should not be interpreted to make other statutory provision within the same section, ineffective and nugatory. However, that will precisely be the outcome if we are to hold that the Tribunal's powers of granting the stay, even after the enactment of the first proviso to Section 254(2A), are unfettered inasmuch as a stay can indeed be granted even in clear disharmony with the statutory conditions set out under the first proviso to Section 254(2A). The requirement with respect to the partial payment of demand or furnishing of security in respect thereof will thus be redundant. The law as it stood at the point of time when in the case of ITO Vs. M.K. Mohd Kunhi (1969) (71 ITR 815) (SC), the judgment was delivered has undergone significant change vis-à-vis the position prevailing as of now, and, therefore, the observations made by the Hon'ble Supreme Court are now to be read in the light of the subsequent enactment of the law. Unlike the Hon'ble Constitutional Courts above, it is not for this forum, i.e. the Income Tax Appellate Tribunal, to sit in judgment over the reasonableness of the legal provisions; when the remedies lie elsewhere. 4.3.1 We have to perform the role assigned to us within the framework of the law as it exists; whether made by the lawmakers or as interpreted by the Hon'ble judges above. When the statute does not give this Tribunal the power to grant blanket stay, nor the Hon'ble Courts above hold so, it cannot be open to this Tribunal to hold that a blanket stay can be granted which is clearly contrary to the scheme of the law under the first proviso to Section 254(2A) of the Act. We are, thus, not inclined to hold that we have the powers to grant any stay on collection/recovery of demands impugned in the appeal before us, in violation of the first proviso to Section 254(2A) of the Act. 4.3.2 The decisions that the learned Senior Counsel for the assessee has cited before us in the context of the grant of stay i.e. during the pendency of the first appeal, do not really apply in the present context, as Hon'ble SP No.32/Bang/2023 M/s. Xiaomi Technology India Pvt. Ltd., Bangalore Page 20 of 21 Supreme Court itself and in Mohd Kunhi's case cited (supra), has observed that:
"It may also be that, as a matter of practice prevailing in the department, the Commissioner or the Inspecting Assistant Commissioner, in exercise of administrative powers, can give the necessary relief of staying recovery to the assessee but that can hardly be put at par with a statutory power as is contained in section 220(6) of the Act, which is confined only to the stage of pendency of an appeal before the Appellate Assistant Commissioner."
(emphasis supplied) 4.3.3 These judicial precedents, thus are contrary to the scheme of law as visualised by the Hon'ble Supreme Court in Mohd Kunhi's case (supra). Neither the statutory provisions, as they exist as of now, confer any powers of granting the blanket stay on collection or recovery of the disputed demands impugned in appeals before us, nor do we find any judicial precedents which dilute, curtail, or otherwise narrow down, the relevant restriction, on our power to grant a stay on collection/recovery of disputed demands impugned in appeal before us, as visualised in the first proviso to Section 254(2A) of the Act.
4.4. Coming to the facts of present case, as rightly pointed out by the ld. Senior Counsel, out of total attachment of Rs.5551,27,15,824/- by Enforcement Directorate as well as by Income Tax authorities, an amount of Rs.3700 Crores has been attached by both authorities and there was overlapping attachment. In our opinion, as of now, the interest of the revenue is fully secured against quantified demand of Rs.1833,22,78,898/- for the present assessment year i.e. 2018-19. Being so, till this attachment continues, the assessee is not required to make any further payment and/or furnish any further securities.
4.5 However, in the event the attachment of above Bank Accounts as mentioned in earlier para stands vacated or revoked or disturbed or modified by any orders of Court or authorities, the assessee then shall deposit not less than 20% of Rs.1833,22,78,898/- or furnish security amounting to not less than 20% of the outstanding liability within two weeks from the date of such SP No.32/Bang/2023 M/s. Xiaomi Technology India Pvt. Ltd., Bangalore Page 21 of 21 removal or vacating or revoking or modifying the attachment of the bank accounts mentioned in earlier para of this order.
4.6 The assessee shall fully cooperate in speedy disposal of appeal before this Tribunal and will not seek any unnecessary adjournments of the hearing before the bench at any point of time and the assessee shall not resort to any dilatory tactics, in such event, the stay will be automatically vacated forthwith.
4.7 This stay order will be in operation for 180 days from the date of this order, or till the disposal of related appeal or till further orders of this Tribunal, whichever is earlier as the case may be.
4.8 The Registry is directed to post related appeal for hearing on 20.9.2023. No further notice of hearing be issued to both the parties.
5. In the result, the stay application of the assessee is allowed in above terms.
Order pronounced in the open court on 9th Aug, 2023 Sd/- Sd/-
(Beena Pillai) (Chandra Poojari)
Judicial Member Accountant Member
Bangalore,
Dated 9th Aug, 2023.
VG/SPS
Copy to:
1. The Applicant
2. The Respondent
3. The CIT (Judicial)
4. The CIT(DRP)
5. The DR, ITAT, Bangalore.
6. Guard file
By order
Asst. Registrar,
ITAT, Bangalore