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2022 (3) TMI 674 - HC - Income TaxAddition on account of arm's length price ['ALP'] adjustments - HELD THAT:- Addition on account of ALP Adjustment, in the petitioner’s-assessee’s case the same cannot give rise to any liability as the petitioner-assessee has executed an Advance Pricing Agreement ['APA']. As a matter of fact, the APA was executed by the petitioner-assessee on 04.12.2019. Our attention was drawn by Mr Kalra to Annexure A-1, appended the an interlocutory application filed by him i.e., CM No.38352/2021, which is a copy of the order passed by the Transfer Pricing Officer (TPO) u/s 92CA(3) of the Act, concerning the AY in issue i.e., AY 2018-2019. The operative part of the said order, which is dated 26.07.2021, reads thus - “5. Accordingly, No adverse inference is drawn in respect of arm’s length price of the International transaction for F.Y. 2017-2018 pertaining to A.Y. 2018-2019.” Therefore, any likelihood of tax liability on this score seems unlikely. Addition on account of disallowance of foreign exchange loss on account of 'Marked to Market Losses' - HELD THAT:- AO has, in fact, not made any estimation as to what is the foreign exchange fluctuation loss (which includes Marked to market loss), that he is likely to disallow. The only aspect that the AO has touched upon to justify the tax liability under this head is that an addition of ₹ 11 crores was made in AY 2016-2017, concerning Marked to market losses. After adverting to this aspect, the AO has let the issue hang in the air as he has not gone on to indicate an estimated amount which he is likely to disallow in AY 2018-2019 on account of foreign exchange fluctuation loss, which includes Marked to market losses, and, therefore, the additional tax burden it would result in imposing on the petitioner–assessee under this head. Addition on account of unearned revenue - HELD THAT:- In this case as well, it is not as if the petitioner/assessee is not offering unearned revenue for tax; it is only on account of accounting policy followed consistently that unearned revenue is offered for tax in the year in which services are rendered and/or goods are sold. Thus, the transaction, in effect, being revenue neutral, it does not affect the interest of revenue. The upshot of the aforesaid discussion is that the estimation made by the AO that because there is a likelihood of the petitioner–assessee having to bear a tax liability of ₹ 500 crores in AY 2018-19, and, therefore, the refund sought of ₹ 349,41,45,020/- ought to be denied, is not founded on rational and cogent grounds. AO, as rightly argued by Mr. Kalra, has not taken into account the financial wherewithal of the petitioner–assessee. It is the petitioner’s– assessee’s claim that, at present, its net worth, as on 31.03.2021, is nearly ₹ 1873.80 crores. According to us, it is not as if the petitioner–assessee does not have the necessary financial wherewithal to defray the estimated tax liability, if it arises qua the AY in issue i.e., AY 2018-2019. In any event, besides the refund that the petitioner– assessee seeks in the present proceedings, there is, as indicated above, an amount equivalent to approximately ₹ 214 crores which is still locked up with the respondent– assessee. Messrs Bhatia and Chandra have indicated to us that the assessment order for AY 2018-19 is likely to be passed shortly, and in any case no later than 31.03.2021.Given the aforesaid facts and circumstances, in any event, the respondents– revenue are secure, if not for more amount, at least for ₹ 214 crores towards refund, which is the amount that remains locked up; on which, we are told, no decision has been taken by the respondents–revenue as yet - we are inclined to allow the writ petition.
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