9911796707
TMI Blog2024 (4) TMI 1131X X X X Extracts X X X X X X X X Extracts X X X X ..... --------- 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), Xiaom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Ld.TPO also computed an adjustment of INR 1073,25,46,749 in respect of payment of royalty to Qualcomm by holding the ALP of the same to be NIL and adjustment of INR 96,12,19,300 in respect of alleged AMP brand promotion expenses by undertaking a search for marketing support services under TNMM 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 segmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d contentions were presented against adjustments under the alleged testing segment, support services segment, payment of royalty to Qualcomm and alleged AMP brand promotion expenses and the recharacterization of transactions as receivables and imputation o interest thereon. 4.4 The Ld.Sr. Counsel submitted 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. DR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he OGE on 03/01/2024. Subsequently, the Ld.AO passed the final assessment order being the impugned order u/s. 143(3) r.w.s. 144C(13) of the act on 11.01.2024 by making the following adjustments / disallowances. S.No. Particulars Amount (INR) 1 Transfer Pricing Adjustment as per order passed by the Ld.TPO 1845,44,81,817 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arnataka High Court vide WP 3004 of 2023. 10. 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. 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 submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment orders is as under: AY 2020-21- Rs.5308,58,76,328 AY 2021-22- Rs.4437,41,09,366 16. 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 blanket or absolute stay. Thus, he opposed granting of absolute stay in this case. 17. We have heard the rival submissions and p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e statute effective rather than making it redundant. 20. Hon'ble Supreme Court, in the case of S. Teja Singh reported in 35 ITR 408 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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