Tribunal grants conditional stay on Rs.2193 crore tax demand without requiring 20% deposit under section 254(2A)

ITAT Bangalore granted conditional stay of outstanding demand of Rs.2193,90,42,357/- for assessment year 2018-19. The Tribunal held that while section 254(2A) mandates 20% deposit for stay, revenue's interest was already secured through existing attachments of Rs.5551 crores by Enforcement Directorate and Income Tax authorities. Stay granted for 180 days without additional deposit, subject to condition that if attachments are vacated, assessee must deposit 20% within two weeks. Appeal posted for hearing on specified date.

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Issues Involved:

1. Stay of outstanding demand.
2. Transfer Pricing Adjustments.
3. Disallowance of expenses.
4. Provisional attachment of fixed deposits.
5. Legal provisions and tribunal's power to grant stay.

Summary:

1. Stay of Outstanding Demand:
The assessee filed a stay petition seeking a stay of the outstanding demand of Rs. 2193,90,42,363/-, which includes disputed tax demand of Rs. 1402,86,00,158/- and interest u/s 234B & C of Rs. 791,04,42,205/-. The demand was raised by the AO in the final assessment order dated 11.01.2024 for A.Y. 2019-20, against which the assessee has appealed before the Tribunal.

2. Transfer Pricing Adjustments:
The assessee, a subsidiary of Xiaomi Singapore Pte. Ltd., engaged in the distribution of Xiaomi products in India, faced adjustments by the TPO. The TPO made an adjustment of INR 1073,25,46,749 for royalty paid to Qualcomm and INR 96,12,19,300 for AMP brand promotion expenses. The TPO used TNMM as the most appropriate method for benchmarking, but the assessee disagreed with the TPO's analysis and adjustments.

3. Disallowance of Expenses:
The AO issued a draft assessment order proposing additions from a corporate tax perspective, including disallowance of royalty expenses to Qualcomm and Xiaomi Mobile. The DRP upheld the adhoc disallowance on account of BoM cost inflation proposed by the AO, despite the assessee's objections and a remand report suggesting a lower disallowance amount.

4. Provisional Attachment of Fixed Deposits:
The assessee's fixed deposits totaling INR 3,700 crores were provisionally attached by the Income Tax Authority and the Enforcement Directorate. The Karnataka High Court set aside the provisional attachment order dated 11 August 2022 but imposed conditions on the assessee. A subsequent provisional attachment order dated 29 December 2022 was also challenged by the assessee.

5. Legal Provisions and Tribunal's Power to Grant Stay:
The Tribunal, considering section 254(2A) of the Act, noted that it can grant a stay subject to the deposit of not less than 20% of the disputed demand or furnishing of security of equal amount. The Tribunal observed that the interest of the revenue is fully secured against the quantified demand due to the existing attachment of Rs. 3700 Crores. Therefore, the Tribunal granted a stay on the condition that if the attachment is vacated or modified, the assessee shall deposit or furnish security for 20% of the outstanding liability within two weeks.

Conclusion:
The Tribunal granted the stay application for 180 days or until the disposal of the related appeal, with the condition that the assessee deposits 20% of the outstanding liability if the attachment is vacated or modified. The assessee is required to cooperate in the speedy disposal of the appeal and not seek unnecessary adjournments.

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