ITAT grants conditional stay on Rs. 1,130 crore tax demand for ALP adjustment requiring 20% deposit and corporate guarantee

ITAT Mumbai granted conditional stay on collection of disputed tax demand of approximately Rs. 1,130 crores relating to ALP adjustment on assignment of call/put options. Despite assessee's arguments against 20% pre-deposit requirement and existing corporate guarantee for AY 2008-09, tribunal found arguable case but rejected blanket stay. Stay granted on conditions: (i) payment of Rs. 230 crores (20% of disputed demand) within 30 days, (ii) corporate guarantee of Rs. 900 crores from associate company with unencumbered Indian assets, and (iii) full cooperation in expeditious appeal disposal. Stay valid for six months or until further orders.

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Issues Involved:
1. Stay on collection/recovery of tax and interest demands.
2. Arm's Length Price (ALP) adjustment on account of assignment of call or put options.
3. Disallowance of depreciation on goodwill and expenses u/s 14A.
4. Relevance of corporate guarantee provided for assessment year 2008-09.
5. Applicability of proviso to Section 254(2A) regarding payment of disputed tax demands.

Summary:

1. Stay on Collection/Recovery of Tax and Interest Demands:
The assessee-applicant sought a stay on collection/recovery of tax and interest demands aggregating to Rs. 1128.46 crores for the assessment year 2014-15, pending the disposal of the related appeal before the Tribunal.

2. Arm's Length Price (ALP) Adjustment:
The assessee disclosed an international transaction involving a put option under a Framework Agreement dated 5 July 2007. The Transfer Pricing Officer found that the nomination of CGP India Investments Limited (CGPI-M) to purchase shares in Scorpio Beverages Pvt Ltd resulted in an undue advantage to CGPI-M, allowing it to buy shares at a price much below the market rate without any corresponding benefit to the assessee. An ALP adjustment was proposed, resulting in a substantive addition of Rs. 1967 crores and a protective addition of Rs. 317.77 crores.

3. Disallowance of Depreciation on Goodwill and Expenses u/s 14A:
The Assessing Officer disallowed depreciation on goodwill amounting to Rs. 10,99,11,067 and expenses u/s 14A amounting to Rs. 1,18,300. The assessee's grievances on these aspects were dismissed by the Dispute Resolution Panel (DRP).

4. Relevance of Corporate Guarantee Provided for Assessment Year 2008-09:
The assessee argued that a corporate guarantee provided by its ultimate parent company, Vodafone International Holdings BV, for Rs. 3,538.48 crores for the assessment year 2008-09 should cover the disputed amount. However, the Tribunal found this guarantee irrelevant as it was specific to the assessment year 2008-09 and the related litigation was already concluded.

5. Applicability of Proviso to Section 254(2A):
The Tribunal noted that the proviso to Section 254(2A) does not denude the Tribunal of the powers to direct part payment of demands even in excess of 20% before granting a stay. Given the factual matrix and the coordinate bench decision against the assessee on many facets of the main issue, the Tribunal did not find it a fit case for a blanket stay.

Conclusion:
The Tribunal granted a conditional stay on the collection of the impugned tax and interest demands, requiring the assessee to pay Rs. 230 crores (approximately 20% of the disputed tax demand) within 30 days, furnish a corporate guarantee from an associate company with unencumbered assets in India in excess of Rs. 900 crores, and cooperate in the expeditious disposal of the appeal. This order remains in force for six months or until further orders. The stay application was partly allowed.

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