AI Drafter - (New and Powerful) 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2023 (8) TMI 1016
X X X X Extracts X X X X
X X X X Extracts X X X X
....(TP)A No.455/Bang/2013. 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 Xiaom....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 "F....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on 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 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: Particulars Adjustment u/s 92CA of the Act (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 from AE (secondary adjustment) 74,17,76,605 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 distri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ting 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 passed by the Ld. TPO 16,83,24,13,391 2 , Testing and debugging expenses 7,05,27,820 3 Adhoc adjustment of purchase price of finished goods on account of alleged BoM 16,37,68,83,555 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 Resoluti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....djustment 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 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 whic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....NR 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 Represen....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 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 outstandi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gh (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, i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rlier 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 ============= Document 1 Entity Zhuhai Xiaomi / Xiaomi Comm Transactions Xiaomi Comm has supplied mobile phones, eco system products, phone accessories etc. to the Applicant. Zhuhai Xiaomi has supplied components to the local third-party manufacturers in India. It has also supplied Xiaomi products for further distribution and spares for the purpose of after sales support services to the Applicant International/ deemed international transaction Purchase made by Xiaomi with the Associated Enterprise (AE) have been considered as international transactions as per provisions of the Act Xiaomi Mobile Qualcomm Local third party manufacturers It conceptualises, designs, does research and development in relation to hardware and software technologies required for development of product and is t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... List of Bank account (as on 3 August 2023) S. No. Bank Name Bank Account Bank IFSC Number Bank Address Code Attached Bank Accounts 1 HSBC LTD 073-161671-001 HSBC0560002) No 7, MG ROAD BANGALORE-500001 Amount (as on Authorities attached 2 Aug 2022) (INR) Seized by Enforcement directorate 4,45,88,38,316 Amount attached ED Seized wis 2818' (along Amount (INR) with interest, if any] (INR) 230C LTD-FD 073-101071-001 3000secco BANGALORE-50001 No 7, MG ROAD Seized by Enforcement directorate and tax officer 20,04,02,32,900 29,9001,09,750 20,00,00,00,000 3 HSBC LTD-CSR AC 073-161671-002 HSBC06600027, MG ROAD Beized by Enforcement 30,97699 BANGALORE-560001 directorate 5 CITI BANK 0021000010 CITIBANK NA CITIC000004 NO 0, MO. ROAD BENGALURU-560001 Seized by Enforcement directorate 11,12,10,382 18,56,95,78,102 CITIBANK NA 6 CITI BANK-FO** 0521856018 CITIC000004 NO 5. M.G. ROAD BENGALURU-560 001 Deutsche berk AG 7 Deutsche Bank AG 2055713000 DEUT07978GL #26-27, M. G Road, Bangalore-560001, Seized by Enforcement direct....