TaxTMI 
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2023 (8) TMI 1016
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....hat 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 Xiaomi Mobile Software Co. Ltd. (`Xiaomi Mobile'), Qualcomm....
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....d 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 "Finance Store" behind Supply chain and Finance Section on 3rd Floor of the Building. d....
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....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 distribution activity carried out by the Assessee by undertaking a fresh comparable search and re-computing the arm's length TNMM margins. Further, pursuant to directions of....
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....3,555 ("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 Resolution Panel (`DRP'). An additional ground of objection dated 10 March 2023, pertaining to dual adjustment on account of 'provision for gratuity' was also filed before the DRP. 2.10 He submitted that the detailed objections and submissions were filed w....
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....s 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 which this proposed disallowance under AO's order is overlapping the adjustment to the distribution segment made by the TPO." 2.12 The ld. Senior Counsel submitted that it may be relevant to note that the Ld. DRP has erred in issuing its directions dated 28 April 2023 ma....
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....t 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 period of 6 months on the pretext to protect the interest of revenue. The said attachment was based on the findings of investigation wing (which is an internal record of income-tax department) and finding of the Ld. TPO. On 18 August 2022 the Assessee filed a writ petition (No. 16692 of 2022 T-IT) befor....
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....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 Representative that these aspects have to be thrashed out by the parties at the time of full length hearing of the appeals, however, there is good ground for grant of absolute stay on recovery of demands as prima facie case and balance of convenience are in favour of the assessee. Accordingly, we direct the Assessing Officer to stay his hands f....
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....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 outstanding for the assessment year under consideration is Rs. 1833,22,78,898/-. The contention of the ld. Senior Counsel is that the department's interest is already protected by the attachment and hence, absolute stay may be granted. 4.1. As per section 254(2A) of th Act, the Tribunal may after considering the merit of the application made by the assessee, pass an order of stay in any proceedings in relating to an appeal u/s sub-section (1) of section 254 of the A....
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....8 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, in the judgment reported as CIT Vs Papillon Investments Pvt Ltd [(2012) 4 SOT 234 (Mum). 4.2. The power of this Tribunal to grant stay u/s 254(2A) of the Act is to be read with 254(1) of the Act and either of the section cannot be read on standalone basis, otherwise it would make these provisions redundant. This principle has been discussed by the coordinate bench in the case of Hindustan Lever Ltd. Vs. Deputy Commissioner of Income-tax reported in 197 ITD 802 (Mum). It is further h....
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.... 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 section 220(6) of the Act, which is confined only to the stage of pendency of an appeal before the Appellate Assistant Commissioner." (emphasis supplied) 4.3.3 These judicial precedents, thus are contrary to the scheme of law as visualised by the Hon'ble Supreme Court in Mohd Kunhi's case (supra). Neither the statutory provisions, as they exist as of now, confer any powers of granting the blanket stay on collection or recovery of the disputed demands impugned in appeals before us, nor....