Recently ITAT , Mumbai held that application for stay before the Tribunal arising out of assessment order passed by the Assessing Officer (AO) in pursuance to direction given by the Dispute Resolution Panel (DRP) is maintainable even though no stay application was filed before the lower authorities (tax department).
Facts of the case
• The taxpayer is a subsidiary of Deutsche Post AG which is one of the leading global logistics providers.
• For AY 2006-07, the taxpayer adopted the DRP route and accordingly the AO passed an assessment order which resulted into a demand on the taxpayer. The taxpayer filed an appeal against this Assessment Order before the Tribunal. Key features of the proceedings before the DRP is given in an Annexure enclosed here.
• Further, the taxpayer did not approach the tax department for stay against the recovery of outstanding demand raised by the AO instead it filed a stay application directly before the Tribunal.
Issue before the Tribunal
Whether the Tribunal can grant stay to the taxpayer even though it had not filed stay application before the lower authorities and who had adopted the DRP route?
• The taxpayer relied on the decision in the case of Browsel Pharmaceutical Inc. v. ITO (2004) 3 SOT 768 (All) wherein it was held that it is not mandatory on part of taxpayer to move a stay application before the lower authorities for grant of stay of outstanding demand before filing the stay application with the Tribunal.
• Rule 35A(2)(v) of the Income-tax (Appellate Tribunal) Rules, 1963 requires that while filing stay petition before the Tribunal, copy of stay petition filed before the lower authorities is to be produced. However since no stay application was filed by the taxpayer before the tax department, no correspondence was required to be enclosed with the stay application filed before the Tribunal.
• Accordingly, the taxpayer requested for full stay against recovery of outstanding demand.
Tax department’s contentions
• The tax department relying on the Mumbai Tribunal decision in the case of RPG Enterprises Ltd. v. DCIT (2002) 74 TTJ 391 (Mum), contested that the taxpayer ought to have approached the Commissioner for grant of stay of the disputed demand, which would give the tax department an opportunity to study the case, gather necessary data and protect department’s interest.
• Accordingly, the taxpayer should be directed to pay forthwith the entire outstanding demand.
• The Tribunal relying on Broswel Pharmaceutical Inc held that it is not mandatory on the part of the taxpayer to move an application before tax department for granting of stay of outstanding demand. Seeking stay before the tax department is not mandatory.
• Accordingly, the Tribunal was satisfied that the taxpayer had a prima facie case, and directed the taxpayer to pay around 20 percent of the outstanding demand and stayed the recovery of the balance demand.
This is a welcome decision of the Mumbai Tribunal wherein it is held that in case of demand arising from assessment order passed by the AO in conformity of directions of the DRP, stay application can be directly filed before the Tribunal.
The ruling will benefit those taxpayers who have chosen the DRP route since stay application against the order passed by the AO in pursuance to direction given by the DRP can be directly filed before the Tribunal without moving the application before the tax department.
It is important to note that this is the first decision after DRP has come into operation and it will certainly give relief to the taxpayers who seek to file a stay petition.
Key features of proceedings before DRP are as follows:
• Taxpayers with transfer pricing adjustments or a foreign company can apply to the DRP.
• After preparing the draft Assessment Order, the AO is required to share the draft Assessment Order with the taxpayer.
• On receipt of the draft assessment order, the taxpayer must file its acceptance (with the AO) or objections (with the DRP and the copy of same is given to AO) within 30 days
• If an objection is filed, the DRP will provide hearing to taxpayer and based upon hearing and documents filed, issue directions to the AO to complete the assessment on the basis of directions issued by it.
• Appeal against such an order of AO is required to be filed with the Tribunal (and resultant appeals thereafter to the respective state-level High Court and Supreme Court).
DHL Express (India) Pvt. Ltd v. ACIT (ITA No. 7360/Mum/2010) (Judgement date 19 November 2010 AY 2006-07)
Mumbai bench of the Income-tax Appellate Tribunal