IPM INDIA WHOLESALE TRADING PRIVATE LIMITED,NEW DELHI V. DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 14, DELHI

SA 68/DEL/2025

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IPM India Wholesale Trading Pvt. Ltd. filed a stay application against an outstanding tax demand of Rs. 75,68,38,160, which included income tax and interest. The demand arose from a transfer pricing adjustment and other disallowances related to international transactions and corporate tax issues. The assessee argued that the adjustments were incorrect and that the assessment order was barred by limitation, a matter currently sub-judice before the Supreme Court. The Tribunal considered previous similar cases and the conditions under which a stay was granted in a related case for the assessment year 2020-21. The Tribunal decided to grant a partial stay, requiring the assessee to deposit 20% of the demand as security.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 473072 (ITAT-DELHI)
• Appeal Type: Stay Application
• Pronouncement Date: 14-02-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2021-2022
• Other Referred Cases: CIT v. Roca Bathroom Products Pvt. Ltd., Maruti Suzuki India Limited v. CIT, Sony Ericsson Mobile Communications India Private Limited v. CIT, HCL Infosystems Limited v. DCIT, DIT v. HCL Infosystems Limited
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY KUMAR
• Assessee Lawyers: AJAY VOHRA
• Keywords: Transfer pricing; International transaction; TDS; Double taxation relief; Application of stay; Arm length price
• Section: 143(3); 192; 274; 40(a)(ia); 115A; 20

Judgement Text

" SA No.- 68/Del/2025 IPM India Wholesale Trading Pvt. Ltd. 1 IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH: ‘H’: NEW DELHI) BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENT, AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER SA No.: 68/Del/2025 Arising Out of ITA No.: 5255/Del/2024 (Assessment Year: 2021-22) IPM India Wholesale Trading Pvt. Ltd.,Unit No. 20 , Ground Floor, Plot No. D-1, SalconRasvilas Saket District Centre Saket, New Delhi-110017 v. Deputy Commissioner of Income Tax, Central Circle 14, New Delhi. PAN No: AACCI0642K APPELLANT RESPONDENT Assessee by : Shri Ajay Vohra, Sr. Adv. Shri. Kunal Pandaya, CA & Shri Shivam Kansal, CA Revenue by : Shri Sanjay Kumar, Sr. DR Date of Hearing : 14.02.2025 Date of Pronouncement :14.02.2025 ORDER PER RAMIT KOCHAR, AM: The assessee has filed this stay application before the ITAT, Delhi Bench, New Delhi seeking stay of recovery of outstanding demand of Rs. 75,68,38,160/- on account of income tax and interest there on, raised by the learned Assessing Officer(AO) vide notice of demand u/s SA No.- 68/Del/2025 IPM India Wholesale Trading Pvt. Ltd. 2 156 of Income-tax Act, 1961. The AO has computed and assessed income of the assessee at Rs.2,10,29,26,000/- against returned income of Rs. Nil ,vide assessment order dated 23.10.2014(DIN & Letter No. ITBA/AST/F/17/2024-25/1069883696(1)), passed by AO u/s 144C(13) read with Section 143(3) of the 1961 Act, passed in pursuant to directionsissued by Ld. Dispute Resolution Panel (DRP) dated 11.09.2024. The assessee is stated to be engaged in the business of wholesale trading of tobacco and tobacco products in India. It is the say of the Ld. Counsel for the assessee that the Transfer Pricing adjustment of Rs. 2,10,29,26,000 has been made by Revenue while computing Arm Length Price(ALP) w.r.t.to the international transactions entered into by the assessee with its Associated Enterprise(AE) being expenses incurred towards advertisement, marketing and sales promotion expenses(AMP), on account of alleged promotion of Marlboro brand owned by the AE. The ld. Counsel for the assesseealso submitted that there are disallowance of Rs. 9,01,47,592/- under section 40(a)(i) of the Act made by the AO on protective basis ,and that further disallowance of Rs. 22,32,551/- was made by the AO on account of expenditure towards deferred employee compensation incurred ESOP scheme-on protective basis. Ld. Counsel for the assessee submitted that the assessee has a prima facie good case and balance of convenience is in favour of the assessee. 1.2 It was submittedby ld. Counsel for the assessee that the assessment order is barred by limitation in view of judgment and order of Hon’ble Madras High Court in the case of CIT v. Roca SA No.- 68/Del/2025 IPM India Wholesale Trading Pvt. Ltd. 3 Bathroom Products Pvt. Ltd. 445 ITR 537. It is stated that the aforesaid issue of limitation is now sub-judice before Hon’ble Supreme Court . 1.3 It was submitted by learned counsel for the assesseethat the assessee is engaged in the sale of specified cigarettes and other tobacco products, including the Marlboro family of products and other brands in India ,and operates as an entrepreneur under a license agreement for the India market in respect of the aforesaid product. It is claimed by ld. Counsel for the assessee that the assessee has a trademark license ofthe ‘Marlboro’ brand in India. It is claimed by ld. Counsel for the assessee that the Revenue has erred in making addition to Rs. 2,10,29,26,000/- on account of alleged difference in the ALP of international transactions resulting from the advertisement, marketing and sales promotion (AMP) expenses incurred by the assessee. It was submitted that the Revenue erred in holding that that the assessee’s major function is to provide marketingsupport services to PMI affiliates and associated enterprises. Ld. Counsel for the assessee submitted that the assessee is entrepreneur having license to exploit a valuable brand name ‘Marlboro’ and is not a service provider. It was submitted that the assessee has entered into procurement agreement with GPIL whereby the assessee purchases specified tobacco products manufactured by GPIL. It was submitted that GPIL manufactures and package the Products for the assessee on mutually agreed terms and as per the standards ,and in such quantities and variants as the assessee may require from time to time. It is claimed by ld. Counsel for the assesseethat the assessee is responsible for ensuring that the products manufactured by GPIL meets the requisite SA No.- 68/Del/2025 IPM India Wholesale Trading Pvt. Ltd. 4 quality standards. It is submitted by ld. Counsel for the assessee that the goods move from the factory of GPIL to the assessee’s warehouse, thereafter, goods moves to GPIL warehouses. GPIL in turn sell goods to various wholesale dealers who sells to retailers and retailers sell the goods to the consumers.It was submitted that survey was conducted on the premises of the assessee u/s 133A.The TPO based on the findings of the survey proceedings held that the assessee is a market support service provider ,and is not engaged in trading activity. The TPO accordingly held that the marketing and selling expenses have been incurred by the assessee for marketing the ‘Marlboro’ brand in India ,and the assessee ought to have received compensation from the AE for rendering the services. The ALP adjustment to the tune of Rs. 2,10,29,26,000/- was made towards AMP by adding mark up of 5.89%. It is submitted that the assessee has contested and challenged the said additions made by the Revenue in an appeal filed with ITAT, Delhi Bench, which is listed as ITA No. 5255/Del/2024. It is claimed that the assessee is operating as an entrepreneurial entity procuring goods on contract manufacturing basis and selling through distributor in the Indian market. It is claimed that the functional profile of the assessee is not merely marketing support services provider, but the assessee is entrepreneur performing critical decision making functions such as pricing, inventory management etc. and also retaining the profits attributable to performance of such functions. The ld. Counsel for the assessee also relied upon the judgment’s and order’s of Hon’ble Delhi High Court in the case of Maruti Suzuki India Limited v. CIT, 381 ITR 117; Sony Ericsson Mobile Communications India Private Limited v. SA No.- 68/Del/2025 IPM India Wholesale Trading Pvt. Ltd. 5 CIT, 374 ITR 118 , and also other decisions as submitted in paper book. Thus, in nut-shell it was submitted that these additions are not sustainable ,and the assessee has a good prima-facie case in its favour. Prayers were made to stay the recovery of outstanding demand. 1.4 It is submitted by ld. Counsel for the asssessee that the other two additions on corporate tax issuesas were made by the AO were are also challenged by the assessee in its appeal filed with ITAT. It is claimed that theRevenue has made disallowance of expenses to the tune of Rs. 9,01,47,592/- paid to various overseas group companies by the assesseebeing reimbursement of cost of salary of employees secondedto the assessee, wherein the AO disallowed the expenses by invoking provisions of Section 40(a)(ia) by holding the same to be fees for technical services in terms of Section 9(1)(vii) read with Section 115A as well under provisions of DTAA ,from which the assessee allegedly failed to deduct income tax at source u/s 195. It is submitted by ld. Counsel for the assessee that the assessee duly complied with TDS provisions and deducted income-tax at source u/s 192 in respect of salary and allowances paid to such seconded employees , and paid taxes to Indian tax authorities. The assessee has entered into ‘Personnel Secondment Agreement’ with overseas group companies.It is claimed by ld. Counsel for the assessee that the employees were seconded to the assessee and working entirely under its control and supervision, and the same was not in the nature of fees for technical services u/s 9(1)(vii) read with Section 115A and also as per DTAA. The payments made to group companies were merely reimbursement SA No.- 68/Del/2025 IPM India Wholesale Trading Pvt. Ltd. 6 of expenses. It is claimed that the assessee was the economic employer of the seconded employees. It was claimed by ld. Counsel for the assessee that the Revenue erred in disallowing these expenses. The ld. Counsel for the assessee relied upon judicial precedents ;HCL Infosystems Limited v. DCIT , 76 TTJ 505(Del. Trib.) , which order of ITAT, Delhi was confirmed by Hon’ble Delhi High Court in DIT v. HCL Infosystems Limited , 274 ITR 261, and other judicial precedents. The Ld. Counsel for the assessee submitted that the assessee has a good prima facie case .Prayers were made to stay recovery of outstanding demand. 1.5It was submitted by ld. Counsel for the assessee that there is also disallowance of Rs. 22,32,551/- on account of expenditure towards deferred employee compensation incurred on ESOP scheme on protective basis. It was submitted that the assessee floated ESOP scheme wherein an option had been given to employees to purchase shares of the assessee’s holding company. The ld. Counsel for the assessee submitted that the issue is covered by judgment and order of Hon’ble Madras High Court in the case of Cit v. PVP Ventures Limited , 211 Taxman 554. 1.6 The learned counsel for the assessee drew our attention to the Stay Application filed by the assessee before the Tribunal. It was submitted that the assessee has made out a prima-facie case for grant of stay of recovery of demand. The prayers were made to grant stay of recovery of outstanding demand . SA No.- 68/Del/2025 IPM India Wholesale Trading Pvt. Ltd. 7 1.7 The Ld. Counsel for the assessee submitted that in the immediately preceding year i.e. assessment year 2020-21, Delhi- Tribunal granted stay of the recovery of the outstanding demand on deposit of security of 20% of the outstanding demand , vide order dated 23.08.2024 in SA No. 310/Del/2024 arising out of ITA No. 3680/Del/2024, which stood later modified by ITAT vide order dated 13.09.2024 in M.A No. 335/Del/2024. It was submitted that it prayed that on the similar conditions as were imposed by ITAT, stay of recovery of outstanding demand may be granted to the assessee for the impugned assessment year. 2. The Ld. Sr. DR submitted that department is opposing the stay application filed by the assessee,and prayers were made to dismiss the stay application. It was submitted that if stay of recovery of outstanding demand is to be allowed , then the assessee may be directed to deposit atleast 20% of the outstanding demand. 3. After hearing both the parties and going through the material available on record and without commenting on the merits of the issues involved in the appeal in ITA No. 5255/Del/2024, we observe that the assessee has made out a prima facie case for the grant of partial stay on recovery of the outstanding demand of Rs. 75,68,381,60/- , on the condition that the assessee will furnish security in favour and to the satisfaction of Revenue equal to 20% of the aforesaid outstanding demand to secure the interest of Revenue, on or before 28th February, 2025. On the fulfilment of aforesaid condition, the remaining outstanding demandshall be stayed for a SA No.- 68/Del/2025 IPM India Wholesale Trading Pvt. Ltd. 8 period of 180 days or till the disposal of appeal in ITA no. 5255/Del/2024 for ay:2020-21, which is earlier. The assessee shall furnish the proof offurnishing of the aforesaid security as directed above ,before the Registry of ITAT,latest by 28.02.2025.We once again clarify that we have not commented on the merits of the issue’s involved in the appeal. Further, that the assessee will fully co-operate in speedy disposal of the appeal by ITAT, and the assessee will not seek any un-necessary adjournments before the Tribunal in the appellate proceedings in ITA No. 5255/Del/2024. On breach of conditions, the stay shall stand vacated . The appeal of the assessee in ITA no. 3680/Del/2024 for ay:2020-21 is now coming up for hearing before “H’ Bench, Delhi on 13.03.2025. Let this appeal in ITA no. 5255/Del/2024 for ay:2021-22 be also listed for hearing before ‘H’ Bench , Delhi , on 13th March, 2025. The date of hearing was announced in the open court and noted by both the parties, and accordingly issuance of notice stand dispensed with. The terms of stay were announced by Division Bench during the course of hearing of stay application in open Court. We order accordingly. 4. In the result, Stay Application is allowed in the manner as indicated above. Order pronounced in the open courton 14th February, 2025. Sd/- Sd/- (MAHAVIR SINGH) (RAMIT KOCHAR) VICE PRESIDENT ACCOUNTANT MEMBER Dated: 14/02/2025. SA No.- 68/Del/2025 IPM India Wholesale Trading Pvt. Ltd. 9 "