SANKALP SEMICONDUCTOR PRIVATE LIMITED,HUBLI V. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(1) & TPS, HUBLI

SA 53/BANG/2024

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Sankalp Semiconductors Pvt. Ltd. filed a stay petition against the Deputy Commissioner of Income Tax concerning an outstanding demand of Rs.6,63,20,351 for the assessment year 2020-21, which was later reduced to Rs.5,31,91,170 following a rectification order. The primary contention was regarding the Transfer Pricing (TP) adjustments and the inclusion of certain expenditures in the profit and loss account, which the assessee argued were extraordinary and should not affect the regular business margins. The Tribunal considered various arguments, including the comparability of the assessee's services to those of other companies and the appropriateness of the methods used for TP adjustments.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 705348 (ITAT-BANGALORE)
• Appeal Type: Stay Application
• Pronouncement Date: 30-06-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2020-2021
• Other Referred Cases: CIT v. Hindustan Unilever Ltd., 395 ITR 73, Capegemini P. Ltd. [TS-45-ITA-2013]
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Rectification of order

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH : BANGALORE BEFORE SHRI PRASHANT MAHARISHI, VICE PRESIDENT AND SHRI KESHAV DUBEY, JUDICIAL MEMBER SA No.53/BANG/2024 [ in IT(TP)A No.1564/Bang/2024 ] Assessment year : 2020-21 Sankalp Semiconductors Private Limited, Plot No.9, Survey No.89, Aryabhatta Tech Park, Navanagar, Hubli – 580 025. PAN: AAJCS 3690Q Vs. The Deputy Commissioner of Income Tax, Circle 1(1) & TPS, Hubli. APPLICANT RESPONDENT Applicant by : Shri Nageswar Rao, Advocate Respondent by : Shri Swaroop Mannava, Addl.CIT(DR)(ITAT), Bengaluru. Date of hearing : 27.06.2025 Date of Pronouncement : 30.06.2025 O R D E R Per Prashant Maharishi, Vice President 1. This Stay Petition is filed by Sankalp Semiconductors Pvt. Ltd. (the assessee/applicant) in IT(TP)A No.1564/Bang/2024 for the assessment year 2020-21 filed before ITAT on 21.8.2024 seeking SA No.53/Bang/2024 Page 2 of 5 direction to the AO to keep the recovery of outstanding demand of Rs.6,63,20,351 in abeyance till the disposal of the appeal. 2. The ld. counsel for the assessee submitted that the balance of convenience lies in favour of the assessee . he submits that assessee is primarily engaged in providing range of design services to semiconductor industry and the TP adjustment to the extent of Rs.15,42,00,000 was made in the hands of assessee based on draft assessment order. After the direction of the ld. DRP final assessment order was passed on 25.7.2024 wherein adjustment was restricted to Rs.15,34,97,051. It was further submitted that the rectification order was passed by the ld. AO on 12.9.2024 deleting the corporation additions made and therefore the total outstanding demand is now reduced to Rs.5,31,91,170 which should be considered for the stay petition. 3. The ld. AR reiterated the stay petition and submitted that (i) the gross revenue of the assessee from provision of IT services to the AE is only Rs.38.40 crores which is merely 26.36% on which adjustment at least could have been made. But the DRP denied reduction on this count, despite showing the decision of the Hon’ble Bombay High Court in the case of CIT v. Hindustan Unilever Ltd., 395 ITR 73 against which SLP is dismissed by the Hon’ble Supreme Court. He referred to para 9.6 of the ld. DRP’s order where the above decisions were rejected holding that the accounts of the assessee for AE and non-AE are not audited, hence SA No.53/Bang/2024 Page 3 of 5 the cost allocation between these two segments is not verifiable. He submits even on thumb rule basis, 75% of the demand would be obliterated on this issue. (ii) It was further submitted that while working out the margin of the assessee, the ld. TPO has considered the ESOP expenditure which was an additional one time cost booked in the P&L account on account of acquisition of share of the company by HCL and therefore same is extra-ordinary expenditure which should have been excluded for computation of margin of assessee in TNMM adopted as the most appropriate method. He referred to para No.4 of the direction of the ld. DRP to show that this was rejected. He submits that this issue is supported by the decision of the coordinate Bench in the case of Capegemini P. Ltd. [TS-45-ITA-2013]. He submits that this expenditure has only been accounted for the reason of corporate restructuring. (iii) Even otherwise, challenging the comparability study, he submitted that TPO has considered the assessee as engaged in providing engineering & design services, but in fact assessee is provided Software Development services. The ld. TPO has considered it by using different key words and consider the assessee as a design & programming of custom software. (iv) He also submitted that companies with huge brand value are compared with the assessee. Therefore balance of convenience lies in favour of assessee. Even otherwise, it is submitted that the appeal was heard earlier, but released and now fixed for hearing on 10.7.2025. Therefore assessee deserves complete stay of outstanding demand. SA No.53/Bang/2024 Page 4 of 5 4. The ld. DR vehemently objected to the stay petition as well as the issues raised by the assessee. It was the claim that delay in disposal of the appeal of the assessee is not on account of revenue and therefore assessee must pay at least 20% of the outstanding demand before stay could be considered. 5. We have carefully considered the rival contentions and perused the orders of the ld. lower authorities. Firstly the claim of the assessee is that its transaction with AE is merely 26% whereas addition is made on the whole of transaction. This issue has been considered by the Hon’ble Bombay High Court in the case of Hindustan Unilever Ltd., 349 ITR 73, therefore without commenting on the merits of the case on this issue, the balance of convenience lies in favour of assessee as well as prima facie the issue stands covered by this decision. Further, with respect to computation of margin of assessee considering the ESOP cost of Rs.1354.43 lakhs is also stated to be one time cost and at least to support the contention of assessee the coordinate bench in the case of Capegemini P. Ltd. (supra) has also decided this issue. Thus on this ground also, the balance of convenience lies in favour of assessee. If the above 2 issues are considered, it covers the whole of the demand. In view of this, we direct the ld. AO to keep the outstanding demand of Rs.5,31,91,170 in abeyance till disposal of the appeal , which is fixed for hearing on 10.7.2025, or 180 days from the date of this order, whichever is earlier. The parties are also directed not to seek unnecessary adjournment in this appeal. SA No.53/Bang/2024 Page 5 of 5 6. Accordingly, the Stay Petition in SA No.53/Bang/2024 is allowed. Pronounced in the open court on this 30th day of June, 2025. Sd/- Sd/- ( KESHAV DUBEY ) ( PRASHANT MAHARISHI ) JUDICIAL MEMBER VICE PRESIDENT Bangalore, Dated, the 30th June, 2025. /Desai S Murthy / Copy to: 1. Applicant 2. Respondent 3. Pr. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order Assistant Registrar ITAT, Bangalore. "