Amicus Tax Wins – High Court/ITAT [Financial Year 2018-19]


Industry – Staffing Services
Nature of Work: Transfer Pricing Litigation (High Court)
Issue: Whether there is a substantial question of law?
Work Description: Amicus filed an appeal and represented client before Delhi High Court. Revenue argued that the appeal is not maintainable since mere exclusion or inclusion of a comparable for the purpose of Transfer Pricing Adjustment does not give rise to any ‘substantial question of law’.

On the basis of arguments and submissions made by Amicus, Delhi High Court disagreed with the revenue and noted that it is correct that mere exclusion or inclusion of a comparable may not per se give rise to any substantial question of law but in the present case there was only one comparable on the basis of which the Transfer Pricing Adjustment had been recommended and other two of assessee’s comparables had been excluded – therefore there was a ‘substantial question of law’ on the specific facts of the case.

The Court noted that ITAT overlooked Assessee’s objections to inclusion of HCCA which undertook payroll processing services in contrast to staffing services provided by assessee. The difference in functionality of the Assessee and the comparable (HCCA) was not discussed by ITAT.

Accordingly, the Court granted relief in favour of the assesse

Arguing Counsel –Ashutosh M Rastogi and Team

Industry – Automobile
Nature of Work: Transfer Pricing Litigation (High Court)
Issue: Whether manufacturing or trading constitutes one business?
Work Description: The fundamental issue before the Tribunal was whether manufacturing and trading constituted same or separate business. Keeping in view arguments put forward by amicus attorneys based on facts and judicial precedents, Tribunal ruled that manufacturing was merely an extension of trading business as there was unity in command and control, single set of audited financial statements, common product and customer for the trading and manufacturing activity. Hence, all expenses incurred in setting up of manufacturing unit were to be allowed even if there were no sales from manufacturing activity and different business segments had been drawn up for Transfer Pricing Benchmarking. The Tax Department challenged the ruling of the Tribunal before the High Court.

On the basis of detailed submissions and arguments, Amicus was able to secure a favourable order for the client from High Court. Amicus pointed out to the tax department that even if tax adjustment was made there would not be any additional tax demand due to the brought forward losses. The appeals in High Courts shall not be filed where tax effect does not exceed USD 71707. 50. Keeping in view the low tax effect High Court dismissed the appeal by Department on the same ground.

Industry – Information Technology/ Software Services
Nature of work – Transfer Pricing Litigation (Income Tax Appellant Tribunal)
Issue: Accept-Reject of Comparables for software services
Work Description: In a landmark win, Amicus succeeded in deleting/ quashing the entire Transfer Pricing adjustment with respect to the software services segment at Income Tax Appellate level for assessee – a software service provider. Legal submissions made before the Tax Tribunal comprised of Transfer Pricing and Economic Arguments against inappropriate benchmarking of Indian Captive’s profitability by Tax Department relying on a comparables’ set that comprised of companies owning software products and intangibles and having a different functional profile.

On the basis of detailed submissions and arguments put forward by the Arguing Counsel, Mr. Ashutosh Mohan Rastogi, the Delhi Tax Tribunal ruled in favour of the client and the transfer pricing adjustment on account of inclusion / exclusion of inappropriate comparables was set aside.

Industry – Information Technology
Nature of work – Transfer Pricing Litigation (Income Tax Appellant Tribunal)
Issue: Whether there was a mistake apparent on face of record?
Work Description: Amicus Services succeeded in pointing out the mistake apparent on face of record that had crept into the ITAT order in a Miscellaneous Application. The Arguing counsel pointed out that during the hearing it was communicated to the Tribunal about the exclusion of 5 comparables based on which TPO/DRP/AO had benchmarked the international transaction. However, the bench had adjudicated only on 4 comparables, leaving behind one. Therefore, non-adjudication of one comparable (Larsen & Turbo InfoTech Ltd.) constituted a mistake apparent on the face of record.

Based on the Counsel’s arguments, the Tax Tribunal partially accepted the mistake and directed to exclude the impugned comparable stating that the same is functionally different and cannot be compared with that of assesse.

Industry – Media/Film
Nature of work – Corporate Tax Litigation (Income TaxAppellate Tribunal)
Issue: Granting of stay in case of Angel Tax
Work Description: Amicus secured a stay order,in response to the rejection of Fair Market Value on which equity shares were issued at premium. It was argued that Assessing Officer (AO) cannot discredit the valuation done by expert. It was further argued that valuation of shares is a technical and complex problem which can be appropriately left to the consideration of experts in the field of valuation. Further, it was pointed out that the department had already unreasonably and illegally attached client’s Bank account.

Appreciating the arguments of the counsel, ITAT granted Stay on the Demand raised by the Revenue directing for release of client’s bank account.

Industry – Media/Film
Nature of work – Corporate Tax Litigation (Income Tax Appellate Tribunal)
Issue: Taxation of share premium under sec 56(2) (viib)
Work Description: Amicus succeeded in deleting the entire tax demand on issuance of share at premium under section 56(2) (viib) of Income Tax Act, which is a modern milestone in “Income Tax Jurisprudence” and rarity in itself. The decision addresses in depth, the objective of the provision, the conditions, expertise of valuer, commercial wisdom of investors and startups, interpretation of deeming provision etc. Below are the major observations of Tribunal:-

  • Section 56(2) (viib) is a deeming provision. If statute provides that the valuation has to be done as per the prescribed method and if one of the prescribed methods has been adopted by the assessee, then Assessing Officer has to accept the same.
  • The valuation projections are based on various factors. These factors are considered based on some reasonable approach and they cannot be evaluated purely based on arithmetical precision as value is always worked out based on approximation and catena of underline facts and assumptions.
  • At the time when valuation was undertaken, it is based on potential value of business at that particular time and also keeping in mind underlying factors that may change over a period of time.
  • Income tax department or revenue officials cannot determine in which manner business has to be undertaken. Commercial expediency has to be seen from the point of view of businessman.

On the basis of above, the entire tax demand was deleted.

Industry – Retail Garments
Nature of work – Corporate Tax Litigation (Income Tax Appellate Tribunal)
Issue: Whether the assessing officer had rightly invoked the provision for best judgment assessment?
Work Description: Amicus succeeded in quashing the entire demand and addition made by Assessing Officer on the assessee – a garment retail outlet chain. The Tax Tribunal observed that no proper opportunity of hearing was granted to assessee and the Officer rejected books of accounts without satisfying the requisite conditions for best judgment assessment. The Officer failed to provide any justification for invoking the provisions of best judgment assessment which was contrary to the provisions of the Act and hence, the Assessment Order and demand was quashed.

Industry – Textiles
Nature of work – GST/Indirect Tax Litigation [Authority of Advance Ruling (‘AAR’)]
Issue: Whether a slump sale would be subject to GST ?
Work Description: Amicus assisted the client in drafting submissions for an Advance Ruling in relation to sale of business division as ‘slump sale’. The AAR Ruled that since all assets and liabilities were contemplated to be transferred under the business transfer agreement it amounted to a slump sale and was therefore not subject to GST by virtue of notification no. 12/2017- Central Tax (Rate) dated 28th June, 2017.

Contact Information:-
Mr. Ashutosh Mohan Rastogi
011 41553433