Gemological Institute Of America. Inc, vs Assessee

By way of this Stay Application, the applicant assessee's seeks for stay of outstanding demand of Rs.5,44,32,360/-.

2. Before us, learned senior counsel, Shri J.D. Mistry explaining the background of the case submitted that assessee is U.S. based company engaged in the business of grading of diamonds and certification. The assessee has subsidiary in India which is also engaged in the diamond grading. For certain quality and weight of the diamond (2 carats and S.A. No. 113/Mum/2015 2 (Arising Out of ITA No. 1138/Mum/2015) Assessment Year: 2010-11

above) the certification is done by the assessee as the requisite facility is not available in India. For this purpose the Indian subsidiary had entered into an agreement with assessee, in terms of which, it sent the diamond to assessee in USA for grading services and for this agreement uniform pricing mechanism of 90:10 ratio was agreed upon. The 90% of the service revenue is retained by the assessee and only 10% by the Indian Subsidiary. The Assessing Officer held that the Indian subsidiary constitutes permanent establishment (PE) of the assessee and held that 50% of the gross receipts from GIA India is attributable to the Indian PE and accordingly has taxed the same. The taxable income of the PE was determined at Rs.38.59 crores. Such an action of the AO has been confirmed by the DRP also. On merits he submitted that, assessee has A very strong case, because the GIA India cannot be held to be permanent establishment of the assessee and alternatively, 50% of the gross receipts cannot be held to be attributable to the Indian PE at all. Thus, the entire addition cannot be sustained. Regarding the merits for stay of demand, he submitted that out of the legal demand of 5.44 crores, Rs.1,90,68,428/- consists of interest u/s 234B. Such a levy of interest is wholly vitiated and untenable in view of the decision of Hon'ble jurisdictional High Court in the case of DIT Vs. NGC Net work Asia LLC. If such an amount of interest is reduced from the total demand, then the balance demand would come to 3,28,66,617/-. He also brought to out notice that huge refunds aggregating to Rs.4.35 crores is due to the assessee and with drew our attention to page 177 of the stay petition which gives the details of refund due to the assessee right from the A.Y. 2009-10 to 2014-15. He further pointed out that the rectification petitions u/s 154 in all these years for granting of refunds have been S.A. No. 113/Mum/2015 3 (Arising Out of ITA No. 1138/Mum/2015) Assessment Year: 2010-11

filed before the AO which has not been disposed off till date. Before the AO and also before the Ld. CIT, the assessee has requested that such a refund should be worked out and can be adjusted against the outstanding demand. However, Ld. CIT has rejected the said petition on the ground that no hardship or financial difficulties has been shown by the assessee. He submitted that if the refunds due to the assessee are worked out after disposing of applications u/s 154, then the entire demand which has been raised in this year will get set off. Thus he submitted that no demand should be enforced and should be granted stay till the disposal of the appeal.

3. On the other hand, Ld. DR objected to the stay of demand and submitted that assessee can pursue the matter before the AO for the disposal of petitions u/s 154.

4. After considering the rival submissions and on perusal of the material placed on record, we find that the demand of Rs.5,44,32,358/- consists of interest u/s 234B of Rs.1,90,68,428/-. Such a levy of interest in view of the decision of Hon'ble Bombay High Court in the case of NGC India Network Asia LLC is prima facie not leviable. Further, from the details of the refunds due to the assessee as pointed by the learned senior counsel, it is seen that refunds amounting to more than Rs. 4.3 cores are due to the assessee right from the A.Ys. 2009-10 to 2014-15. The assessee has already filed petitions for rectification under the 154 for the grant of refund, and has also made a request to the AO as well as to the CIT to work out the refund amount and adjust the same against the outstanding demand for the current year. However, its rectification applications have not been disposed off by the AO till date.

S.A. No. 113/Mum/2015 4 (Arising Out of ITA No. 1138/Mum/2015) Assessment Year: 2010-11

The assessee being agreeable to the adjustment of its refunds for the earlier years (supra), non grant of which is attributable to the department, we see no reason by the revenue should insist on the payment of demand for the current year. We, accordingly, consider it fit and proper to stay the outstanding demand of Rs.5,44,32,360/- for the current year for a period of six months or till the passing of the order by the Tribunal, disposing its captioned appeal, whichever is earlier, subject to the following conditions:

a) Adjustment of the refunds due or arising to the assessee for the earlier years by the revenue, which is hereby directed to grant or settled the same, as the case may be, expeditiously, against the demand for the current year. The assessee is also, at the same time, precluded to seek credit of against the said refunds against the demand for any other year, i.e., till such time the impugned demand obtains and, of course, only to the extent of the outstanding demand for the time being;

b) The assessee's appeal will be heard on priority basis and after discussion with the parties, the appeal is fixed for hearing on 28.04.2015; and

c) The assessee shall not seek any adjournment except for bona fide and genuine reasons.

5. The Registry is directed to fix the hearing of the appeal on 28.04.2015. Parties have been informed in the open court.

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6. In the result, the Stay Application filed by the Assessee is allowed.

Order pronounced in the open court on this 25th day of March, 2015.

Sd/- Sd/- (SANJAY ARORA) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 25.03.2015 *Srivastava Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT(A) Concerned, Mumbai The DR "E" Bench

//True Copy//

By Order

Dy/Asstt. Registrar, ITAT, Mumbai.