1 WP 7137.11.sxw JPP IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE SIDE JURISDICTION WRIT PETITION NO. 7137 OF 2011 Symantec Software India Private Limited. ... Petitioner. V/s. Deputy Commissioner of Income Tax & Ors. ... Respondents. Mr. Porus Kaka, Senior Advocate with Mr. Manish Kant and Ms. Aastha Chandra i/b. ALMT Legal for the Petitioner. Mr. N.N. Singh for Respondent 1. CORAM : DR. D.Y. CHANDRACHUD & A.A. SAYED, JJ. 9 NOVEMBER 2011. P.C. :- Rule, by consent returnable forthwith. With the consent of Counsel and at their request the Petition is taken up for hearing and final disposal 2. The challenge in these proceedings is to an order passed by the Deputy Commissioner of Income Tax, Circle-7, Pune on 28 July 2011 rejecting an application for stay for Assessment Year 2007-08. 2 WP 7137.11.sxw 3. An order of assessment has been passed by the Assessing Officer under Section 143(3) read with Section 144C(3) of the Income Tax Act, 1961 for Assessment Year 2007-08. In the course of the assessment, the Assessing Officer has made two additions to the total income as declared in the return of income filed in the amount of Rs. 51.93 crores. The first addition in the amount of Rs.23.50 crores is on account of an adjustment in respect of the arms length price of certain international transactions between the Assessee and its U.S. based principal. The addition is accordingly on account of transfer pricing. The second addition in the amount of Rs.26.99 crores is on the ground that the Assessee is not entitled to a deduction under Section 10A. 4. The Assessee moved an application on 29 March 2011 seeking a stay of demand under Section 220(6). As regards the addition made on the ground of a denial of deduction under Section 10A, the Assessee relied upon an order passed by the CIT (Appeals) for Assessment Year 2004-05 holding that the Assessee was entitled to the benefit of Section 10A. Based on this finding, it has been urged that in view of the 3 WP 7137.11.sxw instructions issued by the CBDT on 6 March 1989 in Circular 530, the Assessing Officer ought to have granted a stay since the demand in dispute relates to an issue which has been decided in favour of the Assessee in an earlier order passed by the Appellate Authority. In so far as the addition on the grounds of transfer pricing is concerned, the contention of the Assessee is that its U.S. based principal has invoked the mutual agreement procedure under Article 27 of the India-U.S. Double Tax Avoidance Agreement in respect of the transfer pricing adjustment made in relation to the transaction between the Assessee and its U.S. partner. The Assessee stated that it was willing to furnish a Bank Guarantee in terms of the DTAA and in accordance with Instruction 10 of 2007 issued by the CBDT. 5. The Assessing Officer has rejected the Application for stay by an order dated 28 July 2011 which reads as follows :- “ You have filed a stay application dated 29/03/2011 for grant of stay of demand pertaining to A.Y. 2007-08 amounting to Rs.25.60 crores. However, it is observed that the stay applications for the earlier years were rejected by the Assessing Officer. In view of the above, stay 4 WP 7137.11.sxw of demand cannot be granted at this stage. Further, a copy of Instruction No.10 of 2007 has been enclosed in your stay application. As per the same, stay can be granted for the disputed demand which forms part of the MAP proceedings if the assessee meets certain criteria. Hence, you are requested to quantify the amount accordingly and submit the relevant documents to the competent authority. The stay application dated 29/03/2011 for A.Y. 2007-08 stands disposed.” 6. Counsel appearing on behalf of the Petitioner submitted that both the reasons which weighed with the Assessing Officer are ex-facie erroneous. As regards the first reason, it has been urged that though the stay applications for the earlier years were rejected by the Assessing Officer, all those orders were set aside by a Division Bench of this Court on 10 March 2010 and 26 April 2010 in Writ Petition Nos. 1933 and 3195 of 2010 and the proceedings were remitted back to the Assessing Officer. Thereupon, no order has been passed by the Assessing Officer for assessment year 2006-07. As regards the second reason, it has been urged that the Assessee had categorically offered to furnish a Bank 5 WP 7137.11.sxw Guarantee in terms of the Circular issued by the CBDT on 23 September 2007 (Instruction 10). Hence, it is urged that all that remained for the Assessing Officer to do was to furnish a quantification of the amount of Bank Guarantee so as to enable the Petitioner to furnish a guarantee. However, it has been urged that in any event the Petitioner has submitted a Bank Guarantee in the amount of Rs.16.92 crores on 29 August 2011 and that if any additional amount is required to be secured in terms of a guarantee, the Petitioner is ready and willing to do so. 7. On the other hand, it has been urged on behalf of the Revenue that the Bank Guarantee was furnished by the Petitioner on 29 August 2011 whereas a guarantee ought to have been furnished when the application itself was filed. Counsel appearing on behalf of the Revenue does not dispute the applicability of the two Circulars issued by the Board. 8. In our view, both reasons which weighed with the Assessing Officer to decline the grant of stay of the demand are ex-facie erroneous. The first reason that has weighed with the Assessing Officer is that the stay application for earlier 6 WP 7137.11.sxw years were rejected by the Assessing Officer. This is only a part of the factual position. The Assessing Officer has not adverted to the fact that on 10 March 2010, a Division Bench of this Court had directed the Assessing Officer to pass orders on the application for stay by the Assessee. Thereafter, on 26 April 2010, when a fresh Petition filed by the Assessee to challenge an order of the Assessing Officer came up for hearing, the Court noted the statement of Counsel appearing for the Revenue that the Assessing Officer was ready and willing to pass a fresh order. Upon the statement, the order of the Assessing Officer dated 15 March 2010 was set aside. Thereafter, no further order has been passed for Assessment Year 2006-07. On the second aspect of the matter as well, it needs to be noted that the Assessee had, in the application dated 29 March 2011, seeking a stay of demand, expressed its readiness to furnish an appropriate Bank Guarantee in terms of the DTAA and Instruction 10 of 2007. The Assessee, as is pointed out to the Court, has now furnished a Bank Guarantee of Rs.16.92 crores on 29 August 2011. Paragraph 4 of Instruction 10 of 2007 issued by the CBDT on 23 September 2007 provides as follows :- 7 WP 7137.11.sxw “4. On receipt of a formal request for suspension of collection of outstanding tax in terms of the MOU from a taxpayer being, a resident of USA or an Indian resident entity, in a case where MAP has been invoked through US Competent Authority and the same has been admitted by the Indian Competent Authority, the assessing officers are required to keep the enforcement of collection of outstanding taxes in abeyance in respect of such taxpayers - (i) after obtaining a confirmation regarding pendency of MAP from the Foreign Tax and Tax Research Division of the Central Board of Direct Taxes and (ii) on receipt of a bank guarantee in the model draft format annexed to the MOU for an amount calculated in accordance with the manner indicated therein.” 9. The Assessing Officer was duty bound to apply his mind and to follow the provisions contained in the Circular issued by the CBDT. Evidently, he has failed to do so. 10. In these circumstances, we set aside the impugned order 8 WP 7137.11.sxw passed by the Assessing Officer on 28 July 2011. We direct that the Assessing Officer shall pass fresh orders on the application for stay in accordance with law. As noted earlier, the Assessee has furnished a Bank Guarantee in the amount of Rs.16.92 crores on 29 August 2011. The Assessing Officer shall follow the procedure prescribed in paragraph 4 of the instructions issued by the CBDT on 23 September 2007 (Instruction 10 of 2007) in disposing of the application for stay. 11. Rule is made absolute in the aforesaid terms. There shall be no order as to costs. (Dr. D.Y. Chandrachud, J.) (A.A. Sayed, J.)