Providing relief to Ericsson India, the High Court of Delhi has directed the income tax department to release a refund of Rs 349 crore which is related to the assessment year 2018-19, according to a report.
The court set aside an order by the income tax department to withhold the refund to the company under Section 241A of the Income Tax Act, according to the ET report.
The HC noted that the company had earlier approached the court with a similar grievance, which was regarding I-T refunds for assessment years 2016-17, 2017-18 and 2018-19.
With respect to a case related to AY 2017-18, the court had also asked the tax department to issue the refund in six weeks and give a detailed reason for withholding it. After the court order, the department refunded Rs 561.72 crore, including interest till May 2020, in respect of AY 2017-18.
However, a fresh order was passed by the assessing officer (AO). It said the company may have to bear a tax liability in the range of Rs 500 crore in AY 2018-19. Therefore, the refund sought of Rs 349 crore was denied.
“Counsel for the assessee (Ericsson) contended that the order passed by the AO was erroneous and unsustainable in law on the ground that the estimation of tax liability was not found on cogent reasons and did not take into account either the history of of the assessee or its financial wherewithal,” according to a Livelaw report.
The Court noted that the AO’s conclusion was founded on the view that he would possibly have to make adjustments under the three heads, namely: addition on account of arm’s length price (ALP) adjustments; addition on account of disallowance of foreign exchange loss on account of “Marked to Market Losses”; and addition on account of unearned revenue, which will lead to a likelihood of the assessee being mulcted with a tax liability of nearly Rs 500 crore, the report added.
The Court observed that insofar as the first head was concerned, i.e., addition on account of ALP Adjustment, in the assessee’s case, it could not give rise to any liability as the assessee has executed an advance pricing agreement (APA), it said.
In respect of the second head, i.e., disallowance of foreign exchange losses on account of “mark to market losses”, the court held that the AO has let the issue hang in the air as he has not gone on to indicate an estimated amount which he was likely to disallow in AY 2018-2019 on account of foreign exchange fluctuation loss, which includes mark to market losses, and, therefore, the additional tax burden it would result in imposing on the assessee under foreign exchange losses on account of “mark to market losses”, Livelaw reported.
The Court, in respect of the third issue, i.e., addition on account of unearned revenue, laid emphasis and gave weight to the aspects such as consistent application of accounting policy and the concept of revenue neutrality.
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