In a relief to Ericsson India, the Delhi High Court has directed the Income Tax Department to issue refund of Rs 349 crore, which per a report pertains to the assessment year 2018-19.
According to the ET report, the court quashed the order of the Income Tax Department withholding refund to the company under Section 241A of the Income Tax Act.
The HC noted that the company had earlier approached the court with a similar complaint, regarding IT refunds for assessment years 2016-17, 2017-18 and 2018-19.
In respect of a matter relating to assessment year 2017-18, the court had also asked the tax department to issue refund within six weeks and give detailed reasons for its withdrawal. Following the court order, the department refunded Rs 561.72 crore including interest up to 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 of Rs 500 crore in AY 2018-19. Therefore, the demand for refund of Rs 349 crore was rejected.
“The counsel for the assessee (Ericsson) argued that the order passed by the AO was incorrect and untenable in law on the ground that the estimation of tax liability was not found for obvious reasons nor the history of the assessee was taken into account. OR its financial instruments,” according to a LiveLaw report.
The Court noted that the AO’s conclusion was based on the view that it would likely have to make adjustments under three heads, namely: Additions attributable to Arms Length Price (ALP) adjustments; excess on account of rejection of foreign exchange loss on account of “Mark to Market Loss”; and the addition on account of unearned revenue, which would add to the assessee with a tax liability of about Rs 500 crore, the report added.
The court held that in so far as the first head is concerned, i.e., on account of ALP adjustment, in the case of the assessee, it cannot give rise to any liability as the assessee has executed an Advance Pricing Agreement (APA).
With regard to the second head, i.e., disallowance of foreign exchange losses on account of “mark to market loss”, the Court held that the AO has hung the issue in the air as he has not indicated the estimated amount that he would was likely to be disallowed in AY 2018-2019 on account of volatility losses which include mark to market loss, and hence, resulting in additional tax burden to be levied on the assessee under foreign exchange loss on account of “mark”. To the detriment of the market”, Livelaw pointed out.
With regard to the third issue, i.e., addition on account of unearned revenue, the Court emphasized and emphasized aspects such as consistent application of accounting policy and the concept of revenue neutrality.
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