Bombay High Court stays ₹32.39 crore income tax demand notice to PayPal

The Bombay High Court has stayed an income tax demand and penalty notice issued to online payment processing company, Paypal, demanding a payment of ₹32.39 crores for allegedly underreporting its income for the assessment year (AY) 2020-21 [PayPal Payments v. ACIT & Ors.]..A division bench of Justices KR Shriram and Neela Gokhale has stayed the October 17 final assessment order passed in the matter by the Assistant Commissioner of Income Tax (ACIT), National Assessment Faceless Centre, Delhi, till January 31, 2024..The Court passed the order on a plea by PayPal to stay the effect of the said order, and the connected demand and penalty notice. "There shall be ad-interim relief in terms of prayer clause (d) which reads that pending the hearing and final disposal of this petition, stay the operation of the Order, the Demand Notice, the Notice, the Penalty Notice, the Draft Order and the TPO Order passed by the ACIT, Delhi and Mumbai on such terms and conditions this court deems fit," the Court said in its November 7 order..In its petition before the High Court, filed through advocates Anuj Jhaveri and Mihir Modi, PayPal had stated that it had initially received a notice for the computation of arm's length price (ALP) for AY 2020-21. On July 29, the ACIT Mumbai passed a transfer pricing order whereby an adjustment of over ₹91 crores was made for the distribution of payment services in India and a penalty notice was also issued.On October 17, the Income Tax review unit made an addition of ₹91 crores to the assessed income of PayPal and the final assessed income came to over ₹104 crores. The same day, a demand notice was issued demanding over ₹32.39 crores within 30 days of the notice on grounds of underreporting PayPal's income. .PayPal challenged this action, contending that according to Section 153(1) of the Income Tax Act, no order of assessment can be made under Section 143 of the Act at any time after the expiry of 18 months (extendable up to 12 months) from the end of the annual year in which the income was first assessable. PayPal has asserted that the legal period within which the assessment order could have been passed expired on September 30, whereas the assessment order was passed on October 17. "Hence the order, demand notice and penalty notice are liable to be quashed by the court," the petition stated. .PayPal has argued that the proceedings initiated by the Income Tax department were not in accordance with law and were completely arbitrary, illegal, without jurisdiction and liable to be quashed by the High Court."The order for the AY 2020-21 is barred by limitation and therefore, void ab initio and without jurisdiction and is therefore, liable to be quashed," the petition stated..When the matter came up before the High Court, the assessing officers sought three weeks time to file their reply to the petition. The High Court has posted the matter for hearing on January 8, 2024..Senior Advocate Jehangir Mistri appeared for Paypal along with Luthra and Luthra Partner Rubal Bansal Maini.Advocates Akhileshwar Sharma with Shilpa Goel appeared for the respondents.