Supreme Court issues notice to PayPal in IT department's plea against stay on ₹32 crore demand

The Supreme Court on Tuesday issued notice in an appeal filed by the Income Tax department challenging an order of the Bombay High Court that stayed a penalty notice issued to online payment processing company PayPal [ACIT v. PayPal Payments Pvt Ltd].

A Bench of Justices JB Pardiwala and R Mahadevan issued notice and tagged it with a a case pertaining to the same question of law.

The case is now expected to come up for hearing on December 10.

In October 2023, the IT department issued a demand notice of ₹32.39 crore to PayPal for allegedly underreporting its income for the assessment year (AY) 2020-21. PayPal challenged this order before the Bombay High Court.

In November 2023, a Bench of Justices KR Shriram and Neela Gokhale had stayed the October 17 final assessment order passed in the matter by the Assistant Commissioner of Income Tax (ACIT), National Assessment Faceless Centre, Delhi.

In August 2024, the stay granted by the Division Bench was extended till the disposal of the case. The department challenged this stay before the Supreme Court.

PayPal challenged the department's 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.

The company contended 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. 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 revenue contended that Section 144C is an independent provision with a timeline that is unaffected by Section 153. It was argued that Section 144C explicitly overrides other provisions with the phrase "notwithstanding anything to the contrary."

According to the revenue, there is no mention of draft assessment orders in Section 153, making it inappropriate to include 144C timelines within Section 153.

The Income Tax department was represented by Additional Solicitor General (ASG) N Venkataraman.

Paypal was represented by Senior Advocate Jehangir Mistry and Advocate Rubal Bansal Maini.