Bombay High Court Stays Rs 32.39 Crore Tax Demand Against PayPal After It Claims Statutory Limitation For Passing Assessment Order Exceeded

The Bombay High Court has stayed the Rs. 32.39 crore tax demand and all related proceedings against PayPal Payments Private Limited, an online payment processing company.

A division bench comprising Justices K. R. Shriram and Dr. Neela Gokhale passed the ad-interim order and granted relief till January 31, 2024 to the petitioners.

“That pending the hearing and final disposal of this petition, stay the operation of the Impugned Order, the Impugned Demand Notice, the Impugned Notice, the Impugned Penalty Notice, the Impugned Draft Order and the Impugned TPO Order passed by the Respondents No.2 (Assessment Unit ITD) and 4 (Assistant Commissioner of Income Tax),” the order read.

PayPal was represented by Senior Advocate Jehangir Mistri instructed by Luthra and Luthra Law Offices. The company challenged actions of the Assessing Officers, National Assessment Faceless Centre, Delhi.

The following orders were challenged-

The Final Assessment Order dated October 17, 2023 passed under 14 Section 143(3) read with Section 144C(3) and 144B of the Income-Tax Act, 1961, demand notice issued the same day under Section 156, Penalty notice dated July 30 u/s Section 274 read with Section 271G and another penalty notice from October 17, 2023 along with other orders.

The petitioner’s claimed they filed income tax returns electronically on February 14, 2021 for 2020-21 declaring a total income of Rs. 12,97,96,680. The case was selected for complete scrutiny on the grounds of international transactions, refund claim, foreign outward remittance, loss from currency fluctuations etc.

After notices were issued, the department arrived at an increase in PayPal’s income by Rs.91,32,63,430. Accordingly, the assessed income under Section 144C(3) of the Act read with Section 144B of the Act was computed at Rs.1,04,30,60,110.

On the same day the Income Tax Department raised a demand notice of over Rs.32,39,48,100. Another penalty notice alleged under-reporting of income.

However, in their plea before the High Court, PayPal contended that according to Section 153(1) of the Act, no order of assessment “shall” be made under Section 143 of the Act at any time after the expiry of 18 months (extendable upto 12 months) from the end of the Annual Year in which the income was first assessable.

“Therefore, it is humbly submitted that the statutory limitation period for passing an order of assessment, i.e., the Impugned Order in the present case, expired on “30.09.2023.” Therefore, the order passed by the Assessment Unit of ITD on October 17 was “unambiguously beyond the statutory period of limitation” by a month and the order was without jurisdiction, liable to be quashed," the petitioners contended.

“It is humbly submitted that the Impugned 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 plea read.

The respondents requested three weeks to file their replies. The time was granted and the orders were stayed till then. The court further directed the petitioners to file their rejoinder within two weeks thereafter and posted the matter for hearing on January 8, 2024.

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