2018 (7) TMI 1484 - HC - Income Tax

Denial of Principles of natural justice - fixing of average rate of royalty payment - exhausting the efficacious alternative remedy provided under the statute - Held that - Institutional functions and exhausting the appeal remedies by the aggrieved persons, are to be enforced in all circumstances and writ proceedings can be entertained only on exceptional circumstances. Rule is to prefer an appeal and entertaining a writ is only an exception. This being the legal principles to be followed, this Court cannot entertain the writ petitions in a routine manner by waiving the remedy of appeal provided under the statute. The writ petitioner has not established that there is a violation of principles of natural justice nor there is an error apparent on record. No exceptional circumstances have been established in the present writ petition. If at all, the writ petitioner is aggrieved in respect of the fixing of average rate of royalty payment, then it is left open to them to approach the Disputes Resolution Panel and thereafter, if they are further aggrieved in respect of the fixing of average rate of royalty payment, then they are liberty to approach the ITAT constituted for the purpose of adjudicating the issues. This being the efficacious remedy available under the statute for the writ petitioner, there is no reason to entertain a writ petition under Article 226 of the Constitution of India, so as to adjudicate the merits and the demerits now raised before this Court in the present writ petition in respect of fixing of average rate of royalty payment. Under these circumstances, this Court is of an undoubted opinion that the writ petitioner has not made out any case for the purpose of waiving the efficacious alternate remedy available to the writ petitioner under the provisions of the Act and therefore, this Court is not inclined to entertain the writ petition on merits and adjudicate the issues involved in respect of fixing of average rate of royalty payment.

Issues Involved:
1. Jurisdiction and authority of the first respondent in revising the royalty payment.
2. Requirement of issuing a show cause notice.
3. Adjudication of factual disputes regarding the arm's length price.
4. Maintainability of the writ petition under Article 226 of the Constitution of India.
5. Compliance with the principles of natural justice.
6. Exhaustion of alternative statutory remedies.

Detailed Analysis:

1. Jurisdiction and Authority of the First Respondent:
The petitioner argued that the first respondent's order revising the royalty payment was perverse and contrary to the ITAT's decision, claiming that the respondent had no jurisdiction or authority to override ITAT's findings. The court noted that the Transfer Pricing Officer (TPO) has the power to determine the arm's length price in international or specified domestic transactions, and the assessing officer takes this into account when computing taxable income. The ITAT had remanded the case for reconsideration, and the TPO conducted a scrutiny based on the records provided by the petitioner.

2. Requirement of Issuing a Show Cause Notice:
The petitioner contended that no show cause notice was issued regarding the revised royalty payment assessment. The court found that since the case was remanded by the ITAT, the petitioner was aware of all facts and had participated in three personal hearings. Therefore, the issuance of a fresh show cause notice was not necessary as the principles of natural justice had been complied with.

3. Adjudication of Factual Disputes Regarding the Arm's Length Price:
The court emphasized that factual disputes, such as determining the arm's length price, cannot be adjudicated in a writ petition and should be resolved by competent authorities and the ITAT. The court stated that the ITAT's remand order required the TPO to verify records and re-adjudicate the matter, and the TPO had done so by scrutinizing the petitioner's documents and conducting hearings.

4. Maintainability of the Writ Petition Under Article 226 of the Constitution of India:
The respondents argued that the writ petition was premature and not maintainable as the petitioner had not exhausted the available statutory remedies, such as appealing to the Disputes Resolution Panel and the ITAT. The court agreed, stating that the petitioner must first approach the appellate authorities provided under the statute before seeking judicial review.

5. Compliance with the Principles of Natural Justice:
The court found that the principles of natural justice had been complied with as the petitioner was given multiple opportunities to present their case during the hearings conducted by the TPO. The court rejected the petitioner's claim that the absence of a show cause notice constituted a violation of natural justice.

6. Exhaustion of Alternative Statutory Remedies:
The court highlighted the importance of exhausting alternative remedies before approaching the High Court under Article 226. It cited several Supreme Court judgments emphasizing that writ petitions should not be entertained if an effective alternative remedy is available, except in exceptional circumstances where there is a gross injustice or violation of fundamental rights. The court concluded that the petitioner had not demonstrated any exceptional circumstances warranting bypassing the statutory appellate remedies.

Conclusion:
The court dismissed the writ petition, stating that the petitioner must exhaust the available statutory remedies before seeking judicial intervention. The court reiterated the importance of respecting the separation of powers and allowing statutory authorities to exercise their functions without unnecessary judicial interference.

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