DISPUTE RESOLUTION PANEL- seemingly another source of increased litigation and delayed justice –beneficial only for professional and not for revenue and taxpayer.

[C.A. DEV KUMAR KOTHARI]

References and links:

Dispute Resolution panel : http://www.taxmanagementindia.com/wnew/print_Article.asp?ID=1038

Evalueserve. Com (P.) Ltd. Versus Income-tax Officer, Ward-11 (2), New Delhi 5 2011 -TMI - 207596 - ITAT, DELHI

Vodafone Essar Ltd. v. Dispute Resolution Panel-II Delhi High Court

 

Earlier article:

Earlier an article by the same author  on Dispute Resolution Panel' (DRP') was webhosted on this website vide the following link:

http://www.taxmanagementindia.com/wnew/print_Article.asp?ID=1038

 In the said article the author has summarized that as per new provisions DRP shall be constituted to expeditiously resolve disputes in course of assessment by following procedure of draft assessment order, acceptance or  objections of assessee. Accordingly DRP's have been constituted. Completion of assessment in case of acceptance of variations in draft assessment order by assessee and reference to DRP in case of objections by the assessee. DRP will act like a court, and can confirm, reduce or enhance the draft assessment. The order of DRP will be final and binding on the revenue, there appears no scope of revision or appeal by revenue authorities against  an order passed by DRP. However, the assessee will have right to file an appeal before the Tribunal  against the order passed by the A.O. in pursuance of the directions of the DRP as well as against any rectification order passed by the A.O. in such cases.DRP will be a collegium comprising of three CIT  constituted by the CBDT for this purpose. DRP shall hear the A.O. and assessee and can make further enquiry and collect further information and evidences. DRP shall not restore any issue to the A.O. for further enquiry that means that final directions shall be given by DRP.

At that time the author has felt that better course could be draft assessment, objections by assessee, if any, reconsideration by A.O. of objections and passing of order. Then first appeal before CIT(A) and second appeal before ITAT. This can be for all assesses. By providing a draft assessment order, it will become necessary for the A.O. to open up his mind before the assessee and to really provide opportunity to assessee to explain his case. This suggestion was placed because at present we find that in assessment the A.O. makes many variations  about which A.O. had never asked any explanation or evidence in writing or verbally.           

On reading of the new provisions  particularly the meaning of eligible assessee, author expressed that  the new section 114C  and the scheme have very limited scope.

The assesses to whom these provisions shall apply are limited because as they will apply to only             (i)         any person in whose case the variation referred to in sub-section (1) arises as a consequence of the order of the Transfer Pricing Officer (TPO)  passed under sub-section (3) of section 92CA; and

(ii) any foreign company.

The scope of TPO passing an order and variations arising consequent to such order itself is limited to certain type of assesses in specified circumstances of international transactions involving related parties only, therefore the scope of the new provisions is limited and is not for general assessee and is also not wider for the  eligible assesses, other than foreign companies.

No appeal before CIT(A) when assessment is based on directions of DRP

As per amended section 246A appeal before CIT(A) shall not lie before CIT(A) when an assessment is made in pursuance of directions of the DRP that means when assessee preferred objections on DAO and DRP passed order and issued directions to the A.O. The  amendment in section 246A as proposed read as follows"

                  71. In section 246A of the Income-tax Act, in sub-section (1), in clause (a), for the words, brackets and figures "under sub-section (3) of section 143", the words, brackets and figures "under sub-section (3) of section 143 except an order passed in pursuance of directions of Dispute Resolution Panel" shall be substituted with effect from the 1st day of October, 2009.

Thus when directions are issued by DRP and assessment is made according to such directions then appeal shall not be preferable before CIT(A). This is because (a) DRP consists three commissioners who are likely to be senior than CIT(A) or in any case DRP is a body of three CIT even if they are equal in rank or seniority of CIT(A) and (b)  in such cases remedy by way of  appeal is provided before ITAT.

However, suppose the assessee could not file an objection within thirty days from receipt of DAO, and the AO passed order based on DAO, then the assessee can definitely file an appeal if he has ground to show reasons for not filing objections ( or filing objections in prescribed time). Similarly suppose objections filed were rejected on ground of delay or on some other technical reasons, then also assessee will be entitled to file an appeal against assessment order which is based on DAO, against which assessee did not or  could not file valid objections in prescribed time. Though in such cases, assumption of accepting DAO will have to be rebutted by the assessee and the A.O. and CIT(A) can make objection for the same.

Appeal before ITAT:

A new clause in section 253 was amended to provide for appeal before the ITAT. The new clausereads as follows:

"(d)  an order passed by an Assessing Officer under sub-section (3) of section 143 in pursuance of the directions of the Dispute Resolution Panel or an order passed under section 154 in respect of such order..

Thus an appeal before ITAT  is provided when an order is passed by AO  u/s 143(3)  in pursuance of directions of the DRP and also against  an order passed under section 154 in respect of such order.

even on accepted variations, the procedure of DAO, acceptance will have to be complied with.

Suggestions to the Finance Minister:

In earlier article it was also  suggested that in all cases of any assessee  where the A.O. want to make variation in returned income, he must give DAO or list of variations proposed and reasons for such proposed variations and give show cause notice (SCN ) and  allow opportunity  to assessee to  file his views and objections to proposed variations and also allow reasonable  hearing. Thereafter the AO should pass final order considering views, objections and fresh evidences and explanations filed in response to the SCN and DAO/ list of proposed variations. The appeal against such final assessment order can be filed before CIT(A).

Many times we come across that assessee had filed details, evidence and explanations as asked by the A.O. The A.O. do not ask any thing further as evidence or explanations, but the A.O. makes lot of variations in returned income and it comes to a shocking surprise for the assessee and his counsel who represented his case. This is in complete disregard of principal on natural justice. This can be avoided by provi8ding DAO/ list of proposed variations and SCN to explain as to why variations should not be made.  

Dispute Resolution Panel- remedy is optional:

Author had also discussed that the assessee can choose not to go through the DRP procedure. The Board has also clarified that a choice has been given to the assessee either to go before the DRP or to prefer the normal appellate procedure of filing first appeal before the CIT(A)  second appeal before  ITAT instead of going to DRP. Thus if assessee does not file objections to draft assessment order, before the DRP, then the AO will make assessment only after hearing assessee. Against such order the assessee can prefer appeal before CIT(A). If assessee is not satisfied with order of the CIT(A) he will be able to file appeal before ITAT.

In the earlier article author has also suggested that as per experience, it is generally more beneficial to go through regular course of appeals instead of short-cut procedures like DRP. When there is long drawn process which take longer time, it is possible that the law get clarified, and there can be precedence on the subject.

Now in view of many cases involving  unjustifiable orders passed by DRP we find that litigation is on rise when assessee approached  DRP and in many cases assessee had to appeal before Tribunal or challenge order of DRP by way of Writ petition. In many cases the  matter have to be restored to the DRP for again deciding issues afresh after allowing opportunity and making enquiry etc. Therefore, as felt by the author at the time of writing earlier article, this has turned into reality and one may feel that better course would have been to go through normal procedure of assessment by the AO, appeal before CIT(A) and then in case of appeal before Tribunal instead of seeking intervention of DRP. 

Recent case before Tribunal and High Court:

Evalueserve. Com (P.) Ltd. Versus Income-tax Officer, Ward-11 (2), New Delhi 5 2011 -TMI - 207596 - ITAT, DELHI No. - ITA NO.5149 (DELHI) OF 2010  decided on  03 November 2011.

In this case the assessee had to appeal before Tribunal against the order of DRP in relation to Transfer pricing. The order of DRP was found to be a non-speaking order in which DRP did  not stated  the objections raised by the assessee and the reasons have also not been given. The DRP simply  accepted the order of TPO and Assessing Officer .

The Tribunal held that:- when a quasi-judicial authority deals with a lis, it is obligatory on its part to ascribe cogent and germane reasons as the same is the heart and soul of the matter and further, the same also facilitates appreciation when the order is called in question before the superior forum. Therefore, the Tribunal  found that it is a fit case where the entire matter should be restored back to the file of DRP to pass a detailed order stating all the objections of the assessee and disposing them by giving a cogent and germane reasons for adjudication of the objections of the assessee.

The Tribunal has also noted that in another case when  the DRP did not  pass a speaking order, the assessee challenged the same by way of Writ Petition and the High Court found that the matter has to be restored back to the DRP  in case  before Hon'ble Delhi High Court in the case of Vodafone Essar Ltd. v. Dispute Resolution Panel-II.

In view of the decision of Delhi High Court  and facts relating to order passed by DRP and assessment order, the Tribunal restored the issue to the DRP in case before it. In paragraph 12 of the order tribunal has observed on the following lines (analysed by author):

1. This Tribunal in many of such cases has restored the issue to the file of DRP
2. Matters were restore to DRP for passing a speaking order on each of the objection of the assessee raised before it.
3. Tribunal found that this case is also a fit case where the entire matter should be restored back to the file of DRP to pass a detailed order stating all the objections of the assessee and disposing them by giving a cogent and germane reasons for adjudication of the objections of the assessee.
4. Tribunal directed accordingly.
5. Tribunal further added that  after receiving the order from DRP, the Assessing Officer will again pass order u/s 144C(13).
6. The present assessment passed by the Assessing Officer was set aside as the DRP is directed to re-adjudicate the objections raised by the assessee as per directions give above.

Long process takes place:

From the above observation we find that adopting DRP route may not be advisable. Instead of DRP route the assessee can adopt normal route of appeal before CIT(A). In that process the following advantages can be availed:

1. In case of DRP route the assessee has to face DRP which is a collegiums of three commissioners. Whereas in case of appeal before CIT(A) there is one  officer that is CIT(A). It is easier to face an appellate authority   constituted by a single person in comparison to collegiums of three officers (CIT).
2. In case of CIT(A), there is no case of difference of opinion and majority prevailing. However, in case of DRP that can happen.
3. The process of appeal before CIT(A) and then before Tribunal is likely to take lesser time.
4. The proceedings before DRP  seems costlier and more time consuming in comparison to proceedings before CIT(A).

However, there is one disadvantage in case of appeal before CIT(A) and that is the revenue can appeal against  the order of CIT(A), whereas revenue, it so appears, generally cannot dispute findings and directions of DRP.  

Decision as to DRP or CIT(A):

 Therefore, considering the facts of the case, and all relevant factors, one should decide which proceedings is preferable in a give case.

It appears that during initial phase of functioning of DRP, there are some teething problems and DRP need to be more open minded, well informed and justice oriented authority instead of just confirming contentions raised by revenue authorities. The DRP is constituted by three Commissioners. It seems that these Commissioners need to have changed mind set to render justice and not to work like an administrative Commissioner whose primary task and mind set require him to work in such a manner that seems to safeguard revenue. We find Commissioners, while acting u/s 263 in revisionary proceedings, do not follow judgments of even jurisdictional High Courts. Whereas, in case of CIT (A), we find that generally they follow the binding judgments of Tribunal and High Court.

It seems that because there is no appeal or other mechanism to dispute findings of DRP, the DRP is also acting like Administrative Commissioners just to protect interest of revenue, and they have adopted mindset that let taxpayer go to Tribunal to seek relief. This need to be changed.

From the two cases one before High Court and one before Tribunal, and many such cases  referred to by Tribunal it is clear that DRP has become a further source of litigation. And by such litigation the revenue and taxpayer both are looser. The beneficiary is only tax professional as they gain out of chain of proceedings and repeated proceedings in case matter is restored to lower authority.