CONSTITUTION OF ALTERNATE DISPUTE RESOLUTION MECHANISM

[Mr. M. GOVINDARAJAN]

        The subjects of transfer pricing audit and taxation of foreign company are at nascent stage in India. The Assessing Officers and Transfer Pricing Officers often tend to take a conservative view. The correction of such view takes very long time with the existing appellate structure. With a view to provide speedy disposal, clause 55 of the Finance (No.2) Bill, 2009 seeks to insert a new section 144C in the income tax act to create an alternative dispute resolution mechanism within the income tax department. Dispute Resolution Panel is proposed to be established as alternative dispute resolution mechanism.

          The new section 144 C will come into effect from 1^st day of October, 2009.  Sec. 144C(15)(a) defines the term 'Dispute Resolution Pane' means a collegium comprising of three Commissioners of Income Tax constituted by the Board for this purpose. Sec. 144C (15) (b) also defines 'eligible assessee' as-

§  Any person in whose case the variation arises as a consequence of the order of Transfer Pricing Officer passed under Section 92CA of the Act; and

§  Any foreign company.

In the 'international transaction' he arm's length price in relation to international transactions shall be determined under Sec. 92C.  Under Sec.92CA(1) the Assessing officer considers if necessary or expedient so to do, he may, with the previous approval of the Commissioner, refer the computation of the arm's length price in relation to the international transaction. The Transfer Pricing Officer, after considering the evidences, shall, by order in writing, determine the arm's length price in relation to international transaction and send a copy of his order to the Assessing Officer. The Assessing Officer shall proceed to compute the total income of the assessee in conformity with the arm's length price as so determined by the Transfer Pricing Officer. For this purpose Sec. 92B(1) defines the term 'international transaction' as a transaction between two or more associated enterprises, either or both of whom are non residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises.

          According to Sec. 144C, if the Assessing Officer proposes to make, on or after the 1^st day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee, he shall, notwithstanding anything to the contrary contained in the Income Tax Act, in the first instance, forward a draft of the proposed order of assessment to the eligible assessee. The eligible assessee, on receipt of the proposed order is either to accept or objects the variations contained in the draft order within thirty days from the date of receipt of the order.

          The Assessing Officer shall, notwithstanding anything contained in Section 153 (dealing with time limit for completion of assessments or re assessments) complete the assessment on the basis of the draft order if-

·  The assessee intimates to the Assessing Officer the acceptance of the variation; or

·  No objections are received within thirty days from the date of receipt of the order

and pass the assessment order within one month from the end of the month in which-

·  The acceptance is received; or

·  The period of filing of objections expires.

The eligible assessee, if he is not satisfied with the variations in the draft order, shall file objections with the Dispute Resolution Panel and the Assessing Officer within thirty days from the date of draft order from the Assessing Officer. On receipt of the objections the Dispute Resolution shall consider the following:

·  Draft order;

·  Objections filed by the assessee;

·  Evidence furnished by the assessee;

·  Report, if any, of the Assessing Officer, Valuation Officer or Transfer Pricing Officer or any other authority;

·  Recording relating to the draft order;

·  Evidence collected by, or caused to be collected by, it; and

·  Result of any enquiry made by, or caused to be made by it.

Further the Dispute Resolution may make such enquiry as it thinks fit or cause any further enquiry to be made by any Income Tax Authority and report the result of the same to it. After giving reasonable opportunity to the Assessee and the Assessing Officer the Dispute Resolution Panel shall issue such directions, as it thinks fit, for the guidance of the Assessing Officer to enable him to complete the Assessment. 

        The Dispute Resolution Panel may confirm, reduce or enhance the variations proposed in the draft order so, however, that it shall not set aside any proposed variation or issue any direction for further enquiry and passing of the assessment order. If the members of the Dispute Resolution Panel differ in opinion on any point, the point shall be decided according to the opinion of the majority of the members. Every direction issued by the Dispute Resolution Panel shall be binding on the Assessing Officer. No direction shall be issued by the Dispute Resolution Panel after nine months from the end of the month in which the draft order is forwarded to the eligible assessee.

        On receipt of the directions issued by the Dispute Resolution Panel, the Assessing Officer shall, in conformity with the directions, complete, notwithstanding anything to the contrary contained in Section 153, the assessment without providing any further opportunity of being heard to the assessee, within one month from the end of the month in which such direction is received. 

        The Board may make rules for the purposes of the efficient functioning of the Dispute Resolution Panel and expeditious disposal of the objections filed by the eligible assessee.