DIRECTION OF DISPUTE RESOLUTION PANEL BINDING ON ASSESSING OFFICER

[Mr. M. GOVINDARAJAN]

Sec.92 of Income Tax Act, 1961 deals with computation of income from international transaction having regard to arm’s length price. Section 92C(1) provides that The arm's length price in relation to an international transaction or specified domestic transaction] shall be determined by any of the following methods:

• Comparable uncontrolled price method;
• Resale price method;
• Cost plus method;
• Profit split method;
• Transactional net margin method;
• Such other method as may be prescribed by the Board.
  

According to Sec. 92CA provided that where an assessee has entered into an international transaction and the Assessing Officer considers it necessary, he may with the previous approval of the Commissioner, refer the computation of arm’s length price to the Transfer Pricing Officer. The Transfer Pricing Officer, after due inquiry, determines the arm’s length price in relation to the international transaction and send the same to the Assessing Officer and the assessee.

The Assessing Officer after taking due not of the adjustments proposed by the Transfer Pricing Officer, will forward a draft assessment order to the assessee. The assessee may raise objections to the draft assessment order before the Dispute Resolution Panel and after that considering the same, the Dispute Resolution Panel may consider the proposal of the assessing authority and communicate the same to the Assessing Officer. Every direction issued by the Dispute Resolution Panel shall be binding on the Assessing Officer. The Assessing Officer is to pass the assessment order accordingly.

In ‘Diamond Management and Technology Consultants Limited V. Assistant Director of Income Tax (International Taxation)’ – 2013 (9) TMI 689 - ITAT MUMBAI the appellant company, engaged in the business of consultancy services, filed its return on 23.07.2008 declaring income at Rs. NIL. During the assessment proceedings, the Assessing Officer found that the appellant had received Rs.89.24 lakhs under the international transfer agreement. The Assessing Officer prepared the draft order and forwarded to the Dispute Resolution Panel against which the appellant filed objections. The appellant submitted the following arguments:

• The appellant did not have permanent establishment in India;
• The appellant had entered into international transfer consultancy services agreement with Diamond Management and Technology consultant Limited NA inc;
• It received a sum of Rs.85.71 lakhs during the assessment year under consideration;
• It had incurred an expenditure of Rs.89.24 lakhs that income earned by it was not taxable in India;
• The services had been rendered in Kuwait and not provided by the permanent establishment constituted in India;
• The services fell outside the ambit of fess for technical services under Article 13 of the Double Taxation Avoidance Agreement.

The Dispute Resolution Panel held that the appellant made technology services available to the Indian entity, that such services were in nature of fees for technical services, that same were taxable in India.   It further held that the argument of the appellant that it had not made technology available to its Indian recipients was not supported by the copy of the agreement. The Dispute Resolution Panel directed the Assessing Officer to assess the amount received by the assessee as ‘fee for technical services’ in terms of the provisions of Section 144C(5) of the Act.   The Assessing Officer did not consider the direction of the Dispute Resolution Panel and determined the total income of the appellant in a different way.   He determined the total income to the tune of Rs.1.21 crores (Rs.89.24 for disallowance + Rs.32.42 lakhs for receipts from Kuwait Project). The appellant filed an application under Section 154 of the Act for rectification of mistakes before the Assessing Officer who did not dispose the said application.

On appeal before the Tribunal the appellant contended that the Assessing Officer had not passed the order as per the directions given by the Dispute Resolution Panel which is the violation of provisions of Section 144C(13) of the Act. The Tribunal held that the directions of the Dispute Resolution Panel were binding on the Assessing Officer.   Section 144C(13) uses word ‘shall’ with regard to instructions to be followed by the Assessing Officer.  

Section 144C (13) provides that upon receipt of the directions issued under sub-section (5), the Assessing Officer shall, in conformity with the directions, complete, notwithstanding anything to the contrary contained in Section 153 or Section 153B, 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 Tribunal held that the plain reading of the provisions of the section it is clear that the Assessing Officer has no choice, but to pass an order as per the directions of the Dispute Resolution Panel. The Assessing Officers are junior to the members of the Dispute Resolution Panel, who are senior Commissioners of Income Tax Department and given powers to decide the issues raised in the draft orders submitted by the Assessing Officer.   Being the junior members of the Departmental hierarchy, are supposed to follow the orders of the collegiums of the Commissioners.

The Tribunal surprised that despite of the clear and unambiguous mandate in the said section the Assessing Officer did not carry out the instructions of the Dispute Resolution Panel and assessed the income in the manner he wanted. The Assessing Officer also did not dispose the rectification application filed by the appellant before the Assessing Officer till the date of order of the Tribunal.

The Tribunal held that the sequence of the events has really pained the Tribunal members.   Open defiance of the directions of the Dispute Resolution Panel by an adamant Assessing Officer, non disposal of the application of the assessee filed under Section 154 of the Act and request of the assessee to direct the Assessing Officer to follow the orders of the Dispute Resolution Panel unmistakably prove one thing that the assessee has been compelled to approach the Tribunal because of the disobedience and inaction of the Assessing Officer.

The Assessing Officer had miserably failed n performing his duties.   As a representative of the State, he is duty bound to collect only ‘due’ taxes and not only taxes.   On two counts behavior of the Assessing Officer can be held to be perverse – first he did not obey the directions of the panel and second he did not take any action with regard to the rectification filed by the assessee.  

The Tribunal directed to pass fresh assessment order as per the directions of the Dispute Resolution Panel within 30 days of the receipt of the order of the Tribunal.