2020 (10) TMI 796 - HC - Income Tax

TP Adjustment - DRP had made certain directions for the guidance of the TPO under section 144C(5) which are binding on the TPO who makes the TP adjustments - Single Judge has dismissed the Writ Petition as premature finding that against the order of the learned TPO when passed in consequence of the directions given by the DRP, there is an appeal remedy available to the Assessee before the learned Tribunal and therefore, the questions of facts coupled with the questions of law sought to be raised before the DRP and before this court under the Writ Jurisdiction, can be first agitated before the learned Tribunal as well - HELD THAT - We cannot appreciate the arguments of the learned Senior Counsel for the Assessee that on the question of law, the DRP has disregarded the case laws of other High Courts. A mere discussion of such case laws but not applying to the facts cannot be said to be any disregard to the law laid down by the other High Courts in this respect. We cannot accept the submission of the learned Counsel further on the ground that merely because the order of the DRP may be binding on the Assessing Officer, against whose order, the appeal can be filed only before the learned Tribunal, a shortcut could be provided to the Assessee in such cases to invoke the Writ Jurisdiction, which itself has three tiers of remedies; before the High Court, two tiers, viz., the learned Single Judge dealing with the Writ Petition and the intra-Court Writ Appeal before Division Bench and then if the matter is taken up to the Hon'ble Supreme Court by way of Special Leave Petition under Article 136 of the Constitution of India. His digression is self defeating and defeats the very purpose of quicker assessments sought to be achieved in the special law relating to international transactions envisaged in the Chapter X of the Income Tax Act provided for assessment of international transactions, so that an image of balanced approach by IT authorities can be projected on the international horizons. Many other developed countries provide for such quicker management of tax dispute resolution. In view of the undertaking given by the Respondents in paragraph 3 of the Affidavit of the Assistant Commissioner that they are going to apply for TP Adjustments only to international transactions, even the aforesaid unfounded apprehension of the Assessee is not justified.

Summary

Issues:
Appeal against dismissal of Writ Petition as premature challenging DRP order for Assessment Year 2012-13; Interpretation of directions by DRP under section 144C(5) of the Income Tax Act; Disagreement with TPO on quantum of adjustment; Applicability of case laws on TP adjustments for international transactions; Invocation of Writ Jurisdiction for mixed questions of facts and law; Concerns regarding TP adjustments for domestic transactions; Assessment of international transactions only; Dismissal of Writ Appeal by the High Court.

Detailed Analysis:

1. The Writ Appeal was filed against the dismissal of the Writ Petition challenging the order of the Dispute Resolution Panel (DRP) for the Assessment Year 2012-13. The DRP issued directions under section 144C(5) of the Income Tax Act, which are binding on the Transfer Pricing Officer (TPO) for making Transfer Pricing (TP) adjustments in international transactions. The Single Judge found the Writ Petition premature, stating that factual and legal issues should first be raised before the Tribunal before approaching the High Court. The DRP's directions were to be implemented by the Assessing Officer before becoming subject to appeal. The High Court upheld the dismissal, emphasizing the need for the Assessee to follow the prescribed legal remedies.

2. The Assessee argued that the DRP disregarded judgments of other High Courts on TP adjustments only for international transactions with Associated Enterprises. The Assessee sought High Court intervention based on this legal issue. However, the Court rejected this argument, stating that discussions on case laws without direct application to the facts do not constitute a disregard of legal principles. The Court also highlighted the multi-tiered legal remedies available before invoking Writ Jurisdiction prematurely, ensuring a balanced approach in tax dispute resolution.

3. The Revenue contended that TP adjustments were limited to international transactions as per Section 92B of the Income Tax Act. An Affidavit by the Assistant Commissioner clarified that no adjustments were made for domestic transactions. The Court upheld the Revenue's position, emphasizing the importance of adhering to the Act's provisions and the clarity provided by the Revenue on the scope of TP adjustments.

4. The Court emphasized the need for a streamlined legal process, allowing authorities to conduct a detailed factual analysis up to the Tribunal level. Premature intervention through Writ Jurisdiction could hinder the assessment process and prejudice the parties involved. The Court concluded that the dismissal of the Writ Appeal was appropriate, advising the Assessee to raise objections through the established legal channels.

This detailed analysis covers the legal issues, arguments presented, and the reasoning behind the High Court's decision in the Writ Appeal regarding the DRP's directions and the appropriate legal remedies available to the parties involved.