The Alternate Dispute Resolution (ADR) mechanism was introduced by Finance (No. 2) Act, 2009 in the form of Section 144C of the Indian Tax Law. The ADR is a fast-track mechanism to resolve the disputes of Indian taxpayers relating totransfer pricing issues and those of foreign companies. Under the ADR, in respect of certain taxpayers (which include those having transfer pricing disputes), the Tax Authority, instead of passing a final assessment order, has to pass a draft assessment order. The taxpayer is entitled to file objections against the draft assessment order before the DRP. The DRP, after evaluating the evidences and submissions of the taxpayer and the Tax Authority, would issue directions to the Tax Authority, either to confirm or reduce or enhance the variation proposed in the draft assessment order. The directions of the DRP are final insofar asthe Tax Authority is concerned and the Tax Authority is bound to complete the assessment in conformity with the DRP’s directions.
Facts of the case
* In respect of an international transaction involving rendering of ‘representation services’, the Transfer Pricing Officer passed an order dated 23 October 2009 determining the Arm’s Length Price (ALP).
* The Tax Authority prepared the draft assessment order as per the ADR mechanism and proposed to carry out the variation to the returned income by adopting the ALP as determined by theTransfer Pricing Officer.
* The Taxpayer filed a writ petition to the HC challenging the Transfer Pricing Officer’s order on the ground that while determining the ALP the Transfer Pricing Officer did not grant any opportunity of personal hearing to the Taxpayer.
Contentions of the Taxpayer
* With regard to the computation of the ALP, the Taxpayer had furnished requisite information and details as requested by the Transfer Pricing Officer.
* While determining the ALP in respect of the international transaction, the Transfer Pricing Officer did not provide any opportunity of personal hearing to the Taxpayer.
* The Transfer Pricing Officer is obligated to hear the Taxpayer by providing an opportunity of personal hearing before passing an order determining the ALP [The Taxpayer relied on Moser Bear India Ltd. v ACIT [316 ITR 1] (Del)].
* The Transfer Pricing Officer had unilaterally increased the transfer price almost by 90% of the actual transaction value.
Contentions of the Tax Authority
The Transfer Pricing Officer passed the order after receipt of information from the Taxpayer and has, thus, given proper opportunity to the Taxpayer.
Ruling of the HC
* Since the Taxpayer has a remedy available to file its objections before DRP, writ petition is dismissed.
* The HC held that the Taxpayer can file its objections against the Transfer Pricing Officer’s order and the draft assessment order passed by the Tax Authority before the DRP.
* The Taxpayer is entitled to furnish necessary evidence to rebut the Transfer Pricing Officer’s order.
* The DRP has to pass speaking order after taking into consideration the objections filed and evidences furnished by the Taxpayer.
Comments
In the present ruling, the HC has emphasized that the DRP has to pass speaking order after taking into consideration the objections filed and evidences furnished by the taxpayer, rebutting the basis adopted by the Transfer Pricing Officer to arrive at the ALP.
