NOVEMBER 24, 2009

By TIOL Edit Team

TIOL NETIZENS may be aware that the Finance Act (No2), 2009 had introduced a provision of a Dispute Resolution Panel (DRP) to look into adjustments proposed by the Assessing officers in respect of all cases of assessment of foreign companies as also in respect of transfer pricing adjustments made by TPOs and to give appropriate directions to the Assessing officers in this regard. The idea was to reduce disputes arising from such cases by having a collegium of three Commissioners to look into the proposed adjustments. This was proposed in the Union Budget 2009 in July this year. Section 144C, containing the provision for reference to dispute resolution panel, in sub-section 14, provided for the Board to make rules for the efficient functioning of the panel.

Transfer pricing adjustments having been finalized in respect of assessments getting time barred this year by October 31, in terms of sub-section 2 of section 144C, the Assessing Officer is required to send a draft of the proposed adjustments to the assessee and the assessee has to make up his mind within one month whether to accept the adjustment or not. In case he does not accept the adjustments proposed, which is the most likely outcome, he has to submit his objections to the panel. Assuming that the A.O forwards the draft to the assessee in November, the DRP will then have nine months to give directions to the A.O who will then have one month within which to finalise the assessment on the basis of such directions. Appeals from such assessment orders will lie to the ITAT. It was therefore imperative for the CBDT to quickly finalize the rules. After a lapse of almost four months, the Board has finally notified the rules by notification dated 20th November, 2009.

In terms of the rules so notified, the CBDT has decided to constitute the dispute resolution panel at eight stations: Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata, Mumbai and, Pune. These centres will have jurisdiction in respect of cases from all over India with Ahmedabad having jurisdiction over Gujarat, Daman Diu, Dadra Nagar Haveli: Bangalore over Karnataka, Kerala and Lakshadweep; Chennai over Tamil Nadu and Pondicherry; Delhi over NCT of Delhi, Punjab, Haryana and Chandigarh, J&K, Uttar Pradesh, Uttaranchal, Rajasthan and Himachal Pradesh; Hyderabad will have jurisdiction over Andhra Pradesh; Kolkata will have jurisdiction over West Bengal, North-east States and Andaman and Nicobar ,Bihar, Orissa and Jharkhand; Mumbai will have jurisdiction over Mumbai, rest of Maharashtra except Pune, Goa, Madhya Pradesh and Chattisgarh and finally Pune will have jurisdiction over Pune only.

One interesting feature is the provision of a secretariat for receiving objections, correspondence and other documents to be filed by the eligible assessee in respect of each panel. The secretariat shall also be responsible for issuing notices, correspondence and direction if any, on behalf of the panel. The CCIT (CCA) is supposed to constitute the secretariat. One only hopes that this is done quickly and adequate manpower and other facilities are provided so that the panel can function smoothly.

Form No 35A has been prescribed for filing objections to the panel. . This will have to be verified by the assessee.

The objections are to be filed in paper book form in quadruplicate with four copies of all the documents like assessment order etc.

One additional feature in the Rules which was perhaps overlooked while drafting the section is the stipulation that there will be no abatement of proceedings, if after filing of objections, the eligible assessee, being an individual, dies or is adjudicated insolvent, or being a company, is wound up. The proceedings before the panel shall in such eventualities be continued by the executor, administrator or other legal representative of such individual assessee or by the assignee, receiver or liquidator of such assessee being a company, as the case may be.

As per the rules framed, the Board shall assign by name three Commissioners of Income-tax to each panel as Members who, in addition to their regular duties as Commissioners, shall also carry on the functions of the panel.

In terms of section 144C, there is no monetary limit to trigger the recourse to the DRP. As a result, almost all the cases where additions are made will end up with the DRP. There will, therefore, be considerable workload for these Commissioners who are supposed to be part of the panel in addition to their normal duties. It is hoped that the Board will choose right persons with appropriate background and not succumb to any lobbying from any quarters to fill up the panel. The CBDT may also borrow a few leaves from its sister Revenue Board which has a similar mechanism to decide review cases, and may insist on collecting their experiences relating to the pitfalls associated with this mechanism. One of the notable pitfalls is the frequent transfer of officers which may require the Board to frequently amend the notifications constituting panels in these cities. Even if one of the panel members is missing, this panel would become dysfunctional and may not subserve the objectives enumerated in the Finance Act, 2009.