How dispute resolution panel can help reduce litigation?

The Dispute Resolution Panel  is a positive step toward ensuring faster resolutions of transfer pricing and other international tax-related disputes. The timelines indicate a clear intent to fast-track such controversies and, at the same time, protect foreign companies from audits and the resulting tax demands. Given that commissioner appeal proceedings typically take around 24 to 36 months to complete, by opting for Dispute resolution panel, a taxpayer can look at saving at least 12 to 24 months for its case.This article is basically focusing on how Dispute Resolution Panel can help reduce litigationHow dispute resolution panel can help reduce litigation?

Questions are already being raised about how well and how independently the DRP will operate. Answering these questions would require a fair bit of crystal ball gazing, so the thought process of taxpayers should focus on how best to use this forum for a meaningful outcome. One strategic advantage that taxpayers will now have is that they will be fully aware of what the tax officer intends to do and how. One might argue that such a right already exists, since the tax officer needs to provide a final opportunity to the taxpayer before carrying out an adjustment. This, however, is not the case in a majority of the cases at the field level. The final notice (called the “show cause” notice) normally is very broad and vague. The tax officer usually documents what is incorrect in the taxpayer’s approach rather than proposing the correct approach in detail. The result is that transfer pricing adjustments are usually a shock to the taxpayer.

This article is basically a view on the legal issues and th mechanism of the Dispute Resolution Panel.

Section 144C

This provision overrides all other provisions of the Act.

1)      If the assessing officer proposes to make, any variation in the income or loss returned by the assessee which is prejudicial to the interest of such assessee, he shall, in the first instance, forward a draft of the proposed assessment order to the eligible assessee.

2)      Within 30 days of the recipt of the draft order, the eligible assessee shall:-

a)      File his acceptance of the variations to the Assessing Officer.

b)      File his objections, if any, to such variation with:

. the dispute resolution panel (DRP); and

. the Assessing Officer

 Procedure for filing objections

a)      The objections if any, of the eligible assessee to the draft order may be filed in person or through his agent within the specified period in Form No. 35A.

b)      The objections shall be filed in paper book form in quadruplicate duly accompanied by

Four copies of the draft order duly authenticated under section143(3) read with section 144A, the objections shall also be accompanied by four copies of the directions issued by the JCIT/Ad. Com under section 144A and in the case of draft assessment under section 143(3) read with section 147, the objections shall also be accompanied by four copies of the original assessment order, if any.

The evidence, if any, the eligible assessee intends to rely upon including any document or statement or paper submitted to the assessing officer.

If the eligible assessee intends to rely upon any additional evidence other than those submitted to the assessing officer, such assitional evidence shall not form part of the paper book but may be filed along with a separate application stating the reasons for filing such additional evidence.

After filing objections, if the eligible assessee, being an individual, dies or is adjudicated insolvent, or being a company, is wound up, the proceedings before the panel shall not abate and shall be continued by the executor.

c)       The assessing officer shall complete the assessment on the basis of the draft order, if any

The assessee intimates to the assessing officer the acceptance of the variation.

No objection are recived within 30 days as stated above.

d)    The assessing officer shall, pass the assessment order within one month from the end of the month in which

The acceptance is received

The period of 30days of filing of objections expires.

e)    The dispute resolution panel shall, in a case where any objection is received, issue such directions, as it thinks fit, for the guidance of the assessing officer to enable him to complete the       assessment.

Search Cases

Under the provision of section 144C of the income tax act where an eligible assessee files an objection against the draft assessment order before the Dispute resolution panel then the time limit for completion of assessments are as provided in section 144C notwithstanding anything in section 153. A similar provision is proposed o be made where assessments, time limit specified in section 144C will apply, notwithstanding anything in section 153B.

It is also proposed to provide for exclusion of such orders passed by the Assessing officer in pursuance of the directions of the DRP, from the appellate jurisdiction of the commissioner (Appeals) and to provide for filing of appeals directly to ITAT against such orders.

Now even the department can file an appeal against its own orders. The appeals shall lie to the ITAT , to be called as departmental appeal. Possible only if the objections are raised by the assessee on or after 01.07.2012.

Normally the time limit for passing an assessment order u/s 143(3) or 144 is 2years from the A.Y. There is also a little time to pass final order pursuant to search cases. 144C overrides all other provisions of the Act, therefore these normal time limits are also overridden. In all DRP referenced cases or wherever draft order is passed the time limit would be as per the above chart and not as per the normal time limit.

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