As pointed out earlier also, functioning of DRPs is bringing a dis-repute to internal judicial appellate system of the income-tax department. In an article published in these columns on 31st May, 2010 it was stated that:
“It is unfortunate that the experience of representation before DRP is extremely disappointing. The three commissioners who sit as members of DRP are assigned this duty in addition to their regular duties as commissioners. This one single factor is more than enough to subsume the very objective of formation of DRP. The commissioners having more or less an additional charges as DRP members have obviously a divided attention. They cannot be blamed for remaining in undue hurry to finish the hearing. With the result, foreign companies are not getting a proper opportunity to present their case. Further, since the decision of DRP is binding on the AO against which no appeal can be filed by the department, the attitude of DRP members is heavily pro-revenue. Their role, it appears, is more to supplement and strengthen what the Transfer Pricing Officer (TPO) has done rather than to hear the case as a judge or conciliator. This defeats the intent and purpose of creation of DRP”.
The apprehension expressed above has unfortunately proved to be correct. The practical experience is that the Panel hardly gives 10 minutes for a case, the matter is heard with a biased mind, and the orders are passed without paying much heed to the arguments advanced by the parties.
It is therefore, recommended that if DRP is to fulfill the intent of law, then its constitution should be like an independent judicial body rather than just a departmental committee to support assessing officers. The members of DRP should have statutory powers and authority like members of Income-tax Appellate Tribunal or Authority of Advance Rulings.
A large number of foreign companies were tempted to opt for DRP route rather than routine CIT(A) route because of the declaration made by the Hon’ble Finance Minister in his budget speech that: “the dispute resolution mechanism presently in place is time consuming and finality in high demand cases is attained only after a long drawn litigation till the Supreme Court. Flow of foreign investment is extremely sensitive to a prolonged uncertainty in tax-related matter. Therefore, it is proposed to amend the Income-Tax Act to provide for an alternate dispute resolution mechanism which will facilitate expeditious resolution of disputes on a fast track basis.”
Thus, one of the main objectives of creation of DRP was to settle foreign companies’ tax disputes on a fact track basis. But what is practically happening is just the other way round. Whenever a reference is made by an Assessing Officer (AO) to a Transfer Pricing Officer (TPO), AO gets an additional time of 12 months to complete a ‘draft’ assessment order. Then upon reference to DRP, a further time of 12 months is allowed to DRP and AO to complete assessment. Thus the assessment procedure takes extra 24 months. For example, the assessment for AY 2006-07 should be made latest by December 2008. But if reference is made to TPO, draft assessment order will be allowed to be completed by December 2009 and final assessment order (after DRP order) by October/November 2010.
The grievance of foreign companies is further aggravated because of high tax demands created after DRP Orders. It is a matter of common knowledge that stay of demand is a difficult process. Stay against DRP will be still more difficult because DRP stands at a higher footing than the commissioner of Income-tax.
It is therefore strongly felt that CBDT should critically examine the functioning of DRP and then issue suitable instructions and guidelines to redress foreign companies’ genuine grievances. DRP should follow the mandate of the Hon’ble Finance Minister and act as a true Dispute Resolution Panel.
The author is a Sr. Partner in S.S. Kothari Mehta & Co.
E-mail: hp.agrawal@sskmin.com
