Recently, the Delhi bench of the Income-tax Appellate Tribunal remitted back the matter to the Disputes Resolution Panel (DRP) for reassessment since the directions of the DRP were found to be very laconic and non-speaking. The Tribunal, while setting aside such directions commented that the DRP has not considered the voluminous submissions of the taxpayer.
Facts of the case
• The taxpayer, an Indian company, had filed objections to the DRP against the draft assessment order (also incorporating transfer pricing issues).
• The taxpayer made voluminous submissions before the DRP. However, the DRP passed the directions without considering the submissions and arguments of the taxpayer.
While issuing directions, the DRP did not consider the submissions placed on record by the taxpayer and commented as under:
• The issues involved are flowing from the transfer pricing orders in earlier years and the matter is under litigation for the earlier years;
• The taxpayer has used Berry Ratios as a Profit Level Indicator (PLI) which is rightly rejected by the Transfer Pricing Officer (TPO) based on the reason that as per provisions of the law, the PLI should have an element of profit in the nominator. Hence, the methodology of the TPO is upheld.
• Sufficient opportunity was given to the taxpayer by the TPO and the taxpayer’s contentions have been answered in the TP Order.
The DRP further made general remarks on high risk undertaken by the taxpayer, requiring higher margins; development of supply chain intangible deserving higher margins, which were not based on any analysis done by DRP.
Aggrieved by the order (incorporating the DRP’s directions) of the Assessing Officer, the taxpayer filed an appeal with the Tribunal.
The Tribunal held as under:
• The DRP has passed a very laconic order against the provision of the law and the directions only tantamount to supervising the Assessing Officer’s draft order.
• The taxpayer’s contentions that its submissions have been brushed aside without giving any proper consideration by DRP, are cogent.
• Reference was made to the decision of Honourable Supreme Court in the case of M/s Sahara India (Farms) Vs. CIT & Anr. In  300 ITR 403 which held that even an administrative order needs to be consistent with the rules of natural justice.
With these remarks, the Tribunal remitted the matter to the DRP for reassessing the case and to pass a speaking direction under the provisions of the law. Merits of the case were not considered by the Tribunal.
The Tribunal also emphasised that the taxpayer needs to be provided an adequate opportunity of being heard.
Our Comments: – The Tribunal has emphasised that the DRP should give a speaking direction after considering the merits of the case. The Ruling also commented that adequate opportunity of being heard should be given to the taxpayer by the revenue authorities before passing any order/ direction.
GAP International Sourcing India Private Limited Vs Deputy Commissioner of Income Tax (I.T.A. No. 4073/Del/2010)- Delhi bench of the Income-tax Appellate Tribunal