Tax Dispute

Resolution

Bird eye view

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Avenues1. Traditional avenues2. Non traditional avenues3. Dispute Resolution Penal(DRP)4. Mutual Agreement Procedure(MAP)5. Advanced Pricing Procedure(AAP)

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1.Traditional avenuesHierarchy of the authorities as per the traditional

avenues:

Tax Officer

Commissioner(Appeals)

Tribunal

Supreme Court

High Court

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Most tax disputes are dealt undertraditional dispute resolution avenues

Each level of hierarchy involvessubstantial period of time

Biggest disadvantage —:

It could take several years to achieve certainty in tax

position!!

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Traditional avenues

Challenges•Tax uncertainty coupled with substantial period in litigation process•Huge number of pending cases before the various dispute resolution forum.•Aggressive approach in tax collections and tedious tax refund process dents tax payers confidence•Conflicting decisions at various levels of dispute resolution forums adds to the complexity of the Indian tax laws•Possibility of further litigation.by ishan & Atmiya

2.Non-Traditional Avenues

•Dispute Resolution Panel•Mutual Agreement Procedure•Advance Pricing Agreements•Authority for Advance Rulings•Settlement Commission•SLP with Supreme court/High court

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The dispute resolution process would proceed on the following lines —• Before passing an adverse order, the Assessing Officer

(AO) to forward a draft of the adverse order to the taxpayer.

• The taxpayer can file its objections (if any) with the Panel and the AO, within 30 days of the receipt of the draft order.

• The Panel would consider the facts and circumstances of the case and issue appropriate directions to the AO, within a maximum period of 9 months.

• The directions issued by Panel are binding on the AO

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Powers and duties of DRP

• DRP may confirm, reduce or enhance the variations as proposed by tax Authority.

• DRP cannot set side the variation to tax authority• DRP cannot leave adjudication of issue to tax authority by

directing the tax• Authority to pass order of assessment by conducting

further inquiry• Decision to be based on opinion of the majority of the

members• No direction can be issued by DRP after nine months from

end of month in which draft order is forwarded to eligible taxpayer

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Role of tax authority after receipt of

directions:• Every direction of DRP shall be binding on the Tax authority

• Tax authority shall, within one month from end of month in which directions of DRP are received, complete his order in conformity with DRP’s directions without providing an opportunity of hearing to taxpayer.

• Tax authority will now raise enforceable demand by issuing demand notice along with the order of assessment.

• The limitation bar in Section 153 of the Act will not apply in a case where Role of tax authority after receipt of directions assessment is completed pursuant to directions of DRP.

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Alternatives for taxpayer on receipt of draft order

Scenario I:

Taxpayer may not have right of

further appeal

Taxpayer communicates

acceptance to AO to the proposed

variation within 30 days

AO to pass final order raising

demand within one month from

end of the month of acceptance

DRP to confirm, reduce or enhance variations based on

majority view within nine months

from the end of the month in which

draft order is forwarded to the

taxpayer

AO to pass final order raising

demand within one month from the

end of the month pin which the

period of filing of the objectionexpires

Taxpayer to file objection to DRP on variations proposed

by AOwithin 30 days from the

date ofreceipt of draft order

Taxpayer to neither accept

variations nor object to the

variations

Direction of DRP binding on AO who has to pass order

within onemonth from the end of

month inwhich direction is received

Can the taxpayer appeal before

CIT(A) and pursue traditionalavenues?

Scenario II:

Scenario III:

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Remedy available after order is passed pursuant

todirections of DRP

• Taxpayer has a right to submit an appeal petition to ITAT(INCOME TAX APPELLET TRIBUNAL) against order of tax authority

• Tax authority has no right to appeal to ITAT. Tax authority has no right to file cross objections to ITAT. Tax authority however, will have right of hearing before ITAT

• Proceedings before ITAT would be as per conventional manner being followed by ITAT

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MUTUAL AGREEMENT PROCEDURE

Mutual Agreement Procedure• Mutual Agreement Procedure (‘MAP’) is an alternate mechanism

incorporated into many tax treaties for the resolution of international tax disputes

– Scope limited to issues pertaining to tax treaties and does not extend to domestic tax laws

• Resolution of disputes through the intervention of the Competent Authorities (‘CAs’) of each state who evolve a mutually acceptable solution

– Possibility of dispute resolution through a negotiated settlement• Relief through MAP possible irrespective of remedies available under

domestic tax laws• Issues which can be tackled through MAP :—

– Disputes where taxpayer contends that he is being taxed in a manner not in accordance with the tax treaty

– Issues relating to interpretation of terms appearing in the tax treaty

– Elimination of double taxation in cases not covered by tax treaties

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MAP and Indian rules

Rule 44G• Applicable to resident

assessee• Aggrieved by action of

the tax authority outside India

• Such action is not in accordance

• with the agreement or tax laws May make an application to CA in India to invoke MAP

Example: Indian SoftwareCompanies affected by Taxationin Japan and sought the help ofIndian CA to resolve the issue

Rule 44H• Indian CA receives a

reference from CA outside India

• Indian CA shall call for and examine the relevant records

• Indian CA shall endeavour to arrive at a resolution

• Resolution arrived at shall be communicated to DGIT or CCIT wherever necessary

• Assessee can give his acceptance to the resolution and withdraw the appeal under traditional avenues

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MAP — Procedure

MAP request Admission

Con

su

ltatio

n

Negotiations RepresentationSolution

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MAP — ProcedureBRIEF

1. MAP request:• Tax payer to make a MAP request to the home country CA • Request can be made where there is double taxation or taxation inconsistent with treaty

2. Admission:• Application admitted at CA’s discretion• CA can call for additional information from tax payer at this stage

3.Consultation:• Where issue cannot be resolved unilaterally by home country CA, Host country CA called upon

for dispute resolution

4. Representation:• Tax payer may be requested to make written or oral representations

5. Negotiations:• CAs initiate negotiation and attempt to reach an amicable resolution• Taxpayer typically not directly involved in the process however he may be called upon to make

submissions

6. Solution:• Proposed agreement communicated to the Taxpayer for his acceptance• Solution to be given effect to within 90 days, if taxpayer consents

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MAP vis-à-vis domestic appeal process

Criteria

Time frame

Approach

Double taxMitigation

Finality

MAP

Generally 2 to 3 years

More scope for negotiation/compromise. CAs

could agree on a “middle path”

Possibility of avoiding double tax impact through

correlative relief

Greater chance of reaching finality, decision of CAbinding on Revenue

Appeal

Can range from 7 to 12 years, depending upon

level

Legalistic approach, no negotiations

Double tax exposure if appeal is against taxpayer;

correlative relief to be separately pursued

Revenue can prefer further appeal if order is in

taxpayer’s favorby ishan & Atmiya

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Advance Pricing Agreements

The OECD guidelines Chapter IV sub-part F(1) define APA as:

“An arrangement that determines, in advance (emphasis added) of controlled transactions, an appropriate set of criteria (e.g., method, comparables and appropriate adjustments thereto, critical assumptions as to future events) for the determination of the transfer pricing for those transactions over a fixed period of time.”

Features of APA• Agreement between taxpayer and host country’s tax authority for fixed Transfer

APA — Definition

• Initiated before actual transaction takes place

• Aims at solving potential taxation dispute in a co-operative manner

• Seeks to determine an appropriate set of criteria for the computation of the

transfer price (including TP method to be applied, critical assumptions, etc.)

• Tax authority cannot challenge the determination of the arm’s length price during

the audit proceedings

• Can be applied for variety of transactions such as sale/purchase of goods,

provision/receipt of services, intangibles, cost sharing, etc.by ishan & Atmiya

Types of APA

Unilateral

Bilateral

Multilateral

APA between taxpayer and tax authority of domestic country

APA between taxpayer and two tax authorities

APA between taxpayer and multiple tax authorities

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Stages in an APAStage 1: Preparatory stage:•Initial stage wherein both the taxpayer and tax authorities assess feasibility and possibility of concluding an APA•The taxpayer is required to provide a broad outline of its case at the time of filing its expression of interest/request for a prefiling meeting

Stage 2 : Formal application•The prefiling discussion is followed by filing of a formal application by the taxpayer for the APA•The documents and information required to be submitted with the APA

application varies from country to country•The formal application would normally include full details of the proposed TPM and be supported by relevant information

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Stage 3 :Analysis and evaluation•After receipt of the formal application the tax authorities undertake evaluation of the details of the transaction under examination and other information submitted by the taxpayer•In their meeting with the taxpayer the review team/tax authorities discuss the information submitted and, if necessary, request any further information deemed relevant to consider the proposed TPM

Stage 4 : Draft APA negotiations•This stage can be seen as the most crucial part of the entire APA scheme•In this stage, the taxpayer and the tax authorities have opportunities to express, argue, substantiate and negotiate their understanding•After approval of preliminary conclusion, the tax authorities further negotiate with the taxpayer on APA terms

Stage 5 : Signing of APA•Last stage in the process of finalization of an APA•Legal representatives or their appointed persons from both sides should formally•sign the Advance Pricing Agreementby ishan & Atmiya

Advantages of APA• Certainty of tax treatment

• Freedom from transfer pricing penalties and audits

• Avoidance of double taxation in BAPA

• Avoidance of potential examination/controversy procedures

• Narrowing of record keeping obligations

• Time and cost savings

• Undertaken in co-operative manner, allows flexibility and efficiency in arriving at appropriate transfer pricing methodology

• Assist tax authority in gaining insight into complex international transactions

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INCOME TAX SETTLEMENT COMMISSION

AN EFFECTIVE TOOL FOR TAX DISPUTE RESOLUTION:

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SETTLEMENT COMMISSION

Settlement Commission constituted by central government under section 245B of IT Act,1961 is known as INCOME TAX SETTLEMENT COMMISSION.

It includes Chairman, the Vice Chairman and other members to deal with assessment or reassessment or appeal or revision in connection with such assessment or reassessment, which may be pending before Income tax authority.

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JURISDICTION AND POWER OF COMMISSION

Jurisdiction, power and authority of the settlement commission may be exercised by benches thereof.

Benches shall be presided over by the chairman or a vice chairman and shall consist of two members.

The bench for which chairman is the presiding officer shall be the principle bench and others shall be known as additional bench.

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The Chairman may authorize the Vice-Chairman or other Member appointed to one Bench to discharge also the functions of the Vice-Chairman or, as the case may be, other Member of another Bench.

When one of the persons constituting a bench  is unable to discharge his functions owing to absence or illness, the remaining two persons may function as the Bench and if the Presiding Officer of the Bench is not one of the remaining two persons, the senior among the remaining persons shall act as the Presiding Officer of the Bench.

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Vice chairman to act as Chairman

In the event of the occurrence of any vacancy in the office of the Chairman by reason of his death, resignation or otherwise, the Vice-Chairman or, as the case may be, such one of the Vice-Chairmen as the Central Government may, by notification in the Official Gazette, authorize in this behalf, shall act as the Chairman until the date on which a new Chairman, appointed in accordance with the provisions of this Chapter to fill such vacancy, enters upon his office.

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APPLICATION FOR SETTLEMENT OF CASES (Section: 245C)

An assessee may, at any stage of a case relating to him, make an application in such form and in such manner as may be prescribed, and

containing a full and true disclosure of his income which has not been disclosed before the Assessing Officer, the manner in which such income has been derived, the additional amount of income-tax payable on such income and such other particulars as may be prescribed,

to the Settlement Commission to have the case settled and any such application shall be disposed of in the manner hereinafter provided:

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Provided that no such application shall be made unless:

(i) The assessee has furnished the return of income which he is or was required to furnish under any of the provisions of this Act; and

(ii)The additional amount of income-tax payable on the income disclosed in the application exceeds one thousand rupees.

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Procedure on receipt of an application under section 245C

On receipt of an application under section 245C, the Settlement Commission shall call for a report

from the Commissioner and on the basis of the materials contained in such report or the complexity of the investigation involved therein,

The Settlement Commission, shall, where it is possible, by order, reject the application or allow the application to be proceeded with within a period of one year from the end of the month in which such application was made under section 245C.

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Subject to the provisions of sub-section (2B), the assessee shall, within thirty-five days of the receipt of a copy of the order under sub-section (1) allowing the application to be proceeded with, pay the additional amount of income-tax payable on the income disclosed in the application and shall furnish proof of such payment to the Settlement Commission.

 Where the additional amount of income-tax is not paid within the time specified under sub-section (2A), the assessee shall be liable to pay simple interest at fifteen per cent per annum on the amount remaining unpaid from the date of expiry of the period of thirty-five days referred to in sub-section (2A)

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Where an application is allowed to be proceeded with under sub-section (1), the Settlement Commission may call for the relevant records from the Commissioner and after examination of such records, if the Settlement Commission is of the opinion that any further enquiry or investigation in the matter is necessary, it may direct the Commissioner to make such further enquiry or investigation and furnish a report on the matters covered by the application and any other matter relating to the case.

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POWER TO ORDER PROVISIONAL ATTACHEMENT TO PROTECT REVENUE

Where, during the pendency of any proceeding before it, the Settlement Commission is of the opinion that for the purpose of protecting the interests of the revenue it is necessary so to do, it may, by order, attach provisionally any property belonging to the applicant.

Every provisional attachment shall cease to have effect after the expiry of period of six months.

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POWERS AND PROCEDURES OF SETTLEMENT COMMISSION

In addition to the powers conferred, it shall have all the powers which are vested in an income-tax authority.

Where an application made under section 245C has been allowed to be proceeded with under section 245D, the Settlement Commission shall, until an order is passed have, exclusive jurisdiction to exercise the powers and perform the functions of an income-tax authority.

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The Settlement Commission shall, subject to the provisions of this Chapter, have power to regulate its own procedure and the procedure of Benches thereof in all matters arising out of the exercise of its powers or of the discharge of its functions.

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ORDER OF SETTLEMENT TO BE CONCLUSIVE

Every order of settlement passed under sub-section (4) of section 245D shall be conclusive as to the matters stated therein and no matter covered by such order shall, save as otherwise provided in this Chapter, be reopened in any proceeding under this Act or under any other law for the time being in force.

SLP BEFORE SUPREME

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INTRODUCTION

Under Article 136 of the Constitution of India any person aggrieved by any judgment, decree, determination or order in any cause or matter passed or made by any Court or Tribunal in the territory of India

May make an appeal to the Supreme Court of India. Accordingly a person aggrieved by any order or judgment of High Court or of Tribunal may appeal to the Supreme Court by filing Special Leave Petition.

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PROCEDURE FOR FILLING SPECIAL LEAVE PETITION

Time limit:

(i) If the Petition is filed against the Judgment of the High Court, the time limit is 90 days from the date of Judgment/Order.

(ii) If the Petition is filed against the Order of High Court refusing to grant Certificate of Fitness for Appeal, the time limit is 60 days from the date of Order refusing to grant Certificate.

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PREPARATION OF PETITIONThe petition should state succinctly all facts

as may be necessary to enable the Court to determine whether SLP ought to be granted or not! The petition should be signed by Advocate on record of the Petition.

The petition should be accompanied by a certified copy of the judgment appealed against and an affidavit of Petitioner verifying the petition.

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The annexure to the Petition; i.e., Exhibits to the Petition should be certified copies of documents which had formed part of the record in the High Court. If the certified copies are not available, uncertified copies can be filed and an affidavit verifying the Annexure as true copy should also be filed.

Affidavit verifying the petition is required to be filed along with the SLP. It should be typed on plain white paper;

If the petition is filed beyond 60/90 days the affidavit should be filed explaining the time taken for obtaining certified copy and/or the reason for delay.

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INTERIM RELIEF

If any interim relief is required a separate application should be filed giving facts and circumstances as to why interim relief is sought from the Court.

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Thanking You…