In this article, the author attempts to address the issue: whether DRP has been an effective mechanism. After making analysis of the relevant provisions and drawbacks of the DRP scheme, he opines that it does not seem to be of any benefit to the assessee; it has not been as effective as it was envisioned. The assessee has to either go through the same prolonged appellate structure or be subjective of the drawbacks of the DRP.
Introduction
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A long wait of the foreign investors having their business establishments in India for speedy adjudication in income-tax disputes on foreign transaction came to an end upon the proposal of the Dispute Resolution Panel (‘DRP’) by the Finance Minister in the budget session 2009.
Background of DRP
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The DRP was formed by the insertion of section 144C in the Income-tax Act, 1961. The object of this section can be gathered from the notes and clauses when it was introduced, which states as under:
“The subjects of transfer pricing audit and the taxation of foreign company are at nascent stage in India. Often the Assessing Officers and Transfer Pricing Officers tend to take a conservative view. The correction of such view take very long time with the existing appellate structure. With a view to provide speedy disposal, it is proposed to amend the Income-tax Act so as to create an alternative dispute resolution mechanism within the income-tax department and accordingly, section 144C has been proposed to be inserted so as to provide inter alia the Dispute Resolution Panel as an alternative dispute resolution mechanism.”
With this intention, the DRP was introduced to shorten the length of tax disputes in international transactions involving computation of Arm’s Length Price. The composition of DRP is provided under section 144C(15)(a) which means a collegium of three Commissioners of Income-tax constituted by the Board. DRP is a quasi-judicial authority and it is obligatory on its part to ascribe cogent and germane reasons for its finding is the heart and soul of the matter. The proceedings before the DRP are regulated by the Income-Tax (Dispute Resolution Panel) Rules, 2009.