TAX NEWS - DECEMber 2009

India Tax: India issues rules on new dispute resolution panel

India's Central Board of Direct Taxes (CBDT) has issued rules to regulate the procedures of the new Dispute Resolution Panel (DRP), an alternative dispute resolution mechanism to facilitate the expeditious resolution of tax and transfer pricing disputes and provide more certainty for taxpayers. The availability of the DRP was first announced in the 2009 budget. The rules came into effect on 20 November 2009 (the date they were published in the Official Gazette) and provide specific procedures to be followed by eligible taxpayers.

According to the rules, DRP panels will be set up in eight cities (Delhi, Mumbai, Ahmedabad, Kolkata, Chennai, Hyderabad, Bangalore, and Pune) and will be established at the discretion of the CBDT based on the territorial workload and efficiency. The CBDT will assign three commissioners of income tax as members of each panel, who, in addition to their regular duties as commissioners, will also carry on the functions of DRP. The chief commissioner of income tax will act as the secretariat to each DRP and will be responsible for receiving objections and issuing notices, correspondence, and directions on behalf of the DRP. The DRP mechanism is applicable in cases in which an adjustment (relating to transfer pricing/corporate tax) is proposed to be made on or after 1 October 2009 in respect of any eligible taxpayer.

Taxpayers subject to transfer pricing adjustments and foreign companies may object to a draft order issued by the tax authorities by filing a specific form (new Form 35A) with the DRP within 30 days from the date the adjustment/draft order is sent. If a taxpayer has been subject to a transfer pricing adjustment and also has some corporate tax adjustments to which it objects, both objections must be presented together.

The DRP will hold a hearing on the issue and has discretion to accept or reject documents that were not included with the document establishing the detailed grounds of appeal (against the final assessment order) and to require the taxpayer to produce additional documentation or witnesses. The DRP also has authority to consider any matter arising out of the proceeding and is not confined to the matters set forth in the taxpayer's objection. On conclusion of the hearing, the DRP will issue directions to the taxpayer and the assessing officer within nine months from the end of the month in which the draft order was forwarded to the taxpayer. Based on these directions, the assessing officer will issue a final assessment order.

The DRP's directions are binding on the assessing officer, but the taxpayer can appeal the order to the Appellate Tribunal and therefore bypass normal appeal proceedings of the commissioner of income tax (Appeals). Any appeal to an assessment order issued pursuant to the direction of the DRP must be filed in the prescribed format (Form No. 36B).