Challenges in TP Assessment Proceedings

Challenges in transfer pricing, assessment proceedings bring heavy disputes before tax department for adequate back-up documentation to be maintained which help to justifies the basis on which price sitting has been done. Following in nature of disputes rise to said facts -

(a)  Maintain Contemporaneous data / Price Sitting / Its Negotiation.

(b)  Years end documentation summarizing the outcomes.     

(c)  Transfer pricing audit defense.

In reference to the above disputes in nature, the taxpayer manages to maintain the years end documentation to summarizing the outcome, but not able to maintain contemporaneous data/pricing sitting and its negotiation.

This result in –

1.    Surprise of the time of assessment proceedings.

2.   Possibility of not being able to provide appropriate information/documentation thus weakening in transfer pricing defense strategy.

3.    Potential TP adjustment.

4.    Revenue authorities concluding the case in ad-hoc manner, in absence of required information / documentation.

Normal Dispute Resolution Mechanisms

1.    Tax Officer - Initial Case before Tax Officer.

2.   CIT(A) / DRP - Appeal against the order of tax officer to CIT(A) / DRP - Commissioner of Income (Appeal) / Dispute Resolution Panel.

3. ITAT - Appeal against the order of CIT(A) / DRP to ITAT - Income Tax Appellate Tribunal.  

4.  High Court - Appeal against the order of ITAT to High Court

5.  Supreme Court - Appeal against the order of the High Court to Supreme Court

-      Most tax disputes are dealt with under traditional dispute resolution mechanisms.

-      Each level of hierarchy involves a substantial period of time to outcomes.

-      At times, cases at lower levels are passed in favour of the tax department.

-      Biggest disadvantage – It could tax several years to achieve certainty in the tax position.