The Delhi High Court has asserted that any authority is bound to provide copies of the documents it relies upon to the party against whom proceedings are being conducted. The failure of an authority, in this case the Transfer Pricing Officer (TPO), to supply copies of agreements that form the basis of its findings constitutes a violation of the principles of natural justice. This failure adversely impacts the taxpayer’s right to an effective defence, especially in complex matters like transfer pricing where comparability analysis is crucial.
The Division Bench comprising Justice Dinesh Mehta and Justice Vinod Kumar observed that the petitioner’s prayer for copies of the relied-upon documents was not unreasonable. The Bench noted that in transfer pricing matters, various factors such as the ‘nature of business’, ‘nature of transactions’, and the ‘goodwill involved’ of a contracting party are critical.
Since the core issue was whether the petitioner had paid excess royalty, the Bench opined that unless the agreements forming the basis of the TPO’s proceedings were provided, the petitioner’s right to defend its cause would be adversely impacted. The Bench, therefore, set aside the TPO’s order, deeming it to have been passed without affording a proper opportunity to the petitioner by not providing the relied-upon agreements.
Briefly, the petitioner filed a petition challenging an order passed by the TPO under Section 92CA(3). During the proceedings, the TPO issued a show cause notice which relied on four specific agreements. The petitioner requested copies of these agreements to prepare its reply, but the TPO refused, stating that the Act does not envisage providing such copies.
The petitioner contended that without these agreements, it could not effectively defend its case, as factors like the parties involved, nature of the agreements, and activities could differ, thereby adversely affecting its ability to respond to the TPO’s findings on pricing. The respondents argued that the agreements were available on the ‘Royalty stat database’ and that the petitioner’s objections could be raised before the Dispute Resolution Panel (DRP).
Appearances:
Advocates Ananya Kapoor, Soumya Singh and Aanjul, for the Petitioner
Advocates Gaurav Gupta, Shivendra Singh, Yojit Pareek, and Surya Jindal, for the Respondent
