SC asks I-T dept, HCL Technologies to take the ADR route

The Supreme Court has asked the income tax department and HCL Technologies to resolve a dispute concerning international transactions through the Alternate Dispute Resolution Mechanism.      

"We are of the view that in the peculiar facts and circumstances of this case... It would be in the interest of both sides to resort to Alternate Dispute Resolution Mechanism suggested in the Budget of 2009," said a bench headed by Justice S H Kapadia.       

The apex court order has come in a transfer-pricing case pertaining to purchase of services by HCL Technologies BPO Services Ltd, a wholly-owned subsidiary of Mauritius-based E-serve Holding and HCL Venture Capital Ltd, from its associated enterprises during 2005-06.     

Under the transfer-pricing laws, the international transactions between associated enterprises must take place at the arm's length price (ALP), which is the price at which the goods or services can be sold or purchased from unrelated parties.     

The Delhi High Court had quashed the Transfer Pricing Officer's (TPO) order that determined the ALP for international transcations entered by HCL with its associated enterprises in 2005-06.

The High Court had also asked the department to commence proceedings afresh and give opportunity of personal hearing to HCL.      

According to the department, the TPO while determining the ALP under Section 92CA of the Income Tax Act 1961 had given adequate and reasonable opportunity of hearing to HCL.     

The High Court had set aside the TPO's order without appreciating the entire factual matrix, Additional Solicitor General Vivek Tankha submitted, adding that the determination of ALP of international transcations was a continous process involving various steps, including giving personal hearing to the assessee at every stage.     

"Adequate opportunities of hearing was granted to the assessee before final determination of ALP... Determination of ALP was based on holistic appreciation of oral submissions as well as documentary evidence produced by the assessee," the petition said.     

It said that the order was passed after HCL had replied to all the showcause notices and appeared before the TPO who gave sufficient opportunity to the company.