The Income Tax Appellate Tribunal (ITAT), Mumbai Bench recommended the constitution of a Special Bench on a question of transfer pricing adjustment as notional interest and charging it to tax is disregarded under Article 11 of Indo Cyprus tax treaty.
The assessee-appellant, Ampacet Cyprus Limited has raised two separate, but materially identical, petitions seeking additional grounds of appeal which are materially similar except for the variation in respect of the quantum of the amount involved.
The assessee contended that the Assessing Officer and the Transfer Pricing Officer have erred in making transfer pricing adjustment of Rs 2,62,69,721 as notional interest and charging it to tax, disregarding the provisions of Article 11 of India Cyprus Double Taxation Avoidance Agreement (DTAA).
The Council on behalf of the assessee, in response to a question from the bench whether the expression ‘paid’ is defined under the treaty, and, if not, why should the meanings of expression ‘paid’, as assigned under section 43(2) of the Income Tax Act, 1961 be considered under Article 3(2) of Indo Cyprus tax treaty submitted that answering this question will need reference to a lot of papers. He then withdrew his consent for the virtual court and prayed that the matter be adjourned for hearing before a physical court.
The two-member bench headed by the Vice President, Pramod Kumar deemed fit and proper to refer the grounds of appeal to a special bench of three or more Members.
“It is, however, equally true that it is vital to the administration of justice that those exercising judicial power must have the necessary freedom to doubt the correctness of an earlier decision if and when subsequent proceedings bring to light what is perceived by them as an erroneous decision in the earlier case. In such circumstances, it is but natural and reasonable and indeed efficacious that the case is referred to a larger Bench,” the bench observed.
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