2016 (7) TMI 928 - HC - Income Tax

Consistent stand in litigation vital for Revenue, transfer pricing applies to international transactions only.

The Court emphasized the importance of the Revenue maintaining a consistent stand in litigation, ensuring equal application of the law. It clarified that ... Quality of representation on behalf of the Revenue - Inconsistent stand being taken by the Revenue in different appeals raising identical issues. - Maintenance of website to keep the record and status of cases before the courts. On browsing the site, it is evident that the activity of monitoring and updating the site has been outsourced to a private party. One key area that must be borne in mind is authenticity of the information uploaded and updated. If in future the requirements increase the software must be scalable and in any event must be compatible with system of the department. In the event of the third party service provider being different at any point in time, the data available on the site after the change of service provider cannot be put to risk of loss of content and/or authenticity. This will ensure a stable and dependable resource for research and representation. We trust the above concern would have been taken care of by the Revenue. There are a large number of appeals filed by the Revenue from the orders of the Income Tax Appellate Tribunal. However, we find that the distribution of work amongst the panel lawyers is not equitable and also without any consideration of the issue of law involved vis-a-vis the experience of the Advocate briefed. Moreover, we find that most matters are distributed amongst a few Advocates with the result we have occasions where a single Advocate appears in eight/nine matters a day. This indeed is expecting the moon from the panel Advocate. Resultantly, the preparation suffers, leading to inadequate performance. It would therefore be appropriate to have more number of Advocates on the panel and distribute work amongst them. This would at least give an opportunity to the Advocate to prepare properly for appropriate representation. We hope the Revenue would consider our observations and make attempts to ensure that it is properly represented. This can only happen when meritorious Advocates are appointed. This would ensure that the Officers of the Revenue would value his advise as a learned man of experience and not treat him as an employee, merely because he is appointed at the instance of the Commissioner of Income Tax. Issues Involved:1. Inconsistent stand by the Revenue in appeals raising identical issues.2. Scope of transfer pricing adjustment concerning international transactions.3. Failure of the Revenue to inform the Court about prior admissions of similar issues.4. Need for a consistent approach by the Revenue in litigation.5. Measures for improving representation by the Revenue in court.6. Appointment and performance evaluation of panel counsel for the Revenue.Detailed Analysis:1. Inconsistent Stand by the Revenue in Appeals Raising Identical Issues:The Court addressed the problem of the Revenue taking inconsistent positions in different appeals that raise identical issues. This inconsistency arose because the Revenue failed to inform the Court about prior admissions of similar issues, leading to the dismissal of subsequent appeals. The Court emphasized the importance of maintaining a consistent stand to ensure that the law is applied equally to all.2. Scope of Transfer Pricing Adjustment Concerning International Transactions:The appeal raised by the Revenue questioned whether transfer pricing adjustment consequent to arriving at Arms Length Price (ALP) should be restricted only to international transactions or extended to all business transactions of the assessee. The Court referred to previous decisions where it was held that adjustments on account of transfer pricing are restricted only to international transactions and not to all transactions, including those with non-Associated Enterprises.3. Failure of the Revenue to Inform the Court About Prior Admissions of Similar Issues:The Court noted that the Revenue failed to bring to its notice an earlier order admitting an appeal on the same issue. This failure occurred despite the Revenue and its Counsel being aware of the decision. The Court expressed its inability to understand why the Revenue did not take a consistent view and point out favorable decisions in subsequent appeals, especially when a Commissioner (Judicial) was appointed to oversee litigation on behalf of the Revenue.4. Need for a Consistent Approach by the Revenue in Litigation:The Court highlighted the necessity for the Income Tax Department to have a system to keep a record of questions of law that have been admitted or dismissed by the Court. This system would enable the Revenue to take a consistent stand when similar questions arise before the same or different Benches of the Court. The Principal Chief Commissioner of Income Tax was directed to place on record the steps being taken to ensure consistency.5. Measures for Improving Representation by the Revenue in Court:The Court discussed the steps taken by the Revenue to ensure proper representation, including sensitizing officers to maintain consistency in preferring appeals and the implementation of a 'Legal Corner' on the Income Tax Department's website. The Court also emphasized the importance of authenticity and scalability of the website's information. Additionally, the Court suggested that the framing of substantial questions of law should involve the Advocates briefed to draft the appeal, with the aid of the Officers of the Revenue.6. Appointment and Performance Evaluation of Panel Counsel for the Revenue:The Court referred to the CBDT's instructions on the appointment of panel counsel and emphasized the need to engage the most competent lawyers to represent the Revenue. The Court cited the Supreme Court's judgment in State of Punjab V. Brijeshwar Singh Chahal, which highlighted the obligation of public bodies to select the most meritorious lawyers. The Court suggested including State law officers in the selection panel and stressed that the performance of Advocates should be judged by their performance in court, not merely by the number of cases won.Conclusion:The Court directed the Registry to send a copy of the order to the Chairman of the Central Board of Direct Taxes (CBDT) and the Principal Commissioner of Income Tax. The appeal was scheduled to come up for consideration in the regular course. The Court's observations and suggestions aimed to ensure that the Revenue is properly represented in court by meritorious Advocates, thereby serving justice better.