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Tax Assessment Jurisdiction Lost Due To Premature Order: Court Quashes Drp Directions - Court Ruled That A Premature Tax Assessment Order Resulted In The Loss Of Jurisdiction For The Dispute Resolution Panel (drp), Leading To The Quashing Of Drp Directions

  20 September 2023       Share Bookmark

Court :
High Court Of Judicature At Bombay
Brief :

Citation :

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The case's issue is a disagreement over the petitioner, Undercarriage and Tractor Parts Pvt. Ltd., and their income tax assessment for the assessment year 2015–2016. The petitioner's objections to the assessment order, the Dispute Resolution Panel's (DRP) subsequent involvement, and the validity of the DRP's directives are the main points of contention in this case. The central point of contention in this legal proceeding is whether the DRP had the authority to issue directions after the assessment order had been passed.



  1. Section 139(1)/ (3): Pertaining to the filing of income tax returns.
  2. Section 92: Definition of "Associate Enterprises" (AE) for the purpose of transfer pricing.
  3. Section 143(2): Relating to the issuance of notices for scrutiny assessments.
  4. Section 92CA (1): Concerning the reference to the Transfer Pricing Officer (TPO) for determining the Arms Length Price (ALP) of international transactions.
  5. Section 92CA (3): Pertaining to the TPO's order proposing adjustments to related party transactions.
  6. Section 143(3): Relating to the final assessment order passed by the Assessing Officer.
  7. Section 144C (1): Concerning draft assessment orders in transfer pricing cases.
  8. Section 144C (2): Regarding the mandatory period for filing objections to draft assessment orders.
  9. Section 144C (3): Pertaining to the completion of assessment based on the draft order, subject to the acceptance of variations by the assessee.
  10. Section 144C (4): Relating to the timeframe for passing the assessment order after the acceptance of variations or the expiry of the objection filing period.
  11. Section 144C (5): Concerning the authority of the Dispute Resolution Panel (DRP) to issue directions for the guidance of the Assessing Officer.
  12. Section 144C (6): Regarding the factors considered by the DRP when issuing directions.
  13. Section 144C (7): Pertaining to further inquiries and reports by the DRP.
  14. Section 144C (8): Concerning the powers of the DRP to confirm, reduce, or enhance proposed variations.
  15. Section 144C (11): Relating to providing an opportunity for being heard to the assessee and the Assessing Officer before issuing directions prejudicial to their interests.
  16. Section 144C (12): Regarding the time limit for issuing directions by the DRP.
  17. Section 144C (13): Concerning the completion of assessment by the Assessing Officer in conformity with the DRP's directions.



Undercarriage and Tractor Parts Pvt. Ltd. is the petitioner in this case, and they are contesting a 2015–2016 income tax assessment. The legality of the actions taken by the Dispute Resolution Panel (DRP) and the legality of the assessment order issued by the Income Tax authorities are at the heart of this disagreement.

  1. Undercarriage and Tractor Parts Pvt. Ltd., the petitioner, submitted its income tax return for the assessment year 2015–2016 and reported a loss of Rs. 11,69,32,126/-.
  2. In April 2016, the income tax authorities sent out a notice after beginning a Computer-Assisted Scrutiny Selection (CASS) process to examine the petitioner's return.
  3. The case was forwarded to the Transfer Pricing Officer (TPO), who suggested an adjustment to the reported transactions because of international and domestic transactions with Associate Enterprises (AE).
  4. In December 2018, the Income Tax authorities issued a draught assessment order based on the TPO's adjustment, estimating the petitioner's income to be Rs. 1,24,01,490 and proposing interest and penalty proceedings.
  5. The petitioner let the Income Tax authorities know that it planned to raise objections before the DRP and asked that the final assessment order be withheld pending the outcome of those objections.
  6. The Income Tax authorities disregarded this request and issued the final assessment order in December 2018 without waiting the required 30-day period stipulated by Section 144C(2) of the Income Tax Act.
  7. The petitioner then challenged the assessment order in an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)].
  8. Despite the petitioner's objections, the DRP issued directions in September 2019 and a new assessment order in October 2019.
  9. The main questions in the case are whether the DRP had the legal right to give instructions following the passage of the assessment order and whether the subsequent assessment order is legitimate.
  10.  The petitioner contends that the DRP's actions and the ensuing assessment order are invalid based on the strict interpretation of taxation statutes.



Whether the Dispute Resolution Panel (DRP) had the legal authority to issue directions under Section 144C(5) of the Income Tax Act after the conclusion of assessment proceedings with the issuance of the assessment order by the Income Tax authorities in December 2018?


  1. The petitioner was represented by Mr. Riyaz Padvekar, along with Mr. Tanzil Padvekar and Ms. Tejal Kharkar.
  2. According to the petitioner, the assessment order that the Income Tax authorities issued in December 2018 was prematurely passed, contravening the legal deadline stipulated in Section 144C(2) of the Income Tax Act, which calls for a 30-day window for submitting objections to draught assessment orders.
  3. The petitioner argued that the Dispute Resolution Panel's (DRP) jurisdiction was terminated once the assessment order was issued, even if it was premature. The petitioner claimed that since there were no active assessment proceedings, the DRP lacked the authority required by Section 144C (5) to issue directives.
  4. The petitioner emphasised that they had already filed an appeal with the Commissioner of Income Tax (Appeals) [CIT(A)], and that they had informed the DRP about the assessment order that had been issued prematurely. The petitioner argued that the DRP ought to have taken this request into consideration and held off on giving instructions.
  5. The petitioner emphasised that the taxation statute must be strictly interpreted and that equity has no place in taxation, relying on principles of strict interpretation of taxing statutes. In their view, any ambiguity in the statute should be resolved in the assessee's favour.
  6. The petitioner made the point that the DRP's actions and the ensuing assessment order may have an adverse effect on the taxpayer because they may make it impossible to enact a valid assessment order in accordance with Sections 143(3) or 147 of the Income Tax Act.
  7. The petitioner might have insisted that the Income Tax Act's Section 144C(2) explicitly calls for a 30-day waiting period before submitting objections after receiving the draught assessment order. They might have emphasised how important it is for taxpayers to carefully review the order and formulate their objections during this waiting period.
  8. The petitioner might have argued that allowing the DRP to give instructions following the assessment order's passage might give the DRP too much discretion, resulting in arbitrary choices and potential unfairness to taxpayers.
  9. The petitioner might have emphasised the value of following the rules and regulations set forth by law. They could have argued that this compliance is necessary to protect taxpayer rights and uphold the fairness of the tax assessment process.
  10. The petitioner might have argued that permitting the DRP to give instructions following the issuance of the assessment order might result in inefficiencies in the tax assessment procedure. It might lead to drawn-out proceedings, which would affect how final assessments are and would be confusing for taxpayers.
  11. The petitioner should have emphasised the significance of establishing legal precedents and ensuring consistency in the application of tax law. They might have argued that allowing the DRP to give instructions in these situations might result in ambiguity and inconsistency in later cases.


  1. The respondent was represented by Mr. Suresh Kumar.
  2. As required by Section 144C(2) of the Income Tax Act, the petitioner failed to submit objections to the draught assessment order within the allotted 30-day window, resulting in the validity of the assessment order.
  3. As long as the objections were submitted within the prescribed deadline, the DRP had the legal right to give instructions even after the assessment order had been made.
  4. The alleged prematurity of the assessment order from December 24, 2018, should not invalidate it because it was legally sound.
  5. It is a major concern that disregarding the DRP's instructions and the subsequent assessment order could harm the government's ability to collect back taxes that are owed.
  6. The Income Tax Act should be interpreted so that the government can fairly and effectively assess and collect taxes in accordance with the law.
  7. Considering that the petitioner had the chance to submit timely objections, the alleged premature assessment order shouldn't have rendered the DRP's instructions invalid.
  8. As intended by the Income Tax Act, it is essential to maintain the DRP's function in resolving disagreements involving transfer pricing and related-party transactions.
  9. In order to preserve the credibility of the assessment process, taxpayers must follow all statutory deadlines and procedures, including timely filing of objections.
  10. Enabling the DRP to give instructions even after a hasty assessment order guarantees accuracy of tax assessments and avoids arbitrary judgements.
  11. While acknowledging the difficulties the petitioner is facing as a result of the premature assessment order, it is important to strike a balance between protecting taxpayer rights and allowing the government to efficiently assess and collect taxes.


The Court decided in favour of the petitioner after conducting a judgement analysis of the case, invalidating the DRP's directives and the ensuing assessment order. Here is a succinct breakdown of the ruling:


  1. The Income Tax Act's Section 144C(2), which stipulates a 30-day window for filing objections to draught assessment orders, was cited by the Court in order to emphasise the significance of following statutory deadlines.
  2. The Court decided that the DRP no longer had jurisdiction once the assessment order had been prematurely passed, and that it was therefore ineligible to issue directions under Section 144C(5) in the absence of any ongoing assessment proceedings.
  3. Taking into account the premature assessment order and the ongoing appeal before the CIT(A), the Court noted the petitioner's request for the withdrawal of objections.
  4. The Court emphasised that tax statutes must be strictly interpreted in the assessee's favour when there is ambiguity and applied the principle of strict interpretation to tax matters.
  5. In order to avoid confusion and inconsistencies in subsequent cases, the judgement aimed to uphold legal precedents and ensure clarity in the interpretation of tax law.
  6. The Court emphasised the importance of equity in taxation by striking a balance between the taxpayer's interests and the government's need to efficiently assess and collect taxes.
  7. In the end, the Court ruled in the petitioner's favour, nullifying the September 16th DRP directives and the ensuing October 31st assessment order.
  8. The Court cited legal precedents that back up strict interpretation of tax laws and the requirement to safeguard taxpayer rights.
  9. The judgement took into account the effectiveness and finality of the evaluation process, ensuring that evaluations are carried out in accordance with the law.
  10. The Court did not issue a cost order, indicating that the petitioner's case was strong enough to be supported by the provided legal arguments.


In conclusion, the Court's decision in this case highlighted how crucial it is to follow the law's deadlines when it comes to taxation. The Dispute Resolution Panel's jurisdiction was lost as a result of the premature assessment order, making both the assessment order and the panel's subsequent instructions invalid. The Court's decision, which adhered to the principle of strict interpretation in taxation statutes, struck a balance between taxpayer rights and the government's need for effective tax assessment. This decision ensures that tax law interpretation is fair, clear, and consistent with legal precedents, ultimately benefiting both taxpayers and the government.

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