The Dispute Resolution Panel (DRP): Concept, Scope and Appellate Framework under the Income-tax Act, 1961

 

1. Introduction

The Dispute Resolution Panel (DRP) is one of the most significant innovations introduced in India’s income-tax dispute resolution architecture. Created by the Finance (No. 2) Act, 2009, the DRP was intended to provide fast-track, non-adversarial, and multi-member dispute resolution for eligible taxpayers—primarily foreign companies and cases involving transfer pricing adjustments. In subsequent years, the scope of DRP has been expanded, and the mechanism has acquired central importance in international taxation and high-value assessment matters.

 

This article examines the concept of DRP, the procedural framework, the binding nature of DRP directions, and the remedies available to taxpayers through an appeal before the Income Tax Appellate Tribunal (ITAT).

 

2. Statutory Basis – Section 144C

Section 144C of the Income-tax Act provides the legislative foundation for the DRP mechanism. It introduces the concept of a “draft assessment order” and enables the eligible assessee to approach a collegium of Commissioners (the DRP) instead of undergoing the traditional first appellate process before the CIT(A).

 

2.1 Eligible Assessees

DRP route is mandatory for:

Foreign companies, and

Cases involving transfer pricing adjustments made by the Transfer Pricing Officer (TPO),

and is available wherever the AO proposes any “variation prejudicial to the interest of the assessee”.

 

3. The Draft Assessment Order – Gateway to DRP

Instead of a final assessment order, the Assessing Officer (AO) must first issue a draft assessment order to such assessees under Section 144C(1). This is the operative trigger for the DRP procedure.

Upon receipt, the assessee has two choices:

                1.            Accept the draft order → AO passes the final order u/s 144C(3).

                2.            Object to the variations → File objections before the DRP within 30 days u/s 144C(2).

 

The DRP mechanism thus replaces the usual appeal before the CIT(A) at the first stage.

 

4. Constitution and Nature of the DRP

4.1 Composition

The DRP is a collegium of three Commissioners of Income Tax (CITs), notified by the CBDT.

 

4.2 Nature of Power

DRP functions as a quasi-judicial authority, empowered to:

Examine evidence,

Seek remand reports,

Call for further inquiries,

Issue directions binding on the AO.

 

Importantly, DRP cannot set aside the draft assessment but may enhance, reduce, or confirm the variations proposed by the AO.

 

5. Filing Objections before DRP

The assessee files objections in Form No. 35A within 30 days. The objections must be simultaneously submitted to:

AO,

TPO (if applicable), and

DRP.

 

The DRP then invites draft submissions, conducts hearings, and is required to issue directions within 9 months from the end of the month in which the draft order was forwarded.

 

6. DRP Directions – Binding but Non-Appealable

6.1 Binding Nature

Under Section 144C(10):

“The DRP shall issue such directions as it thinks fit. The Assessing Officer shall complete the assessment in conformity with such directions.”

 

Thus, the AO has no discretion—the final order under Section 143(3) r.w.s. 144C(13) must strictly follow DRP directions.

 

6.2 No revision or rectification by CIT

DRP directions and the final assessment order passed under 144C(13) cannot be revised under Section 263, as held in several ITAT and High Court rulings.

 

7. Appeal Against DRP Directions – Route to ITAT

7.1 No Appeal to CIT(A)

There is no statutory right of appeal to CIT(A) against DRP directions.

This is because:

DRP replaces the CIT(A) stage entirely,

The final order u/s 144C(13) is not appealable before CIT(A).

 

7.2 Only Remedy: Appeal to ITAT

The assessee may file an appeal directly to the Income Tax Appellate Tribunal under Section 253(1)(d):

 

“…an order passed by the Assessing Officer under section 143(3) or 144C(13) in pursuance of directions of the Dispute Resolution Panel.”

 

Thus, ITAT becomes the first appellate authority.

 

7.3 Time Limit

 

Assessee must appeal to ITAT within 60 days of receiving the final assessment order.

 

8. Scope of ITAT Review of DRP-Based Assessments

Although the DRP directions are binding on the AO, they are fully appealable before ITAT. ITAT may:

Delete additions,

Modify or reject DRP reasoning

Consider new evidence under Rule 29 of the ITAT Rules,

Examine legal and factual issues de novo.

 

Thus, ITAT functions as the complete appellate body for DRP cases.

 

9. Advantages of DRP Mechanism

a. Time-bound resolution

DRP must conclude the process within 9 months, ensuring faster closure.

 

b. Collegium-based decision

Multi-member panel reduces individual discretion and enhances objectivity.

 

c. No enhancement in penalty

DRP decides only quantum; penalty proceedings remain separate.

 

d. Taxpayer-friendly approach for foreign companies

DRP provides predictability and quicker resolution in complex cross-border taxation disputes.

 

10. Practical Challenges and Criticisms

Despite its promise, DRP is often criticized for:

Mechanical confirmations of AO/TPO orders,

Limited discussion of taxpayer submissions,

Heavy docket leading to brief orders,

Inability to remand matters back to AO,

No power to admit revision petitions or review its own directions.

 

However, the faceless DRP system under the faceless scheme attempts to improve transparency and reduce subjective variation.

 

11. Conclusion

The DRP mechanism represents a unique hybrid of assessment and appellate intervention in India’s tax administration. It aims to provide speed, certainty, and fairness, especially in cases involving foreign taxpayers and complex transfer pricing adjustments. While operational challenges remain, the DRP continues to be a crucial component of India’s dispute-resolution ecosystem.