Income Tax 2025

Appearance

Reference to Dispute Resolution Panel. ​

275(1) ​

The Assessing Officer shall, irrespective of anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee, if he proposes to make any variation which is prejudicial to the interest of such assessee.

275(2) ​

On receipt of the draft order, the eligible assessee shall, within thirty days of its receipt,—

  • (a) file his acceptance of the variations to the Assessing Officer; or
  • (b) file his objections, if any, to such variation with,— (i) the Dispute Resolution Panel; and (ii) the Assessing Officer.

275(3) ​

The Assessing Officer shall complete the assessment on the basis of the draft order, if—

  • (a) the assessee intimates to the Assessing Officer the acceptance of the variation; or
  • (b) no objection is received within the period specified in sub-section (2).

275(4) ​

The Assessing Officer shall, irrespective of anything contained in section 286, pass the assessment order under sub-section (3) within one month from the end of the month in which,—

  • (a) the acceptance is received; or
  • (b) the period of filing of objections under sub-section (2) expires.

275(5) ​

The Dispute Resolution Panel shall, in a case where any objection is received under sub-section (2), issue such directions, as it thinks fit, for guidance of the Assessing Officer to enable him to complete the assessment.

275(6) ​

The Dispute Resolution Panel shall issue the directions as referred to in sub-section (5), in writing, stating the points of determination, the decision thereon and the reason for such decision.

275(7) ​

The Dispute Resolution Panel may, before issuing any directions referred to in sub-section (5),—

  • (a) make such further enquiry, as it thinks fit; or
  • (b) cause any further enquiry to be made by any income-tax authority, and report the result of the same to it.

275(8) ​

The Dispute Resolution Panel may, confirm, reduce or enhance the variations proposed in the draft order, so however, that it shall not set aside any proposed variation, or issue any direction under sub-section (5) for further enquiry and passing of the assessment order.

275(9) ​

For the purposes of sub-section (8), the power of the Dispute Resolution Panel to enhance the variation shall include the power to consider any matter arising out of the assessment proceedings relating to the draft order, irrespective of the fact that such matter was not raised by the eligible assessee.

275(10) ​

If the members of the Dispute Resolution Panel differ in opinion on any point, the point shall be decided as per the opinion of the majority of the members.

275(11) ​

Every direction issued by the Dispute Resolution Panel shall be binding on the Assessing Officer.

275(12) ​

No direction under sub-section (5) shall be issued unless an opportunity of being heard is given to the assessee, and the Assessing Officer, on such directions which are prejudicial to the interest of the assessee, or the interest of the revenue, respectively.

275(13) ​

No direction under sub-section (5) shall be issued after nine months from the end of the month in which the draft order is forwarded to the eligible assessee.

275(14) ​

Upon receipt of the directions issued under sub-section (5), the Assessing Officer shall, in conformity with the directions, complete, irrespective of anything to the contrary contained in section 286, the assessment without providing any further opportunity of being heard to the assessee, within one month from the end of the month in which such direction is received.

275(15) ​

The Board may make rules for the purposes of the efficient functioning of the Dispute Resolution Panel and expeditious disposal of the objections filed under sub-section (2) by the eligible assessee.

275(16) ​

The provisions of this section shall not apply to any assessment or reassessment order passed by the Assessing Officer with the prior approval of the Principal Commissioner or Commissioner as provided in section 274(12).

275(17) ​

In this section, subject to the provisions of sub-section (18),—

  • (a) “Dispute Resolution Panel” means a collegium comprising of three Principal Commissioners or Commissioners of Income-tax constituted by the Board for this purpose;
  • (b) “eligible assessee” means,— (i) any person in whose case the variation referred to in sub-section (1) arises as a consequence of the order of the Transfer Pricing Officer passed under section 166(6); (ii) any non-resident (not being a company), or any foreign company.

275(18) ​

The eligible assessee referred to in sub-section (17) shall not include person referred to in section 292(1) or other person referred to in section 295.

275(19) ​

The provisions of this section shall not apply to any proceedings under Chapter XVI-B

Explanation

Section Summary: ​

Section 275 of the Income Tax Act outlines the process for resolving disputes between taxpayers and the Assessing Officer (AO) through the Dispute Resolution Panel (DRP). It applies to eligible assessees, primarily non-residents, foreign companies, and cases involving transfer pricing adjustments. The section ensures that taxpayers have an opportunity to object to proposed variations in their draft assessment orders before the AO finalizes the assessment.

Key Changes: ​

  1. Mandatory Draft Order: The AO must issue a draft assessment order to the eligible assessee if the proposed variations are prejudicial to the taxpayer’s interests. This is a procedural safeguard to ensure transparency.
  2. DRP’s Enhanced Powers: The DRP can confirm, reduce, or enhance the proposed variations in the draft order. It can also consider matters not raised by the assessee, giving it broad authority to review the case.
  3. Binding Nature of DRP Directions: The AO must follow the DRP’s directions without further hearings or objections from the taxpayer.
  4. Timelines: The DRP must issue directions within 9 months of the draft order being forwarded to the assessee, and the AO must finalize the assessment within 1 month of receiving the DRP’s directions.

Practical Implications: ​

  1. For Taxpayers:

    • Eligible assessees (non-residents, foreign companies, and transfer pricing cases) can object to draft assessment orders within 30 days of receiving them.
    • Taxpayers must decide whether to accept the variations or file objections with the DRP and the AO.
    • The DRP’s decision is binding, and taxpayers cannot appeal further until the final assessment order is issued.

  2. For Assessing Officers:

    • AOs must issue draft orders and wait for the taxpayer’s response before finalizing assessments.
    • They must adhere to strict timelines for completing assessments after receiving DRP directions.

  3. For DRP:

    • The DRP has significant authority to modify draft orders, including enhancing variations, even on issues not raised by the taxpayer.
    • It must ensure fairness by providing an opportunity for both the taxpayer and the AO to be heard before issuing directions.

Critical Concepts: ​

  1. Eligible Assessee: Defined as:

    • Non-residents (excluding companies).
    • Foreign companies.
    • Cases involving transfer pricing adjustments under Section 166(6).

  2. Draft Order: A preliminary assessment order issued by the AO, outlining proposed variations that are prejudicial to the taxpayer.

  3. DRP Directions: Binding instructions issued by the DRP to the AO, which can confirm, reduce, or enhance the proposed variations.

  4. Timelines:

    • 30 days: Time for the taxpayer to accept or object to the draft order.
    • 9 months: Maximum time for the DRP to issue directions.
    • 1 month: Time for the AO to finalize the assessment after receiving DRP directions.

Compliance Steps: ​

  1. For Taxpayers:

    • Review the draft assessment order upon receipt.
    • Decide within 30 days whether to:
      • Accept the variations and inform the AO.
      • File objections with the DRP and the AO.
    • Participate in hearings if the DRP issues directions prejudicial to your interests.

  2. For AOs:

    • Issue a draft order to the eligible assessee if proposing prejudicial variations.
    • Wait for the taxpayer’s response or objections.
    • Finalize the assessment within 1 month of receiving DRP directions.

  3. For DRP:

    • Review objections and issue directions within 9 months.
    • Ensure both the taxpayer and AO are heard before issuing prejudicial directions.

Examples: ​

  1. Scenario 1: A foreign company receives a draft assessment order proposing an additional tax liability due to transfer pricing adjustments. The company disagrees and files objections with the DRP within 30 days. The DRP reviews the case, holds a hearing, and issues directions reducing the proposed liability. The AO finalizes the assessment based on these directions.

  2. Scenario 2: A non-resident individual receives a draft order with increased income due to disallowed expenses. The individual accepts the variations and informs the AO. The AO finalizes the assessment without involving the DRP.

  3. Scenario 3: The DRP enhances the proposed variations in a draft order, considering an issue not raised by the taxpayer. The taxpayer cannot appeal until the final assessment order is issued.

This section ensures a structured dispute resolution process, balancing taxpayer rights with the need for timely and efficient assessments.