Assessing Officer’s failure to follow mandatory Dispute Resolution Panel directions invalidates the final assessment.

By | May 28, 2026
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Assessing Officer’s failure to follow mandatory Dispute Resolution Panel directions invalidates the final assessment.

Issue

Whether a final assessment order making tax additions under section 40(a)(i) can be legally sustained if the Assessing Officer deliberately fails to comply with a conditional and mandatory direction issued by the Dispute Resolution Panel (DRP) under section 144C(10).

Facts

  • The Assessing Officer (AO) proposed tax additions against the assessee under section 40(a)(i) of the Income-tax Act, 1961 during a transfer pricing assessment.

  • The matter went before the Dispute Resolution Panel (DRP), which issued a specific, conditional direction: if the Income Tax Department had not filed any appeal against the Tribunal’s orders on this exact same issue for the assessment year 2017-18 and earlier, the AO was forbidden from making the addition.

  • Disregarding this direction, the AO proceeded to pass a final assessment order and incorporated the section 40(a)(i) addition anyway.

  • During the subsequent proceedings, the AO filed an official affidavit explicitly admitting that, as of that date, the Department had not preferred any appeal against the Tribunal’s past orders on the issue.

  • The record established that the AO completely failed to verify the appeal status before passing the order, directly violating the criteria laid down by the DRP.

Decision

  • The appellate authority ruled entirely in favor of the assessee and deleted the additions.

  • It held that the DRP’s order contained a clear-cut, unambiguous conditional mandate that the AO was legally obligated to examine and follow.

  • It ruled that under the provisions of section 144C(10), every direction issued by the DRP is statutorily mandatory and binding on the Assessing Officer.

  • Since the AO’s affidavit proved the condition was met (no departmental appeal was filed), the final additions were made in direct violation of the DRP’s mandate and could not legally stand.

Key Takeaways

  • DRP Mandates Are Binding: The directions issued by the Dispute Resolution Panel under section 144C(10) are completely binding on the tax department. The Assessing Officer has no discretionary power to dilute, bypass, or ignore them.

  • Procedural Violations Fatalize Additions: If an AO incorporates a financial addition that flies in the face of a direct DRP instruction, that portion of the assessment order becomes legally void and unsustainable.

  • Strict Enforcement of Precedents: When a specialized body like the DRP ties an assessment outcome to the department’s acceptance of prior tribunal precedents, the lower tax authorities must diligently check the litigation records before passing adverse final orders.

HIGH COURT OF DELHI
LX Pantos India (P.) Ltd.
v.
Assessment Unit National Faceless Assessment Centre, Delhi*
Dinesh Mehta and Vinod Kumar, JJ.
W.P. (C) No. 2511 of 2026
CM APPL. Nos. 12200, 12201 and 23753 of 2026
APRIL  21, 2026
Prashant Meharchandani and Jainender Singh Kataria, Advs. for the Petitioner. Abhishek Maratha, SSC, Apoorv Agarwal, Viplav Acharya, JSCs, Ms. Nupur Sharma, Gaurav Singh, Himanshu Gaur and Ms. Muskaan Goel, Advs. for the Respondent.
ORDER
(*Amended)
1. By way of the present writ petition, the petitioner has challenged the assessment order dated 18.12.2025 alleging it to be contrary to the direction given by the Dispute Resolution Panel (hereinafter referred to as ‘DRP’) vide its order dated 29.11.2025.
2. Learned counsel for the petitioner invited Court’s attention towards the DRP’s order dated 29.11.2025 and pointed out that while deciding the issue of addition under Section 40(a)(i) of the Income Tax Act, 1961, (hereinafter referred to as ‘the Act of 1961’) the DRP had issued clear directions that in case the Department has not preferred any appeal against the orders of the Tribunal, the Assessing Officer (AO) shall not make any addition.
3. Learned counsel argued that in spite of the clear direction, the AO did not take any trouble to examine as to whether the appeal against the orders of the Tribunal for Assessment Year 2017-18 and previous assessment years have been filed or not and proceeded to make addition.
4. The petitioner has approached this Court with the assertion that upon examination of the website of the Delhi High Court, it could not find any evidence of any pendency of the appeal against the earlier orders of the Tribunal. In light of such assertion, on the previous date of hearing i.e. 25.02.2026, we observed thus :-
“1. While pointing out the averments made in para nos. 8 and 9 of the writ petition, Mr. Prashant Meharchandani, learned counsel for the petitioner asserted that no appeal against the orders of the Income Tax Appellate Tribunal (hereinafter referred to as ‘the Tribunal’) dated 17.05.2024 (Annexure P-5) passed for the Assessment Years (AYs) 2017-18 and 2018-19 is pending, yet the Assessing Officer (AO) in his impugned order dated 18.12.2025 has recorded that the appeal is pending before this Court.
2. He asserted that even he has ascertained such fact from the Delhi High Court’s website and contended that having wrongly recorded such finding, the AO has flouted the order of the Dispute Resolution Panel’s (hereinafter referred to as ‘the DRP’) dated 29.11.2025.
3. Learned counsel, thereafter took the Court through the DRP’s order and submitted that in spite of the fact that the DRP has issued express direction for not creating any demand, unless an appeal against the above-referred order dated 17.05.2024 passed by the Tribunal is filed in the High Court, yet the AO has wrongly mentioned in assessment order that the appeal against the above-referred order of the Tribunal is pending in the Delhi High Court.
4. He raised a grievance that due to incorrect assertion of fact, the AO has proceeded to raise a huge demand of tax against the petitioner to the tune of Rs.75,75,24,930/- and submitted that if this Court does not exercise its jurisdiction under Article 226 of the Constitution of India, the petitioner’s right would be severely affected.
5. Mr. Abhishek Maratha, learned Senior Standing Counsel is directed to file an affidavit of the author of the impugned order, maybe a Faceless Assessing Officer, within four weeks.
6. List this case on 13.04.2026.
7. Meanwhile, effect and operation of the impugned order dated 18.12.2025 shall remain stayed and no coercive action shall be adopted for enforcement of the demand arising out of said order.”
5. An affidavit has been filed by the respondent-Assessing Officer, inter alia stating the fact that as of today, no appeal has been preferred by the Department against the order of the Tribunal for the Assessment Year 201718 or any previous year, involving the issue of 40(a)(i) of the Act of 1961.
6. Mr. Abhishek Maratha, learned Senior Standing Counsel for the respondent submitted that the impugned assessment order in the present writ petition encompasses two additions, first being addition under Section 40(a)(i) of the Act of 1961 and the other being the Transfer Pricing addition. He submitted that since there is no direction in relation to transfer pricing addition, the order of the AO cannot be faulted with. In this background, he argued that rather than interfering in the present case, the petitioner be relegated to avail the remedy of appeal in accordance with law.
7. Heard learned counsel for the parties and perused the record.
8. So far as the order of the DRP dated 29.11.2025 is concerned, there is no quarrel that a clear-cut direction was issued to the AO, which he failed to examine. We do not wish to make any adverse observations against the AO, as he might have bonafidely proceeded because as a Faceless Assessing Officer (FAO), he might not have the entire record, which a Jurisdictional Assessing Officer (JAO) is supposed to have.
9. But in any case, the addition of Rs. 160,43,40,589/- under Section 40(a)(i) of the Act of 1961 cannot be sustained, as the same is in teeth of the direction of DRP which are mandatory as per Section 144C(10) of the Act of 1961. Accordingly, we set aside the assessment order dated 18.12.2025 to the extent of demand arising out of addition of Rs.160,43,4589/- and applicable interest thereupon. The petitioner is relegated to prefer an appeal against the remaining additions (if so desired) in accordance with law.
10. Though we could have relegated the petitioner to avail the appellate remedy but, considering that a huge demand has been raised against the petitioner under Section 40(a)(i) of the Act of 1961, which is illegal on the face of it being in violation to the directions issued by the DRP, we are persuaded to set aside the assessment order.
11. The writ petition stands partly allowed as indicated above.
12. In case the petitioner prefers an appeal against the assessment order dated 18.12.2025 within a period of 15 days from today, the concerned Appellate Authority shall consider and decide such appeal on merit without raising any objection about limitation.
13. The writ petition along with the pending applications is disposed of.