Dispute Resolution Panel (DRP) in Income Tax:  Guide to Transfer Pricing Objections and Litigation

When the income tax department makes big additions to your income especially in transfer pricing or foreign company cases the usual reaction is stress: more tax, interest, and often years of litigation.

You can also refer to our in depth article on Transfer Pricing Litigation to understand the full dispute cycle and common triggers for tax controversies.

To reduce this, the Government of India introduced a special route called the Dispute Resolution Panel (DRP) under Section 144C of the Income Tax Act. It’s a fast-track, higher-level dispute resolution mechanism that lets certain taxpayers challenge a draft assessment order before it becomes final.

In this guide, we’ll explain in simple terms:

• What the DRP is
• Who qualifies as an eligible assessee
• How the DRP process under Section 144C works
• Time limits and powers of the Panel
• When to use DRP and how chartered accountants in Gurgoan India and other advisors help in practice

What Is the Dispute Resolution Panel (DRP) Under Section 144C?

The Dispute Resolution Panel (DRP) is a special collegium of senior officers created to provide a quicker, more structured way of resolving disputes related to assessment especially in transfer pricing and foreign company cases.

• It is governed by Section 144C of the Income Tax Act.
• It was introduced by the Finance Act as an alternative dispute resolution mechanism to reduce prolonged income-tax litigation.
• The DRP consists of three Commissioners of Income-tax (three commissioners).

The assessing officer first prepares a draft assessment order (a draft of the proposed order) instead of straightaway passing the final order. This draft order is forwarded to the eligible assessee, who then has the right to:

• File objections before the DRP, or
• Accept the draft and let it become final

The idea is simple: before you get hit with a big assessment order, you get a chance to put your case before a higher, multi-member income-tax authority.

Who Is an “Eligible Assessee” for DRP?

Not every taxpayer can go to the DRP. The concept of eligible assessee is clearly defined in Section 144C.

Broadly, an eligible assessee includes:

• Foreign companies assessed under the Income-tax Act, and
• Any assessee whose case involves transfer pricing adjustments made by a Transfer Pricing Officer (TPO) under Section 92CA

So if you are:

• A foreign company in India, or
• Any entity where disputes related to transfer pricing are involved

…you may be able to use the DRP route instead of going first to the Commissioner (Appeals).

This makes DRP particularly important for multinational groups, cross-border structures, and transfer pricing matters.

Must Read: How to Build a Transfer Pricing Defense File

How Does the DRP Work Under Section 144C?

Let’s walk through the stages of DRP.

Step 1: Draft Assessment Order by the Assessing Officer

In cases covered by Section 144C:

• The assessing officer shall not immediately pass a final order.
• Instead, the officer prepares a draft assessment order (sometimes called the proposed order of assessment).

This draft may include:

• Proposed variation or issue in income
• Additions based on TPO findings
• Disallowance of expenses
• Other tax adjustments and tax liability

The draft order is forwarded to the eligible assessee. This is a crucial stage the clock starts ticking here.

To understand how Transfer Pricing Officers determine pricing adjustments, you can read our detailed guide on Transfer Pricing Methods which explains each method used in TP examinations

Step 2: Filing Objections Before the DRP

Once the assessee receives the draft:

• They have the option to file objections with the DRP and the assessing officer.
• The time limit is generally one month from the end of the month in which the draft is served.

If no objections are filed:

• The assessing officer can pass the assessment order on the basis of the draft, in line with tax laws.

If objections are filed:

• The matter moves to the Dispute Resolution Panel for enquiry and passing of directions.

Step 3: Enquiry, Hearing and Directions of the DRP

Once the DRP receives the objections:

• The panel may conduct an enquiry.
• The panel shall give the assessee an opportunity of being heard.
• It may also seek reports from the assessing officer, the Transfer Pricing Officer, or other income-tax authorities.

After considering:

• Objections of the assessee
• Draft assessment
• Reports and transfer pricing findings
• Relevant tax laws and case law

…the DRP is required to issue written directions (the directions of the DRP) for the guidance of the assessing officer.

The DRP can:

• Confirm the variations proposed in the draft
• Reduce or enhance the variations proposed in the draft order
• Set aside any proposed variation
• Issue any direction as it thinks fit for resolution of disputes

These DRP directions are a central part of the mechanism for resolving disputes related to transfer pricing and other complex issues.

Step 4: Passing of Final Assessment Order

After receipt of the directions:

• The assessing officer within the prescribed time must pass an assessment order in conformity with the directions.
• The order is passed in accordance with such directions, and the assessing officer shall not deviate from them.

In other words:

• DRP directions are binding and binding on the assessing officer.
• The order passed by the assessing officer is effectively shaped by the direction issued by the DRP.

This final order can then be challenged by the assessee through an appeal before the ITAT (Income Tax Appellate Tribunal).

Composition and Role of the DRP in Income Tax

The dispute resolution panel:

• Consists of three Commissioners of Income-tax
• Is notified and guided by CBDT (Central Board of Direct Taxes)
• Acts as a high level, collegial dispute resolution mechanism to reduce prolonged income-tax litigation

The panel shall:

• Examine draft assessment order and objections
• Use its powers to seek further information or enquiry
• Ensure resolution of disputes in a structured manner

It is particularly significant in transfer pricing, foreign companies, and complex corporate tax laws.

Read This: Income Tax Assessment: Understanding Notices & Scrutiny Assessment

Timelines in DRP Proceedings – Why They Matter

One of the reasons the DRP was created was to bring time-bound resolution of disputes.

Key timelines include:

• The eligible assessee usually has one month from the end of the month in which the draft order is forwarded to file objections.
• The DRP generally has nine months from the end of the month in which the draft is received to issue its directions (nine months from the end…).
• After that, the order passed by the assessing officer must follow the directions given by the DRP.

These time limits help avoid the open-ended delays that often exist in regular appellate routes.

DRP vs Regular Appeal Route

Traditionally, when you get an assessment order, your first appeal would be to the Commissioner of Income Tax (Appeals) and then to the Income Tax Appellate Tribunal.

The DRP route is different:

• It applies only to eligible assessees (such as foreign companies and cases with transfer pricing variations).
• It is an alternative dispute resolution route where you challenge a draft assessment order, not a final one.
• Once directions of the DRP are issued and the final assessment order is passed, you can appeal before the ITAT directly, skipping the usual Commissioner (Appeals) stage.

This makes DRP a faster, more focused dispute resolution panel for high stakes and complex cases.

Key Features and Powers of the DRP Under Section 144C

Some important points to remember about Section 144C and the DRP:

• It deals with draft assessment order and proposed variation in income.
• It is designed for resolving disputes related to transfer pricing and foreign company assessments.
• It is made up of three commissioners who collectively examine the case.
• The draft order is forwarded to the eligible assessee, giving them a chance to object.
• The panel may confirm, modify, enhance, or cancel the variations proposed in the draft order.
• Directions issued by the DRP are binding on the assessing officer.
• The order passed in conformity with the directions can be taken to the appellate tribunal (ITAT) for further appeal.

Overall, the DRP works as a bridge between the assessing officer and the Income Tax Appellate Tribunal, reducing unnecessary litigation at multiple levels.

Practical Tips for Taxpayers Using the DRP Route

If you’re an eligible assessee considering the DRP route, here are some practical suggestions:

1. Act Fast on Draft Orders

Don’t ignore a draft assessment order. Your right to approach the DRP is time-bound usually one month from the end of the month of receipt.

2. File Detailed, Well-Structured Objections

Your objection to the draft order is your main chance to put forward facts, legal arguments, and case law. General or vague objections won’t help.

3. Back Your Case with Documentation

Especially in transfer pricing matters, include documentation such as:

• TP study report
• Agreements
• Functional analysis
• Benchmarking details

If you're unsure whether your entity must maintain formal TP documentation, our article on Transfer Pricing Study Report Applicability explains all mandatory requirements.

4. Seek Professional Help

DRP is a technical forum. Working with experienced professionals such as chartered accountants firm in Gurgoan transfer pricing experts, and tax lawyers can help you present a strong, well-supported case.

5. Think Strategically About Litigation

The DRP is part of the larger tax course of litigation in income-tax:

• Draft order → DRP → Final order → ITAT → High Court → Supreme Court
  Use it not just as a formality but as a real dispute resolution mechanism to narrow or eliminate issues early.

Conclusion

The Dispute Resolution Panel (DRP) under Section 144C is one of the most important reforms in Indian income tax procedure especially for foreign companies and cases involving disputes related to transfer pricing.

By allowing an eligible assessee to challenge a draft assessment order before it becomes final, the DRP gives taxpayers:

• A faster, more focused way to handle disputes
• A panel of three Commissioners of Income-tax to review the case
• Binding directions that the assessing officer shall follow while passing the final order

Used properly, the DRP can significantly reduce prolonged litigation, unnecessary uncertainty, and harsh tax demands.

.If you’ve received a draft order under Section 144C, don’t wait. Get your case reviewed and your DRP strategy planned in time.