Tribunal emphasizes compliance with DRP directions for final assessment orders under Income Tax Act.

The Tribunal partly allowed the appeal, emphasizing the importance of complying with DRP directions and ensuring the final assessment order aligns with the directions provided. The decision serves as a reminder of the legal obligations under Section 144C of the Income Tax Act, 1961, regarding final assessment orders. The Tribunal quashed the assessment order, allowing the appeal filed by the assessee, as the AO failed to pass the final order in accordance with DRP directions within the specified time, rendering it a violation of the law.

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Issues:
1. Final assessment order not in accordance with DRP directions.

Analysis:
The appeal was against the final assessment order passed under Section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961, for AY 2017-18. The assessee, a subsidiary of a German company, offered consulting and software development services to its Associated Enterprise. The Transfer Pricing Officer (TPO) made an adjustment of Rs. 1,39,87,510/-, which was contested by the assessee before the Dispute Resolution Panel (DRP). The DRP upheld most objections but directed certain inclusions and exclusions, which the Assessing Officer (AO) did not implement in the final assessment order. The assessee's main contention was that the final assessment order was not in line with the DRP directions, making it liable to be quashed.

The Tribunal referred to a similar case where the final assessment order was quashed due to non-compliance with DRP directions. The Tribunal held that the AO's failure to pass the final order in accordance with DRP directions within the specified time was a violation of the law. The Tribunal emphasized the importance of adhering to DRP directions and quashed the impugned final order of assessment. The Tribunal clarified that the other issues raised by the assessee did not require consideration due to the nullity of the assessment order.

In the present case, the AO retained the same Transfer Pricing adjustment as in the draft assessment order, citing the TPO's failure to pass the order giving effect to DRP directions. The Tribunal held that this action rendered the final assessment order not in accordance with the DRP directions. Following the precedent, the Tribunal quashed the assessment order, allowing the appeal filed by the assessee. The Tribunal made it clear that its decision did not prevent the revenue or the assessee from taking further legal steps if desired.

Therefore, the Tribunal partly allowed the appeal, emphasizing the importance of complying with DRP directions and ensuring the final assessment order aligns with the directions provided. The decision serves as a reminder of the legal obligations under Section 144C of the Income Tax Act, 1961, regarding final assessment orders.

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