Final assessment under section 144C invalid when DRP directions are not incorporated; remand to DRP/AO required.

Final assessment orders that do not incorporate the dispute resolution panel's (DRP) directions given to the transfer pricing officer are invalid; courts remand such matters so the assessing officer can apply the TPO's order reflecting the DRP directions. The reasoning rests on the statutory scheme requiring DRP directions to be given effect before a final assessment is framed, so failure to await or incorporate those directions leads to quashing of the assessment and restoration to the DRP/AO for fresh action. Result: remand for compliance with DRP directions and consequent amendment of assessment.

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Issues involved:
The judgment deals with the final assessment order passed by the Assessing Officer for the assessment year 2018-19, pursuant to the directions issued by the Dispute Resolution Panel (DRP). The main issues revolve around the conformity of the final assessment order with the binding directions of the DRP, the incorporation of DRP's directions in the assessment order, and the validity of the assessment order in light of the DRP's directions.

Issue 1: Compliance with DRP's Directions
The appeal raised concerns regarding the final assessment order's compliance with the binding directions of the DRP. The Taxation Officer (TO) passed an order suggesting upward adjustments in the Arm's Length Price (ALP) of international transactions. The Assessing Officer (AO) incorporated the TO's recommendations in the draft assessment order but failed to comply with the DRP's directions issued under section 144C(5) of the Income-tax Act, 1961. The final assessment order was passed without incorporating the DRP's directions due to the non-receipt of the order giving effect by the TO. This led to a legal challenge by the assessee, arguing that the final assessment order was not in conformity with the DRP's directions.

Issue 2: Legal Validity of Assessment Order
The legal validity of the final assessment order was questioned on the grounds that it did not conform to the binding directions of the DRP. The assessee contended that the AO's failure to receive and incorporate the order giving effect by the TO rendered the assessment order legally flawed. Citing relevant Tribunal decisions and a Karnataka High Court case, the assessee argued that passing an assessment order without incorporating the DRP's directions was not permissible under the law. In response, the Revenue relied on decisions of the Delhi and Madras High Courts, highlighting that similar cases did not result in the quashing of the entire proceedings but rather the setting aside of the assessment order for rectification.

Judgment:
After considering the arguments and case laws presented by both parties, the Tribunal referred to the decisions of the jurisdictional High Courts. It was noted that in cases where the final assessment order was passed without incorporating the DRP's directions, the High Courts remanded the matter to the DRP for compliance with the provisions of section 144C of the Act. Following the binding precedents, the Tribunal remitted the issue back to the AO to pass an order that incorporates the DRP's directions, which were to be given effect by the TO. Consequently, the Tribunal allowed the appeal filed by the assessee for statistical purposes, without the need to adjudicate on other grounds at that juncture.

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