2025 (8) TMI 1716 - AT - Income Tax

Section 144C is a self-contained code; final assessment under s.144C(13) following DRP directions not revisable under s.263

ITAT MUMBAI - AT held that s.144C is a self-contained code and final assessment passed under s.144C(13) in conformity with DRP directions cannot be ... Revision u/s 263 - whether the final assessment order passed u/s. 144C(13) of the Act, can be subjected to revisionary jurisdiction u/s. 263 - HELD THAT:- As it is well established that section 144C is a self-contained code and provides the mechanism of not only the procedure of assessment in case of an eligible assessee, but also the remedy available to the assessee against the assessment framed u/s. 144C of the Act. Section 144C of the Act gives an option to the assessee to either approach the Commissioner (Appeals) or the ld. DRP against an assessment order. Once the assessee approaches ld. DRP, in terms with section 144C(2)(b) of the Act, ld. DRP in terms with section 5 of section 144C of the Act issues directions to the A.O. for completing the final assessment. Sub-section 7 of section 144C of the Act, empowers the DRP to make further enquiry if it thinks fit and sub-section 8 of section 144C of the Act empowers the DRP to confirm, reduce or enhance the variation proposed in the draft order. Sub-section 8 of section 147 of the Act even empowers ld. DRP to enhance the valuation on issues which the assessee may or may not have raised. Once ld. DRP issues a direction for the guidance of the A.O. to pass the final assessment order, in terms with sub-section 13 of section 144C, the A.O. has to pass the final assessment order in conformity with the directions of ld. DRP without providing any further opportunity of being heard to the assessee. Thus, a reading of sub-section 13 of section 144C makes it clear that at the stage of final assessment, the A.O. has no mandate to deviate from the directions of ld. DRP, that is why at that stage, the A.O. is not required to give an opportunity of being heard to the assessee. Identical view has been expressed in case of Bharti Axa Life Insurance Co. Ltd. [2019 (1) TMI 98 - ITAT MUMBAI] and M/s. Cambridge Technology Enterprises Limited [2025 (1) TMI 1621 - ITAT HYDERABAD] as well. The ratio laid down in these decisions squarely apply to the facts of the present case. PCIT has no authority to assume jurisdiction u/s. 263 of the Act to revise the final assessment order passed in pursuance to the direction of ld. DRP. Decided in favour of assessee. ISSUES PRESENTED AND CONSIDERED 1. Whether a revisional jurisdiction under section 263 of the Income-tax Act can be validly exercised in respect of a final assessment order passed by the Assessing Officer pursuant to directions issued by the Dispute Resolution Panel under section 144C(13). 2. Whether an order passed by the Principal Commissioner/Commissioner under section 263 can effectively require the Assessing Officer to re-open or re-hear matters that have been finally determined in conformity with DRP directions, notwithstanding the statutory mandate in section 144C(13) that the AO shall complete the assessment in conformity with DRP directions without providing any further opportunity of being heard to the assessee. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of invoking section 263 against an assessment finalized under section 144C(13) Legal framework: Section 144C creates a self-contained code for resolution of objections to a draft assessment by reference to a Dispute Resolution Panel (DRP). Section 144C(5) empowers the DRP to issue directions to the Assessing Officer; section 144C(7) allows further enquiry by DRP; section 144C(8) permits DRP to confirm, reduce or enhance variations (with an explanation that enhancement power includes matters not raised by the assessee); section 144C(10) makes every direction binding on the AO; and section 144C(13) mandates that on receipt of DRP directions the AO shall complete the assessment in conformity with those directions without providing any further opportunity of being heard to the assessee. Section 263 permits the Principal Commissioner/Commissioner to call for and examine records and revise orders that are 'erroneous insofar as they are prejudicial to the interests of the revenue,' giving the assessee an opportunity of being heard before passing any revisional order. Precedent treatment: Co-ordinate tribunal decisions had held DRP-finalized assessments not amenable to revision under section 263. The order under review follows and applies the jurisprudence of the jurisdictional High Court (as to the character of DRP proceedings) and related tribunal precedents that treat DRP directions as a binding corrective mechanism higher in authority than a single Commissioner acting under section 263. Interpretation and reasoning: The Court reasons that section 144C is a comprehensive mechanism intentionally structured to provide a finality and a special appellate route in cases where the assessee opts for DRP. The statutory scheme evidences that the legislature omitted any express amendment to section 263 to render DRP-based final assessments subject to revision; by contrast, Explanation 1(a) to section 263 expressly contemplates orders passed under directions of certain superior officers (e.g., under section 144A) but does not include directions of the DRP under section 144C(13). Section 144C(13)'s explicit prohibition on providing any further opportunity of being heard to the assessee underscores legislative intent to foreclose further administrative re-examination of matters settled by DRP directions. The Court applies the maxim that one cannot do indirectly what is prohibited directly, holding that a Commissioner cannot use section 263 to effect a revision that the AO could not lawfully make directly after complying with DRP directions. The DRP, being a collegium of three Commissioners, occupies a higher or at least superior collegiate status compared to the single Commissioner seeking revision; allowing section 263 in such circumstances would subvert the legislative scheme and permit circumvention of the DRP finality mandated by section 144C(13). Ratio vs. Obiter: Ratio - A revisional exercise under section 263 cannot be validly assumed in respect of an assessment order passed by the AO in conformity with DRP directions under section 144C(13), because section 144C constitutes a self-contained code that excludes such revision and the legislature did not expand section 263 to include DRP-directed orders. Obiter - Observations on comparative status of single Commissioner versus DRP collegium and reliance on certain High Court dicta are explanatory of reasoning but the holding rests on statutory construction of sections 144C and 263 and binding effect of DRP directions. Conclusion: The Principal Commissioner/Commissioner had no jurisdiction under section 263 to set aside the final assessment passed under section 144C(13); the revisional order is quashed and the DRP-conforming final assessment is restored. Issue 2: Whether section 263 can compel the AO to re-open or to afford a hearing contrary to section 144C(13) Legal framework: Section 263 requires that the revisional authority give the assessee an opportunity of being heard before passing a revisionary order; section 144C(13) mandates completion of assessment by the AO in conformity with DRP directions and explicitly excludes further opportunity of being heard to the assessee at that stage. Precedent treatment: Jurisdictional High Court and tribunal precedents have characterized DRP proceedings as a corrective 'second look' mechanism and emphasized their binding nature; they have treated attempts to require the AO to re-hear matters contrary to DRP directions as inconsistent with statutory framework. Interpretation and reasoning: The Court reasons that permitting section 263 to require the AO to re-open or re-hear matters decided under DRP would directly conflict with section 144C(13)'s prohibition on further hearings and with the legislative design of DRP as a finalizing mechanism. The Court notes that if the AO were to follow a revisional direction that reintroduces hearing opportunities, the AO would itself be acting contrary to section 144C(13). The revisional authority thus cannot lawfully direct the AO to undertake steps that the statute prevents the AO from taking at the finalization stage. Ratio vs. Obiter: Ratio - A Commissioner cannot, by invoking section 263, require the AO to give further hearing or otherwise re-determine matters already finalized in conformity with DRP directions because such action would violate the statutory mandate of section 144C(13). Obiter - Commentaries on procedural futility and examples where an AO's deviation from DRP directions would render the AO's order invalid. Conclusion: Section 263 cannot be used to compel the AO to re-open or provide further opportunity to the assessee in respect of matters finally determined under DRP directions; any such direction is contrary to section 144C(13) and unsustainable. Ancillary reasoning and reliance on hierarchy of decision-making Legal framework and reasoning: The DRP is constituted as a collegium of three Commissioners; its directions are binding on the AO. The Court treats the collective DRP exercise as occupying a superior corrective role vis-à-vis a single Commissioner invoking section 263. Allowing unilateral revision by a single Commissioner would permit circumvention of the collective decision-making embodied in the DRP and would undermine the statutory finality conferred upon DRP resolutions. Precedent treatment: The Court relies on jurisdictional High Court authority describing DRP proceedings as a correcting mechanism and holds that subsequent single-Commissioner revision is impermissible where the DRP has issued binding directions. Ratio vs. Obiter: Ratio - The institutional design and binding character of DRP directions preclude individual Commissioners from revising DRP-conforming assessments under section 263; ancillary observations on institutional hierarchy support but do not supplant the statutory construction analysis. Conclusion: The revisional order is an impermissible exercise of jurisdiction; accordingly it is quashed and the assessment order passed in conformity with DRP directions is restored. Disposition Quash the order passed under section 263 and restore the final assessment order passed by the Assessing Officer in conformity with DRP directions under section 144C(13); the Court does not decide the merits of the underlying claims as the impugned action is quashed on jurisdictional grounds.