AO must follow DRP objections under Section 144C; ignoring TPO adjustments and relying on section 143(1) is invalid

ITAT Pune held that under Section 144C, the AO must issue a draft assessment order reflecting proposed additions and consider only objections addressed by the DRP. The AO erred by disregarding the DRP's direction to delete TPO adjustments and instead relying on the income assessed under section 143(1), which is outside the scope of Section 144C. The addition made by the AO was therefore invalid. The AO was directed to assess the total income at the returned income figure. Additionally, the AO was instructed to verify and allow prepaid tax credits related to the amalgamating entity after providing the assessee an opportunity. Revised Grounds No. 2 and 3 were allowed accordingly.

---

---

ISSUES:

Whether adjustments made under section 143(1) can be addressed during assessment proceedings under section 143(3) in the presence of dispute resolution under section 144C.Whether the Assessing Officer can make additions/enhancements to income in the final assessment order without prior notice or directions from the Dispute Resolution Panel (DRP) under section 144C.Whether denial of prepaid tax credit pertaining to an amalgamating entity is erroneous.Whether continuing adjustments/additions made by the Assessing Officer (CPC) result in double addition and are erroneous.

RULINGS / HOLDINGS:

On the first issue, the Court held that the Assessing Officer cannot address adjustments made under section 143(1) during assessment proceedings under section 143(3) when the matter is governed by section 144C, as the Assessing Officer is bound to complete assessment "in conformity with the directions" of the DRP without providing further opportunity to the assessee.Regarding the second issue, the Court ruled that the Assessing Officer's addition of INR 3,76,54,322 in the final order without directions from the DRP and without prior notice is "bad in law" and must be deleted, as section 144C precludes changes outside DRP directions.On the third issue, the Court directed the Assessing Officer to verify and allow the claim for prepaid tax credit related to the amalgamating entity in accordance with law, granting relief for statistical purposes.On the fourth issue, the Court found that the alleged double addition becomes academic after allowing the second ground and dismissed it as unadjudicated.

RATIONALE:

The Court applied the statutory framework of section 144C of the Income-tax Act, which mandates issuance of a draft assessment order, allows the assessee to file objections before the DRP, and requires the Assessing Officer to complete assessment strictly "in conformity with the directions" of the DRP without further opportunity to the assessee.The Court emphasized that the Assessing Officer is "precluded" from making any changes beyond the DRP directions based on the draft order, thereby invalidating any suo-moto additions or adjustments outside that scope.The Court relied on the language of section 144C(13) to hold that the assessment must be completed within one month of receipt of DRP directions and without deviation.Regarding denial of prepaid tax credit, the Court mandated verification and compliance with the provisions of the Act, ensuring procedural fairness by directing the Assessing Officer to provide opportunity to the assessee.No dissenting or concurring opinions were noted; the judgment follows established statutory interpretation without doctrinal shift.

---