Binding DRP directions prevent an addition under disallowance provisions when no departmental appeal is pending.

The Assessing Officer could not sustain an addition under Section 40(a)(i) where the Dispute Resolution Panel had issued a binding direction not to make the addition unless the Department had filed an appeal against the Tribunal order. The record showed that no departmental appeal was pending, so the impugned demand was made in direct conflict with the directions issued under Section 144A. That addition was therefore set aside. The transfer pricing addition was left open for challenge in appeal.

---

---

Issues: Whether the addition made under Section 40(a)(i) of the Income-tax Act, 1961 could be sustained when the Dispute Resolution Panel had issued a mandatory direction not to make the addition unless the Department had preferred an appeal against the Tribunal order.

Analysis: The direction of the Dispute Resolution Panel was clear and binding, and the Assessing Officer was required to verify whether any departmental appeal against the Tribunal order was pending. The record showed that no such appeal had been filed. Since the impugned demand under Section 40(a)(i) was made in direct conflict with the directions issued under Section 144A of the Income-tax Act, 1961, that part of the assessment order could not be sustained. The remaining transfer pricing addition was left open to be challenged in appeal.

Conclusion: The addition under Section 40(a)(i) of the Income-tax Act, 1961 was set aside, and the petitioner succeeded on that issue.

---