The Dispute Resolution Panel (DRP) is a three-member panel of senior Income Tax Commissioners created to resolve disputes quickly, especially in transfer pricing and international tax cases. It reviews objections filed by taxpayers against draft assessment orders issued by the Assessing Officer. The DRP examines the case, considers evidence, may seek further inquiry, and then issues binding directions to the AO. It provides an alternative to the normal appeal route to ensure faster and fairer resolution. The DRP’s process is time-bound, helping taxpayers avoid long delays in litigation.

Why Was the DRP Introduced?

The DRP was introduced through the Finance Act, 2009, mainly because:

1. Appeals were taking too long: Transfer pricing cases were increasing rapidly, and appeals before CIT(A) and further litigation in the Income-tax Appellate Tribunal (ITAT) were taking several years to reach finality.

2. Foreign investors needed certainty: International businesses wanted a system that would give them confidence that disputes would be handled efficiently and fairly.

3. The government wanted transparency: A panel of three senior officials was expected to give better checks, reducing the risk of arbitrary decisions.

Who Can Approach the DRP?

A taxpayer can approach the DRP when:

1. There is a draft assessment order passed under section 144C, and

2. The taxpayer is a foreign company, or

3. There is a transfer pricing adjustment involving any company (including Indian companies).

Step-by-Step Procedure Before the DRP

1. The Assessing Officer (AO) first issues a draft assessment order if any variation or transfer pricing adjustment is proposed.

2. The taxpayer gets 30 days to submit objections against this draft order.

3. These objections must be filed both with the Dispute Resolution Panel (DRP) and the AO.

4. The DRP then collects all relevant records, including reports from the AO and the Transfer Pricing Officer (TPO).

5. The taxpayer may be asked to provide more documents or explanations if needed.

6. The DRP can also direct the AO or TPO to conduct further enquiry.

7. Hearings or discussions are held where the taxpayer can present their arguments.

8. After reviewing everything, the DRP prepares its directions on the disputed issues.

9. These directions must be issued within 9 months from the end of the month in which objections were filed.

10. Finally, the AO must pass the final assessment order within 1 month based strictly on the DRP’s directions.

Powers of the DRP

The DRP has fairly wide powers, such as:

1. Confirming, reducing, or increasing the adjustments proposed in the draft order.

2. Calling for records from the AO or TPO.

3. Asking for additional documents or explanations from the taxpayer.

4. Conducting further enquiry or directing the AO to do so.

5. Issuing directions that are binding on the AO.

Benefits of Approaching the DRP

Many taxpayers prefer the DRP route because of several advantages:

1. Fast-track resolution: DRP must issue directions within 9 months from the end of the month in which objections are filed. This ensures a time-bound process.

2. No penalty until final order: While the case is pending before the DRP, no penalty is levied on the disputed amount.

3. Senior-level review: Cases are examined by three senior Commissioners, improving the quality and fairness of decisions.

4. Additional enquiry possible: DRP can conduct or direct further enquiries, which help in reaching a correct decision.

5. Avoids long waiting time before the CIT: Regular appeals take years; DRP provides a quicker alternative.

6. Useful for foreign companies: Foreign companies facing complex transfer pricing adjustments often prefer DRP for greater clarity and predictability.

Limitations and Challenges of the DRP

1. Large number of pending cases: Because DRP handles only international taxation and transfer pricing matters, panels often have a heavy workload.

2. Short timelines for taxpayers: The taxpayer has only 30 days to file detailed objections, which may be challenging in complex cases.

3. DRP orders are sometimes too brief: In many cases, DRP simply confirms the TPO’s adjustment without detailed reasoning, causing frustration for taxpayers.

4. No power to send the case back: Even if the draft order has errors, DRP cannot return it to the AO; it must correct or modify it itself.

5. Appeal still needed in many cases: Although DRP is meant to reduce appeals, many taxpayers still go to ITAT afterward, increasing the compliance burden.

6. Limited interaction: Unlike full hearings in appellate forums, interaction before DRP may be restricted due to time constraints.

The deadline for issuing directions and delivering an order

The Dispute Resolution Panel (DRP) must issue its directions within 9 months from the end of the month in which the taxpayer files objections to the draft assessment order. Once these directions are issued, the Assessing Officer must pass the final assessment order within 1 month from the end of the month in which the DRP’s directions are received. These strict timelines ensure quick and efficient disposal of transfer pricing and international tax disputes.

Conclusion

The Dispute Resolution Panel (DRP) is an important part of India’s international tax and transfer pricing machinery. It offers a time-bound, transparent, and structured method for resolving disputes arising from draft assessment orders and transfer pricing adjustments. For multinational companies and foreign taxpayers, the DRP serves as a fast-track alternative to prolonged litigation before traditional appellate authorities.

Although the DRP system has certain challenges—such as heavy workload, short timelines, and inconsistent quality of orders—it remains a valuable platform for taxpayers seeking quicker resolution. With gradual improvements in technology, documentation standards, and administrative practices, the DRP continues to evolve into a more efficient and reliable institution.

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