Scope of DRP is restricted only to adjustments proposed in the draft assessment order and not beyond

Further, the High Court also held that the DRP does not have the power under Section 144C of the Act to issue a direction to the Assessing Officer (AO) to conduct further inquiry for passing the assessment order. HC held that this was wholly without jurisdiction in view of the provisions of section 144C of the Act, which expressly provides that the DRP cannot issue any direction for further enquiry and passing of the assessment order. Further, it was observed that if such orders and directions are permitted to be allowed they would defeat the very object with which the alternate dispute resolution is provided.

With regard to the issue of enhancement of the powers of the DRP, the HC relied on the principle laid down by the Supreme Court in the assessee’s own case, wherein it was held that, in interpreting the provisions of the Act, the Act has to be read as one integrated code. Accordingly, it was observed that the various sub­sections of section 144C cannot be read de hors the powers under section 144C(8) of the Act, which expressly provides that the powers of the DRP are restricted to the variations proposed in the draft order. Further, it was observed that if the DRP

is vested with the powers to go beyond the variations proposed in the draft order, the powers of the DRP shall be expanded to a regular appeal to the Commissioner of Income-tax against an order of assessment which is sought to be given up in view of the provisions of section 92C and section 144C of the Act.

The HC observed that, in the facts of the case, it was clear that in the draft order, the arm’s length price determined by the transfer pricing order was accepted and the claim made by the assessee under section IDA of the Act was reduced. Nonetheless, the DRP has issued a direction to the AO by holding that the assessee is not entitled to any deduction under section IDA of the Act. Given that in the proposed draft order there was no proposal to hold that the assessee is not entitled to any benefit under section IDA of the Act, the direction issued by the DRP is wholly without jurisdiction and suffers from an inherent lack of jurisdiction and is amenable to judicial review under Article 226 of the Constitution of India.