Income Tax Dispute Resolution Panel: Key Steps Businesses Should Know Before Filing Objections

Tax disputes can be stressful for businesses, particularly when a proposed adjustment significantly changes taxable income. For companies involved in international transactions, transfer pricing matters, or cross-border business activities, the Income Tax Dispute Resolution Panel (DRP) can provide an important opportunity to challenge proposed variations before an assessment is finalised.

The DRP process is designed for specific categories of eligible taxpayers and has its own procedures, deadlines and documentation requirements. Understanding these steps early can help businesses avoid procedural mistakes and prepare stronger objections.

The mechanism was historically governed by Section 144C of the Income-tax Act, 1961. Under the Income-tax Act, 2025, the corresponding provisions are contained in Section 275 for applicable tax years from 1 April 2026. The relevant tax year and transitional provisions should always be checked before determining which provisions apply.

What Is the Income Tax Dispute Resolution Panel?

The Income Tax Dispute Resolution Panel is a specialised mechanism through which eligible taxpayers can object to variations proposed in a draft assessment order.

Unlike an ordinary tax appeal, the DRP process takes place before the assessment is finalised. This gives an eligible taxpayer an opportunity to present objections while the assessment is still at the draft stage.

The mechanism is particularly relevant to cases involving transfer pricing adjustments and certain foreign companies and non-resident taxpayers.

For example, imagine an Indian company that regularly purchases technology services from its overseas associated enterprise. During a transfer pricing assessment, the tax authorities may conclude that the transaction does not reflect an appropriate arm's length price.

If the resulting adjustment qualifies under the applicable provisions, the taxpayer may receive a draft assessment order and have the opportunity to raise objections before the DRP.

Step 1: Examine the Draft Assessment Order

The first and most important step is to carefully review the draft assessment order.

A taxpayer should not assume that the proposed adjustment is automatically correct or incorrect. Instead, the business should identify precisely what the tax authorities have changed and the reasons provided for doing so.

Important areas to examine include:

• Proposed adjustment to taxable income
• Transfer pricing adjustments
• Disallowance of expenses
• Treatment of international transactions
• Interpretation of agreements
• Comparable-company analysis
• Rejection of supporting documentation
• Computation of income
• Applicable tax provisions

A detailed review can reveal whether the dispute is primarily factual, technical, legal or a combination of all three.

Step 2: Confirm DRP Eligibility

Not every income tax dispute can be taken before the DRP.

Under the earlier Section 144C framework, eligible assessees included certain foreign companies and taxpayers where the variation resulted from an order passed by the Transfer Pricing Officer under Section 92CA(3).

The applicable eligibility requirements should be checked based on the relevant tax year and legislation.

This is particularly important after the introduction of the Income-tax Act, 2025 because taxpayers may encounter online resources referring to both Section 144C and Section 275.

The correct provision depends on the applicable assessment framework and transitional rules.

Step 3: Calculate the Objection Deadline

Once a taxpayer receives a draft assessment order, the deadline becomes critical.

Under the relevant DRP framework, the taxpayer generally has 30 days from receipt of the draft order to either accept the proposed variations or file objections before the DRP and Assessing Officer.

This short period means businesses should immediately forward the order to their tax advisers.

Waiting until the final week may make it difficult to properly analyse complex transfer pricing or international tax issues.

A practical internal process is to record:

Date of receipt → statutory deadline → documents required → responsible professional → submission status.

Step 4: Analyse the Proposed Adjustment

A strong DRP objection should go beyond simply stating that the adjustment is unreasonable.

The taxpayer should explain why the proposed variation should be removed or modified.

For a transfer pricing dispute, this may involve examining:

Functional Analysis

What functions does each entity actually perform?

Assets

Which assets, intellectual property or technology are being used?

Risks

Which entity bears commercial and operational risks?

Transaction Terms

What does the intercompany agreement actually provide?

Benchmarking

Are the selected comparable companies appropriate?

Financial Data

Does the underlying financial information support the taxpayer's position?

This type of detailed analysis can help transform a general disagreement into a structured technical objection.

Step 5: Organise Supporting Evidence

Documentation can be extremely important in tax disputes.

Depending on the nature of the case, relevant evidence may include:

• Intercompany agreements
• Invoices
• Transfer pricing reports
• Financial statements
• Tax audit reports
• Emails and correspondence
• Comparable-company information
• Business descriptions
• Transaction records
• Previous tax submissions
• Supporting calculations

Documents should be organised according to each individual objection.

For example:

Objection 1 → Relevant facts → Supporting documents → Legal position → Requested relief

This makes the submission easier to review and reduces the possibility of overlooking important evidence.

Step 6: Prepare Clear DRP Objections

The quality of presentation matters.

A DRP submission should clearly identify each disputed issue rather than combining several unrelated arguments into one lengthy section.

A practical structure could be:

1. Background of the taxpayer
2. Relevant transaction or assessment issue
3. Proposed variation
4. Taxpayer's objection
5. Factual explanation
6. Supporting evidence
7. Applicable legal provisions
8. Relevant judicial principles
9. Financial impact
10. Specific relief requested

This structure helps the reader understand not only what the taxpayer disagrees with, but also why the proposed adjustment should be reconsidered.

Step 7: Understand the DRP's Role

The DRP reviews the objections and relevant assessment material.

Under the applicable framework, the panel can examine the proposed variations and issue directions to the Assessing Officer.

The DRP's directions are binding on the Assessing Officer, who subsequently completes the assessment in conformity with those directions.

This makes the objection stage strategically important.

A taxpayer should therefore avoid treating the DRP filing as a simple procedural formality.

Transfer Pricing and DRP Proceedings

Transfer pricing is one of the most significant areas associated with DRP proceedings.

International businesses may have transactions involving:

• Management services
• Technical services
• Software
• Royalty
• Financing
• Imports and exports
• Business support services
• Intellectual property
• Cost-sharing arrangements

Each transaction can raise different questions regarding the arm's length price.

A transfer pricing dispute may also involve disagreement over the appropriate method, comparable companies, profit level indicator, adjustments or economic assumptions.

Because these issues can be highly technical, businesses should consider obtaining professional advice before finalising their objections.

Why Professional Assistance Can Be Valuable

DSRV and Co LLP brings extensive experience in taxation, auditing, GST, corporate law and business advisory. For businesses facing complex income tax assessments, professional guidance can help with reviewing draft orders, analysing proposed adjustments and preparing appropriate responses.

A professional tax advisory team can assist with:

• Reviewing draft assessment orders
• Identifying disputed adjustments
• Analysing transfer pricing matters
• Reviewing supporting evidence
• Preparing objections
• Assessing potential tax exposure
• Coordinating financial and legal documentation
• Developing an appropriate response strategy

Businesses looking for specialised assistance can explore an Income Tax Dispute Resolution Panel service for support with the assessment and objection process.

Common Mistakes Businesses Should Avoid

Several avoidable mistakes can make tax disputes more difficult.

Ignoring the Draft Order

A draft assessment order should be treated as time-sensitive.

Missing the Deadline

The objection period should be calculated carefully from the date the order is received.

Relying Only on Verbal Explanations

Important factual positions should generally be supported by appropriate documentation.

Using Generic Arguments

DRP objections should address the specific reasoning behind each proposed adjustment.

Ignoring Transfer Pricing Documentation

Where the dispute involves international transactions, the underlying transfer pricing analysis should be reviewed carefully.

Confusing Different Tax Years

With the transition to the Income-tax Act, 2025, businesses should verify which statutory provisions apply to their particular proceedings.

Frequently Asked Questions

What is the main purpose of the DRP?

The DRP provides eligible taxpayers with a mechanism to object to proposed variations in a draft assessment order before the assessment is finalised.

Is the DRP available to all taxpayers?

No. Eligibility depends on the conditions prescribed under the applicable tax legislation.

How much time is generally available to file objections?

Under the relevant framework, the taxpayer generally has 30 days from receipt of the draft assessment order to file objections.

Are DRP directions binding?

Yes. The directions issued by the DRP are binding on the Assessing Officer under the applicable statutory framework.

Is DRP useful for transfer pricing disputes?

Yes. Transfer pricing adjustments are a major area in which the DRP mechanism can become relevant for eligible taxpayers.

Final Takeaway

The Income Tax Dispute Resolution Panel can play an important role in resolving assessment disputes before they move further into the appellate process. However, the opportunity comes with strict procedural requirements.

For businesses facing a draft assessment order, the best approach is to act quickly: verify eligibility, calculate the deadline, analyse the proposed adjustment, gather evidence and prepare clearly structured objections.

For complex cases involving transfer pricing, foreign companies or international tax matters, professional assistance can help businesses understand the dispute and present their position more effectively.

Ultimately, successful tax dispute management is not only about challenging an adjustment. It is about building a clear, evidence-based and legally supportable response from the earliest stage of the assessment process.