Income Tax Final Assessment Passed While DRP Objections Still Pending: Gujarat HC Quashes Order for S. 144C Violation [Read Order]

In a recent ruling, the Gujarat High Court held that a final income tax assessment cannot be passed while objections filed before the Dispute Resolution Panel (DRP) are still pending and quashed the assessment order for violation of the mandatory procedure prescribed under Section 144C of the Income Tax Act, 1961.

Milacron India Private Limited, the petitioner, filed its return of income for the assessment year 2022–23 declaring a total income of about Rs. 2.38 crore. The case was selected for scrutiny due to transfer pricing risk parameters and international transactions.

The matter was referred to the Transfer Pricing Officer, who proposed a small upward adjustment relating to notional interest on delayed realization of receivables from associated enterprises. Based on this, a draft assessment order under Section 144C(1) was issued.

Aggrieved by the proposed variation, the petitioner filed objections before the Dispute Resolution Panel on 21 April 2025 within the statutory time limit of 30 days. The petitioner also filed objections before the Jurisdictional Assessing Officer the next day. Both filings were acknowledged by the department.

While these objections were still pending before the DRP and without waiting for directions under Section 144C(5), the Faceless Assessing Officer passed a final assessment order on 2 May 2025 and also initiated penalty proceedings.

The petitioner made representations pointing out that the final assessment order was passed prematurely. Despite this, the DRP later dismissed the objections on the ground that it had become functus officio since the final assessment order had already been passed. Left without a remedy, the petitioner approached the Gujarat High Court.

The petitioner’s counsel argued that the statutory right to have objections decided by the DRP was defeated. They argued that filing objections before the Jurisdictional Assessing Officer instead of the Faceless Assessing Officer was a bona fide procedural mistake and could not justify passing a final assessment order during the pendency of DRP proceedings. The petitioner argued that such an order was without jurisdiction and void.

The revenue argued that Section 144C requires objections to be filed before both the DRP and the Assessing Officer. Since the objections were not filed before the Faceless Assessing Officer, the Assessing Officer was justified in passing the final assessment order. The revenue also argued that the DRP rightly declined to adjudicate the objections after the final order was passed.

The Division Bench comprising Justice A.S. Supehia and Justice Pranav Trivedi observed that it was undisputed that the petitioner had filed objections before the DRP within the limitation period. The court observed that the objections were filed before the wrong assessing authority due to an inadvertent error.

The court pointed out that once the objections were acknowledged by the Jurisdictional Assessing Officer, the petitioner ought to have been guided to approach the Faceless Assessing Officer, especially when the limitation period was running.

The court observed that passing a final assessment order while DRP objections were pending defeated the statutory scheme under Section 144C and deprived the petitioner of a valuable legal right. The court explained that the DRP could not refuse to decide the objections only because a final assessment order was passed in violation of the procedure prescribed by law.

In view of these findings, the court quashed both the final assessment order dated 2 May 2025 and the DRP order dated 25 June 2025. The matter was remanded to the Dispute Resolution Panel for fresh adjudication of the objections. The writ petition was allowed.

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