AO Can’t Make Additions Contrary to Binding Directions of DRP | HC

Case Details: LX Pantos India (P.) Ltd. vs. Assessment Unit National Faceless Assessment Centre, Delhi [2026] 186 taxmann.com 267 (Delhi)

Judiciary and Counsel Details

• Dinesh Mehta & Vinod Kumar, JJ.
• Prashant Meharchandani & Jainender Singh Kataria, Advs. for the Petitioner.
• Abhishek Maratha, SSC, Apoorv Agarwal, Viplav Acharya, JSCs, Ms Nupur Sharma, Gaurav Singh, Himanshu Gaur & Ms Muskaan Goel, Advs. for the Respondent.

Facts of the Case

The petitioner, a company, filed its return of income for the relevant assessment year. The case was selected for scrutiny assessment, and a notice under section 143(2) was issued. Matter reached before the Dispute Resolution Panel (DRP) wherein the Assessing Officer (AO) was directed not to make any addition under section 40(a)(i) in case the department did not prefer an appeal against the order of the Tribunal for assessment year 2017-18 and previous years. However, the Assessing Officer (AO) made an addition under section 40(a)(i) and raised a huge tax demand.

Assessee filed writ petition before the Delhi High Court.

High Court Held

The High Court held that the DRP issued clear directions that if the Department has not preferred any appeal against the Tribunal’s orders, the AO shall not make any addition. The AO had made an addition to the assessee’s income based on the non-deduction of tax on certain payments. However, the AO, as well as the Senior Standing Counsel, contended that the DRP’s order covers only the additions made under section 40(a)(i) and not the Transfer Pricing additions.

The Court held that the DRP’s order was clear and unambiguous. It was issued in respect of additions made under section 40(a)(i) and the Transfer Pricing additions. The DRP order was binding on the AO, and he was duty-bound to follow it. The AO failed to examine the issue as directed by the DRP.

The AO was a Faceless Assessing Officer (FAO), and he might not have the entire record, which a Jurisdictional Assessing Officer (JAO) is supposed to have. However, the additions made by the FAO were in violation of the directions issued by the DRP, which are mandatory as per Section 144C(10). Thus, the additions under section 40(a)(i) were liable to be set aside.