ITAT Can’t Direct DRP or TPO if Not Party | Bangalore Tribunal

Case Details: Xchanging Solutions Ltd. vs. Deputy Commissioner of Income-tax - [2026] 185 taxmann.com 337 (Bangalore-Trib.)

Judiciary and Counsel Details

• Prashant Maharishi, Vice President & Soundararajan K., Judicial Member
• Padamchand Kincha, CA for the Appellant.
• Dr Divya K.J., CIT DR for the Respondent.

Facts of the Case

The assessee company, which renders software development services, filed its return declaring nil income. The scrutiny assessment was completed, resulting in an income determination of about Rs. 19.08 crores. During the proceedings, the Tribunal restored the assessee’s plea for exclusion of five software development comparables to the DRP. Pursuant to the Tribunal’s order, the TPO passed an order and included the two comparables, but did not exclude the above five comparables that had been restored to the DRP and retained a transfer pricing adjustment in the software development services segment.

Based on the TPO’s order, the AO issued a draft assessment order under section 144C, noting, inter alia, that the DRP had not dealt with the five comparables remanded by the Tribunal to the DRP, while the TPO retained them. The dispute resolution panel confirmed inclusion of the five comparables and found no infirmity in the TPO’s and AO’s actions. Per the DRP’s directions, the AO issued the final assessment order. Aggrieved by the order, the assessee filed an appeal to the Bangalore Tribunal.

ITAT Held

The Tribunal held that the assessee contended that the TPO’s retention of the five comparables was beyond his domain since the Tribunal had remitted their exclusion to the DRP, rendering the order invalid. Admittedly, the ITAT restored the issue of exclusion of 5 comparables to the dispute resolution panel. In the appeal before the Tribunal, the respondent was the assessing officer.

Therefore, in all fairness, any direction that needs to be given is to be given to the assessing officer and nobody else. Admittedly, the TPO, as well as the dispute resolution panel, are not respondents in the appeal before the ITAT. Section 254(1) mandates ITAT to pass an order after giving both the parties to the appeal an opportunity of being heard and pass such order thereon as it thinks fit.

Naturally, the DRP or TPO is not a party before the ITAT, so the ITAT has never heard of either, and therefore, no direction should have been given to them. Though the powers of the ITAT are wide, they are not so wide as to direct any authority. The powers are with respect to the appeal before them, and directions are limited only to the parties.

Accordingly, the appeal of the assessee is allowed to the above extent.

List of Cases Referred to

• Cherukuri Mani v. Chief Secretary (2015) 13 SCC 722 (para 21)
• Chandra Kishore Jha v. Mahavir Prasad (1999) 8 SCC 266 (para 21).