ITAT Delhi Quashes Assessment for Wrongful Use of DRP Procedure in Absence of TPO Adjustment

January 29, 2026 : The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has quashed the final assessment order passed against PHI Seeds Pvt. Ltd. for Assessment Year 2012–13, holding that the Dispute Resolution Panel (DRP) mechanism under Section 144C of the Income Tax Act, 1961 was wrongly invoked despite there being no transfer pricing adjustment proposed by the Transfer Pricing Officer (TPO).

The Bench comprising Judicial Member Sudhir Kumar and Accountant Member S. Rifaur Rahman held that Section 144C can be triggered only when there is a variation in income arising as a consequence of the TPO’s order. In the absence of such a variation, the assessee cannot be treated as an “eligible assessee” under Section 144C(15), and the Assessing Officer (AO) lacks jurisdiction to follow the DRP route.

PHI Seeds Pvt. Ltd. had filed its return of income for AY 2012–13 declaring an income of ₹24.25 crore. The case was selected for scrutiny, and the AO passed an assessment order under Section 143(3) on 23 March 2016, assessing the total income at ₹128.32 crore. The substantial addition of over ₹100.87 crore arose from treating income claimed as exempt agricultural income under Section 10(1) as taxable business income, on the ground that the assessee was engaged in the manufacture, processing and sale of hybrid seeds.

The assessee’s appeal before the Commissioner of Income Tax (Appeals) was dismissed, with the appellate authority relying on orders passed in the assessee’s own case for earlier years. This led the assessee to approach the Tribunal.

During the appellate proceedings, the assessee raised an additional legal ground under Rule 11 of the ITAT Rules, 1963, arguing that the entire assessment was void ab initio for lack of jurisdiction. It was contended that although the AO had referred the matter to the TPO under Section 92CA, the TPO ultimately passed an order under Section 92CA(3) accepting the arm’s length price of the international transactions and proposed no adjustment. In such circumstances, the mandatory precondition for invoking Section 144C was absent.

Accepting the contention, the Tribunal admitted the additional ground as a pure question of law going to the root of the matter. Relying on the Bombay High Court’s decision in Classic Legends (P) Ltd. v. Assessment Unit [2025] 178 taxmann.com 457, the Bench noted that where the TPO does not propose any variation, the assessee cannot be regarded as an “eligible assessee” for the purposes of Section 144C.

Respectfully following the binding precedent, the ITAT held that the AO had wrongly invoked the provisions of Section 144C. Consequently, the entire DRP procedure adopted in the case was held to be without jurisdiction, and the final assessment order was quashed in its entirety. In view of the assessment being set aside on this jurisdictional issue, the Tribunal declined to adjudicate the other grounds on merits, including the taxability of the agricultural income. The appeal filed by the assessee was accordingly allowed.

The decision is based on the Tribunal’s order dated 28 January 2026 in ITA No. 7655/Del/2017, a copy of which forms part of the record.

Cause Title: PHI Seeds Pvt. Ltd. v. DCIT
Case No.: ITA No. 7655/Del/2017
Coram: Sudhir Kumar (Judicial Member) and S. Rifaur Rahman (Accountant Member)