Understanding the Dispute Resolution Committee (DRC) under Section 245MA of the Income-tax Act

Dispute Resolution Committee

The Dispute Resolution Committee (DRC), introduced under Section 245MA of the Income-tax Act, 1961, is a progressive initiative aimed at simplifying tax dispute resolution for small and medium taxpayers. The committee plays a crucial role in reducing litigation and fostering a taxpayer-friendly environment, which aligns with the government’s commitment to ensuring timely and transparent tax administration.

Background and Need for DRC

With the Income-tax Settlement Commission (ITSC) ceasing operations on February 1, 2021, there was a need to bridge the gap in tax dispute resolution, especially for smaller taxpayers. The introduction of the DRC on April 1, 2021, effectively addresses this void, offering taxpayers a platform for early dispute resolution, thereby promoting tax certainty.

Objectives of the DRC

  • Early Dispute Resolution: To resolve disputes promptly for small taxpayers.
  • Litigation Reduction: Minimize the burden of litigation and associated costs.
  • Efficiency and Transparency: Ensure smooth and transparent tax administration.
  • Promoting Voluntary Compliance: Encourage taxpayers to comply willingly.

Constitution and Composition of the DRC

The DRC is comprised of three members:

  • Two retired Indian Revenue Service (IRS) officers with a minimum of five years of experience at the Commissioner of Income-tax level or above.
  • One serving officer of the rank of Principal Commissioner of Income-tax.

These members are appointed by the Central Government for a tenure of three years, and decisions are made through majority voting. Retired members are compensated per case and per sitting.

Eligibility Criteria for Application

Taxpayers can approach the DRC if:

  • Income Threshold: Total income does not exceed ₹50 lakh.
  • Variation Limit: The variation in the specified order should not exceed ₹10 lakh.

Exclusions:

  • Cases arising from search, requisition, or survey proceedings.
  • Disputes based on Double Taxation Avoidance Agreement (DTAA) information.
  • Cases involving criminal offences or convictions under specific laws, such as the Indian Penal Code and Prevention of Money-laundering Act.

Specified Orders Eligible for Resolution

The following orders are eligible for dispute resolution:

  • Draft assessment orders under Section 144C.
  • Intimations under Sections 143(1), 200A(1), or 206CB(1).
  • Assessment or reassessment orders excluding those based on the Dispute Resolution Panel (DRP) directions.
  • Rectification orders under Section 154.
  • Orders deeming an assessee as in-default under Sections 201 or 206C(6A).

Application Process

  1. Submission: Eligible taxpayers must submit an application in the prescribed format with a nominal fee of ₹1,000.
  2. Screening: The DRC screens the application for compliance. A show-cause notice is issued for any discrepancies.
  3. Hearing: Taxpayers may request a hearing via video conferencing.
  4. Decision: The DRC may modify the order, waive penalties, or grant immunity from prosecution.

Procedure After Admission

  • Examination: The DRC may review records, request reports, or seek additional information from the Assessing Officer (AO).
  • Timeline: The DRC must issue its decision within six months from the date of application admission.
  • Finality: The DRC’s decision is final and binding, with no provision for appeal or revision.

Powers of the DRC

The DRC can:

  • Waive penalties under the Income-tax Act.
  • Grant immunity from prosecution, provided the taxpayer has paid all due taxes and cooperated fully.
  • Impose conditions for granting relief.

Immunity conditions:

  • Full payment of taxes due.
  • Complete cooperation during proceedings.

Withdrawal or Termination

The DRC can terminate proceedings if the taxpayer fails to cooperate, responds inadequately to notices, or conceals material facts. Immunity granted may be revoked if conditions are violated.

Faceless Scheme for Dispute Resolution

The DRC operates under a faceless scheme, ensuring:

  • Dynamic jurisdiction.
  • Optimal resource utilization.
  • Technology-driven processes.

This ensures transparency, efficiency, and the elimination of physical interaction between taxpayers and DRC members.

Timeline for Implementation

Once the DRC issues its order, the Assessing Officer must modify the order as directed within one month.

Conclusion – The Dispute Resolution Committee

The Dispute Resolution Committee (DRC) represents a transformative step toward reducing tax litigation, ensuring timely dispute resolution, and fostering voluntary compliance. By addressing issues early and through a faceless, technology-driven mechanism, the DRC not only simplifies tax compliance but also plays a critical role in India’s broader tax administration reforms.

The DRC’s approach ensures a fair, transparent, and effective resolution of disputes, making it an essential tool in the evolution of India’s tax system.

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