88898bos-aps2299-m3-ch17.
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Chapter 17 – Dispute Resolution Committee
Section 245MA – Easy Explanation
This chapter explains the Dispute Resolution Committee (DRC) mechanism created for
early and quicker resolution of relatively small income-tax disputes. It is mainly intended to
provide tax certainty to small and medium taxpayers without requiring them to go
through lengthy appellate proceedings. 88898bos-aps2299-m3-ch17
1. Why was DRC introduced?
Earlier, taxpayers could approach the Income-tax Settlement Commission (ITSC) for
settlement of cases.
However:
ITSC stopped operating from 1 February 2021.
No new settlement application under section 245C could be filed on or after that
date.
Pending applications as on 31 January 2021 were transferred to Interim Boards for
Settlement.
For future small tax disputes, the DRC mechanism was introduced with effect from 1
April 2021.
Main purpose of DRC
DRC ka objective hai:
small disputes ko initial stage par resolve karna;
lengthy appeal and litigation ko avoid karna;
penalty reduce/waive karna;
prosecution se immunity dena;
taxpayer ko early tax certainty provide karna.
DRC = Small dispute + Quick resolution + Penalty relief + Prosecution immunity
2. Constitution of DRC – Section 245MA(1)
Central Government may constitute one or more DRCs.
Under Rule 44DAA, generally every region of the Principal Chief Commissioner of
Income-tax has a DRC.
Composition
Every DRC consists of 3 members:
1. Two retired IRS Income-tax officers
They must have held the post of Commissioner of Income-tax or
equivalent/higher post.
They should have held such post for at least five years.
2. One serving Income-tax officer
Not below the rank of Principal Commissioner or Commissioner of Income-tax.
Other points
Members are appointed for three years.
Decisions are taken by majority.
A member may be removed by the Central Government after:
recording reasons in writing; and
giving an opportunity of being heard.
3. Who can approach the DRC?
An assessee can approach the DRC only when all the following requirements are satisfied:
1. There is a specified order.
2. The monetary and other requirements relating to the order are satisfied.
3. The assessee fulfils the specified conditions.
4. The assessee is a specified person.
4. Meaning of “Specified Order”
A taxpayer cannot approach the DRC against every income-tax order.
The following orders are treated as specified orders.
4.1 Draft order under section 144C(1)
A draft assessment order may qualify where:
variation arises because of an order passed by the Transfer Pricing Officer under
section 92CA(3); or
the assessee is a non-corporate non-resident covered by the provision.
4.2 Intimations containing adjustments
The following intimations may qualify where the assessee, deductor or collector objects to
the adjustment:
Section 143(1): Processing of income-tax return
Section 200A(1): Processing of TDS statement
Section 206CB(1): Processing of TCS statement
4.3 Assessment or reassessment order
An assessment or reassessment order can qualify.
However, an order passed in pursuance of directions of the Dispute Resolution Panel is
excluded.
4.4 Rectification order under section 154
A rectification order qualifies when it:
enhances the assessment; or
reduces the loss.
4.5 TDS/TCS default order
The following orders may qualify:
Order under section 201 treating a person as assessee-in-default for TDS failure.
Order under section 206C(6A) treating a person as assessee-in-default for TCS failure.
For TDS/TCS cases, the variation refers to the amount on which tax was not properly
deducted or collected.
5. Monetary conditions for a Specified Order
Even when the order is of the prescribed type, the following conditions must also be
satisfied:
Condition 1: Variation should not exceed ₹10 lakh
The aggregate amount of variations proposed or made in the order must be:
₹10 lakh or less
“Variation” means the amount of addition, adjustment, disallowance or relevant TDS/TCS
default disputed by the taxpayer.
Condition 2: Returned income should not exceed ₹50 lakh
The assessee must have furnished the return for the relevant assessment year.
Total income shown in the return must not exceed:
₹50 lakh
It is the returned income, not income finally assessed, which is relevant for this limit.
Condition 3: Order must not be based on certain proceedings or
information
The order must not be based on:
search under section 132;
requisition under section 132A;
survey under section 133A; or
information received under an agreement under section 90 or 90A, such as
information received under a DTAA.
Important exam point
An order based on information received under a DTAA is not eligible for DRC.
6. Meaning of “Specified Conditions”
The assessee must not fall in any of the prohibited categories.
6.1 COFEPOSA detention cases
The person should generally not be a person against whom an effective detention order
has been made under the:
Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974.
However, the disqualification may not apply where the detention order has been validly
revoked or set aside according to the conditions mentioned in the law.
6.2 Conviction under serious criminal laws
The person should not be one in whose case prosecution was instituted and who has been
convicted under specified laws such as:
Indian Penal Code/Bharatiya Nyaya Sanhita;
Unlawful Activities (Prevention) Act;
Narcotic Drugs and Psychotropic Substances Act;
Prohibition of Benami Transactions Act;
Prevention of Corruption Act; or
Prevention of Money-laundering Act.
Both elements are relevant:
Prosecution instituted and conviction.
6.3 Prosecution initiated by Income-tax Authority
The person should not be one against whom an income-tax authority has initiated
prosecution for:
an offence under the Income-tax Act;
an offence under the IPC/Bharatiya Nyaya Sanhita; or
enforcement of civil liability under any law.
A person convicted as a consequence of such prosecution is also disqualified.
6.4 Special Court Act
A person notified under section 3 of the:
Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992
cannot use the DRC mechanism.
6.5 Black Money Act proceedings
Proceedings under the Black Money (Undisclosed Foreign Income and Assets) and
Imposition of Tax Act, 2015 should not have been initiated for the assessment year for
which dispute resolution is sought.
7. Meaning of “Specified Person”
A specified person is simply a person who fulfils all the specified conditions.
Therefore:
Eligible order + monetary limits + no prohibited proceedings = Specified person
eligible for DRC.
8. Application before DRC
The eligible person has to file an application:
in the prescribed form; and
with a fee of ₹1,000.
9. Time limit for filing application
Case 1: Appeal already pending before Commissioner (Appeals)
Where an appeal has already been filed and is pending before the Commissioner
(Appeals), the application must be filed within the period specified by the Board from the
date of constitution of the DRC.
Case 2: Any other case
The application must be filed:
Within one month from the date of receipt of the specified order.
Example
Order received on 26 November 2026.
Application should be filed by:
25 December 2026
The chapter follows the one-month period from the date of receipt.
10. Screening of application by DRC
After receiving the application, the DRC first checks whether:
the order is a specified order;
₹10 lakh variation condition is satisfied;
returned income does not exceed ₹50 lakh;
the person fulfils the specified conditions.
If DRC proposes to reject the application
DRC cannot directly reject it without giving an opportunity.
It must:
1. issue a show-cause notice;
2. mention the date and time for response;
3. allow the assessee to submit a reply;
4. provide a video-conference hearing if requested and technologically feasible.
After considering the response, the DRC may:
admit the application; or
reject it.
If the assessee does not respond, the DRC may reject the application.
Remedy where application is rejected
The assessee may file an appeal before the Commissioner (Appeals).
The time taken by the DRC in deciding whether to admit the application is excluded while
calculating the appeal limitation period.
11. Communication of admission or rejection
The DRC communicates its decision to the assessee at the registered email address.
12. Withdrawal of existing appeal or DRP application
When the DRC admits the application, the assessee must, within 30 days, submit:
proof of withdrawal of appeal under section 246A; or
proof of withdrawal of application before the Dispute Resolution Panel; or
a declaration that no such proceeding is pending.
Failure to submit this proof may result in rejection of the DRC application.
Reason
An assessee cannot ordinarily pursue the same dispute simultaneously before:
DRC; and
Commissioner (Appeals) or DRP.
13. Procedure followed by DRC after admission
After admission, the DRC may take the following steps.
13.1 Call for records
The DRC may call for records from the Income-tax Authority.
13.2 Obtain report from Assessing Officer
The DRC may seek a report from the AO:
on issues mentioned in the application; or
on another issue arising during the proceedings.
13.3 Ask for further information
The DRC can ask for documents or information from:
the assessee;
Income-tax Authority; or
any other person.
The communication may be sent to the registered email address.
13.4 Assessee’s response
The assessee must electronically submit the response within the time allowed.
The DRC may grant an extension on application by the assessee.
14. Types of decisions that DRC can take
After considering all the material, the DRC may take one of three decisions.
Option 1: Modify the variation
The DRC may modify the variation in the specified order, provided the modification is not
prejudicial to the assessee.
It may also:
waive penalty; and
grant immunity from prosecution.
Option 2: No modification, but grant relief from penalty/prosecution
The DRC may retain the tax variation but still:
waive penalty; or
grant immunity from prosecution.
Option 3: No modification and no special relief
The DRC may not modify the specified order and may simply dispose of the application.
15. Time limit for DRC’s decision
The DRC must pass its order:
Within six months from the end of the month in which the application is admitted.
Example
Application admitted on 10 August.
Six-month period will be counted from the end of August.
Therefore, the DRC should pass the order by the end of February.
16. Effect of DRC order
The DRC serves a copy of its order on:
the assessee; and
the Assessing Officer.
The AO then gives effect to the order.
No appeal against modified order
Where a modified order is passed in accordance with the DRC decision: Share
no appeal lies before Commissioner (Appeals);
no reference lies before the DRP;
no revision lies against the modified order.
Therefore, choosing DRC generally brings finality to the dispute.
17. Payment of demand
The Assessing Officer serves:
the modified order; and
notice of demand.
The assessee must pay the demand by the specified date.
After payment, the assessee must submit proof of payment to:
the DRC; and
the Assessing Officer.
Only after confirmation of payment will the DRC issue the final order granting applicable
penalty waiver or prosecution immunity.
18. Termination of DRC proceedings
DRC may terminate the proceedings at any stage where:
1. the assessee does not cooperate;
2. the assessee does not respond to notices;
3. the assessee does not furnish information;
4. the assessee conceals material facts;
5. the assessee gives false evidence; or
6. the assessee fails to pay the demand.
Before termination, the DRC must:
give an opportunity of being heard; and
record reasons in writing.
After termination, the DRC informs the Income-tax Authority, which may take normal
action under the Income-tax Act.
19. Power to waive penalty and grant immunity
Under section 245MA(2), the DRC can:
reduce or waive penalty;
grant immunity from prosecution; or
grant both.
But these benefits are not automatic.
Conditions for relief
The assessee must:
pay tax due on the returned income in full, where applicable;
pay the demand determined under the DRC process; and
cooperate with the DRC.
Written reasons
The DRC must record reasons in writing for granting:
penalty waiver;
prosecution immunity; or
both.
It may impose conditions while granting relief.
20. When prosecution immunity cannot be granted
DRC cannot grant immunity where prosecution proceedings had already been initiated
before the date on which the DRC application was received.
Important distinction
A penalty already imposed under the Income-tax Act does not automatically make the
taxpayer ineligible.
But where prosecution has already been initiated before the DRC application, immunity
from that prosecution cannot be granted.
21. Withdrawal of immunity
If immunity has been granted subject to certain conditions and the assessee later violates
those conditions:
immunity stands withdrawn;
penalty/prosecution provisions apply as though immunity had never been granted.
22. Time limit for Assessing Officer to pass the final order
After receiving the DRC order, the Assessing Officer must:
pass the assessment/reassessment/recomputation order where the original order was
a draft order under section 144C; or
modify the existing assessment/reassessment/recomputation order in other cases.
Time limit:
Within one month from the end of the month in which the DRC order is received by
the AO.
Example
AO receives DRC order on 12 September.
AO must pass the order by:
31 October
23. Choice between DRP and DRC
An eligible assessee covered by section 144C may have the option to approach:
Dispute Resolution Panel under section 144C; or
Dispute Resolution Committee under section 245MA.
However, after choosing DRC and obtaining a modified order, the assessee cannot again
approach the DRP or Commissioner (Appeals) against that modified order.
24. Faceless Dispute Resolution Scheme
The Central Government may introduce a faceless scheme to improve:
efficiency;
transparency;
accountability;
utilisation of resources; and
functional specialisation.
The scheme aims to:
1. eliminate physical interaction between the assessee and DRC as far as technologically
possible;
2. use resources efficiently;
3. create dynamic jurisdiction instead of fixed physical jurisdiction.
The chapter mentions that the e-Dispute Resolution Scheme, 2022 was notified on 5 April
2022.
25. Complete DRC Flow
Specified order received
↓
Check ₹10 lakh variation limit
↓
Check returned income ≤ ₹50 lakh
↓
Check order not based on search/survey/DTAA information
↓
Check specified conditions
↓
File application with ₹1,000 fee
↓
DRC screening
↓
Application admitted/rejected
↓
If admitted, withdraw appeal/DRP application within 30 days
↓
DRC calls records, AO report and information
↓
DRC passes order within 6 months
↓
AO gives effect within 1 month from end of receipt month
↓
Assessee pays demand and submits proof
↓
Penalty waiver/immunity granted, if eligible
26. Mr. Vijay’s Example
Facts
Returned income: ₹28 lakh
Addition made: ₹5 lakh
Assessment order under section 143(3)
No detention order
No prosecution
Penalty under section 271D already levied
Can he approach DRC?
Yes, because:
returned income of ₹28 lakh is below ₹50 lakh;
variation of ₹5 lakh is below ₹10 lakh;
section 143(3) assessment order is a specified order;
no detention or prohibited prosecution exists.
Penalty under section 271D does not disqualify him because absence of an Income-tax Act
penalty is not one of the specified conditions.
Time limit
If the order was received on 26 November 2026, application must be filed by:
25 December 2026
Can he appeal against the modified DRC order?
No. No appeal or revision lies against the modified order.
What if order was based on DTAA information?
He would not be eligible for DRC because an order based on information received under
section 90 or 90A is excluded.
27. Important Number Formula for Examination
Remember:
10 – 50 – 1 – 30 – 6 – 1
Number Meaning
₹10 lakh Maximum aggregate variation
₹50 lakh Maximum returned total income
1 month Application from receipt of specified order
30 days Withdrawal proof of appeal/DRP application
6 months DRC to pass order from end of admission month
1 month AO to give effect from end of receipt month
28. One-line Revision Points
DRC is governed by section 245MA.
It is meant for early resolution of small and medium tax disputes.
Application fee is ₹1,000.
Variation must not exceed ₹10 lakh.
Returned income must not exceed ₹50 lakh.
Search, requisition, survey and DTAA-information cases are excluded.
Normal application time is one month from receipt of order.
Existing appeal/DRP application must be withdrawn within 30 days of admission.
DRC order must be passed within six months from the end of admission month.
AO must give effect within one month from the end of receipt month.
Modified DRC order is generally final; no appeal or revision lies.
Immunity cannot be granted if prosecution was initiated before the DRC application.
Sources