When a draft assessment is required
Under Section 144C of the Income-tax Act, 1961, the Assessing Officer (AO) must first forward a draft when proposing a prejudicial variation for an eligible assessee. The definition covers a person whose case has a variation arising from a Section 92CA(3) Transfer Pricing Officer (TPO) order, or a nonresident other than a company, or a foreign company. A resident company with no TPO-driven variation does not qualify on that ground merely because the AO proposes another addition. A foreign company can qualify when the TPO made no variation. Once a qualifying draft is issued, objections can address the non-transfer-pricing variations it contains too.
This guide uses the 1961 Act for the historical examples and includes the retrospective Finance Act, 2026 changes. For matters governed by the Income-tax Act, 2025, see Sections 166, 275 and 286 and check the applicable forms. Section 536 governs the transition.
Start with the correct TPO and draft-order dates
Section 92CA(3A) links the TPO order to the applicable assessment limitation. The Finance Act, 2026 inserted Section 92CA(3AA), deemed effective from 1 June 2007. It expressly fixes the latest dates below for the listed assessment expiry dates, notwithstanding contrary judgments. Check the applicable assessment expiry, including statutory extensions and exclusions, before applying the table.
| Assessment limitation expires | Latest TPO order date under Section 92CA(3AA) |
|---|---|
| 31 March in a non-leap year | 30 January of that year |
| 31 March in a leap year | 31 January of that year |
| 31 December | 1 November of that year |
The draft must be made within the applicable Section 153 or 153B assessment time limit. The Finance Act, 2026 inserted Sections 153(10), 153B(1A) and 144C(4A), (4B), (13A) and (13B) retrospectively. Where the draft is forwarded within the applicable time, Section 144C(4) governs the additional time for final assessment without DRP directions; Sections 144C(12) and (13) govern the direction and final order periods on the DRP route. The Supreme Court’s earlier split in Shelf Drilling addressed the pre-amendment dispute; it is not a majority holding resolving that dispute. For an existing concluded order, examine the effect of the amended law in the actual proceeding.
Objections, final orders and appeal
| Event | Legacy rule | Evidence to keep |
|---|---|---|
| Receive draft | Within 30 days of receipt, accept the variations before the AO or file objections with both the DRP and the AO. | The draft and proof of receipt, plus both objection acknowledgements. |
| Final order without DRP objections | One month from the end of the month in which acceptance is received or the 30-day filing period expires, as applicable. | Acceptance or deadline, final order and demand service. |
| DRP directions | Within nine months from the end of the month in which the draft is forwarded. | Dispatch record, directions and dates. |
| Final order following DRP directions | Within one month from the end of the month in which the AO receives the directions. | Proof of receipt by the AO, final order and tax computation. |
| Appeal after final order | Ordinary first appeal, where available, is generally within 30 days of service of the notice of demand for an assessment; a qualifying final order made in pursuance of DRP directions goes directly to the Tribunal in Form 36. | Demand or order communication and filing evidence. |
The DRP consists of three Principal Commissioners or Commissioners constituted by the Board. It may confirm, reduce or enhance the variations and can make or direct an inquiry while considering the objections. It cannot send a variation back for fresh adjudication under Section 144C(8). It must offer the appropriate opportunity of hearing before giving directions prejudicial to the assessee or the Revenue. Its directions bind the AO, who completes the assessment in conformity with them without a further hearing under Section 144C(13).
Use prescribed Form 35A and the applicable filing instructions. Rule 4 of the 2009 DRP Rules specifies English objections to the Secretariat and a paper book in quadruplicate with authenticated copies of the draft and other specified materials. Confirm any applicable electronic or office instructions and keep proof of filing with both statutory recipients. Include the draft and supporting orders, a statement of facts, separate numbered legal and factual objections, supporting documents, and details of additional evidence. Verify the accepted channel and copies with the competent offices, and obtain dated proof of filing with both. Service on one recipient does not by itself satisfy the express dual filing requirement.
| Issue | DRP route | Ordinary first appeal route |
|---|---|---|
| Stage | Objections to the draft; ordinarily no collectible demand arises from that draft. | Appeal against an appealable final order; check the notice of demand. |
| Cash and stay | The absence of an enforceable demand on the draft is not a stay of an existing demand. Seek stay separately if needed after final assessment. | Filing an appeal does not itself stay collection. Apply separately under Section 220(6) where appropriate. The administrative 20% benchmark is subject to discretion, including a lower amount on suitable facts. |
| Next forum | Appeal an eligible final order made in pursuance of directions to the Tribunal. | Appeal the first appellate order to the Tribunal if the statute permits. |
| Revenue participation | The old special departmental appeal provision for DRP directions was omitted. Check any cross-objection rights in an existing appeal. | Revenue can appeal qualifying first appellate orders under Section 253(2). |
For covered Tribunal appeals under Section 253(3), the legacy deadline changed from 60 days from communication to two months from the end of the month of communication with effect from 1 October 2024. Verify the provision and transition applicable to the case. After a final order, any stay at the Tribunal is a separate application under Section 254(2A); the legacy Section 254(2A) text provides for a deposit of at least 20% of the specified sum or security of an equal amount for an initial stay of up to 180 days, subject to the applicable law and the Tribunal’s order. Do not treat a stay at either stage as automatic.
Six worked cases
These cases are hypothetical. The date calculations assume the stated triggers and no separately applicable extension or exclusion.
1. The amended January cutoff
Assume a non-leap-year assessment limitation ending 31 March 2025. Zenon’s TPO made a ₹45 crore adjustment on 30 January 2025. An earlier clear-days approach counted 30 days of March, 28 of February and two in January after excluding the assessment expiry date. Under enacted Section 92CA(3AA), 30 January is the prescribed latest date and is 60 calendar days before 31 March. An order on 31 January would miss that stated deadline by one day, subject to the assumed expiry and other applicable rules. The 30 January order is timely on this ground; the ₹45 crore adjustment is not deleted by this calculation.
2. Cash-flow comparison on an assumed demand
Bharat Software receives a draft on 20 March 2025 with ₹80 crore of transfer pricing adjustments and ₹20 crore of other additions, totaling ₹100 crore. The 30-day date is 19 April; filing with both recipients on 15 April is 26 days after receipt. At an assumed Section 115BAA effective rate of 25.168%, incremental tax is ₹25,16,80,000. Assume Section 234B applies on that full amount for 24 months at 1% per month, without advance tax, other credits or changes to the illustrative base. The interest is ₹6,04,03,200 and projected demand ₹31,20,83,200. Actual Section 234B requires its own statutory calculation.
On the draft itself no such tax demand is payable. If the company files no objections and does not accept earlier, the no-objection final order deadline on these facts is 31 May 2025. If a stay authority later sets payment at 20% of the projected disputed demand, the amount is ₹6,24,16,640. At 10% per year for ten months the illustrative simple funding cost is ₹52,01,387. The benchmark, holding period and outcome are assumptions. A favourable companion decision is relevant evidence; it does not decide the case automatically.
3. Foreign company and omitted draft
Global Engineering, a foreign company, has no TPO variation but the AO proposes ₹30 crore of additional India PE profits for AY 2022–23. On the assumptions of the standard 40% foreign company rate for that year, 5% surcharge and 4% cess, with no relief, credits or other adjustments, illustrative tax is ₹13,10,40,000. A final order and demand served on 28 March 2025 without a draft raise a serious Section 144C procedural objection. In Turner International India and JCB India, the Delhi High Court treated bypassing the required draft in the cases before it as a substantive defect; do not assume the same relief without checking the actual order and proceeding. Preserve the communication and check the correct remedy, limitation and interim relief; the example does not assume automatic quashing or a particular appellate forum.
4. One recipient did not receive the objections
Apex receives the draft on 10 March 2025; its ordinary deadline is 9 April. It files with the DRP on 7 April, 28 days after receipt, but does not file with the AO. The AO issues a final order on 15 May raising ₹18 crore. The missing filing creates a Section 144C(2)(b) dispute; the May order is within the May end-date that would apply if the no-objection route were available, but that date alone does not establish jurisdiction. Preserve the DRP proof, the final order and all communications, and obtain case-specific procedural review.
5. The AO receives directions in November
Assume the AO receives the DRP directions on 20 November 2025. Section 144C(13) points to 31 December 2025. A 12 January 2026 final order is 12 days after that date. Confirm the actual receipt, applicable exclusion or court order and preserve the limitation objection. The calendar calculation does not itself establish a final remedy or that the returned income is accepted.
6. Additional evidence in a management charge dispute
Matrix Auto had seven days to support a ₹12 crore management charge before the TPO and later obtains a cost certificate and 400 pages of deliverables. In Form 35A, identify the fresh evidence, explain why it could not be produced earlier, and connect it to actual services, costs and pricing. Rule 9 permits the panel to call for or allow evidence where necessary, and requires recorded reasons when granting permission. The DRP may verify the material through an inquiry and decide the objection itself. A 30-day period for an inquiry report in this example is an assumed case direction; neither admission nor deletion of ₹12 crore is guaranteed.
Practical controls
Record the TPO date, draft dispatch and receipt, applicable assessment limitation, and final order computation. Compare routes on evidence, cash and deadlines. File with both recipients well before the statutory date and preserve proof. Recalculate relief after the directions and review the final order promptly for a limited rectification request, appeal or stay as appropriate. Keep those routes and their deadlines separate.
Frequently asked questions
Can the DRP send a variation back for a fresh assessment?
Section 144C(8) limits that power. It may obtain further inquiry before issuing its own directions.
Can objections include an ordinary tax disallowance?
Yes, where it is a variation in the eligible assessee’s draft order.
Can the Revenue appeal DRP relief independently?
Do not rely on the former Section 253(2A) departmental route; it was omitted with effect from 1 June 2016. Check the limited scope of any cross-objections under Section 253(4).
Can objections be withdrawn to switch forums?
Do not assume a unilateral right to switch routes. Check the procedural position and obtain the applicable order or direction; appeal rights depend on the resulting final order.
Is Form 35A an appeal with a filing fee?
Section 144C and the 2009 DRP Rules do not prescribe a filing fee for Form 35A. The first appeal and Tribunal routes have separate statutory fee provisions.
When can a TPO dispute trigger secondary adjustment?
For the accepted-assessment route, Section 92CE(1)(ii) and Rule 10CB require an accepted primary adjustment and refer to the applicable AO or appellate authority order. A standalone TPO order does not establish acceptance. Reassess each component when an operative assessment or appellate order is available.
Sources
- Income-tax Act, 1961: sections 92CA, 144C, 153, 156, 220, 234B, 249, 253 and 254
- Finance Act, 2026: amendments to Sections 92CA, 144C, 153 and 153B
- Income-tax Act, 2025: sections 166, 275, 286 and 536
- ACIT v. Shelf Drilling Ron Tappmeyer Ltd., 2025 INSC 946: split judgment before the 2026 amendment
- Prescribed Form 35A under the 2009 DRP Rules
- Income Tax Department: limitation periods and Tribunal appeal timing
- Delhi High Court: stay of demand and discretion on the CBDT benchmark
- Income-tax (Dispute Resolution Panel) Rules, 2009: Rules 4, 7, 9 and 13–14
- Delhi High Court judgment: Turner International India, W.P.(C) 4260/2015 and connected matter
- Delhi High Court judgment: JCB India, omitted draft order in remand proceedings
- Delhi High Court judgment discussing the Supreme Court’s LG Electronics order