Comprehensive Overview: Dispute Resolution Committee (DRC)

The Dispute Resolution Committee (DRC) is an innovative mechanism introduced under Section 245MA of the Income-tax Act, 1961, to resolve tax disputes efficiently and foster compliance among small and medium taxpayers. The DRC is pivotal in reducing litigation and promoting a transparent, taxpayer-friendly environment.

Background and Need        

The Income-tax Settlement Commission (ITSC) ceased to operate on February 1, 2021, leaving a gap in the resolution of pending and potential tax disputes. To address this and provide early tax certainty, the government constituted the DRC under a newly formulated scheme effective from April 1, 2021.

Objectives of the DRC

1. Early resolution of disputes involving small taxpayers.
2. Reduction in litigation and associated costs.
3. Assurance of transparency and efficiency in tax administration.
4. Promotion of voluntary compliance by taxpayers.

Constitution and Composition of the DRC        

Each DRC consists of three members:

• Two retired officers from the Indian Revenue Service (IRS) with at least five years of service as Commissioner of Income-tax or in equivalent/higher posts.
• One serving officer not below the rank of Principal Commissioner of Income-tax.

Members are appointed by the Central Government for a tenure of three years. Decisions are made by majority voting. The government compensates retired members on a per-case and per-sitting basis.

Eligibility Criteria for Application        

Taxpayers can approach the DRC if the following conditions are met:

1. Aggregate variation limit: The variation in the specified order does not exceed ?10 lakh.
2. Income threshold: The total income declared in the return does not exceed ?50 lakh.
3. Exclusions:

Specified Orders Covered        

The following are considered specified orders eligible for dispute resolution:

1. Draft assessment orders under Section 144C.
2. Intimations issued under Section 143(1), 200A(1), or 206CB(1).
3. Assessment or reassessment orders, excluding those based on directions of the Dispute Resolution Panel (DRP).
4. Rectification orders under Section 154, if they enhance the assessment or reduce losses.
5. Orders deeming a person as an assessee-in-default under Sections 201 or 206C(6A).

Application Process        

1. Submission: Eligible taxpayers must submit an application in the prescribed form along with a nominal fee of ?1,000.
2. Screening: The DRC examines the application to ensure it meets specified conditions. If issues arise, the DRC issues a show-cause notice allowing the applicant to respond.
3. Hearing: Taxpayers can request a hearing through video conferencing.
4. Decision: The DRC may:

Procedure After Admission

• Examination: The DRC may call for records, seek reports from the Assessing Officer (AO), and request additional information.
• Timeline: The DRC must issue its decision within six months from the end of the month in which the application is admitted.
• Finality: The order passed by the DRC is binding, and no appeal or revision is permitted.

Powers of the DRC        

The DRC is empowered to:

1. Waive penalties under the Income-tax Act.
2. Grant immunity from prosecution for offences under the Act.
3. Impose conditions for granting relief and record reasons for its decisions in writing.

Immunity is granted only if:

• The taxpayer has paid all taxes due.
• The taxpayer has cooperated fully during proceedings.

Withdrawal or Termination        

The DRC can terminate proceedings for non-cooperation, failure to respond to notices, or concealment of material facts. Immunity granted can also be withdrawn if conditions are violated.

Faceless Scheme for Dispute Resolution        

To ensure transparency and efficiency, the DRC operates under a faceless scheme, eliminating physical interaction between taxpayers and committee members. Key features include:

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

Time Limit for Implementation        

The Assessing Officer must modify the order as directed by the DRC within one month from receiving the DRC’s order.

Summary        

The Dispute Resolution Committee is a significant step toward simplifying tax compliance and reducing litigation. By addressing disputes at an early stage, the DRC provides a platform for taxpayers to resolve issues amicably and fosters a culture of voluntary compliance. Its faceless mechanism further ensures a fair and transparent process, making it a cornerstone of India’s tax administration reforms.