Section 275 · Assessment
Section 275 of the Income-tax Act, 2025 — Reference to Dispute Resolution Panel (DRP)
By CA Rajat Agrawal
Updated 05 Jul 2026
Chapter XVI
📜 What the law says — Section 275, Income-tax Act 2025
275. (1) The Assessing Officer shall, irrespective of anything to the contrary
contained in this Act, in the first instance, forward92 a draft of the proposed
order of assessment (hereafter in this section referred to as the draft order) to the
eligible assessee, if he proposes to make any variation which is prejudicial to the
interest of such assessee.
(2) On receipt of the draft order, the eligible assessee shall, within thirty days of its
receipt by him,—
(a) file his acceptance of the variations to the Assessing Officer; or
(b) file his objections, if any, to such variation with,—
(i) the Dispute Resolution Panel; and
(ii) the Assessing Officer.
(3) The Assessing Officer shall complete the assessment on the basis of the draft
order, if—
(a) the assessee intimates to the Assessing Officer the acceptance of the
variation; or
(b) no objection is received within the period specified in sub-section (2).
[(4)(a) The Assessing Officer shall, irrespective of anything contained in section
56
286, pass the assessment order under sub-section (3) within one month from the end
of the month in which,—
56. Substituted by the Finance Act, 2026, w.e.f. 1-4-2026. Prior to its substitution, sub-section
(4) read as under :
“(4) The Assessing Officer shall, irrespective of anything contained in section 286, pass the
assessment order under sub-section (3) within one month from the end of the month in
which,—
(a) the acceptance is received; or
(b) the period of filing of objections under sub-section (2) expires.”
(i) the acceptance is received; or
(ii) the period of filing of objections under sub-section (2) expires.
(b) Irrespective of anything contained in section 286, where a draft of the proposed
order of assessment under sub-section (1) is forwarded within the time period allowed
under the said section, further time period available to the Assessing Officer to com-
plete the assessment under sub-section (3) shall be governed by the provisions of this
sub-section.]
(5) The Dispute Resolution Panel shall, in a case where any objection is received
under sub-section (2), issue such directions, as it thinks fit, for guidance of the
Assessing Officer to enable him to complete the assessment.
(6) The Dispute Resolution Panel shall issue the directions as referred to in sub-sec-
tion (5), in writing, stating the points of determination, the decisi
In plain language
What Section 275 is all about
Section 275 of the Income-tax Act, 2025 creates a special "second opinion" mechanism for a limited class of taxpayers before their income-tax assessment becomes final. It is the re-numbered successor to the well-known Section 144C of the Income-tax Act, 1961, and it governs how the Dispute Resolution Panel (DRP) works. In plain terms: instead of the Assessing Officer (AO) directly passing a harsh final order, the AO must first issue a draft order, and the taxpayer gets a chance to have a panel of three senior officers review the proposed additions before any tax demand crystallises.
Who does it apply to? (the "eligible assessee")
This is not for every taxpayer. The DRP route under Section 275 is available only to an eligible assessee, which broadly means:
- Any person in whose case a Transfer Pricing Officer (TPO) has passed an order proposing a transfer-pricing adjustment (i.e. the AO proposes a variation as a consequence of the TPO order).
- Any non-resident (not being a company) and any foreign company.
So an ordinary resident individual, HUF or domestic company (without a TP adjustment) is not eligible and will instead follow the normal assessment and appeal (CIT(Appeals)) route.
How the process works, step by step
- Step 1 — Draft order: If the AO proposes any variation that is prejudicial to the eligible assessee (i.e. increases income or reduces loss/refund), the AO must first forward a draft assessment order, not a final one.
- Step 2 — 30 days to react: Within 30 days of receiving the draft, the assessee must either (a) file acceptance of the variations with the AO, or (b) file objections with both the DRP and the AO.
- Step 3a — If accepted / no response: The AO passes the final order within one month from the end of the month in which acceptance is received or the 30-day window expires.
- Step 3b — If objections filed: The DRP examines the objections and issues binding directions to the AO.
- Step 4 — Final order: The AO must complete the assessment in line with the DRP directions within one month from the end of the month in which the directions are received.
Powers of the Dispute Resolution Panel
- The DRP is a collegium of three Principal Commissioners / Commissioners of Income-tax constituted by the CBDT.
- It may confirm, reduce or enhance the variations proposed in the draft order — so objecting carries a real (though rare) risk that the addition could go up.
- It may conduct further enquiries and can consider any matter arising out of the assessment proceedings, even one not raised by the assessee.
- Its directions are binding on the AO. The AO cannot deviate.
Key time limits (why they matter)
Section 275 is built around hard deadlines that override the general limitation in the assessment sections:
- The DRP must issue directions within nine months from the end of the month in which the draft order was forwarded.
- The AO's final order must follow within one month from the end of the month of receiving directions.
- If the AO passes a final order without first issuing a draft order (where one was required), the final order is generally treated as void / bad in law — a point repeatedly upheld by courts under the old Section 144C.
How it interacts with related provisions
A draft order does not carry a tax demand — no notice of demand or penalty is issued at the draft stage. Demand arises only with the final order. Because the DRP is an alternative to the first appeal, once you go the DRP route the final order is challenged directly before the Income Tax Appellate Tribunal (ITAT), not the CIT(Appeals). The provision works closely with the transfer-pricing sections and the faceless assessment scheme.
Practical implications for taxpayers
- DRP directions typically arrive faster than a first appeal and skip a layer, going straight to ITAT.
- You get a review by three senior officers before paying anything.
- But the panel can enhance the addition, so weigh objections carefully with your CA.
- Missing the 30-day window is fatal — the AO can then finalise the draft additions as they stand.
💡 Example
Worked example 1 (foreign company / TP adjustment): XYZ Ltd, a foreign company, files its return showing taxable income of ₹8 crore. During assessment, the TPO proposes a transfer-pricing adjustment of ₹3 crore, raising the proposed income to ₹11 crore. Because XYZ is an eligible assessee, the AO cannot pass a final order straight away — it issues a draft order for ₹11 crore. XYZ files objections with the DRP within 30 days. The DRP, after hearing, reduces the adjustment to ₹1.2 crore. The AO must then pass the final order at ₹9.2 crore within one month from the end of the month it receives the direction. Tax is payable only on this final figure — not on the draft ₹11 crore.
Worked example 2 (timeline): Suppose the AO forwards the draft order on 10 May 2026. The DRP's nine-month clock runs from 31 May 2026, so directions must be issued by 28 February 2027. If directions are received by the AO on, say, 15 January 2027, the final assessment order must be passed by 28 February 2027 (one month from the end of January).
A relatable story: Meera runs the India arm of a foreign group. One morning she receives a "draft assessment order" adding ₹2 crore and panics, thinking a huge demand is due. Her CA calms her down: "This is only a draft under Section 275 — there is no demand yet. We have 30 days to object to the DRP, and three senior Commissioners will review it before anything becomes final." They file objections; the DRP knocks the addition down to ₹40 lakh. Meera realises the draft-order stage was actually a protective checkpoint, not a bill.
| Stage / Item | Rule under Section 275 | Time limit |
|---|
| Draft order | AO must issue draft (not final) if variation is prejudicial to an eligible assessee | Before final order |
| Assessee's response | Accept variations OR file objections with DRP and AO | 30 days from receipt of draft |
| Final order (if accepted / no objection) | AO passes final order on draft terms | 1 month from end of month of acceptance / expiry of 30 days |
| DRP directions | May confirm, reduce or enhance; binding on AO | Within 9 months from end of month draft was forwarded |
| Final order (after DRP directions) | AO gives effect to binding directions | 1 month from end of month directions received |
| DRP composition | Collegium of three Pr. Commissioners / Commissioners | Constituted by CBDT |
| Who is eligible | TP-adjustment cases; non-residents (non-company); foreign companies | — |
Related sections
Section 270 — Assessment (regular/scrutiny assessment) Section 271 — Best judgment assessment Section 166 — Transfer pricing / arm's length price adjustments Section 356 — Appeals to the Income Tax Appellate Tribunal Section 288 — Time limit for completion of assessments Section 379 — Dispute Resolution Committee for small taxpayers
Frequently asked questions
What is the difference between a draft order and a final assessment order?
A draft order under Section 275 only proposes variations and carries no tax demand or penalty; it is a checkpoint. The final order is passed later and is the enforceable order that creates the demand.
Who can approach the Dispute Resolution Panel?
Only an eligible assessee — namely a person facing a transfer-pricing adjustment from a TPO order, a non-resident who is not a company, or a foreign company. Ordinary resident taxpayers cannot use the DRP.
How many days do I get to object to the draft order?
You have 30 days from the date you receive the draft order to either accept the variations or file objections with both the DRP and the Assessing Officer. Missing this window lets the AO finalise the draft additions.
Can the DRP increase my income addition?
Yes. The DRP has the power to confirm, reduce or enhance the variations proposed in the draft order, so filing objections carries a small risk of a higher addition.
Is the DRP direction binding on the Assessing Officer?
Yes. Every direction issued by the DRP is binding on the AO, who must pass the final order in line with those directions within one month from the end of the month the directions are received.
What happens if the AO skips the draft order and passes a final order directly?
Where a draft order was mandatory, passing a final order without it generally renders the order void in law, as consistently held by courts under the predecessor Section 144C.
After the DRP, do I appeal to CIT(Appeals) or the Tribunal?
The DRP replaces the first appeal, so the final order passed after DRP directions is challenged directly before the Income Tax Appellate Tribunal (ITAT).
C
CA Rajat Agrawal
Chartered Accountant, EaseValue · Reviewed 05 Jul 2026
This explainer is prepared and reviewed by EaseValue's tax team, based on the text of the Income-tax Act, 2025 (as amended by the Finance Act, 2026).
Disclaimer: This page explains the law in general terms for education and is not professional advice. The Income-tax Act, 2025 takes effect from 1 April 2026; provisions, thresholds and interpretations may change. Please confirm your specific position with our team before acting.
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