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Dispute Resolution Committee (DRC): MCQs, eligibility & procedure

12 min read8 September 20262 viewsConferenza Conferenza

The Dispute Resolution Committee (DRC) is a critical alternative dispute resolution mechanism introduced to provide early tax certainty to small and medium taxpayers without waiting for the formal appeal process. Unlike the Dispute Resolution Panel (DRP), the DRC is a non-adjudicatory body that helps resolve genuine disputes before they escalate. Understanding its structure, eligibility criteria, and procedural requirements is essential for CA Final Direct Tax Laws & International Taxation.

What is the Dispute Resolution Committee?

The Dispute Resolution Committee is a dedicated forum where specified taxpayers can resolve tax disputes arising from variations proposed or made in specified orders—primarily draft assessment orders, Transfer Pricing Officer (TPO) variations, and rectification orders. The DRC mechanism allows taxpayers to present their case without the formality and length of an appeal, with the objective of providing early certainty and finality to tax matters.

Key point: The DRC does not replace the appellate process; it is a pre-appeal resolution mechanism. An assessee who applies to the DRC cannot simultaneously pursue an appeal before the Commissioner (Appeals) or an application before the Dispute Resolution Panel (DRP).

Eligibility Criteria: Who Can Apply to the DRC?

Not every taxpayer can approach the DRC. The law restricts eligibility to a narrow category called "Specified Persons". To qualify, an assessee must meet all of the following conditions:

1. Total Income Ceiling

The assessee's total income as returned for the relevant assessment year must not exceed ₹50 lakhs. This is the primary marker of "small and medium taxpayers". Once income exceeds this threshold, the assessee is barred from approaching the DRC, regardless of other factors.

Verify the current income ceiling with the latest ICAI/CBDT notification, as this limit may be indexed or amended.

2. Aggregate Variation Limit

The total aggregate sum of variations proposed or made in the specified order must not exceed ₹10 lakhs. This ensures the DRC handles disputes of limited monetary quantum.

3. No Criminal Conviction

The person must not have been convicted of any offence under the Indian Penal Code. Prosecution alone is not a bar; only conviction disqualifies. This condition ensures the DRC is available to taxpayers of good repute.

4. Specified Orders Only

The order must be a specified order, which includes:

  • A draft order referred to in section 144C(1) (for TPO variation cases)
  • An assessment order passed in pursuance of directions of the DRP
  • A rectification order under section 154 having the effect of enhancing the assessment

Critical: An order of assessment passed in pursuance of directions of the DRP is a specified order, but a DRP order itself is not eligible for DRC review.

Structure and Composition of the DRC

Each Dispute Resolution Committee consists of three members:

  • One member from the income-tax department (usually a senior officer)
  • Two members who are retired officers or external experts

The Central Government is empowered to fix the fee payable to DRC members who are retired officers, on a per-case basis, along with a sitting fee. This ensures independence and fair compensation of external members.

Application Procedure and Timeline

Filing the Application

An application to the DRC must be accompanied by a fee of ₹1,000 and must be filed within the stipulated time (typically within 30 days from receipt of the specified order). The application should clearly state the nature of the dispute and supporting facts.

Admission and Show Cause Notice

When an application is received, the DRC reviews whether the applicant qualifies as a "Specified Person". If there is doubt, the DRC must serve a notice calling upon the assessee to show cause why the application should not be rejected. If the assessee fails to furnish a response, the DRC may reject the application without admitting it.

Withdrawal of Pending Appeals

Once an application is admitted, the assessee must submit proof of withdrawal of any appeal pending before the Commissioner (Appeals) or application before the DRP within 30 days from the receipt of the admission communication. Failure to do so may result in rejection of the DRC application.

Resolution Timeline

The DRC must pass an order of resolution within six months from the end of the month in which the application is admitted. This tight timeline is a key advantage of the DRC over formal appeals.

Powers and Decisions of the DRC

Authority to Modify Assessment

The DRC can examine the assessment and may:

  • Accept the proposed variation in full
  • Accept the proposed variation in part
  • Reject the proposed variation entirely

The DRC can also grant waiver of penalty or immunity from prosecution if the person has (1) paid the tax due on the returned income in full (if available) and (2) cooperated with the DRC during proceedings.

Voting and Majority Rule

The decision of the DRC is taken by majority vote. If all three members do not agree, the decision of the majority prevails. This ensures reasoned decision-making with multiple perspectives.

Termination of Proceedings

The DRC may terminate dispute resolution proceedings if the assessee fails to cooperate during the proceedings. Cooperation is essential; passive or evasive conduct can result in termination.

Post-DRC: Assessing Officer's Compliance and No Appeal Right

Assessing Officer Must Conform

Once the DRC passes a modified order, the Assessing Officer must pass an assessment order in conformity with the DRC's directions within one month from the end of the month in which the DRC's order is received.

Finality of DRC Order

No appeal or revision lies against the modified order passed by the DRC. This finality is both a strength (quick resolution, no further litigation) and a limitation (limited recourse if the assessee disagrees).

This is a critical exam point: Unlike a DRP order (which is appealable to ITAT), a DRC order is final and binding.

DRC vs DRP: Key Differences

Income Ceiling DRC: ₹50L | DRP: No ceiling
Variation Limit DRC: ₹10L | DRP: No limit
Appeal Right DRC: None | DRP: ITAT appeal
Timeline DRC: 6 months | DRP: Varies

Choice point: If an assessee has a TPO variation and is a specified person, they can choose to apply to either the DRC or the DRP—but not both. The DRC offers speed and finality; the DRP offers appeal rights but takes longer.

Common Exam Mistakes to Avoid

  • Confusing DRC with DRP: The DRC is pre-appeal and final; the DRP is quasi-appellate and appealable. Many students mistakenly believe a DRC order can be appealed to ITAT.
  • Misinterpreting the income ceiling: Income is assessed on the returned income, not assessed income. A non-resident with returned income of ₹55 lakh is ineligible, even if total income is higher.
  • Overlooking criminal conviction disqualification: Conviction (not mere prosecution) is the bar. Many students wrongly exclude applicants facing prosecution.
  • Missing the 30-day withdrawal requirement: Failure to withdraw a pending appeal within 30 days of admission is grounds for rejection. This is a procedural trap.
  • Assuming unanimous decision: The DRC decides by majority, not unanimity. A 2–1 decision is binding.

Practice Questions

Q1. Case Study: Mr. C, a non-resident, received a draft assessment order where the total variation due to a TPO order was ₹8,00,000. His returned income was ₹55,00,000. Is Mr. C eligible to approach the DRC?

  1. No, because the returned income exceeds ₹50,00,000
  2. Yes, because a non-resident is a specified person and the variation limit is met
  3. No, because a non-resident must approach the DRP only
  4. Yes, because the specified conditions regarding total income do not apply to non-residents
Show answer & explanation

Correct answer: A. The returned income ceiling of ₹50 lakhs applies universally to all applicants, including non-residents. Mr. C's returned income of ₹55 lakh exceeds the threshold, making him ineligible regardless of his residential status. Although the TPO variation (₹8 lakh) is within the ₹10 lakh aggregate limit, the income ceiling is a disqualifying factor.

Q2. Who is empowered to fix a sum to be paid as fee to a DRC member who is a retired officer, on a per case basis, along with a sitting fee?

  1. The Principal Chief Commissioner of Income-tax
  2. The Central Government
  3. The Central Board of Direct Taxes (CBDT)
  4. The Assessing Officer
Show answer & explanation

Correct answer: B. The Central Government has the statutory authority to determine the remuneration payable to external DRC members (retired officers) on a per-case basis, including sitting fees. This ensures fairness and independence of the DRC process. The CBDT may advise, but the Centre has final power.

Q3. The main objective behind the constitution of the Dispute Resolution Committee (DRC) is to provide early tax certainty to which category of taxpayers?

  1. Large corporate taxpayers
  2. Non-resident taxpayers exclusively
  3. Small and medium taxpayers
  4. Government sector undertakings
Show answer & explanation

Correct answer: C. The DRC is designed specifically for small and medium taxpayers (returned income not exceeding ₹50 lakh) to resolve disputes quickly without formal appeal delays. The income ceiling and variation limit (₹10 lakh) confirm this targeting. Large corporates are excluded by design.

Q4. An application for dispute resolution before the DRC must be accompanied by a fee of:

  1. ₹500
  2. ₹1,000
  3. ₹5,000
  4. No fee is prescribed
Show answer & explanation

Correct answer: B. A fee of ₹1,000 is mandatory with every DRC application. This nominal fee is not a barrier to SMEs but ensures the process is taken seriously and helps cover administrative costs.

Q5. How many members constitute each Dispute Resolution Committee (DRC)?

  1. Two members
  2. Three members
  3. Four members
  4. Five members
Show answer & explanation

Correct answer: B. Each DRC comprises three members: typically one from the income-tax department and two external members (retired officers or experts). This composition ensures departmental perspective balanced by independent review.

Q6. The decision of the Dispute Resolution Committee (DRC) is taken by:

  1. Unanimous vote of all members
  2. The presiding officer only
  3. Majority
  4. The Principal Chief Commissioner of Income-tax
Show answer & explanation

Correct answer: C. DRC decisions are taken by majority vote. If two of three members agree, their decision prevails. This majority rule prevents stalemate and ensures efficient resolution, though it differs from DRP orders which require considered reasoning.

Q7. Which of the following orders is NOT considered a "Specified Order" for the purpose of making an application to the DRC?

  1. An order of assessment passed in pursuance of directions of the Dispute Resolution Panel (DRP)
  2. A draft order referred to in section 144C(1) for a Transfer Pricing Officer (TPO) variation case
  3. An intimation under section 143(1) where the assessee objects to the adjustments
  4. A rectification order under section 154 having the effect of enhancing the assessment
Show answer & explanation

Correct answer: A. An assessment order passed in pursuance of DRP directions is a specified order (eligible for DRC). However, a DRP order itself cannot be revisited via DRC—DRP orders are final and appealable only to ITAT. Option C (section 143(1) intimation) is also not a specified order for DRC purposes; DRC applies to formal orders, not preliminaries.

Q8. What is the maximum aggregate sum of variations proposed or made in a specified order for a person to be eligible to apply to the DRC?

  1. ₹5 lakhs
  2. ₹10 lakhs
  3. ₹25 lakhs
  4. ₹50 lakhs
Show answer & explanation

Correct answer: B. The total aggregate sum of variations must not exceed ₹10 lakhs. This limit, combined with the ₹50 lakh income ceiling, ensures the DRC handles genuinely small and medium disputes. Larger variations go to DRP/ITAT.

Q9. An assessee's total income as per the return furnished for the relevant assessment year should not exceed which limit to be eligible to apply to the DRC?

  1. ₹10 lakhs
  2. ₹25 lakhs
  3. ₹50 lakhs
  4. ₹1 crore
Show answer & explanation

Correct answer: C. The returned income ceiling is ₹50 lakhs. This is the primary gating criterion. Note: The rule refers to "returned income" (income shown in the return filed), not assessed income or income after adjustment.

Q10. Which of the following actions prevents an assessee from being considered a "Specified Person" eligible to apply to the DRC?

  1. Levy of penalty under section 271D
  2. Prosecution for any offence under the Indian Penal Code has been instituted and they have been convicted of that offence
  3. Pending appeal before the Commissioner (Appeals)
  4. Failure to deduct tax at source
Show answer & explanation

Correct answer: B. Only conviction for an IPC offence is a bar. Prosecution alone does not disqualify. Levy of penalty, pending appeals, or TDS failures do not prevent DRC eligibility. This ensures the mechanism is available to honest taxpayers facing disputed assessments.

Q11. What is the time limit for the DRC to pass an order of resolution from the end of the month in which the application for dispute resolution is admitted?

  1. Three months
  2. Six months
  3. Twelve months
  4. Nine months
Show answer & explanation

Correct answer: B. The DRC must pass an order within six months from the end of the month in which the application is admitted. This statutory timeline ensures quick resolution—a hallmark advantage of DRC over formal appeals which may take years.

Q12. If a person, in whose case a variation arises due to a Transfer Pricing Officer (TPO) order, receives a draft order under section 144C(1), against which forum can they opt to seek dispute resolution?

  1. Only the Dispute Resolution Panel (DRP)
  2. Only the Dispute Resolution Committee (DRC)
  3. Either the DRP or the DRC
  4. The Income-tax Appellate Tribunal (ITAT)
Show answer & explanation

Correct answer: C. Where a draft order arises from a TPO variation, a specified person (meeting income and variation criteria) can choose between DRC and DRP—both are available as pre-assessment dispute resolution options. This choice is a key structural feature introduced to empower smaller taxpayers.

Q13. If the DRC decides to reject an application, it must first serve a notice to the assessee calling upon them to show cause. If the assessee fails to furnish a response, what is the consequence?

  1. The application is deemed to be admitted
  2. The DRC may reject the application
  3. The DRC must provide a personal hearing
  4. The matter is referred to the Assessing Officer
Show answer & explanation

Correct answer: B. If a show cause notice is issued and the assessee fails to respond, the DRC is empowered to reject the application. This ensures the applicant has a fair opportunity to explain eligibility concerns, but non-cooperation is fatal.

Q14. Where an application for dispute resolution is admitted, the assessee must submit a proof of withdrawal of any appeal pending before the Commissioner (Appeals) or application before the DRP within what time limit from the receipt of communication of admission?

  1. 7 days
  2. 15 days
  3. 30 days
  4. 60 days
Show answer & explanation

Correct answer: C. The assessee must withdraw any pending appeal/DRP application within 30 days of receipt of DRC admission. This ensures exclusive focus on DRC proceedings. Failure to withdraw is grounds for rejection.

Q15. The Assessing Officer must pass an order in conformity with the directions of the DRC within a period of:

  1. One month from the date of the DRC's order
  2. One month from the end of the month in which the DRC's order is received
  3. Three months from the date of the DRC's order
  4. Six months from the date of the DRC's order
Show answer & explanation

Correct answer: B. The AO must comply with the DRC's direction and pass a conforming order within one month from the end of the month in which the DRC's order is received. This ensures quick implementation and finality.

Q16. After the DRC passes a modified order, can the assessee file an appeal against this modified order?

  1. Yes, an appeal lies to the Commissioner (Appeals)
  2. Yes, an appeal lies directly to the Income-tax Appellate Tribunal (ITAT)
  3. No appeal or revision lies against the modified order
  4. Only a revision petition can be filed before the Principal Commissioner
Show answer & explanation

Correct answer: C. The DRC's modified order is final and binding. No appeal to Commissioner (Appeals), ITAT, or revision to the Principal Commissioner lies. This finality is the defining trade-off: speed and certainty in exchange for limited recourse. This is a core exam differentiator between DRC and DRP.

Q17. A key condition for the DRC to grant waiver of penalty or immunity from prosecution is that the person must have:

  1. Paid at least 50% of the tax due
  2. Furnished a revised return
  3. Paid the tax due on the returned income in full, if available, AND cooperated with the DRC
  4. Submitted a guarantee for the tax amount
Show answer & explanation

Correct answer: C. The DRC can grant penalty waiver or prosecution immunity only if the assessee has: (1) paid the tax due on the returned income in full (if such tax is available/payable) and (2) cooperated throughout DRC proceedings. Both conditions must be satisfied; partial payment or non-cooperation is insufficient.

Q18. Under which of the following circumstances can the DRC terminate the dispute resolution proceedings?

  1. The assessee fails to cooperate during the proceedings
  2. The Assessing Officer requests termination
  3. The assessee files a revised return of income
  4. The tax demand is less than ₹1,00,000
Show answer & explanation

Correct answer: A. The DRC may terminate proceedings if the assessee fails to cooperate. Cooperation is a non-negotiable precondition for fair resolution. The AO cannot unilaterally terminate; revised returns do not automatically stop proceedings; and no monetary threshold triggers termination.

Fast-Track Learning Resources

To master dispute resolution comprehensively, consider Bhanwar Borana's full course catalogue, which includes deep dives into procedural and strategic aspects. For structured, exam-focused coverage of Direct Tax Laws & International Taxation, Bhanwar Borana's CA Final Direct Tax lectures (from ₹5000) integrate DRC mechanics with broader appeal strategy.

Alternative expert instructors offering comprehensive DRC coverage:

For revision and handwritten quick notes, Bhanwar Borana's Compact Handwritten Notes on Direct Tax (₹640) condense DRC procedure into exam-friendly format.

Practice Tip: Students can practise thousands more free and paid MCQs on the Conferenza app, with filters by topic, difficulty, and last-minute revision drills.

FAQs

Q: Can a non-resident apply to the DRC?
A: Yes, but only if their returned income does not exceed ₹50 lakhs and the variation is ≤₹10 lakhs. Residential status is irrelevant to eligibility; the income and variation thresholds are universal.

Q: Can I appeal a DRC order to ITAT?
A: No. A DRC order is final and binding. No appeal, revision, or review lies. This is the key trade-off for speed. If you disagree, your only recourse was to choose DRP or formal appeal before entering DRC.

Q: If I file a DRC application, can I also file an appeal to Commissioner (Appeals)?
A: No. You must choose one path. Admission to DRC requires withdrawal of any pending appeal or DRP application within 30 days. Dual proceedings are not permitted.

Q: What if I am convicted of an offence under the IPC? Can I apply to DRC?
A: No. Conviction is a permanent bar to DRC eligibility. However, mere prosecution is not a bar; only conviction disqualifies you.

Final Thought

The DRC is a taxpayer-friendly forum designed for small and medium businesses to resolve

#dispute resolution committee#DRC#direct tax#CA Final#DRP vs DRC
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