ITAT Mumbai Quashes Section 263 Revision in Mondelez Case; Holds DRP-Based Assessment Beyond PCIT’s Jurisdiction

Key Facts and Tribunal Findings

The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, allowed the appeal filed by Mondelez India Foods Pvt. Ltd. for Assessment Year 2018–19, quashing the revisionary order passed by the Principal Commissioner of Income Tax under Section 263 of the Income Tax Act.

The dispute arose from a revision order wherein the PCIT sought to set aside the assessment framed under Section 143(3) read with Section 144C(13), alleging that the assessment was erroneous and prejudicial to the interests of the Revenue on multiple counts, including underassessment relating to termination costs, voluntary retirement expenses, ESOP costs, grants received, and forward contract gains and losses.

The assessee challenged the very jurisdiction of the PCIT to invoke Section 263, contending that the original assessment had been passed pursuant to binding directions issued by the Dispute Resolution Panel (DRP), a collegium of three Commissioners of Income Tax.

The Tribunal accepted the assessee’s contention, observing that the statutory framework under Section 144C mandates that the Assessing Officer must pass the final assessment order strictly in conformity with the DRP’s directions, without any further modification or independent application of mind. In such circumstances, the assessment order cannot be treated as erroneous merely because the PCIT holds a different view.

Relying on coordinate bench decisions, including Barclays Bank PLC v. CIT, the Tribunal held that Section 263 does not extend to revising assessment orders passed pursuant to DRP directions, as such orders are effectively the outcome of a collegiate decision-making process by authorities of equivalent rank.

The Tribunal further noted that permitting revision in such cases would indirectly override the binding nature of DRP directions, which is impermissible under the scheme of the Act.

Accordingly, the Tribunal held that the PCIT lacked jurisdiction to invoke Section 263 in the present case and quashed the revision order in entirety. All other grounds were rendered infructuous.