Punjab and Haryana High Court Quashes UCWeb Mobile Assessment for Violating DRP Directions

The Punjab and Haryana High Court has set aside the final income tax assessment order passed against UCWeb Mobile Private Ltd. for Assessment Year 2021-22, holding that the Assessing Officer (AO) violated the binding directions of the Dispute Resolution Panel (DRP) under Section 144C of the Income-tax Act, 1961.

A Division Bench comprising Justice Deepak Sibal and Justice Rupinderjit Chahal, pronouncing judgment on August 7, 2026, also quashed the consequential demand notice issued under Section 156 and the penalty initiation notice under Section 274 read with Section 270A of the Act. The matter has been restored to the stage of Section 144C(13), with the AO directed to pass a fresh final assessment order in conformity with the DRP's directions.

A ₹60.09 Crore Addition at the Heart of the Dispute

UCWeb Mobile Private Ltd., a wholly owned subsidiary of UC Mobile New World Limited (British Virgin Islands), is engaged in the distribution and re-selling of designated services of UCWeb Singapore Pte Ltd. in India. For AY 2021-22, the scrutiny of its income tax return — filed on March 15, 2022 — involved international transactions with associated entities. The AO referred the matter to the Transfer Pricing Officer (TPO) under Section 92CA(1) of the Act.

On October 29, 2023, the TPO ordered an addition of ₹60,09,84,289 to the petitioner's declared income. Acting solely on this basis, the AO passed a draft assessment order under Section 144C(1) on November 6, 2023.

Within the statutory 30-day window, UCWeb Mobile filed its objections before the DRP on December 6, 2023. However, it failed to separately notify the AO about the filing of these objections. Consequently, the AO proceeded to pass the final assessment order on December 15, 2023 — while the DRP proceedings remained pending.

The Central Legal Question

The case raised a critical procedural question: whether a final assessment order passed by the AO, while an eligible assessee's objections are pending before the DRP, can be sustained — particularly when the DRP subsequently issues directions statutorily binding on the AO.

The petitioner argued that Section 144C(10) makes DRP directions binding on the AO, and Section 144C(13) mandates the AO to complete the assessment in conformity with those directions. The failure to inform the AO was described as a bona fide lapse. Crucially, the TPO's original order — the very foundation of the assessment — had been substituted by a revised order dated September 17, 2024, pursuant to the DRP's directions of August 27, 2024.

The Revenue, however, contended that the AO had committed no wrong, since Sections 144C(3) and (4) obliged him to finalize the assessment where no objections had been received by him. It argued that the petitioner's failure to inform the AO about its DRP objections triggered the AO's statutory obligation to proceed.

'The Spirit Behind Section 144C'

Rejecting the Revenue's stance, the Court held that the impugned final assessment order was "at variance" with the DRP's directions dated August 27, 2024, and thus violated Sections 144C(10) and 144C(13) of the Act.

"The spirit behind Section 144C of the Act is that where an ' eligible assessee ' has chosen to file objections, before the DRP, under Section 144C(2) of the Act, against the AO's draft assessment order passed under Section 144C(1) of the Act, the final assessment order should be passed by the AO in terms of the directions to be issued by the DRP after consideration of the assessee's objections."

The Court further observed that upholding the impugned assessment would be "absurd," since the TPO's original order dated October 29, 2023 — the sole basis of the ₹60.09 crore addition — had already been substituted by the revised TPO order dated September 17, 2024.

A Bona Fide Lapse, Not a Reward

Addressing the petitioner's procedural default, the Court was unequivocal:

"The impugned final assessment order dated 15.12.2023 was passed by the AO because the petitioner did not inform the AO that under Section 144C(2) of the Act the petitioner had filed its objections to the draft assessment order but since for such lapse the petitioner does not stand to gain anything, such inaction on the petitioner's part can only to be termed as a bonafide lapse for which the petitioner should not be put to prejudice."

Precedents That Drove the Decision

The Court drew support from two significant decisions:

• Pepsico India Holdings Pvt. Ltd. vs. Assessment Unit (Delhi High Court, 2023): Endorsing the Bombay High Court's reasoning in Sulzer Pumps, the Delhi High Court held that once objections are filed within the time prescribed under Section 144C(2)(b), the final assessment order ought to be passed in accordance with the directions issued by the DRP.

• Open Silicon Research Pvt. Ltd. vs. Assessment Unit ( Karnataka High Court , 2023): The Karnataka High Court held that "once objections are filed before the DRP and till directions are issued, the assessing officer cannot proceed further."

The Verdict and Its Impact

In allowing the writ petition, the Court set aside the final assessment order, the notice of demand, and the penalty initiation notice — all dated December 15, 2023. The matter now stands restored to the stage of Section 144C(13), with the AO directed to pass a fresh final assessment order in line with the DRP's directions of August 27, 2024 and the revised TPO order of September 17, 2024.

The ruling reinforces a vital safeguard for eligible assessees: the DRP mechanism under Section 144C is a complete code, and the AO cannot bypass it merely because the assessee failed to bifurcate objections between the DRP and the AO. Even a procedural lapse will not deprive an assessee of the substantive protection of DRP review — especially where the very basis of the assessment itself has been revised.