2024 (2) TMI 1492 - HC - Income Tax

Rectification of mistake - TP Adjustment - Arm's length price of Advertisement, Marketing, and Promotion (AMP) expenses - Resale Price Method RPM as adopted by the appellant/assessee - HELD THAT - Tribunal has recorded a conclusive finding that application of RPM is appropriate in the instant case. However, thereafter the Tribunal proceeded to determine the arms length price of AMP expenses and directed the TPO to restrict the adjustment ITAT appears to have felt constrained to not attempt to rectify the apparent inconsistency bearing in mind, and in its estimation, the limited extent and scope of power that stands vested upon it by virtue of Section 254(2) of the Act. However, and since the inconsistency is apparent on the face of the record, we allow ITA and set aside the order. The matter shall stand remitted to the ITAT for considering the appeal afresh.

Summary

Issues:
1. Challenge to ITAT order rejecting miscellaneous application under Section 254(2) of the Income Tax Act, 1961.
2. Questions of law regarding the application of Resale Price Method (RPM) and arm's length price of Advertisement, Marketing, and Promotion (AMP) expenses.
3. Inconsistency in ITAT's findings regarding the application of RPM and determination of arm's length price of AMP expenses.

Analysis:
1. The appellant challenged the ITAT order rejecting a miscellaneous application under Section 254(2) of the Income Tax Act, 1961, through a writ petition. The ITAT had earlier rejected the appellant's application seeking to invoke powers under Section 254(2) post an order dated 21 September 2020. The writ petition (W.P.(C) 261/2023) was filed against the ITAT's order of 10 August 2022.

2. The appeal raised questions of law related to the application of the Resale Price Method (RPM) and the determination of the arm's length price of Advertisement, Marketing, and Promotion (AMP) expenses. The appellant contended that the ITAT's order was self-contradictory as it allowed the contention that AMP expenses should be benchmarked using the RPM method but also upheld an AMP adjustment. The ITAT's findings were challenged as factually and legally perverse.

3. The ITAT initially held that the RPM method was applicable for benchmarking AMP expenses. However, it later quantified the arm's length price of AMP expenses, resulting in an adjustment. The ITAT acknowledged the inconsistency in its findings but cited limitations under Section 254(2) of the Act for rectification. The High Court allowed the appeal, setting aside the ITAT's order and remitting the matter for fresh consideration. The writ petition challenging the order on the miscellaneous application was not interfered with.

This detailed analysis outlines the issues raised in the appeal, the questions of law regarding RPM and AMP expenses, and the inconsistency in the ITAT's findings, leading to the High Court's decision to remit the matter for fresh consideration.