2024 (9) TMI 21 - HC - Income Tax

Rectification u/s 154 - rectify the mistake apparent from the record on the ground assessee has placed on record specific details and facts pertaining to the nature of alleged AMP expenses before TPO as well as during personal hearing before the DRP, which was not taken into consideration while passing the order. HELD THAT - It is not disputed that the assessee though had not filed any objection or explanation before the TPO while raising objections to the draft order u/s 144 (c) had placed before the DRP, the necessary and specific details pertaining to the nature of alleged AMP expenses, selling expenses such as trade and other discount on sales, sales discounts, warranty expenses and packing expenses, which should be excluded in the determination of AMP expenses. If an order is passed without taking note of the materials on record and subsequently, if it is brought to the notice of the Income Tax Authority u/s 154 of the Act, it would be open for the Income-Tax Authority to rectify such mistake apparent from the record. While considering the application u/s 154 of the Act, if the material which was not considered while passing original order are considered, the Authority would be at liberty to arrive at just conclusion on consideration of such material. In the instant case also, the authority i.e., DRP on consideration of material which were not considered earlier has come to the conclusion that it is a case to exclude trade discounts as well as discount warranty expenses and packing expenses from the ambit of advertisement and marketing and promotion expenses for the purpose of transfer pricing comparison. Appellate Tribunal, on examination of entire material has come to the conclusion that it is a case of non-consideration of material on record, which would constitute a mistake apparent from the record and has held that the DRP was justified in assuming jurisdiction u/s 154 of the Act. Decided against the Revenue.

Summary

Issues:
Appeal under Section 260-A of the Income-Tax Act, 1961 regarding rectification order by the Appellate Tribunal for the assessment year 2010-11.

Analysis:
The case involves an appeal by the Revenue under Section 260-A of the Income-Tax Act, 1961, challenging the order of the Income Tax Appellate Tribunal (ITAT) for the assessment year 2010-11. The respondent-assessee, a company engaged in trading power tool products, had entered into international transactions, leading to a Transfer Pricing Officer (TPO) determining the Arms' Length Price (ALP) for the international transaction. The Dispute Resolution Panel-1 (DRP) upheld the TPO's action regarding advertisement and sales promotion expenses. The respondent-assessee filed an application under Section 154 of the Act to rectify a mistake apparent from the record, which was allowed by the DRP, directing the exclusion of certain expenses from the advertisement and marketing expenses for transfer pricing comparison. The Revenue appealed the rectification order before the Appellate Tribunal, which confirmed the order, leading to the current appeal before the High Court.

The substantial questions of law admitted for consideration by the High Court were whether the Tribunal was correct in confirming the DRP's directions to rectify its earlier order under Section 154 of the IT Act, and whether reexamining an issue based on certain material on record amounted to an error of judgment. The Revenue contended that there was no mistake apparent from the record to warrant rectification under Section 154, and the DRP exceeded its jurisdiction by revisiting the original order. On the other hand, the respondent-assessee argued that the DRP's rectification was proper as it corrected a mistake apparent from the record by considering material that was overlooked in the original order.

The High Court examined the provisions of Section 154 of the Act, which empower the Income Tax Authority to rectify any mistake apparent from the record. It noted that the respondent-assessee had provided specific details and facts regarding the alleged advertisement and sales promotion expenses, which were not considered in the original order. The Court held that if an order is passed without taking into account such material and it is subsequently brought to the attention of the Income Tax Authority, rectification under Section 154 is permissible. In this case, the DRP rectified its order based on the material that was not considered earlier, leading to a just conclusion. The Appellate Tribunal also found that the non-consideration of material on record constituted a mistake apparent from the record, justifying the DRP's jurisdiction under Section 154.

Ultimately, the High Court dismissed the Revenue's appeal, answering the substantial questions of law against the Revenue and in favor of the respondent-assessee.