2025 (1) TMI 892 - AT - Income Tax

Rectification of mistake - recovery of securities losses made during the relevant previous year should not be brought to tax in view of the fact that the losses incurred pertained to AY 1993-94 and the issue of deductibility of said losses had not attend finality - HELD THAT -Tribunal has specifically stated that Ground No. 6 raised by the Assessee is kept open. The directions being sought are clearly dependent upon the outcome of the appellate proceedings before the Hon ble High Court and the Hon ble Supreme Court. Therefore, in order to redress the grievance of the Assessee, it is clarified that subject to judgment/direction of the Hon ble High Court/Hon ble Supreme Court in the appellate proceedings arising from the order, passed by the Tribunal in appeal for the Assessment Year 1993-1994, the recoveries of securities losses would not be taxed during the Assessment Year 2002-2003 in case the Revenue succeeds its appeal for the Assessment Year 1993-94 before the Hon'ble High Court/Hon ble Supreme Court and the deduction for securities losses in disallowed. Tribunal erred in directing the verification of the CPA Certificate and allocation key for the TPA related to the Assessment Year 2002-03 - TPO had proposed Transfer Pricing Adjustments on the ground that the Assessee had failed to satisfy the benefit test. Since the TPO had rejected the claim at the very threshold, there was no occasion for the TPO to benchmark the cost allocated by taking into account the CPA Certificate furnished by the Assessee. Further, perusal of Assessment Order clearly shows that the TPO/Assessing Officer had clearly taken a stand that in absence of relevant documents/details the benefit derived from the Indian operations could be determined and therefore, benchmarking of cost allocation could not be done. Thus, we reject the contention of the Assessee that the authorities below had verified the CPA Certificate furnished by the Assessee for benchmarking the cost allocation. We are alive to the fact that the Tribunal being the final fact-finding Authority is required to return finding of fact. However, for doing so all the relevant material/facts should be available on record. In case the material facts/information are not available on record and the Tribunal may, in its discretion, remand the issue back to the file of the authorities below. While it has been submitted on behalf of the Assessee that all materials/fact relevant for adjudication of the issue of transfer pricing adjustment were available on record, the same was rejected. We do not find merit in the aforesaid submission in view of the facts narrated hereinabove. We have already rejected the submission of the Assessee that the authorities below had taken cognizance of the CPA Certificate. In our view, the authorities below did not object to the allocation policy or computation of cost allocation solely for the reason that the contention of the Assessee that the cost allocated resulted in benefit to Indian operations/branch was rejected at the threshold by the authorities below on account of failure of the Assessee to furnish supporting documents. Tribunal had accepted the contention of the Assessee that the entire cost allocation cannot be rejected on account of non-submission of original vouchers and agreement/invoices, and thereby provided another opportunity to the Assessee to establish that the cost allocation was at ALP. Equity also required that Revenue should also be granted opportunity to verify the allocation/computation of the cost said to have been incurred outside India for the purpose of Indian operations. Thus, we reject the contention of the Assessee that the directions issued by the Tribunal in paragraph 56 of the order, dated 15/03/2024, constituted mistake apparent on record. The remand of the issue back to the file of the authorities below can, at best, constitute error of judgment (and not mistake apparent on record as contended by the Assessee) which may be subjected to judicial review in appellate proceedings under Section 260A of the Act and the same does not fall within the ambit of powers vested in the Tribunal u/s 254(2) of the Act to rectify the mistake apparent on record.

1. ISSUES PRESENTED and CONSIDERED

The legal judgment from the Appellate Tribunal ITAT Mumbai involves the following core legal questions:

Whether the Tribunal should rectify its previous orders regarding the taxation of securities losses recoveries for the Assessment Years 2002-03 and 2003-04.
Whether the Tribunal erred in directing the verification of the CPA Certificate and allocation key for the Transfer Pricing Adjustment related to the Assessment Year 2002-03.
Whether the Tribunal should have allowed the grounds of appeal without remanding the issue back to the Assessing Officer for verification.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Rectification of Orders Regarding Securities Losses Recoveries

Relevant Legal Framework and Precedents: The Assessee sought rectification based on previous Tribunal directions in their own case for AY 2001-02, arguing that securities losses recoveries should not be taxed if the Department's appeal for AY 1993-94 is successful.
Court's Interpretation and Reasoning: The Tribunal acknowledged that the direction sought by the Assessee was dependent on the outcome of appellate proceedings before higher courts. The Tribunal clarified that if the Revenue succeeds in its appeal, the recoveries should not be taxed.
Key Evidence and Findings: The Tribunal had previously kept the issue open, indicating that it was contingent on future court decisions.
Application of Law to Facts: The Tribunal applied the principle that taxation of recoveries should depend on the finality of the deductibility of losses in earlier years.
Treatment of Competing Arguments: The Tribunal balanced the Assessee's request with the potential outcomes of ongoing appellate proceedings.
Conclusions: The Tribunal allowed the application for rectification concerning securities losses recoveries, subject to future court rulings.

Issue 2: Verification of CPA Certificate and Allocation Key for Transfer Pricing Adjustment

Relevant Legal Framework and Precedents: The Assessee argued that the Transfer Pricing Adjustment should be deleted based on the CPA Certificate, without further verification.
Court's Interpretation and Reasoning: The Tribunal found that the Assessee had not provided complete documentation during the assessment, justifying the need for verification by the Assessing Officer.
Key Evidence and Findings: The Tribunal noted that only 60% of the cost allocation was substantiated with evidence, and the CPA Certificate did not address the appropriateness of the allocation policy.
Application of Law to Facts: The Tribunal applied the principle that a complete factual record is necessary for final fact-finding and remanded the issue for further verification.
Treatment of Competing Arguments: The Tribunal rejected the Assessee's argument that all relevant facts were on record and found the remand necessary for a comprehensive evaluation.
Conclusions: The Tribunal upheld the need for verification of the CPA Certificate and allocation key, rejecting the Assessee's request for outright deletion of the adjustment.

Issue 3: Tribunal's Power to Remand Issues for Verification

Relevant Legal Framework and Precedents: The Assessee contended that the Tribunal, as the final fact-finding authority, should have decided the issue without remand.
Court's Interpretation and Reasoning: The Tribunal emphasized its discretion to remand issues when the factual record is incomplete or disputed.
Key Evidence and Findings: The Tribunal noted that the Assessee had not provided complete documentation, warranting further examination by the tax authorities.
Application of Law to Facts: The Tribunal applied the discretion to remand for additional fact-finding when necessary to ensure a fair and thorough evaluation.
Treatment of Competing Arguments: The Tribunal rejected the notion that its decision to remand constituted a mistake apparent on record.
Conclusions: The Tribunal's decision to remand was upheld as appropriate and within its powers, given the incomplete factual record.

3. SIGNIFICANT HOLDINGS

Verbatim Quotes of Crucial Legal Reasoning: "The directions being sought are clearly dependent upon the outcome of the appellate proceedings before the Hon'ble High Court and the Hon'ble Supreme Court."
Core Principles Established: The Tribunal established that rectification of orders is appropriate when contingent on future appellate outcomes, and that remand is justified when the factual record is incomplete.
Final Determinations on Each Issue: The Tribunal allowed the rectification concerning securities losses recoveries subject to appellate outcomes, upheld the need for verification of the CPA Certificate and allocation key, and affirmed its discretion to remand issues for further fact-finding.

The judgment demonstrates the Tribunal's careful consideration of contingent liabilities, the necessity of a complete factual record for final determinations, and the appropriate exercise of discretion in remanding issues for further verification. These principles are crucial in ensuring fair tax assessments and adherence to legal standards.

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