2025 (4) TMI 286 - AT - Income Tax

National Faceless Appeal Centre (NFAC) jurisdiction to decide the appeals involving TP adjustments under Chapter-X of the Income Tax Act 1961 - HELD THAT - At this stage it is pertinent to note that the Revenue is not challenging the improper exercise of jurisdiction by the AO/TPO and rather it is challenging the improper exercise of jurisdiction by the learned CIT(A) NFAC in passing the impugned orders. Therefore we are of the considered view that merely because the Revenue is in appeal before us the same would not restrain it from challenging the improper exercise of jurisdiction by the learned CIT(A). Accordingly we do not find any merits in the plea raised by the learned AR that the jurisdictional issue cannot be raised to the prejudice of the assessee in the present case. Further even though the assessee has paid all the taxes and there is no outstanding demand in respect of the assessment years under consideration before us the same would not absolve the learned CIT(A) from properly assuming jurisdiction while deciding the appeal filed by the assessee. Therefore since the appeals filed by the assessee before the learned CIT(A) are decided by the NFAC which does not have the jurisdiction to decide the same being the appeals inter-alia pertaining to transfer pricing adjustment we are of the considered view that the learned CIT(A) NFAC wrongly assumed the jurisdiction while passing the impugned orders in the present case.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• Whether the National Faceless Appeal Centre (NFAC) had jurisdiction to decide the appeals involving transfer pricing adjustments under Chapter-X of the Income Tax Act, 1961.
• Whether the Revenue can raise a jurisdictional issue at the appellate stage, particularly when the jurisdiction was improperly exercised by the learned Commissioner of Income Tax (Appeals) (CIT(A)).

ISSUE-WISE DETAILED ANALYSIS

Jurisdiction of NFAC in Transfer Pricing Cases

• Relevant Legal Framework and Precedents: The appeals were filed before the CIT(A) prior to the introduction of the Faceless Appeal Scheme, 2020. The CBDT's Circular dated 06/10/2022 and notification dated 13/10/2022 clarified that appeals involving transfer pricing adjustments under Chapter-X should be handled by designated CIT(A) offices and not under the Faceless Appeal Scheme.
• Court's Interpretation and Reasoning: The Tribunal noted that the NFAC lacked jurisdiction to decide appeals involving transfer pricing adjustments, as per the CBDT's directive. The orders passed by the NFAC were contrary to the CBDT's Circular and notification, rendering them without jurisdiction.
• Key Evidence and Findings: The Tribunal found that the appeals were filed before the CIT(A) before the Faceless Appeal Scheme's introduction. The CBDT's directives clearly excluded such cases from the NFAC's jurisdiction.
• Application of Law to Facts: The Tribunal applied the CBDT's Circular and notification to conclude that the NFAC improperly assumed jurisdiction over the appeals, which should have been handled by the designated CIT(A).
• Treatment of Competing Arguments: The learned DR argued that the NFAC lacked jurisdiction due to the CBDT's directives, while the learned AR contended that the jurisdictional issue should not prejudice the assessee. The Tribunal sided with the DR, emphasizing the importance of jurisdictional compliance.
• Conclusions: The Tribunal concluded that the NFAC improperly assumed jurisdiction, and the appeals should be decided by the appropriate CIT(A) with jurisdiction over transfer pricing issues.

Raising Jurisdictional Issues by Revenue

• Relevant Legal Framework and Precedents: The Tribunal referred to Rule 11 of the ITAT Rules, 1963, and the Supreme Court's decision in NTPC vs. CIT, which allows legal issues to be raised at any stage of proceedings.
• Court's Interpretation and Reasoning: The Tribunal held that the Revenue, as an appellant, could raise jurisdictional issues, especially when the improper exercise of jurisdiction by the CIT(A) was evident.
• Key Evidence and Findings: The Tribunal found no legal prohibition against the Revenue raising jurisdictional issues, even if it might prejudice the assessee.
• Application of Law to Facts: The Tribunal applied the principles from NTPC vs. CIT to allow the Revenue to raise the jurisdictional issue, as it affected the root of the matter.
• Treatment of Competing Arguments: The learned AR argued against allowing the jurisdictional issue to prejudice the assessee, but the Tribunal emphasized the necessity of correct jurisdictional exercise.
• Conclusions: The Tribunal concluded that the Revenue could raise jurisdictional issues, and the improper jurisdictional exercise by the NFAC warranted setting aside the impugned orders.

SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: The Tribunal noted, "The NFAC, which does not have the jurisdiction to decide the same, being the appeals, inter-alia, pertaining to transfer pricing adjustment, we are of the considered view that the learned CIT(A), NFAC, wrongly assumed the jurisdiction while passing the impugned orders in the present case."
• Core Principles Established: The jurisdiction of the NFAC is limited by the CBDT's directives, and any deviation from these directives renders the NFAC's orders without jurisdiction. The Revenue can raise jurisdictional issues at any stage if they affect the root of the matter.
• Final Determinations on Each Issue: The Tribunal set aside the impugned orders passed by the NFAC due to lack of jurisdiction and restored the appeals to the file of the appropriate CIT(A) for de novo adjudication.