2013 (10) TMI 527 - AT - Income Tax

Scope of power u/s 254(2) of the Income tax act Power to review, whether available to the Tribunal Held that - The scope of section 254(2) of the Act is limited and power of rectification does not empower to review of our own order Decided against the Revenue.

Summary

Issues:
1. Interpretation of transfer pricing provisions under the Income Tax Act for A.Y. 2004-05.
2. Application of pre-amended law in deciding royalty payment disallowance.
3. Misunderstanding of legal contentions regarding transfer pricing and commercial expediency.
4. Request for rectification of the order based on incorrect legal interpretation.

Analysis:
1. The judgment concerns a Misc. Application by the Revenue challenging the ITAT's order in ITA No.79/Ahd/2008 dated 10.02.2012. The issue revolves around the disallowance of royalty payment made by the assessee to its Associate Enterprise for A.Y. 2004-05. The ITAT's decision was based on the interpretation of transfer pricing provisions under Chapter-X of the Income Tax Act, replacing the previous section 92 with new sections introduced by the Finance Act, 2001.

2. The Revenue argued that the ITAT incorrectly relied on the pre-amended provision of law to decide the royalty payment issue, despite the availability of relevant circulars in the department's paper book. The contention was that the ITAT overlooked the new provisions introduced to address the limitations of the previous section 92, which were pointed out in the written submissions.

3. The legal contentions raised by the Revenue regarding the application of transfer pricing provisions and commercial expediency were misunderstood by the ITAT. The ITAT's reliance on section 37(1) of the Act and the concept of "commercial expediency" was deemed misplaced, as the determination of Arms Length Price falls under Chapter X dealing with Transfer Pricing issues, where different considerations apply.

4. The ITAT dismissed the Revenue's Misc. Application, stating that the matter was decided on merit and no mistake apparent from the record existed. The ITAT clarified that the power of rectification does not extend to reviewing its own order, as sought by the Revenue. Therefore, the request for rectification based on the incorrect legal interpretation was denied.

In conclusion, the judgment highlights the importance of correctly applying the relevant legal provisions, especially in the context of transfer pricing and commercial expediency, to ensure fair and equitable taxation in international transactions.