2023 (11) TMI 1389 - AT - Income Tax

Order recalled for fresh adjudication after rectification under s. 254(2) due to apparent mistake and unadjudicated forex loss grounds

The Dy. Commissioner of Income Tax (OSD), Corporate Cirlce-2 (2), Chennai Versus M/s. Iljin Automotive Pvt. Ltd. And (Vice-Versa)

ITAT CHENNAI - AT held the Tribunal's order dated 03.08.2022 contained a mistake apparent on record by recording incorrect facts and failing to adjudicate ... Rectification of mistake - mistake apparent on record - Assessee submitted that the Tribunal by an inadvertent error captured incorrect facts and also not adjudicated certain specific grounds taken by the assessee for both assessment years HELD THAT:- We find that certain specific grounds taken by the assessee as well as the Revenue are not specifically adjudicated by an inadvertent error. Forex loss is concerned, the arguments of assessee was that said forex loss is not operating in nature, whereas, the Tribunal has recorded that forex loss is operating in nature. In our considered view, the findings of the Tribunal in not recording correct facts and also not adjudicating specific grounds of appeal, filed by both the parties, amounts to mistake apparent on record, which needs to be rectified u/s. 254(2) of the Act. Since, there is an error in the order of the Tribunal dated 03.08.2022, and further, both parties have agreed for recalling the order in total for three assessment years, we recall the order of the Tribunal in [2022 (8) TMI 1590 - ITAT CHENNAI] ISSUES PRESENTED AND CONSIDERED 1. Whether the Tribunal's common order dated 03.08.2022 contains a 'mistake apparent on record' warranting recall under the statutory power to rectify orders (s. 254(2) of the Income Tax Act) where the Tribunal (a) recorded parties' submissions incorrectly and (b) omitted adjudication of specific grounds raised by either party. 2. Whether the Tribunal erred in recording the nature of foreign exchange (forex) loss (operating vs non-operating) contrary to the pleaded grounds and arguments. 3. Whether the Tribunal failed to adjudicate material grounds of appeal including (a) entity-level transfer-pricing adjustment, (b) allowance of forex loss attributable to buyer's credit as revenue expenditure (s. 37(1)), (c) claim for additional depreciation under Explanation 5 to clause (1) of s. 32, and (d) treatment of custom-duty adjustment - and whether such non-adjudication constitutes a mistake apparent on record. 4. Whether previously decided coordinate-bench precedents relied upon by the parties (referred to in the applications) were considered or distinguished sufficiently by the Tribunal, and whether omission to discuss those precedents (e.g., a jurisdictional decision cited by Revenue) is a ground for recall. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Power to recall/rectify Tribunal order for 'mistake apparent on record' (s. 254(2)) Legal framework: The Tribunal has power to recall or rectify its order where there is a mistake apparent on the face of the record; such power is exercisable to correct errors of fact or omissions that are manifest and affect adjudication. Precedent Treatment: The judgment treats the statutory power as available to the Tribunal where the record shows incorrect capture of parties' arguments or omission of adjudication on grounds raised; the decision applies the standard of 'mistake apparent on record' to determine recall. Interpretation and reasoning: The Court found that the Tribunal had (a) recorded the assessee's argument regarding forex loss in a manner opposite to the pleaded position, and (b) failed to adjudicate several specific grounds raised by both parties. The mis-recording of core submissions and non-adjudication were held to be material mistakes apparent on record because they resulted in the Tribunal not considering and deciding issues squarely raised for determination. Ratio vs. Obiter: Ratio - The Tribunal's recalling of its earlier order is grounded on the finding that incorrect recording of facts and failure to adjudicate pleaded grounds constitute mistakes apparent on record warranting recall under s. 254(2). Conclusion: The Tribunal's power to recall its order was correctly invoked and exercised; the common order dated 03.08.2022 is recalled in total and the appeals are to be listed afresh for hearing. Issue 2 - Mis-recording of foreign exchange loss as operating (fact capture and its consequences) Legal framework: Accurate recording of parties' pleaded positions and arguments is a precondition to lawful adjudication; characterization of forex loss (operating v. non-operating) materially affects computation of operating margins and transfer-pricing outcomes. Precedent Treatment: The decision does not rely on external precedents specifically for characterization; rather it focuses on the internal record versus pleaded grounds to determine whether a recording error occurred. Interpretation and reasoning: The Tribunal noted that the assessee had specifically sought to treat forex loss as non-operating in its grounds, but the Tribunal's order recorded the contrary (that the assessee prayed forex loss be treated as operating). This inversion of facts was held to be an inadvertent but material error which altered the record of contentions and impeded adjudication on the pleaded issue. Ratio vs. Obiter: Ratio - An incorrect recording of a party's primary submission on a substantive issue (here, the nature of forex loss) constitutes a mistake apparent on record warranting recall for correct adjudication; the Tribunal must record and decide the issue as pleaded. Conclusion: The mis-recording of the assessee's position on forex loss is a ground for recalling the order; the matter is to be reheard with correct recording and adjudication. Issue 3 - Omission to adjudicate substantive grounds (entity-level adjustment; buyer's credit forex loss under s.37(1); additional depreciation under s.32; custom-duty adjustment) Legal framework: Tribunal's duty is to adjudicate issues fairly and to decide the grounds raised by parties; failure to specifically adjudicate material grounds raised in the appeal may amount to a mistake apparent on record where the omission is discernible from the order. Precedent Treatment: The parties referenced coordinate-bench decisions (one taxpayer-favorable and one jurisdictional decision relied on by Revenue) in support of their respective positions. The Tribunal's prior order either omitted discussion or misconstrued references; the present decision treats the omission as prejudicial error. Interpretation and reasoning: The Tribunal's common order left several grounds either not adjudicated or set aside without specific findings: (a) entity-level TP adjustment - the assessee relied on a co-ordinate bench decision directing restriction of adjustments to international transactions with AEs, (b) disallowance under s. 43A/allowance under s. 37(1) for buyer's credit forex loss - not adjudicated, (c) claim for additional depreciation under Explanation 5 to s.32 - record shows the assessee furnished documents but the Tribunal set aside to AO without deciding, (d) custom-duty adjustment - Revenue alleged lack of discussion/distinction of a jurisdictional precedent requiring demonstration of extraordinary circumstances for higher import content. The Court treated such non-adjudication and mis-handling of precedents as material mistakes apparent on record requiring recall to enable fresh verification and adjudication. Ratio vs. Obiter: Ratio - Material non-adjudication of pleaded substantive grounds and failure to consider or distinguish relevant coordinate-bench precedents, when evident on the face of the order, are mistakes apparent on record permitting recall under s. 254(2). Conclusion: The Tribunal's omission to adjudicate these substantive grounds constitutes a mistake apparent on record; the order is recalled so the Tribunal (or the appropriate authority following direction) may re-hear and decide these issues afresh, including proper consideration/distinction of relevant precedents. Issue 4 - Treatment of coordinate-bench precedents and requirement to distinguish or discuss them Legal framework: When parties rely on coordinate-bench precedents, the Tribunal should consider, discuss, and, if necessary, distinguish those precedents when they are material to the issues before it; failure to do so may amount to non-adjudication or a defect in the reasoning. Precedent Treatment: The Revenue contended that a jurisdictional ITAT decision required demonstration of extraordinary circumstances to claim custom-duty adjustment; the Tribunal's earlier order did not discuss or distinguish that decision. The assessee relied on another co-ordinate bench decision (favorable) which the Tribunal mentioned but directed back to TPO without resolving the contention. Interpretation and reasoning: The Tribunal's omission to address the Revenue's cited precedent and to meaningfully distinguish competing coordinate-bench rulings left the issue unresolved on the face of the order. Given that both parties specifically relied upon such precedents, the Court treated the omission as material. Ratio vs. Obiter: Ratio - The duty to consider and distinguish directly-applicable coordinate-bench precedents is part of proper adjudication; omission to do so where the point is squarely raised is a mistake apparent on record supporting recall. Conclusion: Because relevant coordinate-bench precedents were not adequately discussed or distinguished, the order is recalled for fresh consideration and adjudication of those issues. Relief granted and administrative direction Conclusions: The Tribunal recalled its common order dated 03.08.2022 in respect of the three assessment years on the ground of mistakes apparent on record (incorrect recording of facts and non-adjudication of specific grounds). The Registry is directed to list the appeals for hearing in due course and to intimate both parties. The Miscellaneous Applications by Revenue and assessee are allowed.