2025 (4) TMI 217 - HC - Income Tax

Tribunal's transfer pricing adjustment decision on guarantee fees upheld despite Revenue's jurisdiction challenge under Section 254(2)

Gujarat HC dismissed petition challenging Tribunal's decision on TP adjustment for guarantee fees paid to Associated Enterprise. Revenue argued Tribunal ... TP Adjustment - international transaction of payment of guarantee fees by Assessee to the Associated Enterprise - petitioner submitted that the Tribunal could not have entertained the Misc. Application filed by the Respondent-Assessee u/s 254 (2) as there is no mistake apparent on record - HELD THAT:- On perusal of the Order [2024 (7) TMI 1177 - ITAT AHMEDABAD] it appears that the Tribunal has decided the Ground No.4 regarding the adjustment, in relation to the international transaction of payments of guarantee fees to the Associated Enterprise in favour of the Assessee relying upon the Order passed by this Court in [2018 (7) TMI 2349 - GUJARAT HIGH COURT] whereby, the Order of the Tribunal for the earlier year i.e., Assessment Year 2009-10 is confirmed. Thus, it would be an academic exercise to decide as to whether the Tribunal was right in exercising its powers under Section 254 (2) of the Act, more particularly, when this Court while rejecting the appeal filed by the Revenue arising from the Order of the Tribunal for the earlier Assessment Year 2009-10 has approved the findings of the Tribunal Tribunal has rightly decided the Ground No.4 pertaining to the upward adjustment of international transaction of payment of guarantee fees to the Associated Enterprise in favour of the Respondent-Assessee. Therefore, without going into the larger question of exercising the powers of the Tribunal u/s 254 (2) of the Act to recall its order, in view of the Order passed by the Tribunal in case of the Assessee for the earlier year was justified or not, the petition is not entertained, in view of the decision stated hereinabove. 1. ISSUES PRESENTED and CONSIDEREDThe primary issue considered by the Court was whether the Income Tax Appellate Tribunal (the Tribunal) was justified in allowing the Miscellaneous Application filed by the Respondent-Assessee under Section 254(2) of the Income Tax Act, 1961, thereby recalling its previous order for the limited purpose of re-adjudicating a specific ground related to Transfer Pricing Adjustment.2. ISSUE-WISE DETAILED ANALYSISRelevant legal framework and precedents:The legal framework revolves around Section 254(2) of the Income Tax Act, which allows the Tribunal to rectify any mistake apparent from the record. The petitioner contended that the Tribunal exceeded its jurisdiction by revisiting its original order and re-adjudicating on merits, which is not permissible under this section. The petitioner relied on the precedent set by the Supreme Court in the case of Commissioner of Income-tax (IT-4), Mumbai Vs. Reliance Telecom Ltd., where the Apex Court held that the Tribunal cannot exercise its power under Section 254(2) to revisit an order on merits.Court's interpretation and reasoning:The Court examined whether the Tribunal's action of recalling its order for re-adjudication was justified under the purview of Section 254(2). The Court noted that the Tribunal's decision to recall its order was based on the fact that a relevant decision from the previous assessment year was not considered during the original proceedings. The Tribunal had relied on the order passed by the Court in Tax Appeal No. 886 of 2018, which confirmed the Tribunal's decision for the earlier year.Key evidence and findings:The key evidence was the Tribunal's previous order and the subsequent Miscellaneous Application filed by the Respondent-Assessee. The Tribunal had initially dismissed the appeal filed by the petitioner and partly allowed the appeal of the Respondent-Assessee. However, upon reviewing the Miscellaneous Application, the Tribunal found that a relevant decision for the earlier assessment year was not considered, which warranted a recall of its order for limited re-adjudication.Application of law to facts:The Court applied the principles established in the Reliance Telecom case to determine whether the Tribunal's action was justified. The Court observed that the Tribunal's decision to recall its order was not merely to revisit the merits but to address an oversight regarding a relevant decision from a previous year. This oversight was deemed significant enough to warrant a limited recall under Section 254(2).Treatment of competing arguments:The petitioner argued that the Tribunal's recall was unjustified as it amounted to revisiting the merits of the case, which is not permissible under Section 254(2). However, the Court found that the Tribunal's recall was based on a specific oversight and not a general re-evaluation of the case's merits. The Court noted that the Tribunal's reliance on the previous year's decision was a valid consideration that justified the recall.Conclusions:The Court concluded that the Tribunal's action of recalling its order for limited re-adjudication was justified given the oversight of a relevant decision from a previous year. The Court found no substantial question of law arising from the Tribunal's decision to recall its order under Section 254(2).3. SIGNIFICANT HOLDINGSThe Court held that the Tribunal was justified in recalling its order for the limited purpose of re-adjudicating a specific ground related to Transfer Pricing Adjustment. The Court emphasized that the oversight of a relevant decision from a previous year constituted a mistake apparent from the record, which warranted a recall under Section 254(2).The Court preserved the following crucial legal reasoning: 'Considering the aforesaid facts and circumstances, it cannot be said that the learned ITAT has committed any error in deleting the addition made on account of Transfer Pricing Adjustment... No substantial question of law arises.'The core principle established by the Court is that a Tribunal may recall its order under Section 254(2) if there is an oversight of a relevant decision from a previous year, as this constitutes a mistake apparent from the record.The final determination was that the petition filed by the petitioner was not entertained, and the Tribunal's decision to recall its order for limited re-adjudication was upheld. The Court dismissed the petition, affirming the Tribunal's action as justified under the circumstances.