DRP Was Justified in Assuming Jurisdiction Under Sec. 154 to Rectify Its Earlier Direction | HC

Case Details: Principal Commissioner of Income-tax vs. Stanley Black and Decker India Ltd. - [2024] 166 taxmann.com 381 (Karnataka)

Judiciary and Counsel Details

• S.G. Pandit & C.M. Poonacha, JJ.
• E.I. Sanmathi., Adv. for the Appellant.
• T. Suryanarayana, Senior Counsel & Smt. T. Tanmayee Rajkumar, Adv. for the Respondent.

Facts of the Case

Assessee-company was engaged in trading power tool products. During the year under consideration, it entered into international transactions, and the matter was referred to the Transfer Pricing Officer (TPO) for determination of the arm’s length price (ALP) in respect of the international transactions. The TPO, after analysing the advertisement and sales promotion expenditure incurred by the comparables, suggested a transfer pricing adjustment. Thereafter, a draft order under section 144C was passed.

The assessee raised objections to the draft order, which the DRP rejected in its order on the ground that the specific details with relevant information had not been furnished to enable them to examine the matter.

On appeal, the assessee submitted that it had placed on record specific details and facts on the nature of alleged expenses before the TPO as well as during a personal hearing before the DRP. The DRP, in its order passed under section 154, accepted the contention of the assessee and rectified its order directing the TPO to exclude trade discounts, sales discounts, warranty expenses and packing expenses from the ambit of advertisement and marketing and promotion (AMP) expenses for transfer pricing comparison and adjustment.

ITAT Held

ITAT also upheld the rectification order passed by the DRP. The matter then reached before the Karnataka High Court.

The Court held that Section 154 empowers the Income-tax Authority referred to in section 116 to rectify any mistake apparent from the record. It was not disputed that the assessee, though, had not filed any objection or explanation before the TPO while raising objections to the draft order under section 144(c) had placed before the DRP, the necessary and specific details on the nature of alleged AMP expenses, selling expenses such as trade and other discount on sales, sales discounts, warranty expenses and packing expenses, which should be excluded in the determination of AMP expenses.

If an order is passed without taking note of the materials on record and subsequently, if it is brought to the notice of the Income-tax Authority under section 154, it would be open for the Income-tax Authority to rectify such mistake apparent from the record. While considering the application under section 154, if the material that was not considered while passing the original order is considered, the Authority would be at liberty to arrive at a just conclusion considering such material.

In the instant case also, the authority, i.e., DRP, on consideration of materials that were not considered earlier, has concluded that it was a case to exclude trade discounts as well as discount warranty expenses and packing expenses from the ambit of advertisement and marketing and promotion expenses for transfer pricing comparison. The Appellate Tribunal, on examination of the entire material, has concluded that it is a case of non-consideration of material on record, which would constitute a mistake apparent from the record and has held that the DRP was justified in assuming jurisdiction under section 154.

Accordingly, the revenue’s appeal failed, and substantial questions of law were answered in favour of the assessee.

List of Cases Reviewed

• Order dated 07.03.2016 in ITA.No.967/Bang/2015 passed by the Income Tax Appellate Tribunal, “A” Bench, Bengaluru[Para 9] affirmed