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2009 (12) TMI 675 - AT - Income TaxTransfer pricing adjustment - International transaction - margin of plus- minus 5 per cent to the arm’s length price - Most Appropriate Method of Accounting - difference between the arm’s length price determined by the assessee and by the AO - AO noted that wherein international transactions exceeds Rs. 1 crore, the assessee was required to maintain all the records as per section 92D, read with rule 10D of the Income-tax Rules. Since the assessee has not maintained any record which has been admitted by the assessee itself and the fact remains that the transfer pricing study has not been undertaken by the assessee also, the margin of 10 per cent is not correct arm’s length price. In IT enabled business services, the margin varies from 10 to 20 per cent. Under the circumstances, AO adopted 15 per cent as the margin and applying the same to the gross revenue income was enhanced being adjustment in the arm’s length price. Since the assessee could not present itself before the CIT(A), no further argument could be raised and, hence, this addition was confirmed. The controversy is in cases where the International Price shown in related party transaction exceeds 5 per cent of the Arithmetic mean envisaged by the provision and such Arm’s Length Price is contested by the taxpayer. According to the revenue, in such a situation, the second limb of the provision is not applicable. HELD THAT:- As per section 92(1), the arm’s length price in relation to international transaction is to be determined by any of the most appropriate method prescribed therein. When the nature of transaction is such that the arm’s length price can be determined by applying only one of the most appropriate method and it needs not to be determined by applying 2 or more methods, in such a situation even the price determined by applying only one of the most appropriate method will become the arithmetical mean price. Therefore, where the arithmetical mean price even if determined by one of the most appropriate method, do not exceed 5 per cent of the price determined by the assessee at the option of the assessee as per the arm’s length price determined by him. Therefore, when the difference between the arm’s length price determined by the assessee and by the AO, are not varying more than 5 per cent, compared to the price determined by the assessee, no further adjustments are desirable. ITAT, Delhi in the case of Sony India (P.) Ltd.[2008 (9) TMI 420 - ITAT DELHI-H] held that price determined on application of most appropriate method is only an approximation and is not a scientific evaluation. In such a situation, giving the margin of plus- minus 5 per cent to the arm’s length price determined by the assessee, since the same is not exceeding 5 per cent, no further adjustments are required. We, therefore, delete the addition. In the result, the appeal is partly allowed.
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