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2013 (6) TMI 21 - ITAT DELHIOther income with regard to computation of arm's length price for royalty - Whether TPO was justified in making addition - Held that:- The assessee has an option to adopt a price which may vary from arithmetical mean of ALP up to five per cent. The difference between the net profit of the assessee and NPM of the arm's length price is certainly less than 5% and, therefore, the assessee has a right to claim that the NPM of the assessee i.e. 5.02% should be adopted as arm's length price. The TPO had determined the arm's length price of royalty by TNMM. Thereafter, he worked out the addition which may be required to be made under the head 'royalty' and then he compared the royalty paid by the assessee and the ALP of royalty determined by him. However, as find that the proviso refers to the arm's length price determined by various methods and adopting of the mean of such method and then the assessee had been given an option to adopt a value which should not vary more than 5% from the mean of the ALP determined by the TPO. Therefore, what is to be varied is the percentage of the ALP determined by the TPO as per most appropriate method. In this case, the TPO considered TNMM to be the most appropriate method and accordingly determined the arm's length price at 6.23%. Therefore, the assessee has a right to adopt the ALP within the variation of 5% from 6.23%. The NPM declared by the assessee is 5.02% and, therefore, as per proviso to Section 92C(2), the assessee is fully justified to claim that since the difference between the NPM declared by him and the ALP determined by the TPO is less than 5%, no addition is called for. Therefore, agree with the assessee's contention and uphold the order of CIT(A) deleting the addition made by the TPO. In favour of assessee.
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