TMI Blog2009 (12) TMI 675X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us margin method. The margin is 10 per cent. No transfer pricing study has been undertaken. The Head Office in U.K. is suffering huge losses. The Assessing Officer 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, the Assessing Officer adopted 15 per cent as the margin and applying the same to the gross revenue income was enhanced by Rs. 12,57,885 being adjustment in the arm s length price. Since the assessee could not present itself before the Commissioner (Appeals), no further argument could be raised and, hence, this addition was confirmed. The assessee is in further appeal before us. 3. The learned counsel for the assessee Shri Muksh Bhutani submitted that though the primary grievance of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ational transaction has actually been undertaken shall be deemed to be the arm s length price. (3) Where during the course of any proceeding for the assessment of income, the Assessing Officer is, on the basis of material or information or document in his possession, of the opinion that ( a )the price charged or paid in an international transaction has not been determined in accordance with sub-sections (1) and (2); or ( b )any information and document relating to an international transaction have not been kept and maintained by the assessee in accordance with the provisions contained in sub-section (1) of section 92D and the rules made in this behalf; or ( c )the information or data used in computation of the arm s length price is not reliable or correct; or ( d )the assessee has failed to furnish, within the specified time, any information or document which he was required to furnish by a notice issued under sub-section (3) of section 92D, the Assessing Officer may proceed to determine the arm s length price in relation to the said international transaction in accordance with sub-sections (1) and (2), on the basis of such material or information or document available w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determined by the Most Appropriate Method, then Arm s Length Price shall be taken to be the arithmetical mean of such price; OR ( b )At the option of the taxpayer, a price which may vary from the arithmetical mean by an amount not exceeding 5 per cent of such arithmetical mean. 163.2 As far as the first limb of above provision is concerned, the same has general application. Where, through the Most Appropriate Method, more than one price is determined, the arithmetic mean of such price shall be taken to be the Arm s Length Price in relation to the international transaction. As far as first limb of the provision is concerned, there is no option with nor any sort of concession allowed to the taxpayer. The Arm s Length Price so determined may be accepted or contested by the taxpayer or by any aggrieved person in accordance with the statutory provisions. It is statutory levy without any option. There is no dispute as to the interpretation of the above part or limb of the provision. 163.3 The controversy is relating to the second limb/portion of the provision where "an option" is given to the taxpayer to take Arm s Length Price which may vary from the arithmetic mean by an amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proper to allow marginal benefit to cases who opt for such benefit. In the case of a taxpayer who exercises the option and accepts Arm s Length Price as per the second limb of the proviso or in other words, he accepts the Arm s Length Price even exceeding 5 per cent of Arithmetic mean determined by the tax authority as correct and is ready to pay tax on the difference between price disclosed by him and the above Arm s Length Price. We do not see any valid objection on the part of the revenue to the application of above provision to such a case. The taxpayer has exercised the option and took Arm s Length Price as per the second limb as the final price without raising any dispute. Therefore, the parameters laid down as per the second limb are fully satisfied. In our opinion, the legal position cannot be different in a case where minor variation of 5 per cent is not accepted and Arm s Length Price is further challenged in appeal. Mere fact of acceptance or non-acceptance of arithmetic mean can be taken to be the determining factor relating to right to contest Arm s Length Price in appeal. Such inference has no support of language of the provision. In our view, both in the first as als ..... X X X X Extracts X X X X X X X X Extracts X X X X
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