TMI Blog2013 (6) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so to Section 92C(2) of the Income-tax Act, 1961 at the relevant time. He, therefore, submitted that without going into the merits of the learned CIT(A)'s order, though the same is in favour of the assessee, the addition made by the Assessing Officer is not sustainable. 4. Learned DR, on the other hand, stated that in page 11 of the TPO's order, the TPO has pointed out that the assessee's case does not fall within the range of +- 5% as provided in proviso to Section 92C(2). He, therefore, submitted that the order of the TPO should be sustained. 5. We have carefully considered the submissions of both the sides and perused the material placed before us. From a perusal of the order of the TPO, we find that during the accounting year releva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f royalty under TNMM method, the relevant portion of which at page 9 reads as under:- "Net operating profit Rs.5,40,98,579 NPM (%) 5.02% Arm's length NPM as computed by the assessee 6.23% Net operating margin at Arm's Length Rs.6,70,80,532 Difference Rs.1,29,81,953 Accordingly, the Arm's length price of international transaction related to payment of royalty is computed at Rs.3,12,29,088/- against the declared value of Rs.4,42,11,041/-." 8. At page 11, the TPO has given the following reasons why the proviso to Section 92C(2) which provides for not making of adjustment if the variation is within the limit of +- 5% is not permissible:- "The Arm's Len ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inly 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, we 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 A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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