Arithmetic Mean of ALPs to be determined even if actual price exceeds one of the ALPs determined by TP method

CIT V. MENTOR GRAPHICS (NOIDA) (P.) LTD. (Delhi High Court)

 Proviso to section 92C(2) requiring calculation of arithmetical mean of multiple ALPs (more than 1 ALP) determined as per Most Appropriate Method doesn’t become inapplicable where one of the ALPs determined as per Most Appropriate Method is less than the price indicated by assessee.

In the instant case the most appropriate method, as accepted by both, the assessee and revenue, was the Transactional Net Margin Method. The dispute that arose was with regard to the following observation of the Tribunal:

Where one of the prices determined by the most appropriate method is less than the price as indicated by the assessee. Then there would be no need to adopt the process of taking the arithmetical mean of all the prices arrived at through the employment of the most appropriate method.

The High Court held as under:

• When more than one price is thrown up by the most appropriate method, the statute requires that the arm's length price shall be taken to be the arithmetical mean of such prices. This is the plain and simple meaning of the proviso to section 92C(2) of the said Act; 
• The Tribunal was wrong in holding that if one profit level indicator of a comparable, out of a set of comparables, was lower than the profit level indicator of the taxpayer, then the transaction reported by the taxpayer was at an arm's length price; 
• The proviso to section 92C(2) is explicit in that where more than one price is determined by most appropriate method, the arm's length price would be taken to be the arithmetical mean of such prices.