Tolerable variation between ALP and actual price allowable even if one price is determined by Most Appropriate Method

DY.DIT V. DEVELOPMENT BANK OF SINGAPORE (Mumbai - Trib.)

Option of transaction price as deemed Arm's Length Price (ALP) under second proviso to section 92C(2) shall apply not only to a situation where more than one ALP is determined by ALP but also where only one price is determined as ALP

In the instant case, interalia, the issue that arose before the ITAT was as under:

Whether tolerable variation between ALP and actual transaction price is allowed in a situation where only one ALP is determined as per Most Appropriate Method (MAM)?

The Tribunal held in favour of assessee as under:

• As per the first proviso to section 92C(2), where more than one price is determined by the most appropriate method, the arm’s length price shall be taken to be the arithmetical mean of such prices. Per contra, if there is only one price which is determined by the most appropriate method, then as per the main sub-section (2) without the aid of proviso, that price shall constitute the ALP;

• The second proviso comes into play to deem the actual transacted price as the ALP. It provides that where the variation between the ALP `so determined’ does not exceed the specified percentage, the price at which the international transaction has actually been undertaken `would be deemed to be the arm’s length price’. The words `so determined’ as employed in the second proviso assume significance. As these have been used in the second proviso distinct from the subject matter of the first proviso, naturally these would apply to the ALP determined under sub-section (2) consisting of the main provision and also the first proviso;

• Thus, the option of `deemed’ ALP would extend not only to a situation where more than one price is determined as ALP by the most appropriate method but also where only one price is determined as ALP. Therefore, the option to the assessee would be available in both the situations, covered under main sub-section (2) and also under the first proviso.