The Delhi bench of the Income Tax Appellate Tribunal (ITAT) held that the benefit of Arm’s Length Price (ALP) falls within the tolerance band of +/- of 5% as per Section 92C(2) of the Income Tax Act, 1961.
The Transfer Pricing Officer (TPO) had proposed an adjustment of Rs. 2,81,01,754/- as the difference in Arm’s Length Price in respect of payment for consultancy and professional fees and other services by the assessee company to its Associated Enterprises (AEs).
This adjustment figure of Rs. 2,81,01,754/- was adopted by the Assessing Officer in the draft assessment order, against which the assessee preferred objections before the Dispute Resolution Panel (DRP). The DRP directed the Assessing Officer to give the benefit of tolerance band +/- 5% to the adjustment made.
The TPO in pursuance to the direction of the DRP submitted a report to the Assessing Officer proposing the adjustment of Rs. 2,09,91,628/- which was adopted by the Assessing Officer in the final assessment order.
The Assessing Officer passed an appeal effect order, wherein, the addition made by the Assessing Officer was reduced by the amount of Rs. 1,57,63,955/- as against the addition of Rs. 2,09,91,628/-. The ultimate addition pursuant to the Tribunal order is only Rs. 52,27,673/- in respect of ALP adjustment.
The Two-member bench comprising of M. Balaganesh (Accountant member) and Anubhav Sharma (Judicial member) held that the value of international transaction of Rs. 22,18,04,073/- which was mentioned in the order of TPO under Section 92CA(3) of the Income Tax Act 5% of the price charged in international transaction thereon works out to Rs. 1,10,90,204/-.
The ultimate addition towards ALP adjustment that was sustained pursuant to the direction of the Tribunal order is only Rs. 52,27,673/-. Hence, this ALP adjustment falls within the tolerance band of +/- of 5% as per the second proviso to Section 92C(2) of the Income Tax Act. Therefore, there was no need to make any TP adjustment at all in the peculiar facts and circumstances of the instant case. Accordingly, ground No. 14 of the assessee was allowed.
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