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2019 (2) TMI 722 - HC - Income TaxTPA - Application of the proviso to Section 92C(2) - ALP determination - option available to an assessee in the fixation of the arms length price ALP for brevity under Chapter X - benefit of relief granted circular dated 23.8.2001 - provisions amended vide Finance Act, 2002 w.e.f. 1.4.2002 - Held that - In the present case, there is only one ALP determined by the TPO in accordance with one of the appropriate methods, being 'comparable uncontrolled price method' as seen from clause (a) of Section 92C(1). The proviso, according to us, would enable an option only in the context of there being a determination of more than one price by the most appropriate method. In that context it does not offer an option to compare the ALP determined with reference to the invoiced price, being the price at which the transaction is undertaken. When there are more than one price determined then the average has to be taken and the assessee has an option to adopt one of the prices determined by the A.O or the TPO; which does not vary by an amount in excess of 5% from the arithmetical mean and not from the invoiced price. There is absolutely no reference to the invoiced price insofar as the option made available to the assessee by the proviso as it existed from 01.04.2002, introduced by Finance Act, 2002 relevant to the subject assessment year. Subsequently sub-section (2A) was was brought into Section 92C by Finance Act, 2012, and contention of the assessee that the amendments in 2009 are clarificatory in nature rejected. Hence, the statute, for the relevant year, did not at all provide an acceptance of the invoiced price on any count and not at all on the ground that the difference between the invoiced price and the ALP determined not exceeding 5%. The mitigation provided by the CBDT is on the proviso introduced by the Finance Act, 2001. The same cannot be applied to the proviso introduced by way of substitution, by the Finance Act, 2002. The substituted proviso, which applied from 01.04.2002 erased the earlier proviso from the statute totally. It granted an option to the assessee; but only insofar as adopting one of the prices from which the average price is determined; that too in cases of more than one price being determined under the most appropriate method. In such circumstances, we answer the question of law framed in favour of the Revenue and against the assessee.
Issues Involved:
1. Application of the proviso to Section 92C(2) of the Income Tax Act, 1961 regarding the fixation of the arm's length price (ALP). 2. Interpretation of amendments to Section 92C(2) and the applicability of CBDT Circular No.12/2001. 3. Whether the CBDT Circular can mitigate the statutory provisions. 4. Determination of ALP when only one price is determined by the Transfer Pricing Officer (TPO). Issue-wise Detailed Analysis: 1. Application of the Proviso to Section 92C(2): The court examined the application of the proviso to Section 92C(2) of the Income Tax Act, 1961, concerning the option available to an assessee in fixing the arm's length price (ALP) under Chapter X. The assessee had an international transaction with an associated enterprise, and the TPO determined the ALP at ?38,05,97,081, which was ?66,00,543 more than the invoiced price of ?37,39,96,538. This difference was below 5%. The court noted that the relevant amendment by the Finance Act, 2009, was prospective and not applicable to the assessment year 2005-06. 2. Interpretation of Amendments to Section 92C(2) and CBDT Circular No.12/2001: The court discussed the amendments to Section 92C(2) and the introduction of two provisos by the Finance Act, 2009, and Finance Act, 2011. The second proviso allowed the adoption of the invoiced price if the variation between the invoiced price and the ALP did not exceed a stipulated percentage. However, for the assessment year 2005-06, the provision did not provide such a computation or deeming fiction. The court highlighted that the proviso applicable for the subject year was different, and the option provided was to select one of the prices determined by the most appropriate method, not the invoiced price. 3. Whether the CBDT Circular Can Mitigate the Statutory Provisions: The court considered the argument that the CBDT Circular No.12/2001 restricted the Assessing Officer from making adjustments if the price determined by the taxpayer was within 5% of the ALP determined by the TPO. The court referred to the Supreme Court's decision in UCO Bank Vs. Commissioner of Income Tax, which allowed the CBDT to issue circulars to tone down the rigour of the law. However, the court noted that this decision was no longer good law due to the Constitution Bench's decision in Commissioner of Central Excise v. Ratan Melting & Wire Industries, which held that circulars contrary to statutory provisions have no legal existence. 4. Determination of ALP When Only One Price is Determined by the TPO: The court emphasized that for the relevant assessment year, the proviso allowed an option only when more than one price was determined by the most appropriate method. In this case, the TPO determined only one ALP using the 'comparable uncontrolled price method.' The court clarified that the option was to adopt one of the prices determined by the TPO, which did not vary by more than 5% from the arithmetical mean, not the invoiced price. Conclusion: The court concluded that the amendments in 2009 were not clarificatory in nature and that the statute for the relevant year did not provide for the acceptance of the invoiced price based on the 5% variation. The mitigation provided by the CBDT Circular applied only to the proviso introduced by the Finance Act, 2001, which was never enforced. The court affirmed the order of the Appellate Tribunal, rejecting the appeal and ruling in favor of the Revenue.
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