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TMI Blog2012 (4) TMI 359X X X X Extracts X X X X X X X X Extracts X X X X ..... djustment of +/- 5% variation for the purposes of computing ALP. - In the present case, it appears that the benefit of +/- 5% adjustment has not been given to the assessee for the reason (as mentioned by the TPO) that sales made by the assessee to third parties were higher in comparison to the rates of sale by AEs to the assessee - Held that: the benefit of +/- 5% intended by the erstwhile proviso to section 92C(2) of the Act was not available to the assessee. Regarding the applicability of the amended provisions in proviso to section 92C(2) - the withdrawal of the interpretation placed in circular No 5 /2010 (supra) on the applicability of the amended proviso is sought to be done away by the Corrigendum dated 30.9.2010 and, therefore, such withdrawal shall be effective only after 30.9.2010, even if such Corrigendum is accepted as valid - Held that: the circulars which are in force during the relevant period are to be applied and the subsequent circulars either withdrawing or modifying the earlier circulars have no application. Held that: no justification in the action of the lower authorities in disentitling the assessee from its claim for the benefit of +/-5% to compute ALP i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of goods imported by the appellant as the arm's length price having regard to the fact that the same was accepted by the custom authorities for the purpose of payment of custom duty. 3.4 That the Ld. AO / TPO have erred on facts and in law in not according to the appellant the benefit of +/- 5% in terms of second proviso to section 92C(2) read with Circular 12/2001 dated 23 August 2001. 3.5 That the AO/TPO erred on facts and in law in holding that the salary paid by the appellant does not form part of fixed cost for computing the deduction for under-utilization of capacity during the relevant assessment year. Your appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal and/or the relief claimed, at any time before or at the time of hearing of the appeal, so as to enable the Ld. ITAT to decide this appeal according to law. 3. Grounds 1, 1.1 3.5 were not pressed, so these are dismissed as not pressed. 4. Vide ground No. 2, the grievance of the assessee relates to the disallowance of ₹ 4,57,992 claimed by the assessee on account of provision for warranty. 5. The facts related to this iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being given credit of unutilisation of capacity while comparing its PLI with that of comparables. The TPO vide report dated 30.8.2010 worked out the necessary adjustments u/s. 92CA of the Act and ALP of the international transactions was re-determined at ₹ 1,76,56,164 (Rs. 1,76,48,208 for raw material and ₹ 7,958 for sale price). The AO made the said addition to the income of the assessee. Now the assessee is in appeal. 10. The ld. counsel for the assessee submitted that the assessee purchased raw material for ₹ 21.09 crores and adopted TNMM method. It was further submitted that the assessee as well as the TPO had taken M/s. Ashok Leyland Ltd. and M/s. Tata Motors Ltd. as comparables wherein PBIT/cost worked out to 8.55% and 10.28% respectively giving an average of 9.42% as against the assessee's operating margin cost worked out to - 2.58%. It was explained that the reason for the aforesaid difference was that the assessee utilized 12.5% capacity as against 84.25% capacity in the case of comparables. It was submitted that the benefit of +/- 5% was to be allowed to the assessee which was not allowed. If that was to be allowed, the purchase transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( ii ) Dy. CIT v. BASF India Ltd. [2010] 41 SOT 10 (Mum.)(URO) ( iii ) Deloitte Consultancy India (P.) Ltd. v. Dy. CIT [IT Appeal No. 1048/Hyd/2010] ( iv ) Exxon Mobil Co. India (P.) Ltd. v. Dy. CIT [2011] 46 SOT 294 (URO)/12 taxmann.com 84 (Bom.) ( v ) ST Micro Electronics (P.) Ltd. v. CIT [IT Appeal Nos.1806, 1807/Del/2008] ( vi ) ADP(P) Ltd. v. Dy. CIT [2011] 45 SOT 172/10 taxmann.com 160 (Hyd.). ( vii ) Wrigley India (P) Ltd. v. Addl. CIT [2011] 48 SOT 53/14 taxmann.com 91 (Delhi) . 12. We have considered the submissions of both the parties and carefully gone through the material available on record. In the present case, the assessee has not disputed the adjustments u/s. 92CA of the Act, but challenging the working of ALP without giving benefit of the option available under the erstwhile proviso to section 92C(2) of the Act, so it becomes relevant to discuss the provisions contained in the erstwhile proviso to section 92C(2) of the Act, which was inserted by Finance Act, 2002 w.e.f. 1-4-2002 and reads as under: Provided, that where more than one price is determined by the most appropriate method, the arm's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... length price determined on application of the most appropriate method is only an approximation and is not a scientific evaluation. Therefore, the Legislature thought it proper to allow marginal benefit to assessees who opt for such benefit. In the case of an assessee who exercises the option and accepts the arm's length price even exceeding 5 per cent of the arithmetic mean determined by the tax authority as correct and is ready to pay tax on the difference between the price disclosed by him and the arm's length price the application of the proviso is not excluded. The legal position cannot be different in a case where minor variation of 5 per cent is not accepted and the arm's length price is further challenged in appeal. The mere fact of acceptance or non-acceptance of the arithmetic mean cannot be taken to be the determining factor relating to the right to contest the arm's length price in appeal. Such inference is not supported by the language of the provision. Both in the first as also in the second limb, the implications of the determined the arm's length price are the same except for the marginal benefit allowed to the assessee under the second limb. Henc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 02 with effect from 1.4.2002 read as under: Provided that 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, or, at the option of the assessee, a price which may vary from the arithmetical mean by an amount not exceeding five percent of such arithmetical mean. As per the said Proviso, an option is available to the assessee for adjustment of +/-5% variation for the purposes of computing ALP. As per the Proviso, 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 or at the option of the assessee, a price which may vary from the arithmetical mean by an amount not exceeding 5% of such arithmetical mean. The point made out by the assessee is based on the latter part of the Proviso whereby an option is given to the assessee to take an ALP which may vary from the arithmetical mean by an amount not exceeding 5% of such arithmetical mean. Firstly, the claim of the Revenue is that such benefit is not available to the present assessee, because the price of international ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of the stated assessment year, which is prior to the insertion of the amended Proviso with effect from 1.10.2009. 22. We have carefully examined the rival stands on this aspect. The amended Proviso has been brought on the statute by the Finance (No. 2) Act, 2009 with effect from 1.10.2009. The Explanatory Notes to the provisions of Finance (No 2) Act, 2009 contained in circular No 5 of 2010 (supra) provides the objective behind the amendment of the Proviso. The Legislature noticed the conflicting interpretation of the erstwhile proviso by the assessee and the income-tax Department. The assessee's view was that the arithmetical mean should be adjusted by 5% to arrive at ALP, whereas the departmental view was that no such adjustment is required to be made if the variation between the transfer price and the arithmetical mean is more than 5% of the arithmetical mean. With a view to resolving this controversy, the Legislature sought to amend the proviso to section 92C(2), which has been reproduced by us in the earlier part of this order. In the said Circular, it has also been elaborated that the above amendment has been made applicable with effect from 1.4.2009 and will acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii ) In para 38.3, for the date 1st October, 2009, the following date shall be read: 1st April, 2009 . In terms thereof, it is canvassed that the amended proviso has been made applicable with effect from 1.10.2009 and shall apply even to cases where proceedings were pending before the TPO on or after such date, irrespective of the assessment year involved and, therefore, in the instant case the benefit of the erstwhile proviso cannot be extended to the assessee. We have carefully pondered over the assertion made by the appellant that the Corrigendum is untenable in the eyes of law. Firstly, the said corrigendum does not bring out any preamble so as to throw light on the circumstances and the background in which the same has been issued. Secondly, it is well understood that the Explanatory Notes to the provisions of a Finance Act passed by the Parliament seeks to explain the substance of the provisions of the Act as intended by the Legislature. In fact, the Hon'ble Supreme Court in the case of K.P Varghese v ITO 131 ITR 597 (Ker) emphasized the sanctity of the statements contained in the Explanatory Notes of the provisions and stated that the interpreta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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