Case Law Details

Case Name : Electrobug Technologies Ltd. Vs ACIT (ITAT Delhi)
Appeal Number : Appeal No: ITA No. 1898/Del/2009
Date of Judgement/Order : 04/12/2009
Related Assessment Year :



IN THE CASE OF: Electrobug Technologies Ltd. Vs ACIT, Appeal No: ITA No. 1898/Del/2009, DECIDED ON: December 4, 2009


2. The assessee company was incorporated on 30-1-2003 and this is the first return filed by the assessee company since its incorporation. The company is branch office of Electrobug Technologies Ltd., U.K. operating in India to support their activities. Main business of the assessee company is to retrieve and extract Data for clients of their Head Office against which it raises invoices to its head office on cost plus margin method. The Margin is the income earned from Head Office. During the period relevant to the assessment year under consideration, the assessee has shown total turnover of Rs. 2,51,57,706/ – and other income of Rs. 150/-. The net profit earned from these activities was claimed as exempt under sec. 1 OB of the Act. Exemption under seel OB was also allowed. The Assessing Officer noted that the international transaction carried out by the assessee was with its associated enterprises. The assessee was asked to justify that the transaction was at an arm’s length. The assessee replied that the assessee is supporting the activities of UK Head Office. The assessee being branch office is invoicing in UK at cost plus margin method. The margin is 10%. No transfer pricing study has been undertaken. The Head Office in U.K. is suffering huge losses. The Assessing Officer noted that wherein international transactions exceeds Rs. l crore, the assessee was required to maintain all the records as per section 92D read with Rule 10D of the Income-tax Rules. Since the assessee has not maintained any record .which has been admitted by the assessee itself and the fact remains that the transfer pricing study has/been undertaken by the assessee also, the margin of 10% is not correct arm’s length price. In I.T. enabled business services, the margin varies from 10 to 20%. Under the circumstances, the Assessing Officer adopted 15% as the margin and applying the same to the gross revenue income was enhanced by Rs. 12,57,885/- being adjustment in the arm’s length price. Since the assessee could not present itself before the Commissioner (Appeals), no further argument could be raised and hence this addition was confirmed. The assessee is in further appeal before us.

3. The learned counsel for the assessee Shri Muksh Bhutani submitted that though the primary grievance of the assessee is lack of opportunity being provided by the Commissioner (Appeals), in view of smallness of addition, the matter needs not be restored back to the Commissioner (Appeals) but can be decided by the Tribunal itself on merits. It was contended that since the adjustment in arm’s length price is only 5%, in terms of Proviso to section 92C(2), since the adjustment is within the limits prescribed, the adjustments were not warranted. Placing the table in this regard, the learned counsel for the assessee submitted that the adjustment is within the range of 5% and hence not warranted as held in the following cases:

(1) Development Consultant (P.) Ltd. Vs. Dy [2008] 23 SOT 455

(2) Sony India (P.) Ltd. Vs. Dy. CIT [2008] 114 ITD 448 (Delhi)

As per section 92(1) the arm’s length price in relation to international transaction is to be determined by any of the most appropriate method prescribed therein. When the nature of transaction is such that the arm’s length price can be determined by applying only one of the most appropriate method and it need not to be determined by applying 2 or more methods, in such a situation even the price determined by applying only one of the most appropriate method will become the arithmetical mean price.

Therefore, where the arithmetical mean price even if determined by one of the most appropriate method, do not exceed 5% of the price determined by the assessee at the option of the assessee as per the arm’s length price determined by him. Therefore, when the difference between the arm’s length price determined by the assessee and by the Assessing Officer, are not varying more than 5%, compared to the price determined by the assessee, no further adjustments are desirable. ITAT, Delhi in the case of Sony India Pvt. Ltd. (supra) held that price determined on application of most appropriate method is only an approximation and is not a scientific evaluation. In such a situation, giving the margin of plus-minus 5% to the arm’s length price determined by the assessee, since the same is not exceeding 5%, no further adjustments are required. We, therefore, delete the addition of Rs. 12,57,885.


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