Indian Kanoon - Search engine for Indian Law

23. The lawmakers have also not been oblivious of this compelling need of a certain degree of flexibility in the methods of determining arm's length price. Central Board of Direct Taxes, vide notification dated 23rd May 2012, has introduced, in addition to Comparable Uncontrolled Price (CUP) method, Resale Price Method (RPM), Cost Plus Method (CPM), Profit Split Method (PSM) and Transactional Net Margin Method (TNMM), the following additional method:

24. Very significantly, the above method, which is only method prescribed under 'any other method' under section 92C(1)(f) read with rule 10B(1)(f) , is not a residual method in the sense that it is not a condition precedent for the application of this method that all other methods, i.e. methods set out in section 92C (1)(a)to 92C(1)(e) and as elaborated under rule 10B(1)(a) to (e), must fail and only then this method can be applied. This method is at par with all other methods of determining the arm's length price, as set out in sections 92C(1)(a) to (f), and, in terms of Section 92C(2), the most appropriate method, referred to in Section 92C(1), "shall be applied, for determination of arm's length price, in the manner prescribed". Therefore, as long as the method covered by rule 10AB, which is duly covered by Section 92C(1) satisfies the test of being the 'most appropriate method', it can be applied to a fact situation. There is clearly no bar on its applicability just because a method specified in rule 10B, even if indirect method like Page | 26 Noble Resources & Training India Pvt. Ltd Vs.DCIT, ITA No. 1827 & 1847/Del/2015 (Assessment Year: 2009-10 & 2010-11) TNMM, can also be applied to the same. Quite to the contrary, as noted by the coordinate benches in the cases of ACIT Vs. MSS India Pvt Ltd (supra), direct methods, such as CUP and the 'other method' under rule 10B which, as we will see in a short while, is only a variant of the CUP method, have an inherent edge over indirect methods, such as TNMM, and, therefore, as long as it is possible to do so, a direct method of ascertaining the arm's length method should be applied. In the case of Serdia Pharmaceuticals Pvt Ltd Vs ACIT (44 SOT 391) = 2011-TII-02-ITAT-MUM- TP, a coordinate bench of the Tribunal has observed that,"....even as the transfer pricing legislation does not provide for an order of preference of methods of determining ALP, such an order of preference being drawn up is an integral, though somewhat subliminal, part of the process of determining the ALP" and that whenever a direct method of ascertaining arm's length price can be used, it should be preferred over an indirect method. In view of these discussions, method under rule 10BA, which is a direct method of ascertaining arm's length price- as is the case with Comparable Uncontrolled Price (CUP) method, Resale Price Method (RPM) and Cost Plus Method (CPM), has an inherent edge over indirect methods such as Transactional Net Margin Method (TNMM) and Profit Split Method (PSM) .