The ALP has to be computed as per section 92C and Rules thereunder. This is a statutory mandate. An interesting issue arises as to whether the taxpayer can argue that it is impossible to compute ALP as per any of the prescribed methods and therefore transfer pricing provisions are not applicable to it or in the alternative an effort should be made to compute ALP adopting methodology, which is best suited in the facts of the case. This issue was dealt in the following decisions.
DCIT v Starlite (2010) 40 SOT 421, (2010) 133 TTJ 425 (Mum Trib)
Facts
The taxpayer was a partnership firm and was engaged in the business of import, manufacture and export of diamonds and jewellery. The taxpayer had international transactions with its AE in Belgium. The taxpayer contended that none of the methods prescribed under the Act are applicable in its case. The taxpayer citing impossibility of adopting one of the prescribed methods as the most appropriate method did not compute the ALP in its study.
Held
The ITAT held that from a plain reading of the provisions in the Act as well as in the Rules, it is clear that it is mandatory for the taxpayer, to follow one of the prescribed method and demonstrate that the international transactions, entered into by it, with AE, are at ALP. The ITAT held that by simply saying that none of the methods can be applied and citing excuses for the same, does not absolve the taxpayer of its statutory duty in determining ALP as per the law.