CHANGE IN Most Appropriate Method

 

Can Assessee/Revenue resort to a Most Appropriate Method ('MAM') during Transfer Pricing proceedings (at the assessment or appellate stage) which is different from the one used by Assessee in the Transfer Pricing Study Report ('TPSR')?

Hon'ble Delhi High Court in Matrix Cellular International Services Private Limited [2018]  (Delhi) has held as under:

Change in the MAM can be resorted to provided the MAM used earlier does not result in proper determination of arm's length price ('ALP'). The ultimate aim of a transfer pricing exercise is to examine whether a price/margin arising from an international transaction with an Associated Enterprise is at ALP or not. Therefore assessment authorities/appellate courts or even the Assessee can resort to a change in the MAM during the stage of assessment/appeal provided they are able to demonstrate that such a change will produce better or more appropriate ALP determination basis the facts of the case.

Reference can also be drawn from the judgment of the Hon'ble Supreme Court of India in Kedarnath Jute Manufacturing Co. Ltd. vs Commercial Tax Officer, AIR 1966 SC 12 wherein it was held that tax authorities and adjudicators as well as assessees are not precluded by the position taken in returns, documents or accounts and have the duty (and corresponding right) to apply the correct legal principle.

Thus, from the above judgments, it can be inferred that a MAM different from the one used in TPSR can be resorted to, provided the side resorting to such a change, i.e., the Revenue or the Assessee, is able to demonstrate that such a change would result in appropriate determination of ALP.