The primary contention is regarding the addition made to the “Price Penetration Adjustment” made to its own margin by the Assessee. The assessee company manufactured polypropylene compound resins. The Assessee followed a price penetration policy, selling products to unrelated parties at a reduced price. The Transfer Pricing Officer made adjustment equivalent to the amount of price penetration adjustment by disregarding the contention of the assessee. The CIT(A) confirmed the assessing officer’s assertion by sustaining the transfer pricing adjustment, holding that the Assessee’s International Transaction does not satisfy the Arm’s Length Principle. Before the Hon’ble Tribunal the assessee contended that there was no dispute regarding the method and margin adopted for benchmarking the international transaction. That the only dispute was of ad-hoc adjustment made by the Transfer Pricing Officer. Further the Assessee also demonstrated before the Hon’ble Tribunal, the margins, before and after the disputed adjustment.

The Hon’ble Tribunal observed that the margin of the assessee is at “Arm’s Length” without the price penetration adjustment. That there was no dispute regarding the method and margin adopted for benchmarking the international transaction. Further held that any ad hoc determination of the arm’s length price by the Transfer Pricing Officer under section 92 dehors section 92C (1) of the Income-tax Act, 1961 would be unsustainable in law. The Hon’ble Tribunal thus allowed the appeal filed by the assessee and directed deletion of the addition made by the A.O. and upheld by the CIT (A). (AY. 13-14)