CUP method comparability upheld where similar contracts and agency arrangements supported the assessee's transfer pricing benchmarking.

Where comparable uncontrolled transactions and substantially similar contractual terms established reliable comparability, the CUP method could not be rejected merely because the parties operated in different geographic locations. The Tribunal accepted that the assessee had consistently used CUP for freight receipts and freight expenses, supported by comparable agency arrangements showing a 50:50 gross profit split. It found the year under appeal materially identical to earlier years in business model, risk profile and contracts, and held that geographical differences did not materially affect comparability in the logistics sector. The transfer pricing adjustment based on rejection of CUP was therefore deleted.

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Issues: Whether the Comparable Uncontrolled Price method adopted by the assessee for benchmarking its international transactions was rightly rejected and the arm's length price adjustment of Rs. 11,07,00,000 was warranted.

Analysis: The assessee had consistently applied the CUP method for freight receipts and freight expenses and relied on comparable agency arrangements showing a 50:50 gross profit split. The Tribunal found the facts for the year under appeal to be identical to earlier years in which the same business model, comparable risks, and substantially similar contractual terms had been accepted. It held that the geographical differences pointed out by the transfer pricing authorities did not materially affect comparability in the logistics industry and that the profit-split arrangements with unrelated parties supported the assessee's benchmarking approach. The Tribunal also found that the transfer pricing adjustment was made on an incorrect rejection of the CUP method.

Conclusion: The rejection of the CUP method was unjustified and the arm's length price adjustment was deleted, in favour of the assessee.

Final Conclusion: The appeal succeeded on the principal transfer pricing issue, and the addition made on account of arm's length price adjustment was set aside, leaving the appeal only partly allowed because the alternative ground did not survive.

Ratio Decidendi: Where comparable uncontrolled transactions and substantially similar contractual terms establish reliable comparability, the CUP method cannot be rejected merely because the parties operate in different geographic locations.

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