Transfer pricing segmental accounts and arm's length corporate guarantee pricing were treated differently, with one adjustment deleted and one sustained.

Transfer pricing on project and EPC services was held unsustainable on an entity-level margin where the assessee's man-hour based segmental accounts were not validly rejected and, in any event, the AE margin fell within the statutory tolerance band; the adjustment was deleted. On the corporate guarantee issue, the assessee failed to rebut the bank-based material relied on by the TPO or to show that the rate charged was at arm's length, and the addition was sustained. The remaining grounds were treated as infructuous or not pressed.

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Issues: (i) Whether the transfer pricing adjustment on project and EPC services could be sustained on an entity-level margin after rejection of the assessee's segmental accounts and whether the proviso to section 92C(2) entitled the assessee to relief. (ii) Whether the arm's length price of the counter guarantee / corporate guarantee could be determined at 3% per annum.

Issue (i): Whether the transfer pricing adjustment on project and EPC services could be sustained on an entity-level margin after rejection of the assessee's segmental accounts and whether the proviso to section 92C(2) entitled the assessee to relief.

Analysis: The assessee maintained a man-hour based tracking system and prepared segmental results for AE and non-AE work. The rejection of those segmental results was found unjustified in the circumstances, and even on the alternative working suggested in argument, the assessee's margin on the AE segment remained within the permissible range. Once the segmental figures were accepted or, in any event, the difference between the assessee's margin and the comparable margin fell within the statutory tolerance band, no transfer pricing adjustment could survive.

Conclusion: The issue was decided in favour of the assessee and the adjustment on project and EPC services was deleted.

Issue (ii): Whether the arm's length price of the counter guarantee / corporate guarantee could be determined at 3% per annum.

Analysis: The assessee relied on a lower bank guarantee rate, but the material produced did not rebut the information obtained by the TPO from the bank or show that the rate charged by the assessee was at arm's length. The comparable relied upon by the assessee was also not found comparable on the facts placed before the Tribunal.

Conclusion: The issue was decided against the assessee and the addition on account of corporate guarantee was sustained.

Final Conclusion: The appeal succeeded only on the transfer pricing adjustment relating to project and EPC services, while the corporate guarantee adjustment was upheld; the remaining grounds were treated as infructuous or not pressed.

Ratio Decidendi: For transfer pricing, reliable segmental results must be preferred over an entity-level approach where they are supported by a rational allocation system and, if the resulting margin falls within the statutory tolerance band, no adjustment survives.

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