Transfer pricing benchmarking must use reliable comparables; internal non-AE exports were preferred over faulty external CUP data.

TIPS-based external CUP benchmarking was found unreliable for the assessee's export transactions because the goods involved different iron-content grades, different ports, and other material differences that made direct comparison unsafe. The data also did not capture all relevant transactions or adjust for conditions affecting price, so the external CUP exercise was faulty. Benchmarking against the assessee's own non-AE exports was treated as the more appropriate internal comparable method because transfer pricing requires controlled transactions to be tested against reasonably similar uncontrolled transactions. The DRP's direction to use internal comparables was upheld, and the Revenue's challenge to the transfer pricing adjustment failed.

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Issues: Whether the TIPS-based external CUP benchmarking adopted by the Transfer Pricing Officer was reliable for determining the arm's length price of the assessee's export transactions, and whether the Dispute Resolution Panel was justified in directing benchmarking on the basis of the mean gross profit realised from non-AE transactions.

Analysis: The assessee's exports involved different iron-content grades, different ports, and differing transaction conditions, making direct comparison with TIPS data unreliable. The data also did not fully capture all relevant transactions and did not account for material differences affecting price. In these circumstances, the external CUP exercise was found to be faulty. The Dispute Resolution Panel's approach of comparing AE exports with the assessee's own non-AE exports as internal comparables was considered the more appropriate method because transfer pricing law aims to test controlled transactions against similar uncontrolled transactions under reasonably comparable conditions.

Conclusion: The Dispute Resolution Panel's directions were upheld, and the Revenue's challenge to the transfer pricing adjustment failed.

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