TaxTMI Login
AI OCR ✕Convert scanned orders, printed notices, PDFs and images into clean, searchable, editable text within seconds. Starting at 2 Credits/page
Try Now →Just a moment...
AI OCR ✕Convert scanned orders, printed notices, PDFs and images into clean, searchable, editable text within seconds. Starting at 2 Credits/page
Try Now →
Press 'Enter' to add multiple search terms. Rules for Better Search
Use comma for multiple locations.
---------------- For section wise search only -----------------
Accuracy Level ~ 90%
of 
Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
No Folders have been created
Are you sure you want to delete "My most important" ?
NOTE:
of Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
All Case Laws
of Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
All Case Laws
Note
Bookmark
Share
Don't have an account? Register Here
of Press 'Enter' after typing page number.
Issues: (i) whether, for applying the Transactional Net Margin Method, the same profit level indicator and the same base must be used for the assessee and the comparables; (ii) whether the assessee's indenting and buy-sell transactions could be benchmarked on a consolidated basis or had to be examined separately.
Issue (i): whether, for applying the Transactional Net Margin Method, the same profit level indicator and the same base must be used for the assessee and the comparables.
Analysis: Rule 10B(1)(e) requires the net profit margin of the assessee and that of comparables to be computed with the same base. The margin of the tested party cannot be compared with comparables if the denominator differs. In the present case, the first appellate authority proceeded on an incorrect assumption that the assessee's value-added expenses could be equated with operating costs of comparables in the manner adopted. That approach was inconsistent with the statutory scheme governing TNMM.
Conclusion: The comparison made by the first appellate authority was not sustainable.
Issue (ii): whether the assessee's indenting and buy-sell transactions could be benchmarked on a consolidated basis or had to be examined separately.
Analysis: The record showed that the assessee carried on two distinct functions: indenting, where it acted as a commission agent, and buy-sell transactions, where it purchased goods as principal and sold them as owner. A commission agent's operating base differs materially from that of a trader, because a trader's operating costs include cost of goods sold, inventories and debtors, while a commission agent's do not. Since the two business models had different cost structures and economic character, they could not be benchmarked together under one umbrella for transfer pricing purposes.
Conclusion: The two sets of transactions had to be benchmarked separately and the matter required de novo examination.
Final Conclusion: The transfer pricing adjustment could not be sustained on the consolidated benchmarking adopted below, and the matter was remitted for separate examination of the two business models under Chapter X.
Ratio Decidendi: Under TNMM, comparability requires the same base for the assessee and comparables, and functionally different transactions must be benchmarked separately where their operating cost structures are materially distinct.
TaxTMI 
TaxTMI 
