TNMM comparability requires the same profit base; indenting and buy-sell models cannot be benchmarked together.

Rule 10B(1)(e) requires the tested party and comparables to be measured on the same profit base under TNMM. The assessee's indenting activity, carried on as a commission agent, and its buy-sell activity, carried on as principal with inventories and debtors, were materially different business models with different operating cost bases. Commission agency does not include cost of goods sold, while trading does, so both activities could not be benchmarked together on one common PLI and operating base. Combined benchmarking was therefore incorrect, and separate arm's length price determination for each transaction set was required.

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Issues: Whether the assessee's international transactions under the Indenting and Buy-Sell models could be benchmarked together under the Transactional Net Margin Method, and whether the Profit Level Indicator and operating base adopted for comparability were correct.

Analysis: Under rule 10B(1)(e) of the Income-tax Rules, 1962, the profit margin of the tested party and the comparables must be computed with the same base. The record showed that the assessee carried on two distinct activities: indenting, where it acted as a commission agent, and buy-sell transactions, where it purchased and sold goods as principal with inventories and debtors on its books. The operating cost base appropriate to a commission agency is materially different from that of trading activity, because trading includes cost of goods sold whereas commission activity does not. The assessee and the Transfer Pricing Officer both erred in combining these two different business models for one common benchmark.

Conclusion: The combined benchmarking was incorrect. The matter had to be remanded for separate determination of arm's length price for the Indenting and Buy-Sell transactions.

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