Transfer pricing comparability and section 10A parity rules required fresh FAR review and matching turnover exclusions.

MAP pricing accepted for US associated enterprise transactions could not be applied automatically to non-US transactions without a fresh Functional-Asset-Risk comparison; the transfer pricing matter was therefore restored for reconsideration, with liberty to adopt the MAP price if comparability was established. For section 10A computation, telecommunication expenses excluded from export turnover also had to be excluded from total turnover to preserve parity in the deduction formula; the computation was therefore to be made on the same basis for both components.

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Issues: (i) Whether the transfer pricing matter concerning non-US associated enterprise transactions, in the light of the Mutual Agreement Procedure resolution for US associated enterprise transactions, required fresh examination by the TPO/AO; (ii) Whether telecommunication expenses reduced from export turnover for section 10A purposes were also required to be reduced from total turnover.

Issue (i): Whether the transfer pricing matter concerning non-US associated enterprise transactions, in the light of the Mutual Agreement Procedure resolution for US associated enterprise transactions, required fresh examination by the TPO/AO.

Analysis: The price accepted under the Mutual Agreement Procedure for US transactions could not be automatically applied to non-US transactions without first examining whether the factors affecting price were comparable. A fresh Functional-Asset-Risk analysis was necessary to determine whether the non-US transactions stood on the same footing as the US transactions. In the absence of such analysis, the matter could not be finally concluded at the appellate stage.

Conclusion: The issue was restored to the TPO/AO for fresh examination, with liberty to adopt the MAP price for non-US transactions if comparability is established.

Issue (ii): Whether telecommunication expenses reduced from export turnover for section 10A purposes were also required to be reduced from total turnover.

Analysis: The parity principle requires that if telecommunication expenses are excluded from export turnover, the same exclusion must be made from total turnover while computing the section 10A deduction. Otherwise, the formula would produce an artificial and distorted result contrary to the settled method of computation.

Conclusion: Telecommunication expenses had to be reduced from both export turnover and total turnover while computing deduction under section 10A.

Final Conclusion: The appeal succeeded only in part, with one issue remanded for reconsideration and the section 10A computation decided in favour of the assessee.

Ratio Decidendi: For transfer pricing comparability, a MAP resolution cannot be applied to different transactions without a fresh FAR-based comparison, and for section 10A computation, exclusions made from export turnover must equally be made from total turnover.

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