TNMM benchmarking cannot be doubled with separate profit attribution when the same transaction has already been tested at arm's length.

An international transaction benchmarked under TNMM cannot be subjected again to a separate profit attribution exercise on the same footing. The ITAT Delhi held that the Assessing Officer's approach of first allocating 50% of the gross profit from head office sales to the Indian branch and then making a further arm's length adjustment was unsustainable when the assessee had already applied TNMM and the functions, assets and risks remained materially unchanged. The Tribunal also accepted the reliance on comparable margins and found no infirmity in the chosen benchmarking method. The restricted adjustment upheld by the CIT(A) was therefore sustained, and the Revenue's challenge failed.

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Issues: Whether the transfer pricing adjustment made by the Assessing Officer by attributing 50% of the gross profit from the head office sales to the Indian branch, and by applying a separate profit attribution method in addition to TNMM, was sustainable.

Analysis: The branch and the head office had entered into international transactions that were benchmarked by the assessee under TNMM. The record showed that in the succeeding year the same line of business was accepted under TNMM, and the functions, assets and risk profile remained materially unchanged. The Assessing Officer had, however, combined TNMM with a profit split style attribution by first allocating 50% of gross profit from head office sales to the branch and then making a further arm's length adjustment. The Tribunal held that once the transaction had been benchmarked under section 92, the same transaction could not be subjected to both TNMM and a separate profit attribution exercise on the same footing. It also accepted the CIT(A)'s reliance on comparable margins and the absence of any infirmity in the selected benchmarking approach.

Conclusion: The restriction of the adjustment to Rs. 54,37,717 by the CIT(A) was upheld and the Revenue's challenge failed.

Final Conclusion: The Tribunal affirmed that the assessee's international transactions were to be tested under TNMM alone, and the Revenue's attempt to superimpose a separate profit attribution mechanism was unsustainable.

Ratio Decidendi: Where an international transaction has been benchmarked under TNMM at arm's length, the same transaction cannot again be subjected to a separate profit attribution approach on the basis of estimated gross-profit allocation.

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