Arm's length price must be benchmarked under prescribed methods; nil transfer pricing adjustments and fee discrepancies require review.

Transfer pricing analysis must determine arm's length price under the prescribed methods; a nil adjustment cannot be sustained merely because the evidence does not fit a rigid Rule 10D checklist, since relevant material bearing on arm's length price remains admissible. The transfer pricing officer's task is limited to benchmarking the international transaction and does not extend to judging commercial necessity. The note also states that capitalised services may still require benchmarking because their value affects future depreciation. A mismatch in the amount adopted for project management fees should be examined and corrected if it is a mistake apparent from the record.

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Issues: (i) whether the transfer pricing adjustment in respect of technical assistance fees and project management fees could be sustained at nil without determining arm's length price by the prescribed method; (ii) whether the discrepancy in the amount adopted for project management fees required rectification.

Issue (i): whether the transfer pricing adjustment in respect of technical assistance fees and project management fees could be sustained at nil without determining arm's length price by the prescribed method.

Analysis: The assessee had produced agreements, e-mails, certificates from the associated enterprises and other material to show that services were received. The rejection of this material merely because it did not fit into a rigid list under Rule 10D was not justified, since the rule is not exhaustive and permits relevant material having bearing on arm's length price. The transfer pricing officer's role is confined to determining arm's length price under the statutory methods and does not extend to deciding whether the services were commercially necessary. Further, the transactions were capitalised and not claimed as revenue expenditure in the year, but a capital transaction can still require benchmarking because its value affects future depreciation.

Conclusion: The nil determination was not sustained, and the issue was remanded to the transfer pricing officer and the Assessing Officer to determine arm's length price afresh by the prescribed method after giving the assessee an opportunity to furnish supporting material.

Issue (ii): whether the discrepancy in the amount adopted for project management fees required rectification.

Analysis: The record showed a mismatch between the amount reflected in the table and the amount adopted for adjustment, and the source of the higher figure was not explained from the record. The authorities were therefore required to examine the discrepancy and correct it if it was a mistake apparent from the record.

Conclusion: The matter was sent back for verification and rectification, if necessary.

Final Conclusion: The assessee obtained remand on the substantive transfer pricing issues and on the amount discrepancy, so the appeal succeeded only to that extent and remained open for fresh adjudication.

Ratio Decidendi: The transfer pricing authority must determine arm's length price under the prescribed methods and cannot treat an international transaction at nil or question business necessity outside its statutory jurisdiction; even capitalised transactions may require benchmarking because of their impact on future depreciation.

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