TNMM comparability requires functional similarity, segmental data and consistent profit level indicator treatment for fringe benefit tax.

Under TNMM, comparability depends on close functional similarity and available segmental data. A service-oriented passenger and baggage handling provider was contrasted with a logistics and freight-based entity lacking segmental accounts and showing materially different asset intensity and business model; that entity was therefore not a valid comparable. A company deriving substantial revenue from warehousing, equipment hire and other non-service activities, without segmental accounts, was likewise treated as not functionally comparable. The transfer pricing computation also required a uniform operating treatment of fringe benefit tax for both the tested party and the comparables, so the profit level indicator had to be recomputed on a consistent basis.

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Issues: (i) whether Container Corporation of India Ltd. and Sanco Trans Ltd. were functionally comparable for determining the arm's length price under the transactional net margin method; (ii) whether fringe benefit tax had to be treated consistently while computing the profit level indicator of the tested party and the comparables.

Issue (i): whether Container Corporation of India Ltd. and Sanco Trans Ltd. were functionally comparable for determining the arm's length price under the transactional net margin method

Analysis: The functional profile of the assessee was held to be that of a service-oriented passenger and baggage handling provider, and not a specialised airport services operator. On that basis, the comparable companies had to be tested for close functional similarity. Container Corporation of India Ltd. was found to be a large logistics and freight-based entity with no segmental accounts, a very low employee cost ratio, substantial asset intensity, and a business model materially different from the assessee. Sanco Trans Ltd. was found to derive a substantial part of its revenue from warehousing, equipment and fleet hire, and other non-service revenues, without segmental accounts, and was therefore not a pure service company comparable to the assessee.

Conclusion: Both companies were held to be not comparable and were directed to be excluded.

Issue (ii): whether fringe benefit tax had to be treated consistently while computing the profit level indicator of the tested party and the comparables

Analysis: The transfer pricing computation adopted by the revenue authorities treated fringe benefit tax as non-operating for the comparables, while the assessee had computed its margin differently. Since the point had not been adjudicated by the Dispute Resolution Panel, a uniform approach was required so that the same treatment applied to both sides of the comparison.

Conclusion: The transfer pricing officer was directed to recompute the tested party's profit level indicator after excluding fringe benefit tax on a uniform basis.

Final Conclusion: The transfer pricing adjustment did not survive in its recorded form, the impugned comparability analysis was corrected by exclusion of the selected companies, and the matter was allowed with consequential directions for recomputation.

Ratio Decidendi: For transfer pricing purposes, companies lacking functional similarity or segmental data, or whose revenue model is materially different from that of the tested party, cannot be retained as comparables under TNMM, and the profit level indicator must be computed on a consistent operating basis for both the tested party and the comparables.

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