Transfer pricing aggregation under TNMM accepted for inter-linked international transactions, with fresh computation directed on proper benchmarking.

Inter-linked international transactions connected with sub-license fee, procurement services, consultancy for a new manufacturing facility, and use of the EASY supply portal were treated as closely integrated with the assessee's manufacturing and trading operations. The isolated benchmarking of those transactions under the Comparable Uncontrolled Price method was found unjustified on the facts, and the proper approach was to consider aggregation and determine the most appropriate method afresh. The transfer pricing exercise was also noted to have suffered from faulty comparables and inadequate consideration of the assessee's objections. Aggregation under TNMM was accepted, and the matter was restored to the Transfer Pricing Officer for fresh computation and reconsideration.

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Issues: Whether the assessee's inter-linked international transactions could be aggregated and benchmarked under the Transactional Net Margin Method instead of being separately analysed under the Comparable Uncontrolled Price method, and whether the transfer pricing adjustments made on that basis could stand.

Analysis: The transactions relating to sub-license fee, procurement services, consultancy fee for the new manufacturing facility, and consultancy fee for use of the EASY supply portal were found to be closely inter-linked with the assessee's manufacturing and trading operations. In the second round of proceedings, the prior co-ordinate bench had already rejected the Revenue's approach of disallowing aggregation and declining TNMM. The impugned approach of analysing the transactions in isolation under CUP was held to be unjustified on the facts. The order also noted that the earlier transfer pricing exercise suffered from faulty comparables and inadequate consideration of the assessee's objections. The proper course was to determine the most appropriate method afresh and then analyse the transactions in accordance with law.

Conclusion: The assessee's plea for aggregation and application of TNMM was accepted, and the transfer pricing matter was restored to the Transfer Pricing Officer for fresh computation and reconsideration.

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