Transfer-pricing comparability requires consistent single-year data where exceptional market conditions materially affect tested-party profitability and benchmarking.

Transfer-pricing comparability under Rules 10B(2) and 10B(3) requires consistent data and consideration of prevailing market conditions and material profit-affecting differences. Where exceptional recessionary conditions affect the tested party's relevant year, comparable companies' multiple-year weighted margins should not be benchmarked against the tested party's single-year margin unless earlier-year transactions remain comparable. The notes state that arm's length pricing should use comparable and tested-party results for the same financial year. They also address R&D expenditure: actual expenditure corresponding to a denied weighted deduction may be considered under Section 35(1)(iv), subject to verification of the expenditure and statutory eligibility.

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Issues: (i) Whether transfer-pricing comparability could be determined by comparing the assessee's single-year margin for FY 2019-20 with the three-year weighted average margin of comparable companies despite exceptional market conditions. (ii) Whether the unweighted R&D expenditure disallowed after restriction of approved expenditure could be allowed under Section 35(1)(iv) of the Income-tax Act, 1961.

Issue (i): Whether transfer-pricing comparability could be determined by comparing the assessee's single-year margin for FY 2019-20 with the three-year weighted average margin of comparable companies despite exceptional market conditions.

Analysis: FY 2019-20 was an extraordinarily recessionary period for the automobile and auto-component industry, resulting in a material decline in the assessee's brake-division sales and profitability while fixed costs substantially continued. Rule 10B(2) and Rule 10B(3) of the Income-tax Rules, 1962 require comparability to account for prevailing market conditions and material differences affecting profit. Multiple-year data under the notification concerning the data set presupposes comparable uncontrolled transactions in the earlier years; it does not permit the comparable companies' three-year average to be tested against only the assessee's impugned-year result where earlier-year conditions are not comparable.

Conclusion: The transfer-pricing analysis must compare the FY 2019-20 results of the comparable companies with the assessee's FY 2019-20 results for determining the arm's length price. This issue is decided in favour of the assessee.

Issue (ii): Whether the unweighted R&D expenditure disallowed after restriction of approved expenditure could be allowed under Section 35(1)(iv) of the Income-tax Act, 1961.

Analysis: The claim for the actual R&D expenditure corresponding to the denied weighted deduction was covered by the applicable judicial position. Verification of the expenditure and its eligibility was required.

Conclusion: The Assessing Officer must verify the claim and allow the eligible expenditure under Section 35(1)(iv) of the Income-tax Act, 1961 in accordance with law. This issue is decided in favour of the assessee.

Final Conclusion: The arm's length price requires fresh computation on comparable single-year FY 2019-20 data, and the R&D expenditure claim requires verification and allowance to the extent eligible.

Ratio Decidendi: Multiple-year margins of comparables cannot be benchmarked against a tested party's single-year margin where materially different market conditions impair comparability; the analysis must apply consistent data and appropriate adjustments to eliminate material economic differences.

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