Transfer-pricing comparability requires consistent data when pandemic conditions distort manufacturing margins, while beneficial sourcing services require proper benchmarking analysis.

Transfer-pricing comparability under Rule 10B should use consistent single-year data where exceptional market conditions, including pandemic disruption, materially affect the tested party's results; comparison with multi-year weighted margins from normal years may not be equitable. Sourcing support services involving supplier identification, procurement facilitation and customs clearance are examined under the benefit test and may not constitute shareholder activities where an independent enterprise would pay for them. Separate benchmarking depends on whether the transaction's costs, revenues and risks can be reliably identified. Income computation should also conform to assessment findings allowing research-related deductions, rather than retain disallowances arising from earlier processing.

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Issues: (i) Whether the manufacturing-segment arm's length margin for the pandemic-affected assessment year should be compared with the comparable companies' results for that year alone; (ii) Whether payment for sourcing support services to the associated enterprise could be treated as a shareholder activity and benchmarked separately at nil; (iii) Whether the assessed income required recomputation after deleting deductions already found allowable under Section 35(1)(i) and Section 35(1)(iv).

Issue (i): Whether the manufacturing-segment arm's length margin for the pandemic-affected assessment year should be compared with the comparable companies' results for that year alone.

Analysis: Rule 10B requires comparability adjustments for material differences arising from market conditions. The assessee's operations and sales were adversely affected by the COVID-19 pandemic during the relevant year. Comparing its single-year margin with the comparables' weighted average margins for three years, including normal years, was not an equitable comparison. Consistent single-year data of both the assessee and comparables was required.

Conclusion: The arm's length price for the manufacturing segment shall be recomputed by comparing the assessee's results for the impugned year with the comparable companies' results for that year alone, in favour of the assessee.

Issue (ii): Whether payment for sourcing support services to the associated enterprise could be treated as a shareholder activity and benchmarked separately at nil.

Analysis: Separate benchmarking is appropriate where the costs, revenues and risks of a controlled transaction can be separately identified and reliably compared with uncontrolled transactions. The additional evidence concerning sourcing support required examination. The services involved identifying suppliers, facilitating procurement and customs clearance, and supporting the assessee's manufacturing operations. Applying the benefit test, these were services for which an independent enterprise would be willing to pay and were not shareholder activities.

Conclusion: The sourcing-support payment is not a shareholder activity. The matter is remanded for examination of the evidence and determination of whether separate benchmarking is warranted; if so, a proper arm's length benchmarking exercise shall be undertaken, in favour of the assessee.

Issue (iii): Whether the assessed income required recomputation after deleting deductions already found allowable under Section 35(1)(i) and Section 35(1)(iv).

Analysis: Although the assessment findings accepted the deductions, the computation adopted income processed under Section 143(1), which included the disallowances. This was an inadvertent computational error inconsistent with the assessment findings.

Conclusion: The assessed income shall be recomputed after deleting the disallowances under Section 35(1)(i) and Section 35(1)(iv), in favour of the assessee.

Final Conclusion: The transfer-pricing margin is to be determined on a consistent single-year basis, the sourcing-services adjustment requires fresh examination subject to the finding that it is not a shareholder activity, and the admitted research deductions must be reflected in the income computation.

Ratio Decidendi: Where exceptional market conditions materially affect the tested party's results, transfer-pricing comparability must employ consistent data or appropriate adjustment; services yielding a benefit for which an independent enterprise would pay are not shareholder activities.

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