Transfer-pricing method selection requires reliable segmental and FAR analysis, with CUP considered before TNMM and comparability adjustments evaluated.

Transfer-pricing method selection must reflect the taxpayer's segmental allocation of revenue and costs, product comparability, and functions, assets and risks (FAR) profile. CUP, RPM or CPM should be preferred where they can reliably determine the arm's length price, while TNMM applies where traditional transaction methods are unsuitable. A taxpayer may seek a prescribed method different from that used in its transfer-pricing report if it provides a more appropriate arm's length result. Where TNMM is used, adjustments may be considered for established material differences with comparables. The transfer-pricing analysis requires fresh verification on these parameters.

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Issues: Whether the transfer-pricing adjustment required fresh determination after proper segmental and FAR analysis, including consideration of CUP as an alternative to TNMM and appropriate adjustments under TNMM.

Analysis: The segmental computation did not consistently allocate revenue and costs to the respective trading, minimal-alteration and manufacturing activities. The selection of the most appropriate method must be governed by the facts, product comparability and FAR profile. CUP, RPM or CPM is preferable where it can reliably determine the arm's length price; TNMM is to be applied where traditional methods are unsuitable. An assessee is not precluded from seeking a different prescribed method from that adopted in its transfer-pricing report if that method produces a more appropriate arm's length determination. If TNMM is adopted, adjustments may be considered where material differences with comparables are established.

Conclusion: The transfer-pricing issue is remitted for de novo verification and a fresh determination after considering the FAR analysis, applicability of CUP and, if necessary, TNMM with appropriate adjustments. The conclusion is in favour of the assessee.

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