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Issues: Whether the transfer pricing adjustment could be computed by including non-AE revenue and non-AE costs, or whether it had to be restricted to the assessee's international transactions with its associated enterprises only.
Analysis: The matter arose after remand directions had required verification of the computation of the transfer pricing adjustment. The record showed that the computation was still made by aggregating non-AE revenue and non-AE costs in the software development segment. Since Chapter X applies only to international transactions with associated enterprises, the adjustment cannot be expanded to domestic or non-AE transactions. The computation therefore had to be corrected in line with the earlier directions and the statutory scheme governing arm's length pricing.
Conclusion: The transfer pricing adjustment was held to be wrongly computed by including non-AE transactions, and the computation was required to be confined to AE transactions only.
Final Conclusion: The assessee succeeded on the core transfer pricing issue, and the tax computation was directed to be revised accordingly, while the appeal was disposed of for statistical purposes.
Ratio Decidendi: Transfer pricing adjustment under Chapter X of the Income-tax Act, 1961 must be restricted to international transactions with associated enterprises and cannot include non-AE revenue or non-AE costs.
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