Transfer pricing comparability: CUP prevailed over TNMM, and a functionally dissimilar comparable was excluded.

CUP was preferred for benchmarking the assessee's international transactions because it had been consistently applied in earlier and later years, and no material change in facts justified switching to TNMM. The discussion notes that bona fide quotations may support CUP where they are reliable and comparable, and that an arm's length price need not depend only on an actually executed uncontrolled transaction. Jai Hind Projects Ltd. was treated as functionally dissimilar, given its large infrastructure and pipeline projects compared with the assessee's design and construction work, so it was not a proper comparable and had to be excluded.

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Issues: (i) Whether the Comparable Uncontrolled Price method or the Transactional Net Margin Method was the most appropriate method for determining the arm's length price of the assessee's international transactions. (ii) Whether Jai Hind Projects Ltd. was a valid comparable for benchmarking the assessee's transfer pricing results.

Issue (i): Whether the Comparable Uncontrolled Price method or the Transactional Net Margin Method was the most appropriate method for determining the arm's length price of the assessee's international transactions.

Analysis: The assessee had consistently benchmarked the technical service transactions on CUP basis, and the Revenue itself had accepted that method in earlier and later assessment years. The record showed no material change in facts to justify departure from the earlier approach. The Court also relied on binding precedent holding that CUP may be applied on the basis of bona fide quotations where they are reliable and comparable, and that an arm's length price need not be confined to only an actually executed uncontrolled transaction. In these circumstances, the rejection of CUP and substitution of TNMM was not justified.

Conclusion: The CUP method was held to be the appropriate method, and the assessee succeeded on this issue.

Issue (ii): Whether Jai Hind Projects Ltd. was a valid comparable for benchmarking the assessee's transfer pricing results.

Analysis: Jai Hind Projects Ltd. was engaged in large infrastructure and pipeline-related projects in oil, gas, and associated sectors, whereas the assessee was engaged in design and construction of small to medium-sized factories and industrial buildings. The functions, scale, and business segments were materially different, so functional comparability was lacking.

Conclusion: Jai Hind Projects Ltd. was not a proper comparable and should have been excluded, in favour of the assessee.

Final Conclusion: The transfer pricing adjustment could not be sustained on the footing adopted by the lower authorities, and the assessee's appeal succeeded for statistical purposes.

Ratio Decidendi: Where the Revenue has accepted a transfer pricing method in other comparable years and no material change in facts is shown, and where the chosen comparable is functionally dissimilar, the earlier accepted CUP basis should ordinarily prevail and non-comparable entities must be excluded.

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