Functional comparability in transfer pricing fails where a newspaper business is used against support services; ALP must be recomputed.

A comparable engaged in newspaper publishing and sale was found to be functionally dissimilar to the assessee's support service segment because its business profile did not match the tested international transaction. The transfer pricing benchmarking was therefore held to be unsustainable to that extent, and the comparable was directed to be excluded. The Transfer Pricing Officer must recompute the Arm's Length Price afresh, and if the assessee's margin falls within the permissible range on recomputation, no transfer pricing adjustment is to be made.

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Issues: Whether the transfer pricing adjustment made in respect of the support service segment was sustainable, and whether the comparable company engaged in newspaper publishing and sale was functionally comparable to the assessee.

Analysis: The assessee sought exclusion of only one comparable from the set selected by the Transfer Pricing Officer. On examination of the financials and business profile of the comparable, it was found to be engaged in newspaper business and not in activities similar to the assessee's support services. The comparable was therefore held to be functionally dissimilar and not suitable for benchmarking the international transaction.

Conclusion: The comparable was directed to be excluded and the Transfer Pricing Officer was directed to recompute the Arm's Length Price afresh. If the assessee's margin falls within the permissible range, no adjustment is to be made.

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