Transfer pricing and FAR analysis required fresh evidence-based review before profit split method could be upheld.

Transfer pricing adjustment based on the profit split method was found unsustainable on the existing record because the FAR profile, contractual framework, AE financials, employee base and risk allocation had not been examined conclusively. The attribution of functions relating to customer acquisition, negotiation, booking, payment processing and risk assumption required a fresh, evidence-based FAR analysis, and the reasoning for selecting the most appropriate method was not stated with sufficient clarity. The assessment order and the adjustment sustained by the DRP were set aside, and the matter was restored to the AO/TPO for fresh adjudication after giving the assessee an adequate opportunity of being heard.

---

---

Issues: Whether the transfer pricing adjustment sustained by the DRP could be maintained on the existing record, having regard to the characterization of the transactions, the FAR profile of the assessee and the AE, and the selection of the most appropriate method.

Analysis: The adjustment rested on assumptions about the respective functions performed by the assessee and the AE in relation to customer acquisition, negotiation, booking, payment processing and risk assumption. The record did not contain a conclusive examination of the contemporaneous documentary material, including the AE's financials, contractual arrangements, employee profile and risk allocation. The basis for adopting the profit split method was not stated with sufficient clarity, and the attribution of profits required a fresh and detailed FAR analysis supported by evidence. In these circumstances, the matter warranted reconsideration by the AO/TPO after granting the assessee an adequate opportunity of being heard.

Conclusion: The assessment order and the transfer pricing adjustment sustained by the DRP were set aside and the matter was restored to the AO/TPO for fresh adjudication.

---