Transfer pricing benchmarking: CUP rejected for potato purchases, TNMM accepted as the appropriate method and adjustment deleted.

Comparable uncontrolled price benchmarking for potato purchases from an associated enterprise failed because the controlled and uncontrolled transactions involved material differences in quality, volume, contractual terms and business model, with no reliable adjustments shown to remove those differences. Following the coordinate bench ruling in the assessee's own earlier year, the Tribunal held that the transactional net margin method was the appropriate method once CUP was unsustainable, and treated the associated enterprise as the least complex and proper tested party. The assessee's TNMM benchmarking was therefore accepted and the transfer pricing adjustment was deleted.

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Issues: Determination of the most appropriate method for benchmarking specified domestic transactions involving purchase of potatoes from the associated enterprise, and the sustainability of the resulting transfer pricing adjustment.

Analysis: The Tribunal followed the coordinate bench decision in the assessee's own case for the earlier year on identical facts. It held that the Comparable Uncontrolled Price method could not be sustained because the controlled and uncontrolled transactions involved material differences in quality, volume, contractual terms, and business model, and no reliable adjustments were shown to eliminate those differences. The Tribunal further held that, once CUP failed, the Transactional Net Margin Method was the appropriate method, with the associated enterprise being the least complex entity and therefore the proper tested party. On that basis, the assessee's benchmarking under TNMM was accepted and the addition was deleted.

Conclusion: CUP was rejected, TNMM was held to be the most appropriate method, and the transfer pricing adjustment was deleted in favour of the assessee.

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