Transfer pricing for liaison services turns on limited-risk characterization and consistent TNMM benchmarking for arm's length pricing.

Transfer pricing on technical and training services was analysed on the basis of the assessee's functional profile and benchmarking. The assessee was found to act only as a coordinating and liaison entity for after-sales support, while the associated enterprise owned the key intangibles, assets, and risk-bearing functions. Because the assessee lacked the proprietary knowledge and resources to independently render the services, and the contractual risks remained with the associated enterprise, it was characterised as a limited-risk service provider. Its consistent TNMM benchmarking, accepted in the preceding year, could not be displaced merely due to non-filing of parent contracts where confidentiality concerns existed and the DRP had already directed reconsideration of the evidence.

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Issues: Whether the transfer pricing adjustment on technical and training services received from the associated enterprise was justified, including the assessee's functional characterisation as a limited-risk service provider and the benchmarking method adopted for determining arm's length price.

Analysis: The assessee functioned only as a coordinating and liaison entity for after-sales support relating to C-17 and BBJ aircraft, while the technical know-how, simulator, and other relevant assets were owned and controlled by the associated enterprise. The record showed that the assessee did not possess the assets or proprietary knowledge needed to independently render the services and that the contractual risk for claims, liquidated damages, performance guarantees, and similar contingencies lay with the associated enterprise. The assessee had also consistently followed the same economic characterisation and benchmarking in the immediately preceding year, which had been accepted by the Revenue. On these facts, the Tribunal found that the assessee was only a limited-risk service provider and that the benchmarking based on TNMM adopted by the assessee could not be displaced merely because the parent contracts were not filed, especially when confidentiality constraints existed and the DRP had already directed reconsideration of the evidence.

Conclusion: The transfer pricing adjustment was not sustainable. The assessee's characterisation as a limited-risk service provider and its benchmarking analysis were accepted.

Final Conclusion: The appeal succeeded and the impugned addition arising from the transfer pricing adjustment was deleted.

Ratio Decidendi: Where the evidence shows that the associated enterprise owns the key intangibles, assets, and risk-bearing functions, and the assessee performs only coordination or liaison support, the assessee may be treated as a limited-risk service provider and its consistent TNMM benchmarking cannot be rejected without cogent distinguishing material.

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