Transfer pricing adjustment rejected where TNMM was ignored and support service benchmarking lacked comparable uncontrolled transactions.

Transfer pricing adjustment for business-related support services was deleted because the assessee had benchmarked the international transaction under TNMM with comparables and agreement terms, while the adjustment substituted that method without comparable uncontrolled transactions and on an ad hoc basis. The record also showed no adjustment in earlier years for similar transactions, which underscored the inconsistency in the approach. The adjustment was therefore found contrary to the requirement that arm's length price be determined under a prescribed method on a reasoned basis, and the assessee's challenge was allowed.

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Issues: Whether the transfer pricing adjustment made in respect of availing of business-related support services was sustainable when the assessee had applied the Transactional Net Margin Method and the adjustment was made by rejecting that method without comparable uncontrolled transactions and on an ad hoc basis.

Analysis: The assessee had benchmarked the international transactions with associated enterprises by adopting the Transactional Net Margin Method and had supported the arm's length position with comparables and agreement terms. The transfer pricing adjustment was, however, made by discarding that approach and applying an other method without bringing on record comparable uncontrolled transactions, and the working adopted was found to be ad hoc. The record also showed that similar transactions in earlier assessment years had not led to any adjustment, reinforcing the inconsistency in the approach adopted. The adjustment was held to be contrary to the requirement that arm's length price be determined through one of the prescribed methods on a reasoned basis.

Conclusion: The transfer pricing adjustment was deleted and the grounds challenging the adjustment were allowed in favour of the assessee.

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