The arm’s length result under the TNMM is determined to the net profit margin of a comparable transactions under a comparable circumstances and the profitability derived from uncontrolled party engaged in similar business activity under similar circumstances are to be analyzed. The product similarity has to be seen while applying CUP method and not under the TNMM because under the CUP, the focus is on the price of the product sold or transferred.
In assessee’s case, both the transactions with the A.E. and unrelated parties relate to alcoholic beverages which is similar business line. Making such intra distinction between types of alcoholic beverages like “whisky” and “other than whisky”, is wholly undesirable while carrying out comparability analysis under the TNMM. Because under the TNMM, functional comparability of transactions are to be analyzed at net profit margin level. If such a high degree of similarity is to be seen in TNMM, then it would become impractical to apply TNMM in any of the case. Thus, in our considered opinion, rejecting of internal TNMM simply on the basis of distinction between whisky and non-whisky as two different products is wholly undesirable and cannot be a ground for rejecting internal comparability and, therefore, such a finding and observation of the Tribunal cannot be said to be a binding precedence in the present case. In view of the discussion made above, the adjustment of 1.56 crores made by the TPO / DRP is uncalled for and the same is hereby deleted.