TMI Blog2014 (9) TMI 936X X X X Extracts X X X X X X X X Extracts X X X X ..... denominator should be reasonably independent from controlled transactions, as otherwise, there would be no objective starting point. Explaining further, it was observed in the OECD Transfer pricing Guidelines that when analyising a transaction consisting in the purchase of goods by a distributor from an associated enterprise for resale to independent customers, one could not weigh the net profit indicator against the cost of goods sold because these costs are the controlled costs for which consistency with the arm’s length principle is being tested - CIT(A) was fully justified in accepting the Operating Profit to operating Revenue as the PLI, as claimed by the assessee for Transfer Pricing Analysis, and not Operating Profit to Operating Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the appellant in this regard. The purpose of identifying the PLI is to ensure that the comparability analysis of the controlled transactions is objective. Reference may be made to the OECD Transfer Pricing Guidelines, 2010 in this regard, which are selfexplanatory. 2.88 The denominator should be reasonably independent from controlled transactions, otherwise there would be no objective starting point. For instance, when analyzing a transaction consisting in the purchase of goods by a distributor from an associated enterprise for resale to independent customers, one should not weight the net profit indicator against the cost of goods sold because these costs are the controlled costs for which consistency with the arm s length princip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ituation where there is no objective starting point for the comparability analysis. The Assessing Officer is therefore directed to adopt operating profit to operating revenue ratio as the PLI and the third ground of appeal is allowed. 3. As noted by the learned CIT(A), the purpose of identifying the PLI is to ensure that the comparability of the controlled transactions is objective and reference in this regard was made by him to the OECD Transfer Pricing Guidelines 2010, wherein it was explained that the denominator should be reasonably independent from controlled transactions, as otherwise, there would be no objective starting point. Explaining further, it was observed in the OECD Transfer pricing Guidelines that when analyising a tran ..... X X X X Extracts X X X X X X X X Extracts X X X X
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