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8.2. Even otherwise, the Indian Transfer Pricing Regulations differ from OECD Guidelines and US Transfer Pricing Regulations in this respect. The Indian Transfer pricing Regulations provide for arithmetic mean of the comparables for determining ALP of international transactions. The OECD guidelines, on the other hand, have enunciated the principle of quartile method for calculation of ALP, wherein the comparables that fall in the extreme quartiles get excluded and the middle quartiles are considered for benchmarking the transactions. The approach of the TPO by selecting the band of PLI between 10% and 50% is completely arbitrary and has no basis for reasons stated above. The selection of comparables by the TPO has led to arbitrariness wherein the loss making companies are excluded and comparables only in the range of 10% to 50% are selected. The benchmarking made by the TPO is not as per the principles governing Indian Transfer Pricing guidelines regulations or even the OECD guidelines.

(d) conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail.

35. There is therefore no bar to considering companies with either abnormal profits or abnormal losses as comparable to the tested party, as long as they are functionally comparable. The OECD guidelines and in US TP regulations, this question may not arise at all because those regulations advocate the quartile method for determining ALP. Indian regulations specifically deviate from OECD guidelines and provide Arithmetic Mean method for determining ALP. Int he quartile method, companies that fall in the extreme quartiles get excluded and only those that fall in the middle quartiles are reckoned for comparability. Hence, cases of either abnormal profits or losses (which are referred to as outliners) get automatically excluded. In the arithmetic mean method, all companies that are in the sample are considered, without exception and the average of all the companies are considered as the ALP. Hence, a general rule that companies with abnormal profits should be excluded may. be in tune with the principles enunciated in OECD guidelines but cannot be said to be in tune with Indian TP regulations. However, if there are specific reasons for abnormal profits or losses or other general reasons as to why they should not be regarded as comparables, then they can be excluded for comparability. It is for the Assessee to demonstrate existence of abnormal factors.