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7. The assessee has segregated its two separate and distinct line of business namely A.Y. 2002-03

(a) manufacturing activities - classigfed as class I activity

(b) trading activity - classified as class II activity.

8. The assessee adopted the transactional net margin method (TNMM) as the most appropriate method in its transfer pricing documentation for the year in class I and class II transactions. Operating profit/ total cost (OP/TC) was chosen as the relevant profit level indicator (PLI) for class I transactions and operating profit/sales (OP/Sales) was chosen as the relevant profit level indicator for class II transactions.

Determination of arms length price In view of adoption of use of current year data and taking reimbursement of expenses as part of operating profit, the OP/sales calculation of the assessee has ultimately been arrived by the Ld. CIT(A) as under :-

38 ITA No. 1842/Del/2009

A.Y. 2002-03 Particulars Manufacturing segment (Class I) Sales (including Mgmt. Fees. 6,48,96,73,238 Scrap sales & Export incentives) Total Income 6,48,96,73,238 Cost of goods sold 3,52,34,28,562 Excise duty 88,20,70,206 Rates & Taxes 8,70,74,369 Value Added expenses 1,66,69,93,086 Total Costs (TC) 6,15,95,66,223 Operating Profit (OP) 33,01,07,015 OP / Sales 5.09% 12.2 Using current year data of comparables, the mean OP/Sales of the comparables used by the TPO in the TP Order is as follows :- 
              S. No.     Company Names                 OP/Sales for FY 2001-02

              1.         B.P.L Ltd.                    9.55%

              2.         Godrej Appliances Ltd.        -7.54%

              3.         Khaitan Electricals Ltd.      3.07%

              4.         Polar Industries              -29.24%

              5.         Symphony           Comfort 8.34%
                         Systems Ltd.

              6.         Value Industries Ltd.         9.97%

              7.         Videocon Industries Ltd.      11.66%


                                                             A.Y. 2002-03

                       Mean                       0.83%




      12.3     The mean OP/Sales of comparable companies as above is 0.83% the
appellant earned an OP / Sales of 5.09% in class I during FY 2001-02. Even if we analyse the above results after excluding the high loss making company viz. Polar Industries, the mean OP / Sales of comparables works out to 5.84%. Even in such a scenario the OP/Sales of 5.09% earned by the Appellant falls within the 5% range allowed by Proviso to Section 92C(2).

Accordingly, I hold that the appellant's international transaction with AEs during the year meet the arm's length test.