Held that only such an entity can be selected as a tested party, inter alia, whose functions are relatively simple vis-a-vis other entity and as a consequence thereof, in whose hands value of international transaction and/or PLI can be computed with relative ease requiring least adjustments.  Assessee tried to show international transaction of availing RHQ services from foreign AE ‘LS’ at ALP by considering ‘LS’ foreign AE as a tested party   Benchmarking of RHQ services by taking foreign AE as tested party was incorrect when said entity was neither a least complex entity to transaction nor was one for whom suitable comparables were available.

Assessee maintained a composite set of books of account with one Profit and loss account.  Only for benchmarking its transactions, assessee divided its financials into separate segments.  It was found that assessee made calculations of segment-wise profits in such a manner so as to reflect higher margin of profits under AE segments which required ALP determination and as against that, non-AE segment, which was prime source of assessee’s revenue but did not require any benchmarking as it was de hors any AE transactions, had shown microscopic operating profit and, thus, it was a clear-cut case of artificial and highly manoeuvred segmental profitability-Whether on facts authorities below were justified in rejecting segregation approach adopted by assessee and rightly combined international transactions under overall ‘manufacturing activity’ for benchmarking.

Transfer pricing adjustment should be restricted only to international transactions and not entity level transactions. (AY. 2016-17)