Rule 10B of Income Tax Rules provides methodology for computation of ALP.  Under TNMM, ‘net profit’ is used as benchmark for ALP computation.  Rule 10B(1)(e)(i) provides for considering “net profit margin realised by the enterprise from an international transaction or SDT entered into with an associated enterprise”.  Rule 10B(1)(e)(ii) provides for computation of ‘net profit margin in uncontrolled comparable transactions’.  Therefore, while computing net margin realized by the enterprises (tested party as well as comparables) all incomes and expenses that are representative or comprised of business obligation should be considered. 

Before the Courts, the issue came up whether disputed telephone payment paid by the Assessee and debited to profit and loss account can be considered as operating expense.  The Courts have held as follows:

Marubeni India Pvt. Ltd. v DCIT (2012) 15 ITR (Trib) 297; (2012) 144 TTJ 0474 (Delhi ITAT) – The taxpayer, a private limited company, was engaged in two business operations consisting of representation service, to liaise between the business divisions of MCJ and its various suppliers/customers in India and trading of a broad range of industrial, agricultural and consumer goods, commodities and natural resources.  Telephone Department has raised a demand upon the taxpayer, which was disputed by it. The taxpayer made certain payment based on order of the Telephone Adalat.  The taxpayer contended that same is abnormal in nature and should not form part of operating cost while computing ALP. The CIT(A) concurred with the view of the taxpayer. The ITAT held that in computing the ALP, the expenses in the nature of abnormal items are not to be looked into. The ITAT observed that the expense is not a routine expenditure and nowhere linked to international transaction. It should therefore be treated as abnormal in nature and excluded while computing PLI.

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