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 fixed asset written off by the Assessee debited to profit and loss account can be considered as operating expense. Similarly, whether profit or loss on sale of asset can be considered as operating in nature. The Courts have held as follows:
ThyssenKrupp Industries India Private Limited v Addl CIT (2013) 154 TTJ 0689;  33 taxmann.com 107 (Mum ITAT) – While computing the margin of some of the comparables, the taxpayer contended that fixed assets written off are to be considered as operating in nature. The ITAT held that fixed assets written off is capital expenditure and is therefore to be treated as non-operating in nature.
DHL Express (India) Private Limited v ACIT  11 taxmann.com 40 (Mum.) :  46 SOT 379 (Mum.) – The ITAT held that profit on sale of asset is non-operating in nature.