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2012 (12) TMI 71 - AT - Income TaxAdjustment in Transfer Pricing - held that:- whatever be the method followed or adopted for arriving at the ALP, the ALP can only be determined on the value of international transactions alone and not on the entire turnover of assessee at entity level. If this sort of adjustment is permitted, this will result in increasing the profit of assessee on the entire non-AE transactions also, which is not according to the provisions of Transfer Pricing mandated by the Act. The finally comparables margin on the updated data arrived at by the TPO was 6.29% as against assessee's margin of 5.19%. Therefore, the addition on margin of 1.10% can only be determined on the AE transactions. With reference to royalty and the liquidated damages - genuineness of expenditure - whether the relevant royalty payments made on various projects were also taken into account in segmental data - held that:- it is not necessary for the assessee to show that any legitimate expenditure incurred by him was also incurred out of necessity. It is also not necessary for the assessee to show that any expenditure incurred by him for the purpose of business carried on by him has actually resulted in profit or income either in the same year or in any of the subsequent years. The only condition is that the expenditure should have been incurred "wholly and exclusively" for the purpose of business and nothing more. It is this principle that inter alia finds expression in the OECD guidelines Even Rule 10B(1)(a) does not authorise disallowance of any expenditure on the ground that it was not necessary or prudent for the assessee to have incurred the same or that in the view of the Revenue the expenditure was unremunerative or that in view of the continued losses suffered by the assessee in his business, he could have fared better had he not incurred such expenditure. These are irrelevant considerations for the purpose of Rule 10B TPO should not have undertaken determining the ALP at nil whereas the jurisdiction provided to him is to determine the ALP of the transactions under the method(s) provided under the Act. Therefore, on legal principles also this adjustment made by AO cannot be upheld.
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