INCOME TAX ACT, 1961

Section 92

Transfer pricing - Determination of ALP - Computation of PLI - Treatment of rental expenditure and reimbursement thereof

Assessee entered into specified domestic transaction with its AE. Assessee submitted that difference in other income has arisen on account of fact that the assessee had set off reimbursement received by it in relation to a rental expenditure incurred by it. Assessee contended that either both rental expenditure and reimbursement should be removed from the workings or both should be taken into account by netting off the rental expenditure and reimbursement. Held: It was imperative to examine as to whether assessee had utilised premises for which rental had been paid for the purpose of business carried on by assessee. If said premises had been so utilised, then rental expenditure should be taken as operating expenditure. It is an undisputed fact that M/s. GE Power had given money to assessee only in respect of rental expenditure burden that was going to be borne by assessee. In that case, reimbursement of rental expenditure, was intricately related to the rental expenditure. Accordingly, if rental expenditure was considered as an operating expenditure, then reimbursement was to be set off against rental expenditure and net rent expenditure was to be taken as operating expenditure. On the other hand, if rental expenditure was not considered as operating expenditure, then both rental expenditure and reinvestment of reimbursement received by assessee should be excluded while computing PLI of assessee.

REFERRED :

FAVOUR : Matter remanded.

A.Y. : 2015-16

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