To illustrate, Indus, an Indian company exports goods to its associated enterprise IGE @ 1000 euros.

If the ALP under CUP method is determined at 1050 euros, then the transaction is considered to be
at ALP, as the difference between ALP and transaction price is less than 5%. If the ALP determined
is 1080 euros, 80 euros shall be the transfer pricing adjustment, as the difference between ALP and
transaction price is more than 5%. Hence, 80 euros shall be added to the taxable income of Indian
company.

P1. P& L account of Ramana Bros an Indian company reflects the following
a. Rs. 20 Cr imports from AE
b. Rs.80 Cr other expenses in India
c. Rs. 15 Cr exports to to AE
d. Rs.90 Cr domestic sales.
e. Rs. 5 Cr book profit
A firm of Chartered Accountants carried out transfer pricing study. TNMM was considered as the
most appropriate method. Based on the TP study they determined ALP at 6% over cost. Please
advise the company whether the transaction with its AE is at ALP or TP adjustment is required?

Ans:
Computation of TP adjustment (in Crores)
Pariculars Rs. Rs.
Domestic sales 90.00
Exports to AE 15.00
Add: 5% Variation as per sec 92C(2) 0.75
15.75
(A) 105.75

Domestic expenses 80
Imports from AE 20
Less : 5% variation as per Sec. 92C(2) 1
19
(B) 99
Book profit with 5% variation (A)-(B) 6.75
Profit over cost is 6.81%. Arms’s length benchmark as pr TNMM is 6% over cost. Therefore no TP
adjustment is called for in the present case.