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Notional ESOP cost cannot support transfer pricing adjustment when no actual expenditure or liability was incurred.
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....No transfer pricing adjustment could be sustained on the notional value of employee stock options granted by a parent company to the assessee's employees, because the assessee had not actually incurred any expenditure or assumed any liability for acquiring the shares. The Tribunal applied Rule 10B(1)(e)(i) and held that net profit margin under TNMM must be computed with reference to costs actually incurred, meaning a real financial outflow or obligation. Since the TDS reimbursement was made without mark-up and no ESOP cost was recorded in the books, imputation of a hypothetical cost was contrary to the transfer pricing rules. The adjustment relating to Restricted Stock Units was deleted.....