Budget 2024 introduces amendments to Section 92CA of the Income Tax Act to include specified domestic transactions (SDTs) in the determination of Arm’s Length Price (ALP) by Transfer Pricing Officers (TPOs). Currently, TPOs can exercise authority over international transactions and SDTs referred to them by the Assessing Officer (AO). The amendments will empower TPOs to evaluate SDTs not reported by taxpayers under Section 92E, extending their oversight even if such transactions were not initially referred by the AO. These changes aim to enhance the comprehensiveness of transfer pricing assessments, ensuring all pertinent transactions are evaluated for ALP, thus increasing compliance and accuracy in reporting. The amendments will take effect from April 1, 2025, applicable from the assessment year 2025-26 onwards, ensuring a more robust framework for handling both international and domestic transactions under transfer pricing regulations.
Budget 2024: Determination of Arms Length Price in respect of specified domestic transactions in proceedings before Transfer Pricing Officer
Section 92CA of the Act provides that the Assessing Officer, if he considers it necessary or expedient to do so, may with the previous approval of Principal Commissioner or the Commissioner, refer the matter of determination of Arm’s Length Price (ALP) in respect of an international transaction or specified domestic transaction (SDT) to the Transfer Pricing Officer (TPO). Once reference is made to the TPO, TPO is competent to exercise all powers that are available to the Assessing Officer under sub-section (3) of Section 92C for determination of ALP and consequent adjustment. Further, under section 92E of the Act, there is a reporting requirement on the taxpayer and the taxpayer is under obligation to file an audit report in the prescribed form before the Assessing Officer (AO) containing details of all international transactions or SDT undertaken by the taxpayer during the year.
2. This audit report is the primary document with the AO, which contains the details of international transactions and/or SDT undertaken by the taxpayer. If the assessee does not report such a transaction in the report furnished under section 92E then the Assessing Officer would normally not be aware of such an International Transaction/SDT so as to make a reference to the TPO.
3. The section, provides that if, during the course of proceeding before him, an international transaction comes to the notice of the TPO, which has not been referred to him by the AO, the TPO can proceed to determine the ALP in its respect as well. It also provides for computation of ALP by the TPO, of those international transactions, details of which have not been furnished in the audit report referred to above. These provisions are in place in sub-section (2A) and (2B) of the section 92CA.specif
4. However, at present, the above noted provisions of sub-section (2A) and (2B) of section 92CA do not extend to SDTs. It is proposed to amend sub-sections (2A) and (2B) of section 92CA to enable the TPO to deal with SDTs which have not been referred to him by the AO and/or in whose respect audit report under section 92CE has not been filed.
5. These amendments will take effect from the 1st day of April, 2025 and will, accordingly, apply in relation to the assessment year 2025-26 and subsequent assessment years.
[Clause 27]
Extract of Clause 27 of Finance Bill 2024
Clause 27 of the Bill seeks to amend section 92CA of the Income-tax Act relating to reference to Transfer Pricing Officer.
Sub-section (2A) of the said section provides that where any other international transaction [other than an international transaction referred under sub-section (1)], comes to the notice of the Transfer Pricing Officer during the course of the proceedings before him, the provisions of Chapter X shall apply as if such other international transaction is an international transaction referred to him under sub-section (1).
Sub-section (2B) of the said section provides that where in respect of an international transaction, the assessee has not furnished the report under section 92E and such transaction comes to the notice of the Transfer Pricing Officer during the course of the proceeding before him, the provisions of Chapter X shall apply as if such transaction is an international transaction referred to him under sub-section (1).
It is proposed to amend the said sub-section so as to include reference of specified domestic transaction in them.
These amendments will take effect from 1st April, 2025 and will, accordingly, apply in relation to the assessment year 2025-2026 and subsequent years.
27. Amendment of section 92CA.
In section 92CA of the Income-tax Act, with effect from the 1st day of April, 2025,––
(a) in sub-section (2A),––
(i) for the words and bracket “any other international transaction [other than an international transaction”, the words and bracket “any other international transaction or specified domestic transaction [other than an international transaction or a specified domestic transaction” shall be substituted;
(ii) for the words “if such other international transaction is an international transaction”, the words “if such other international transaction or a specified domestic transaction is an international transaction or a specified domestic transaction” shall be substituted;
(b) in the sub-section (2B),––
(ii) after the words “Where in respect of an international transaction”, the words “or a specified domestic transaction” shall be inserted;
(ii) for the words “such transaction is an international transaction”, the words “such transaction is an international transaction or a specified domestic transaction” shall be substituted.
