CA Reetika Agarwal

CA Reetika Agarwal


Finance Act, 2012 has made an amendment to extend the Transfer Pricing Provisions to the transactions entered with domestic related parties or by an undertaking with other undertakings of the same entity for the purposes of section 40A, chapter VI-A and section 10AA.

The existing provisions of section 92BA of the Act, inter-alia provide that any expenditure in respect of which payment has been made by the assessee to certain “specified persons” under section 40A(2)(b) of the Act are covered within the ambit of specified domestic transactions. All of the compliance requirements relating to transfer pricing documentation, accountant’s report, etc shall equally apply to such specified domestic transactions which considerably increased the compliance burden of the assessee.

In order to reduce the compliance burden of the assessee, the scope of domestic transfer pricing is proposed to be restricted by excluding transactions in the nature of expenditure made by the assessee to a person referred to in section 40A(2)(b) of the Act. Therefore, domestic transfer pricing provisions would be applicable in cases where either unit/party to the domestic transaction enjoys profit linked tax incentive.

These amendments will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent years.


In order to align the transfer pricing provisions in line with OECD transfer pricing guidelines and international best practices, Finance Bill 2017 proposes to insert a new section 92CE to the Act and thereby introducing the concept of secondary adjustment in the transfer pricing regulations.

As per proposed section, “Secondary adjustment” means an adjustment in the books of accounts of the assessee and its associated enterprise to reflect that the actual allocation of profits between the assessee and its associated enterprise are consistent with the transfer price determined as a result of primary adjustment, thereby removing the imbalance between cash account and actual profit of the assessee.

As per proposed section, the assessee would be required to carry out secondary adjustment in case where primary adjustment is:

  • made suo motu by the assessee in his return of income; or
  • made by the Assessing Officer has been accepted by the assessee; or
  • determined by an advance pricing agreement; or
  • made as per the safe harbour rules; or
  • arising as a result of resolution of an assessment by way of the mutual agreement procedure.

It is proposed that where as a result of primary adjustment, there is an increase in the total income or reduction in the loss and the excess money which is available with its associated enterprise, if not repatriated to India within the prescribed time limit, shall be deemed to be an advance given by the assessee to such associated enterprise and the interest on such advance, shall be computed as the income of the assessee, in the manner as may be prescribed.

Further, it is proposed that secondary adjustment will be not be carried out if the primary adjustment does not exceed INR 1 Cr. and the primary adjustment is made in respect of assessment year 2016-17 or prior assessment years.

This amendment will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent years.

Source: Finance Bill 2017, Memorandum Explaining Finance Bill 2017.

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