Budget proposals in relation to Transfer Pricing Provisions:

 

1. Introduction:

a. It has been noted that in reference under section 92CA of the Income Tax Act for computation of arm’s length price, in many cases, there are similar international transactions and same arm’s length analysis are repeated every year.

b. It is, therefore, proposed in the budget, to provide that the ALP determined in relation to an international transaction or a specified domestic transaction for any previous year shall apply to the similar transaction for the two consecutive previous years immediately following such previous year.

2. Option to be exercised:

The assessee shall be required to exercise an option or options for the above effect in the form, manner and within such time period as may be prescribed [new sub-section (3B) in section 92CA].

3. TPO order:
a. The TPO may by an order within one month from the end of the month in which such option is exercised, declare that the option is valid subject to the prescribed conditions [new sub-section (3B) in section 92CA].

b. If the TPO declares that the option exercised by the assessee is valid,– the ALP determined in relation to an international transaction or a specified domestic transaction for any previous year shall apply to the similar international transaction or the specified domestic transaction for the two consecutive previous years immediately following such previous year [new sub-section (3B) in section 92CA].

c. The TPO shall examine and determine the ALP in relation to such similar transaction for such consecutive previous years, in the order referred to in sub-section (3) of section 92CA [new sub­section (4A) in section 92CA].

4. Recomputation:

On receipt of such order from the TPO, the AO shall recompute the total income of the assessee for such consecutive previous years as per the provisions of sub-section (21) of section 155 [new sub-section (4A) in section 92CA].

5. Other provisions:

a. No reference for computation of ALP in relation to such transaction shall be made [new first proviso to sub-section (1) of section 92CA]; if any reference is made in such scenarios, before or after the above declaration by the TPO, the provisions of sub-section (1) of section 92CA shall have the effect as if no reference is made for such transaction [new second proviso to sub-section (1) of section 92CA].

b.The provisions of exercising option mentioned above and consequent proceedings, shall not apply to any proceedings under Chapter XIV-B [proviso to new sub-section (3B) in section 92CA].