Transfer pricing adjustment and consequence

Transfer pricing adjustment and consequence

Transfer pricing adjustment

  • If the transaction price is not within the ALP range or the tolerance band and if adopting ALP would not reduce the profit or increase losses etc, then the difference between the ALP and the transaction price is added to the income of the assessee.
  • The AO would make the adjustment in the assessment order.
  • The effect of this adjustment would be as under:

Penalty for transfer pricing compliance

Question

Once the TPO passes the order, which of the following is correct

  1. The AO has the discretion of incorporating the order of the TPO
  2. The AO has to mandatorily incorporate the TPO order in his assessment order
  3. The AO has to seek the permission of ACIT / DCIT if he chooses to ignore order of the TPO
  4. If the AO disagrees with the TPO order, he can proceed to compute the ALP of the transaction.

Answer b.

The AO does not have any discretion and has to incorporate the order of the TPO in the assessment order.

Question

What surely happens once there is an adjustment in the transfer pricing order

  1. The AO incorporates the same in the assessment order and the draft order is sent to the assessee
  2. The AO finalizes the order and sends the same along with the demand order
  3. The AO can raise objection on the TPO order with the DRP

Answer a.

On receipt of the TPO order the AO incorporates the same with the other aspects of the order and serves the draft order to the assessee.

Question

Gravitas India is claiming section 10A deduction of Rs 45 lakhs on its profit of Rs.50 lakhs. It enters into an International transaction with its AE. During the course of assessment proceedings, AO made additions of Rs.10 lakhs of the tax holiday income on basis of arm’s length price determined by TPO. What would be the taxable income when Gravitas India wants to claim section 10A deduction on additions made by AO?

  1. Rs 5 lakhs
  2. Rs 15 lakhs
  3. Rs 50 lakhs

Answer b.

The entire addition of Rs 10 lakhs will be added to the income without benefit of section 10A deduction. So it would be Rs 5 lakhs plus addition Rs 10 lakhs equals Rs 15 lakhs

Question

Who will be eligible to file objections before DRP?

  1. Only a foreign company
  2. Only persons in whose case variation arises on account of order passed by TPO
  3. Only non-resident assessees
  4. All of the above

Answer d.

There are other eligible assessees as well. (a). Any person in whose case the variation arises as a consequence of the order of the Transfer Pricing Officer. (b). Foreign company and (c) Non-resident assessees

Ind AS Accounting Standards

Income from transaction with Non-Residents – Transfer Pricing

Dispute Mitigation strategies in transfer pricing

Advance Pricing Agreements (APA)

Fundamentals of Base Erosion and Profit Shifting – Transfer Pricing

Anti-Avoidance measures in certain jurisdictions – Transfer pricing

Mutual Agreement Procedure

Transfer pricing audit cycle

Returns, Audit and other miscellaneous provisions – Transfer pricing

Determination of ALP – Transfer Pricing

Arm’s Length Principle – Transfer Pricing

Specified Domestic Transactions – Transfer Pricing

Secondary Adjustment – transfer pricing

International Transaction [Section 92B] – Transfer Pricing

Additional reporting by Multinational companies – Transfer pricing

Economic analysis – Transfer Pricing

Limitation of interest deductions – transfer pricing

Penalties for non-compliance – Transfer Pricing

FAR Analysis – Transfer Pricing

Introduction to Transfer Pricing