INDIA Law and Practice Contributed by: Deepak Chopra, Harpreet Singh Ajmani, Rohan Khare, Pulkit Pandey and Priyam Bhatnagar, AZB & Partners
The courts of India whilst taking cue from the OECD have also come down heavily on the Rev - enue Authorities for serving the same wine in a different bottle whilst applying the benefit test in different shapes or forms. For example, histori - cally, the department would question the need/ benefit of an international transaction whilst determining the ALP of the transaction at NIL, ie, questing the prudence of the taxpayer for enter - ing into a transaction. When the courts of the country rejected such an approach and clearly demarcated the role of the TPO to be restricted to determination of the ALP and not to determine the need/benefit of the transaction, the depart - ment started justifying such determination of the ALP at NIL whilst alleging the nature of the transaction as “shareholder activity” . However, as stated, such an approach of the department has more often than not been condemned by the courts. 5. Adjustments 5.1 Upward Transfer Pricing Adjustments The IT Act provides the taxpayer an option to make suo-moto adjustments in their return of income, where they believe their controlled (relat - ed party) transactions are not at arm’s length. Such adjustments should also be disclosed in the accountant’s report (Form No 3CEB) – ie, the certificate required to be furnished annually in respect of such related-party transactions. It is also important to note that secondary adjust - ment is an example wherein taxpayer is permit - ted to make suo-moto transfer pricing adjust - ments in its income tax return. 5.2 Secondary Transfer Pricing Adjustments The provisions pertaining to secondary adjust - ment were introduced in India in the year 2017,
thereby mandating an adjustment in the books of accounts of both the Indian taxpayer and its AE to reflect that the actual allocation of profits is based on the ALP. The provisions also require repatriation of excess money in the hands of the taxpayers into India within a prescribed time- limit, failing which the amount not repatriated is treated as deemed advance on which interest would be chargeable. Section 92CE(1) of the IT Act enlists following circumstances, wherein a taxpayer shall be required to carry out secondary adjustment: • the primary adjustment to transfer price, has been made suo-motu by the taxpayer in his/ her return of income; • adjustment made by the Assessing Officer has been accepted by the taxpayer; • adjustment is determined by an advance pric - ing agreement entered into by the taxpayer under Section 92CC of the IT Act, on or after 1 April 2017; • adjustment is made as per the safe harbour rules framed under Section 92CB of the IT Act; or • adjustment is arising as a result of resolu - tion of an assessment by way of the mutual agreement procedure under an agreement entered into under Section 90 or 90A of the IT Act. Further proviso to Section 92CE(1) enlists exceptional circumstances wherein secondary adjustment shall not be carried out, if: • the amount of primary adjustment made in the case of a taxpayer in any previous year does not exceed one crore rupees (ie, INR10 million); or
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