Your client offered a transfer pricing adjustment itself because its APA required it. The officer says s.92C(4) bars the s.10AA exemption on that extra income. Is he right?
No. Where the assessee computes the arm's length price itself pursuant to an APA entered into with the CBDT, none of the conditions in s.92C(3) is attracted, and s.92C(4) therefore never comes into operation at all. The bar in s.92C(4) is aimed at income by which the Assessing Officer enhances the declared total income, not at figures the assessee has itself declared in conformity with its APA. The Revenue's appeals were dismissed.
Decided by the High Court (Vibhu Bakhru CJ and C.M. Joshi J) on 2025-09-12, reported as ITA No. 107 of 2025 conjoined with ITA No. 106 of 2025; NC: 2025:KHC:36360-DB; cited in a later judgment as [2025] 180 taxmann.com 681 (Karnataka). It bears on section 92CC, section 92CC(5), section 92CC(6), section 92CC(7), section 92CD, section 92CD(1), section 92C(3), section 92C(4), section 10AA, section 14A of the Income Tax Act 1961, in Capital Gains Exemptions, Assessment & Scrutiny, How Tax Law Is Read and Appeals matters.
The proposition existed at Tribunal level in Dar Al Handasah. This is the Division Bench statement of it, and it is framed at the higher level of the section rather than the proviso: the officer never reaches s.92C(4) because no s.92C(3) gateway opens where the price came out of an APA. That disposes of the argument without any need to construe the proviso.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The assessee is a software services company operating from a Special Economic Zone which filed returns declaring income and claiming the s.10AA exemption on export profits. It entered into an advance pricing agreement with the CBDT and, in conformity with it, voluntarily computed the arm's length price and made a transfer pricing adjustment to its declared income. The Assessing Officer declined the s.10AA exemption on the income so adjusted, and separately made an ad hoc disallowance of 10 per cent of the dividend income under s.14A. The CIT(A) held at para 10 that the s.10AA exemption could not be denied on the enhanced income and that the proviso to s.92C(4) was not a bar to allowing the claim. The Tribunal dismissed the Revenue's appeals (para 13). The Revenue came to the High Court on six substantial questions (para 14), the principal ones being whether the Tribunal erred in allowing the s.10AA exemption despite the transfer pricing adjustment, whether it had been shown that the income arose from eligible units, and whether it erred in deleting the s.14A disallowance.
The appeals were dismissed (para 36). Where the assessee voluntarily computes the arm's length price pursuant to an APA entered into with the CBDT, none of the conditions set out in s.92C(3) is attracted, and it follows that s.92C(4) is not attracted either (para 24). The restriction in s.92C(4) operates only where the Assessing Officer enhances the declared income; it has no application to a figure the assessee has itself reported in conformity with the APA, so the s.10AA exemption on that income stands. On the separate ground, the Assessing Officer had provided no tangible basis for the ad hoc disallowance of 10 per cent of the dividend income under s.14A (para 35).
The Court set out the APA scheme before construing s.92C. Section 92CC empowers the CBDT to enter into an agreement with any person determining an arm's length price, or specifying the manner in which it is to be determined, in relation to an international transaction (paras 17 to 18). Section 92CD(1) requires a person who has already filed a return for a year covered by the agreement to furnish a modified return in accordance with and limited to the agreement, within three months from the end of the month in which the agreement was entered into (para 18). The purpose of the scheme, the Court said, is to remove uncertainty as to the determination of the income of an assessee engaged in international transactions with associated enterprises (paras 19 to 20). The agreement binds the person and the transaction it covers and binds the Principal Commissioner or Commissioner and the authorities subordinate to him under s.92CC(5); it ceases to bind on a change in law or facts having bearing on it under s.92CC(6); and the CBDT may declare it void ab initio for fraud or misrepresentation under s.92CC(7) (para 20). Against that scheme the Court held at para 24 that a price computed by the assessee under the APA does not engage any clause of s.92C(3), which is the condition precedent to the officer determining the arm's length price himself, and that s.92C(4) is therefore not reached. The s.14A ground failed on the absence of any material supporting the percentage adopted (para 35).
none of the conditions as set out in sub-section (3) of Section 92C are attracted
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Handle my notice → Ask a CA on WhatsAppNo. Where the assessee computes the arm's length price itself pursuant to an APA entered into with the CBDT, none of the conditions in s.92C(3) is attracted, and s.92C(4) therefore never comes into operation at all. The bar in s.92C(4) is aimed at income by which the Assessing Officer enhances the declared total income, not at figures the assessee has itself declared in conformity with its APA. The Revenue's appeals were dismissed. This was decided by the High Court (Vibhu Bakhru CJ and C.M. Joshi J) and bears on section 92CC, section 92CC(5), section 92CC(6), section 92CC(7), section 92CD, section 92CD(1), section 92C(3), section 92C(4), section 10AA, section 14A of the Income Tax Act 1961. It is reported as ITA No. 107 of 2025 conjoined with ITA No. 106 of 2025; NC: 2025:KHC:36360-DB; cited in a later judgment as [2025] 180 taxmann.com 681 (Karnataka). The proposition existed at Tribunal level in Dar Al Handasah. This is the Division Bench statement of it, and it is framed at the higher level of the section rather than the proviso: the officer never reaches s.92C(4) because no s.92C(3) gateway opens where the price came out of an APA. That disposes of the argument without any need to construe the proviso. If it applies to you, the first step is this: Establish on the record that the figure in dispute was computed by the assessee under the APA, not determined by the officer, and put the APA and the s.92CD modified return on file.
The assessee is a software services company operating from a Special Economic Zone which filed returns declaring income and claiming the s.10AA exemption on export profits. It entered into an advance pricing agreement with the CBDT and, in conformity with it, voluntarily computed the arm's length price and made a transfer pricing adjustment to its declared income. The Assessing Officer declined the s.10AA exemption on the income so adjusted, and separately made an ad hoc disallowance of 10 per cent of the dividend income under s.14A. The CIT(A) held at para 10 that the s.10AA exemption could not be denied on the enhanced income and that the proviso to s.92C(4) was not a bar to allowing the claim. The Tribunal dismissed the Revenue's appeals (para 13). The Revenue came to the High Court on six substantial questions (para 14), the principal ones being whether the Tribunal erred in allowing the s.10AA exemption despite the transfer pricing adjustment, whether it had been shown that the income arose from eligible units, and whether it erred in deleting the s.14A disallowance. The matter was decided on 2025-09-12 by the High Court (Vibhu Bakhru CJ and C.M. Joshi J). On those facts the High Court held as follows. The appeals were dismissed (para 36). Where the assessee voluntarily computes the arm's length price pursuant to an APA entered into with the CBDT, none of the conditions set out in s.92C(3) is attracted, and it follows that s.92C(4) is not attracted either (para 24). The restriction in s.92C(4) operates only where the Assessing Officer enhances the declared income; it has no application to a figure the assessee has itself reported in conformity with the APA, so the s.10AA exemption on that income stands. On the separate ground, the Assessing Officer had provided no tangible basis for the ad hoc disallowance of 10 per cent of the dividend income under s.14A (para 35).
The Court set out the APA scheme before construing s.92C. Section 92CC empowers the CBDT to enter into an agreement with any person determining an arm's length price, or specifying the manner in which it is to be determined, in relation to an international transaction (paras 17 to 18). Section 92CD(1) requires a person who has already filed a return for a year covered by the agreement to furnish a modified return in accordance with and limited to the agreement, within three months from the end of the month in which the agreement was entered into (para 18). The purpose of the scheme, the Court said, is to remove uncertainty as to the determination of the income of an assessee engaged in international transactions with associated enterprises (paras 19 to 20). The agreement binds the person and the transaction it covers and binds the Principal Commissioner or Commissioner and the authorities subordinate to him under s.92CC(5); it ceases to bind on a change in law or facts having bearing on it under s.92CC(6); and the CBDT may declare it void ab initio for fraud or misrepresentation under s.92CC(7) (para 20). Against that scheme the Court held at para 24 that a price computed by the assessee under the APA does not engage any clause of s.92C(3), which is the condition precedent to the officer determining the arm's length price himself, and that s.92C(4) is therefore not reached. The s.14A ground failed on the absence of any material supporting the percentage adopted (para 35). In the words reproduced by the source cited on this page: "none of the conditions as set out in sub-section (3) of Section 92C are attracted"
It was decided by the High Court on 2025-09-12 and is reported as ITA No. 107 of 2025 conjoined with ITA No. 106 of 2025; NC: 2025:KHC:36360-DB; cited in a later judgment as [2025] 180 taxmann.com 681 (Karnataka). Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 92CC, section 92CC(5), section 92CC(6), section 92CC(7), section 92CD, section 92CD(1), section 92C(3), section 92C(4), section 10AA, section 14A, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeals were dismissed (para 36). Where the assessee voluntarily computes the arm's length price pursuant to an APA entered into with the CBDT, none of the conditions set out in s.92C(3) is attracted, and it follows that s.92C(4) is not attracted either (para 24). The restriction in s.92C(4) operates only where the Assessing Officer enhances the declared income; it has no application to a figure the assessee has itself reported in conformity with the APA, so the s.10AA exemption on that income stands. On the separate ground, the Assessing Officer had provided no tangible basis for the ad hoc disallowance of 10 per cent of the dividend income under s.14A (para 35). It arises in Capital Gains Exemptions, Assessment & Scrutiny, How Tax Law Is Read and Appeals matters, on section 92CC, section 92CC(5), section 92CC(6), section 92CC(7), section 92CD, section 92CD(1), section 92C(3), section 92C(4), section 10AA, section 14A of the Income Tax Act 1961, and was decided by Vibhu Bakhru CJ and C.M. Joshi J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Take the point at the level of s.92C(3) first: ask which of its clauses the officer says is satisfied. If he cannot name one, s.92C(4) and its proviso are simply not in play. Keep the Chapter III claim as a separate ground, since this decision leaves the ordinary s.10AA conditions to be satisfied on their own terms. If a s.14A disallowance has been tacked on at a round percentage, ask for the tangible basis; the ad hoc 10 per cent disallowance here fell for want of one.
Still good law. Relied on and endorsed by the Bombay High Court in PCIT (IT)-2 v Gemological Institute of America Inc, decided 16 June 2026, where the Bench recorded at para 58 that reliance on this decision was well founded and carried its approach across from the first proviso to s.92C(4) to the second. Nothing overruling or doubting it was found. Note that the Revenue's own questions of law before the Karnataka High Court recorded that petitions were pending in the Supreme Court against some of the decisions relied on below; whether any special leave petition has been filed against this judgment itself could not be established. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The judgment was read in full including the operative paragraph. The Court's conclusion on the transfer pricing point is at para 24 and the disposition at para 36; the s.14A finding is at para 35. Paragraphs 17 to 20, which describe the APA scheme, largely reproduce or restate the statutory language of ss.92CC and 92CD, so treat them as the Court's summary of the sections rather than as independent propositions. The reporter citation [2025] 180 taxmann.com 681 (Karnataka) is recorded because it appears as a reference inside the later Bombay High Court judgment; it was not taken from any digest. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeals were dismissed (para 36). Where the assessee voluntarily computes the arm's length price pursuant to an APA entered into with the CBDT, none of the conditions set out in s.92C(3) is attracted, and it follows that s.92C(4) is not attracted either (para 24). The restriction in s.92C(4) operates only where the Assessing Officer enhances the declared income; it has no application to a figure the assessee has itself reported in conformity with the APA, so the s.10AA exemption on that income stands. On the separate ground, the Assessing Officer had provided no tangible basis for the ad hoc disallowance of 10 per cent of the dividend income under s.14A (para 35).
TaxSphere, “PCIT-2 v EYGBS (India) Pvt Ltd”, https://taxnotice.vittsphere.com/caselaw/case/eygbs-india-apa-voluntary-adjustment-92c4-does-not-bite-10aa/ (validity last checked 2026-09-16)
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The Board says my advance pricing agreement was obtained by misrepresentation. What can it actually do, and what happens to the years the agreement covered?
The Board wants to revise, or to cancel, my advance pricing agreement. On what grounds can it, and what am I entitled to before it does?
An APA between your Indian company and the CBDT fixes the royalty. The officer says the second proviso to s.92C(4) still stops the foreign parent, who did not sign the APA, from being taxed on the reduced figure. Does it?
I signed an APA with rollback and filed a modified return under s.92CD offering additional income. The officer says the proviso to s.92C(4) bars any Chapter III deduction on that extra income. Is he right?
