The TPO has re-characterised a payment to my associated enterprise as an interest-free loan and imputed notional interest on it, calling it a consequential adjustment. My year is well before 2016 and the underlying adjustment was itself deleted. Can he do that?
No, on either of two grounds, and the ITAT Mumbai gave both on 24 August 2026 for assessment year 2008-09. First, there was nothing left for the imputed interest to attach to: the primary adjustment of Rs 440.12 crores on the exclusivity payment "was not ultimately made in the final assessment, pursuant to the directions of the Ld. DRP and after verification by the Ld.AO", and "Consequently, there was no surviving primary adjustment to which a consequential adjustment on account of notional interest could attach". Second, and independently, the year was out of range: "A.Y. 2008-09 is an assessment year commencing prior to 01/04/2016. Consequently, in view of proviso (ii) to section 92CE(1) of the Act, the provisions relating to secondary adjustment were not applicable to the transaction under consideration." The Tribunal deleted the notional-interest adjustment of Rs 72.34 lakhs on the exclusivity payment and the adjustment of Rs 69.82 crores on the upfront discount of Rs 524.93 crores carried forward from assessment year 2007-08, and applied the same reasoning mutatis mutandis to the transition fee. The appeal was partly allowed.
Decided by the ITAT (Shri Jagadish, Accountant Member and Smt. Beena Pillai, Judicial Member) on 2026-08-24, reported as ITA No. 7487/MUM/2012, Income Tax Appellate Tribunal, Mumbai; assessment year 2008-09; order pronounced 24 August 2026. It bears on section 92CE, section 92CE(1), section 92CE(2), section 92B, section 92CA, section 92CA(3), section 144C of the Income Tax Act 1961, in Assessment & Scrutiny, Appeals and How Tax Law Is Read matters.
This is the cleanest statement I could find of what the second limb of the first proviso to s.92CE(1) actually does, and it is worth more than it looks. The Tribunal treated the limb as a bar on the SECTION, not merely on a computation: because the primary adjustment related to an assessment year commencing on or before 1 April 2016, "the provisions relating to secondary adjustment were not applicable" at all. That defeats any attempt to reach the same result by calling the imputation a re-characterisation or a consequential adjustment rather than a secondary adjustment. The Revenue took precisely that point here, and it is the argument a reader will meet: the Departmental Representative submitted in writing that "the TPO has not made a secondary adjustment but has only recharacterized the payment of upfront discount as an interest free advance", that "there is no mention of secondary adjustment in the entire order of the TPO", and that the coordinate bench's earlier decision for assessment year 2007-08 "is based solely on the incorrect premise that the interest adjustment is a secondary adjustment". The Tribunal did not accept it, but a practitioner should expect it and should be ready with the first ground — no surviving primary adjustment — which does not depend on the label at all. Note the limits: this is a Tribunal order on years long before s.92CE was enacted, and it decides nothing about a post-2016 year or about the one crore rupee limb of the proviso.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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For assessment year 2008-09 the assessee, an Indian IT services company, had made an exclusivity payment of Rs 440 crores to British Telecom, its associated enterprise, debited to the profit and loss account as extraordinary expenditure and added back by the assessee itself in the computation of income, so that no deduction was claimed for it. The Transfer Pricing Officer treated the exclusivity payment as an international transaction, re-characterised it as an interest-free advance to the associated enterprise, and imputed notional interest, producing a consequential adjustment of Rs 72.34 lakhs; the primary adjustment of Rs 440.12 crores on the exclusivity payment itself was not ultimately made in the final assessment, the Dispute Resolution Panel having given directions and the Assessing Officer having verified the position. Separately, in assessment year 2007-08 the assessee had paid an upfront discount of Rs 524.93 crores to British Telecom to secure a software and IT services contract of approximately USD 1 billion to be executed over five years from FY 2008-09; the payment was neither debited to the profit and loss account nor claimed as a deduction. For that earlier year the Transfer Pricing Officer had determined the arm's length price of the upfront discount at nil and re-characterised it as an interest-free advance, and the coordinate bench had deleted the consequential interest adjustment by order dated 25 October 2023 in ITA No.3531/Mum/2012. For the year under appeal the Transfer Pricing Officer made no fresh determination of the arm's length price of the upfront discount; he carried forward the earlier re-characterisation, treated the same Rs 524.93 crores as a continuing interest-free advance and computed notional interest at 16.3 per cent per annum, an adjustment of Rs 69.82 crores, which the Dispute Resolution Panel sustained. A further ground concerned a similar adjustment on a transition fee. The Departmental Representative resisted the appeal in writing, contending that the Transfer Pricing Officer had never made a secondary adjustment at all but had merely re-characterised the payments, relying on the Delhi High Court's decision in EKL Appliances Ltd on when a transaction may be re-characterised, and submitting that the coordinate bench's order for assessment year 2007-08 rested on the incorrect premise that the interest adjustment was a secondary adjustment.
The appeal was partly allowed. On the exclusivity payment the Tribunal held at paragraph 5.3 that the primary adjustment of Rs 440.12 crores was not ultimately made in the final assessment and that consequently there was no surviving primary adjustment to which a consequential adjustment on account of notional interest could attach, and further that the assessment year was prior to 1 April 2016 so that the provisions of s.92CE relating to secondary adjustment were not applicable; at paragraph 5.4 it directed deletion of the Rs 72.34 lakh adjustment. At paragraph 8 it applied the same principle mutatis mutandis to the transition fee and allowed that ground. On the upfront discount it held at paragraph 11.3 that the primary adjustment made in assessment year 2007-08 had already been deleted, that there was no independent primary adjustment for the year under consideration to which a consequential adjustment could validly attach, and that "A.Y. 2008-09 is an assessment year commencing prior to 01/04/2016" so that "in view of proviso (ii) to section 92CE(1) of the Act, the provisions relating to secondary adjustment were not applicable to the transaction under consideration"; at paragraph 11.4 it held that the Rs 69.82 crore adjustment could not be sustained and allowed the ground.
The Tribunal's route was the same on each item and had two independent legs. The first was that a consequential adjustment is parasitic on a primary adjustment: where the primary adjustment has been deleted in the final assessment, or where no primary adjustment was made for the year at all and the Transfer Pricing Officer merely carried forward an earlier year's re-characterisation, there is no adjustment for the imputed interest to attach to (paragraphs 5.3 and 11.3). The second was the statutory bar: the assessment year in question commenced before 1 April 2016 and the second limb of the first proviso to s.92CE(1), which the Tribunal called proviso (ii), therefore made the provisions relating to secondary adjustment inapplicable to the transaction (paragraphs 5.3 and 11.3). The Tribunal did not accept the Departmental Representative's contention that no secondary adjustment had been made and that the earlier decision proceeded on a wrong premise; it recorded the assessee's rejoinder that in substance the imputation of interest constituted a secondary or consequential adjustment, particularly where the arm's length price of the underlying upfront discount had already been determined at nil, and that the bar in the proviso to s.92CE(1) was an additional and independent ground supporting deletion (paragraphs 4.21 and 4.22), and then decided in those terms.
Further, A.Y. 2008-09 is an assessment year commencing prior to 01/04/2016. Consequently, in view of proviso (ii) to section 92CE(1) of the Act, the provisions relating to secondary adjustment were not applicable to the transaction under consideration.
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Handle my notice → Ask a CA on WhatsAppNo, on either of two grounds, and the ITAT Mumbai gave both on 24 August 2026 for assessment year 2008-09. First, there was nothing left for the imputed interest to attach to: the primary adjustment of Rs 440.12 crores on the exclusivity payment "was not ultimately made in the final assessment, pursuant to the directions of the Ld. DRP and after verification by the Ld.AO", and "Consequently, there was no surviving primary adjustment to which a consequential adjustment on account of notional interest could attach". Second, and independently, the year was out of range: "A.Y. 2008-09 is an assessment year commencing prior to 01/04/2016. Consequently, in view of proviso (ii) to section 92CE(1) of the Act, the provisions relating to secondary adjustment were not applicable to the transaction under consideration." The Tribunal deleted the notional-interest adjustment of Rs 72.34 lakhs on the exclusivity payment and the adjustment of Rs 69.82 crores on the upfront discount of Rs 524.93 crores carried forward from assessment year 2007-08, and applied the same reasoning mutatis mutandis to the transition fee. The appeal was partly allowed. This was decided by the ITAT (Shri Jagadish, Accountant Member and Smt. Beena Pillai, Judicial Member) and bears on section 92CE, section 92CE(1), section 92CE(2), section 92B, section 92CA, section 92CA(3), section 144C of the Income Tax Act 1961. It is reported as ITA No. 7487/MUM/2012, Income Tax Appellate Tribunal, Mumbai; assessment year 2008-09; order pronounced 24 August 2026. This is the cleanest statement I could find of what the second limb of the first proviso to s.92CE(1) actually does, and it is worth more than it looks. The Tribunal treated the limb as a bar on the SECTION, not merely on a computation: because the primary adjustment related to an assessment year commencing on or before 1 April 2016, "the provisions relating to secondary adjustment were not applicable" at all. That defeats any attempt to reach the same result by calling the imputation a re-characterisation or a consequential adjustment rather than a secondary adjustment. The Revenue took precisely that point here, and it is the argument a reader will meet: the Departmental Representative submitted in writing that "the TPO has not made a secondary adjustment but has only recharacterized the payment of upfront discount as an interest free advance", that "there is no mention of secondary adjustment in the entire order of the TPO", and that the coordinate bench's earlier decision for assessment year 2007-08 "is based solely on the incorrect premise that the interest adjustment is a secondary adjustment". The Tribunal did not accept it, but a practitioner should expect it and should be ready with the first ground — no surviving primary adjustment — which does not depend on the label at all. Note the limits: this is a Tribunal order on years long before s.92CE was enacted, and it decides nothing about a post-2016 year or about the one crore rupee limb of the proviso. If it applies to you, the first step is this: Take the year point first if your primary adjustment relates to an assessment year commencing on or before 1 April 2016. The second limb of the first proviso to s.92CE(1) takes the case out of the section entirely and no merits argument is needed.
For assessment year 2008-09 the assessee, an Indian IT services company, had made an exclusivity payment of Rs 440 crores to British Telecom, its associated enterprise, debited to the profit and loss account as extraordinary expenditure and added back by the assessee itself in the computation of income, so that no deduction was claimed for it. The Transfer Pricing Officer treated the exclusivity payment as an international transaction, re-characterised it as an interest-free advance to the associated enterprise, and imputed notional interest, producing a consequential adjustment of Rs 72.34 lakhs; the primary adjustment of Rs 440.12 crores on the exclusivity payment itself was not ultimately made in the final assessment, the Dispute Resolution Panel having given directions and the Assessing Officer having verified the position. Separately, in assessment year 2007-08 the assessee had paid an upfront discount of Rs 524.93 crores to British Telecom to secure a software and IT services contract of approximately USD 1 billion to be executed over five years from FY 2008-09; the payment was neither debited to the profit and loss account nor claimed as a deduction. For that earlier year the Transfer Pricing Officer had determined the arm's length price of the upfront discount at nil and re-characterised it as an interest-free advance, and the coordinate bench had deleted the consequential interest adjustment by order dated 25 October 2023 in ITA No.3531/Mum/2012. For the year under appeal the Transfer Pricing Officer made no fresh determination of the arm's length price of the upfront discount; he carried forward the earlier re-characterisation, treated the same Rs 524.93 crores as a continuing interest-free advance and computed notional interest at 16.3 per cent per annum, an adjustment of Rs 69.82 crores, which the Dispute Resolution Panel sustained. A further ground concerned a similar adjustment on a transition fee. The Departmental Representative resisted the appeal in writing, contending that the Transfer Pricing Officer had never made a secondary adjustment at all but had merely re-characterised the payments, relying on the Delhi High Court's decision in EKL Appliances Ltd on when a transaction may be re-characterised, and submitting that the coordinate bench's order for assessment year 2007-08 rested on the incorrect premise that the interest adjustment was a secondary adjustment. The matter was decided on 2026-08-24 by the ITAT (Shri Jagadish, Accountant Member and Smt. Beena Pillai, Judicial Member). On those facts the ITAT held as follows. The appeal was partly allowed. On the exclusivity payment the Tribunal held at paragraph 5.3 that the primary adjustment of Rs 440.12 crores was not ultimately made in the final assessment and that consequently there was no surviving primary adjustment to which a consequential adjustment on account of notional interest could attach, and further that the assessment year was prior to 1 April 2016 so that the provisions of s.92CE relating to secondary adjustment were not applicable; at paragraph 5.4 it directed deletion of the Rs 72.34 lakh adjustment. At paragraph 8 it applied the same principle mutatis mutandis to the transition fee and allowed that ground. On the upfront discount it held at paragraph 11.3 that the primary adjustment made in assessment year 2007-08 had already been deleted, that there was no independent primary adjustment for the year under consideration to which a consequential adjustment could validly attach, and that "A.Y. 2008-09 is an assessment year commencing prior to 01/04/2016" so that "in view of proviso (ii) to section 92CE(1) of the Act, the provisions relating to secondary adjustment were not applicable to the transaction under consideration"; at paragraph 11.4 it held that the Rs 69.82 crore adjustment could not be sustained and allowed the ground.
The Tribunal's route was the same on each item and had two independent legs. The first was that a consequential adjustment is parasitic on a primary adjustment: where the primary adjustment has been deleted in the final assessment, or where no primary adjustment was made for the year at all and the Transfer Pricing Officer merely carried forward an earlier year's re-characterisation, there is no adjustment for the imputed interest to attach to (paragraphs 5.3 and 11.3). The second was the statutory bar: the assessment year in question commenced before 1 April 2016 and the second limb of the first proviso to s.92CE(1), which the Tribunal called proviso (ii), therefore made the provisions relating to secondary adjustment inapplicable to the transaction (paragraphs 5.3 and 11.3). The Tribunal did not accept the Departmental Representative's contention that no secondary adjustment had been made and that the earlier decision proceeded on a wrong premise; it recorded the assessee's rejoinder that in substance the imputation of interest constituted a secondary or consequential adjustment, particularly where the arm's length price of the underlying upfront discount had already been determined at nil, and that the bar in the proviso to s.92CE(1) was an additional and independent ground supporting deletion (paragraphs 4.21 and 4.22), and then decided in those terms. In the words reproduced by the source cited on this page: "Further, A.Y. 2008-09 is an assessment year commencing prior to 01/04/2016. Consequently, in view of proviso (ii) to section 92CE(1) of the Act, the provisions relating to secondary adjustment were not applicable to the transaction under consideration." The decision followed or applied Order of the coordinate bench of the ITAT Mumbai in the assessee's own case for assessment year 2007-08, ITA No.3531/Mum/2012, dated 25 October 2023 — followed.
It was decided by the ITAT on 2026-08-24 and is reported as ITA No. 7487/MUM/2012, Income Tax Appellate Tribunal, Mumbai; assessment year 2008-09; order pronounced 24 August 2026. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 92CE, section 92CE(1), section 92CE(2), section 92B, section 92CA, section 92CA(3), section 144C, 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 appeal was partly allowed. On the exclusivity payment the Tribunal held at paragraph 5.3 that the primary adjustment of Rs 440.12 crores was not ultimately made in the final assessment and that consequently there was no surviving primary adjustment to which a consequential adjustment on account of notional interest could attach, and further that the assessment year was prior to 1 April 2016 so that the provisions of s.92CE relating to secondary adjustment were not applicable; at paragraph 5.4 it directed deletion of the Rs 72.34 lakh adjustment. At paragraph 8 it applied the same principle mutatis mutandis to the transition fee and allowed that ground. On the upfront discount it held at paragraph 11.3 that the primary adjustment made in assessment year 2007-08 had already been deleted, that there was no independent primary adjustment for the year under consideration to which a consequential adjustment could validly attach, and that "A.Y. 2008-09 is an assessment year commencing prior to 01/04/2016" so that "in view of proviso (ii) to section 92CE(1) of the Act, the provisions relating to secondary adjustment were not applicable to the transaction under consideration"; at paragraph 11.4 it held that the Rs 69.82 crore adjustment could not be sustained and allowed the ground. It arises in Assessment & Scrutiny, Appeals and How Tax Law Is Read matters, on section 92CE, section 92CE(1), section 92CE(2), section 92B, section 92CA, section 92CA(3), section 144C of the Income Tax Act 1961, and was decided by Shri Jagadish, Accountant Member and Smt. Beena Pillai, Judicial Member. 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. Independently, ask whether any primary adjustment actually survives in the final assessment order. If the DRP or the Assessing Officer deleted it, there is nothing for a consequential or secondary adjustment to attach to, and that ground stands whatever the assessment year. Do not let the adjustment be re-labelled. Where the officer says he has merely re-characterised a payment as a loan and imputed interest, point to the substance — the ALP of the underlying transaction having been determined and the interest flowing from it — and to the fact that the Revenue's own contrary submission was rejected here. Where the imputation for your year is simply carried forward from an earlier year's re-characterisation, check whether any fresh determination of the arm's length price of the underlying transaction was made for your year at all; in this case none was, and that was fatal. Read this order together with the statutory text: the first proviso to s.92CE(1) now reads disjunctively because Act No. 23 of 2019 substituted "or" for "and" with retrospective effect from 1 April 2018, so either limb alone is enough.
Validity check could not be completed. Validity check could not be completed. I did not check whether this order has been appealed to the High Court or whether any coordinate bench has taken a different view; the order is recent, having been pronounced on 24 August 2026. The Departmental Representative's written submission recorded in the order shows that the Revenue disputes the characterisation of the interest imputation as a secondary adjustment at all and says the coordinate bench's earlier order for assessment year 2007-08 rests on an incorrect premise, so the point may well be contested further. The order's own reasoning on the second limb of the first proviso to s.92CE(1) is consistent with the statutory text as printed on the departmental page stamped Year 2019 (No. 2). 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.
PARAGRAPH NUMBERING IN THIS ORDER IS DECIMAL AND NOT CONTINUOUS — the passages I rely on are numbered 4.17 to 4.22, 5.3, 5.4, 8, 9 to 9.9 and 11.3 to 11.4, and I have cited them exactly as printed. THE PARAGRAPHS NUMBERED 24, 25 AND 26 THAT APPEAR INSIDE THIS ORDER ARE NOT THIS ORDER'S. They are the coordinate bench's order for assessment year 2007-08 dated 25 October 2023 in ITA No.3531/Mum/2012, reproduced twice inside this order at 4.18 and at 9.5, and nothing in this entry cites them as this Tribunal's own words. Section 92CE(1) as reproduced by the Tribunal at that quoted paragraph 25 matches word for word the text on the departmental page incometaxindia.gov.in/w/section-92ce-2 (Year: 2019 (No. 2)), including the disjunctive "or" between the two limbs of the first proviso and the second proviso barring refunds — which is a useful independent check on that statutory text. The order carries obvious transcription defects: "safe 1abarbor rules" for "safe harbour rules" in the quoted statutory extract, "(2) has been made suo motu" where the statute reads "(i)", and "re-charactenzing" for "re-characterising"; I have not reproduced any of those as quotations. The disposal and the signature block were obtained by a separate fragment query and read: "In the result the appeal filed by the assessee stands partly allowed." followed by "Order pronounced in the open court on 24/08/2026" and the signatures of JAGADISH, Accountant Member and BEENA PILLAI, Judicial Member. I have not checked whether this order has been appealed or otherwise dealt with. The tag "92CE(2)" in `sections` is not established. I confirmed independently that the order reproduces s.92CE(1) in full, but a probe for a distinctive phrase of sub-section (2) returned a summary rather than fragments and is therefore no evidence. Treat "92CE(2)" as a practice tag for the sub-section the consequential-interest argument runs on, not as a provision I saw the Tribunal cite. 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 appeal was partly allowed. On the exclusivity payment the Tribunal held at paragraph 5.3 that the primary adjustment of Rs 440.12 crores was not ultimately made in the final assessment and that consequently there was no surviving primary adjustment to which a consequential adjustment on account of notional interest could attach, and further that the assessment year was prior to 1 April 2016 so that the provisions of s.92CE relating to secondary adjustment were not applicable; at paragraph 5.4 it directed deletion of the Rs 72.34 lakh adjustment. At paragraph 8 it applied the same principle mutatis mutandis to the transition fee and allowed that ground. On the upfront discount it held at paragraph 11.3 that the primary adjustment made in assessment year 2007-08 had already been deleted, that there was no independent primary adjustment for the year under consideration to which a consequential adjustment could validly attach, and that "A.Y. 2008-09 is an assessment year commencing prior to 01/04/2016" so that "in view of proviso (ii) to section 92CE(1) of the Act, the provisions relating to secondary adjustment were not applicable to the transaction under consideration"; at paragraph 11.4 it held that the Rs 69.82 crore adjustment could not be sustained and allowed the ground.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
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