Section 92BA

Section 92BA — the law in short

What the courts have decided on section 92BA, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• PCIT v Texport Overseas P Ltd High CourtHelps taxpayer
  Clause (i) of s.92BA was omitted in 2017. Is the TPO adjustment for an earlier year still good?
  No. Omission of clause (i) of s.92BA by the Finance Act 2017 without a saving clause obliterates it as if it had never been enacted, so the reference to the Transfer Pricing Officer and the adjustment made under it are invalid even for the earlier year under assessment.
• Times Global Broadcasting Company Ltd v Union of India High CourtHelps taxpayerSuperseded by amendment
  The TPO has adjusted a domestic transaction that the Assessing Officer never referred to him and that I never reported in Form 3CEB. Did he have jurisdiction?
  On the law as it stood, no. The Bombay High Court held that s.92CA(2A) and s.92CA(2B), which let the TPO take up a transaction not referred to him and a transaction not reported under s.92E, spoke only of international transactions; specified domestic transactions were conspicuously absent. For a specified domestic transaction the TPO could therefore study only what the Assessing Officer had referred, and the adjustment of Rs 57.54 crores on the demerger creditors was quashed. CAUTION: that gap has since been closed. Both sub-sections were amended by Act No. 15 of 2024 with effect from 1 April 2025 to cover specified domestic transactions as well.
• Indorama Synthetics (India) Ltd v Additional CIT High CourtHelps taxpayerHigh Courts differ
  The Assessing Officer referred my case to the TPO in a one-paragraph letter without dealing with my objection that there was no international transaction at all. Can I attack the reference itself?
  Yes. The Delhi High Court held that the Assessing Officer's satisfaction, even prima facie, that there IS an international transaction or specified domestic transaction is a sine qua non for a reference under s.92CA(1); where the assessee raises a threshold objection to jurisdiction, the officer must deal with it and must give a hearing before recording his satisfaction. The three references were set aside and the officer directed to decide afresh after hearing the assessee. The Court concurred with the Bombay High Court in Vodafone India Services and declined to follow the contrary Gujarat decision in Veer Gems, noting that CBDT Instruction No. 3 of 2016 has itself adopted the Bombay position.
• Raipur Steel Casting India (P) Ltd v PCIT ITATHelps taxpayerUnder appeal
  The Commissioner has issued me a s.263 notice saying the Assessing Officer should have referred my s.40A(2)(b) payments to the TPO. Clause (i) of s.92BA was omitted in 2017. Can he still revise?
  No. Clause (i) of s.92BA was omitted by the Finance Act 2017 with effect from 1 April 2017 without any saving clause, and an omission is not a repeal, so s.6 of the General Clauses Act does not preserve anything built on it. The Tribunal held the provision must be treated as never having existed, and the Commissioner's revision order founded on a failure to refer specified domestic transactions to the TPO was quashed, the jurisdiction exercised being, in the order's own register, null in the eye of law.
• Statutory position — s.115BAE: the 15 per cent regime for new manufacturing co-operative societies, and the absence of case law CBDT Circulars & InstructionsCuts both waysNo later treatment found
  A new manufacturing co-operative society wants the 15 per cent rate. What does s.115BAE require, and is there any decided case on it?
  Section 115BAE, inserted by the Finance Act 2023 with effect from 1 April 2024, taxes a resident co-operative society at 15 per cent from AY 2024-25 if it was set up and registered on or after 1 April 2023 and commenced manufacturing or production of an article or thing on or before 31 March 2024, and if the other conditions in sub-section (2) are met. No judicial decision on the section is recorded — no High Court, Tribunal or Supreme Court authority on s.115BAE — and this entry states the statute, not case law.
• Statutory position — s.115BAB(2) conditions, the Form 10-ID option and the s.115BAB(6) more-than-ordinary-profit adjustment CBDT Circulars & InstructionsCuts both ways
  My client wants the 15 per cent rate for a new manufacturing company. What exactly must it satisfy, and what is the exposure once it is in?
  Section 115BAB requires that the company was set up and registered on or after 1 October 2019 and commenced manufacturing or production of an article or thing on or before 31 March 2024, that it is not formed by splitting up or reconstruction, that it uses no previously used machinery or plant and no building previously used as a hotel or convention centre in respect of which s.80-ID was claimed, that it carries on no business other than manufacture or production and research in relation to, or distribution of, what it makes, and that its total income is computed without the excluded deductions. The option is exercised under s.115BAB(7) in Form 10-ID on or before the s.139(1) due date for the first return, and once exercised it cannot be withdrawn for that or any other previous year.
• Statutory position — s.144C(15)(b): who is an "eligible assessee", the two limbs, and the substitution by Act No. 12 of 2020 with effect from 1 April 2020 that brought in every non-resident not being a company CBDT Circulars & InstructionsCuts both ways
  The Assessing Officer has forwarded a draft order to our partnership firm, which is non-resident but is not a company, and there is no Transfer Pricing Officer's order in the case. Is the firm an eligible assessee at all, and does it matter which assessment year we are in?
  It matters a great deal which year you are in. As s.144C(15)(b) stands on the departmental edition stamped Year 2025 it reads: "(b) 'eligible assessee' means,— (i) any person in whose case the variation referred to in sub-section (1) arises as a consequence of the order of the Transfer Pricing Officer passed under sub-section (3) of section 92CA; and (ii) any non-resident not being a company, or any foreign company:". Sub-clause (ii) in that form was substituted by Act No. 12 of 2020 with effect from 1 April 2020 — footnote 97 on the departmental edition stamped Year 2021 reads verbatim "Sub. by the Act No. 12 of 2020, w.e.f. 1-4-2020.", and footnote 91 on the Year 2022 edition repeats it. Before that substitution, and as printed on the editions stamped Year 2009 and Year 2019 (No. 2), sub-clause (ii) read simply "any foreign company". So a non-resident firm, a non-resident individual, a non-resident association of persons — any non-resident that is not a company — became an eligible assessee in its own right on 1 April 2020 and was not one before, unless it was brought in by limb (i). Limb (i) is independent of status: it catches ANY person, resident or not, company or not, where the variation in sub-section (1) arises as a consequence of an order of the Transfer Pricing Officer under s.92CA(3). Two things were added with effect from 1 September 2024 by Act No. 15 of 2024: a proviso to clause (b) reading "Provided that such eligible assessee shall not include person referred to in sub-section (1) of section 158BA or other person referred to in section 158BD.", and s.144C(16), "The provisions of this section shall not apply to any proceedings under Chapter XIV-B."
• Statutory position — s.92BA: clause (i) was OMITTED with effect from 1 April 2017, so a s.40A(2)(b) payment is no longer a specified domestic transaction — what survives, the twenty crore threshold, and clause (va) added for s.115BAB companies CBDT Circulars & InstructionsCuts both ways
  The TPO has been asked to benchmark our payments to related parties under s.40A(2)(b). Is that still a specified domestic transaction at all?
  No. Clause (i) of s.92BA — "any expenditure in respect of which payment has been made or is to be made to a person referred to in clause (b) of sub-section (2) of section 40A" — was OMITTED by Act No. 7 of 2017 with effect from 1 April 2017, and the omitted words are set out in an amendment footnote, so there is no doubt what went. What survives is: clause (ii), any transaction referred to in s.80A; clause (iii), any transfer of goods or services referred to in s.80-IA(8); clause (iv), any business transacted between the assessee and another person as referred to in s.80-IA(10); clause (v), any transaction referred to in any other section under Chapter VI-A or s.10AA to which s.80-IA(8) or (10) applies; clause (va), any business transacted between the persons referred to in s.115BAB(6), inserted by Act No. 46 of 2019 with effect from 1 April 2020; and clause (vi), any other transaction as may be prescribed. The whole definition applies only "where the aggregate of such transactions entered into by the assessee in the previous year exceeds a sum of twenty crore rupees" — the word "twenty" having been substituted for "five" by the Finance Act, 2015 with effect from 1 April 2016.
• Statutory position — rule 10CA: the dataset, the arm's length range from the thirty-fifth to the sixty-fifth percentile where there are six or more entries, the median where the price falls outside it, and the arithmetical mean under sub-rule (7) where there are fewer than six CBDT Circulars & InstructionsCuts both ways
  The Transfer Pricing Officer has rejected our margin and adopted the median of his comparables. When is he entitled to go to the median at all, how is the range built, and what happens if he is left with only four or five comparables?
  The range is built only where the dataset has six or more entries and the most appropriate method is not the profit split method or the other method. Rule 10CA(2) requires a dataset constructed by placing the prices in ascending order. Rule 10CA(4) then provides that where the most appropriate method applied is a method other than the method referred to in clause (d) or clause (f) of s.92C(1) and the dataset consists of six or more entries, "an arm's length range beginning from the thirty-fifth percentile of the dataset and ending on the sixty-fifth percentile of the dataset shall be constructed". Rule 10CA(5): if the price actually charged is within that range it "shall be deemed to be the arm's length price" — no adjustment. Rule 10CA(6): if it is outside the range, "the arm's length price shall be taken to be the median of the dataset". The median is therefore reached only on the footing that the range was properly constructed and the price fell outside it; there is no route to the median in a case where sub-rule (4) never applied. Where sub-rule (4) does not apply — fewer than six entries, or the profit split method or the other method — sub-rule (7) revives the older machinery: the arm's length price is the arithmetical mean of all the values in the dataset, subject to the proviso that if the variation does not exceed such percentage not exceeding three per cent as may be notified, the price actually charged is deemed to be the arm's length price. The thirty-fifth percentile, the sixty-fifth percentile and the median are all defined in sub-rule (8) on the same pattern, and the pattern is not the ordinary statistical one: each is the LOWEST value in the ascending dataset such that at least thirty-five, sixty-five or fifty per cent of the values are equal to or less than that value, with a proviso that if the number of values equal to or less than that value is a whole number, the percentile is the arithmetic mean of that value and the value immediately succeeding it.
• Statutory position — rule 10B(1)(e) and rule 10B(3): how the transactional net margin method is applied, and the second limb of rule 10B(3) under which reasonably accurate adjustments to eliminate the material effects of differences are the statutory basis for working capital and risk adjustments CBDT Circulars & InstructionsCuts both ways
  The Transfer Pricing Officer has refused our working capital adjustment on the ground that no rule provides for it. Where in the Rules does the right to a working capital or risk adjustment come from, and does anything prescribe how it is computed?
  The right comes from rule 10B(3)(ii), read with rule 10B(1)(e)(iii); nothing in the Rules prescribes how either adjustment is computed. Rule 10B(3) is in two limbs and the word between them is "or": an uncontrolled transaction is comparable to an international transaction or a specified domestic transaction if "(i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences." So a comparable is not disqualified by a material difference. It is disqualified only if the difference is material AND no reasonably accurate adjustment can be made for it. That second limb is the statutory basis for the working capital adjustment and the risk adjustment, and an officer who refuses an adjustment must, to be consistent, either say the difference is not material — in which case limb (i) is satisfied and the comparable stands unadjusted — or say the adjustment proposed is not reasonably accurate, which is a question of the assessee's computation and not of the existence of the power. Rule 10B(1)(e) carries the same idea inside the transactional net margin method itself: sub-clause (iii) requires that the net profit margin arising in comparable uncontrolled transactions "is adjusted to take into account the differences, if any, between the international transaction or the specified domestic transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market". On the words of sub-clause (iii) the adjustment is mandatory, not discretionary. What the Rules do not do is prescribe a method. Rule 10B, rule 10C and rule 10CA have all been read in full and none of them prescribes a formula, a base or a rate for computing a working capital adjustment or a risk adjustment.
• Statutory position — s.92C(2): the second proviso tolerance band, and the third proviso which disapplies the first and second provisos for any international transaction or specified domestic transaction undertaken on or after 1 April 2014 CBDT Circulars & InstructionsCuts both ways
  The Transfer Pricing Officer's adjustment is within three per cent of our price. Can I still claim the tolerance band under the proviso to s.92C(2), or has that gone?
  For a transaction undertaken on or after 1 April 2014 the second proviso does not apply, because the third proviso disapplies it — but the band itself has not gone. It has moved into rule 10CA(7) and it now operates only where the arm's length range machinery does not. The third proviso to s.92C(2) reads: "Provided also that where more than one price is determined by the most appropriate method, the arm's length price in relation to an international transaction or specified domestic transaction undertaken on or after the 1st day of April, 2014, shall be computed in such manner as may be prescribed and accordingly the first and second proviso shall not apply." The first proviso was the arithmetical mean rule; the second was the tolerance band — variation not exceeding such percentage not exceeding three per cent of the transaction price as may be notified, in which case the transaction price is deemed to be the arm's length price. The prescribed manner is rule 10CA. Where rule 10CA(4) applies, six or more entries and a method other than profit split or the other method, the answer is the range and there is no band at all: within the range the price is deemed to be the arm's length price under rule 10CA(5), outside it the arm's length price is the median under rule 10CA(6). Where rule 10CA(4) does not apply, rule 10CA(7) gives the arithmetical mean and carries its own proviso in the same words as the old second proviso, and it is under that proviso, read with the third proviso to s.92C(2), that the band is now notified. The current notification is Notification No. 157/2025 dated 6 November 2025, S.O. 5053(E), issued expressly under "the third proviso to sub-section (2) of section 92C of the Income-tax Act, 1961, read with the proviso to sub-rule (7) of rule 10CA of the Income-tax Rules, 1962", and it fixes the variation at one per cent of the transaction price in respect of wholesale trading and three per cent in all other cases, for assessment year 2025-2026.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.