Section 92CA

Section 92CA — the law in short

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

• SAP Labs India P Ltd v ITO Supreme CourtHelps department
  The Tribunal fixed my arm's length price and the department has gone to the High Court — can the High Court reopen the comparables, or is the Tribunal's finding final?
  No, the Tribunal's determination is not final. The Supreme Court held on 19 April 2023 that there is no absolute rule that an arm's length price fixed by the Tribunal cannot be examined under section 260A. Chapter X and Rules 10A to 10E lay down guidelines; a determination made in disregard of them is perverse, and perversity is itself a substantial question of law. The High Court may therefore examine comparability of companies, the selection of filters and whether non-comparable transactions were treated as comparable. The Karnataka High Court's contrary view in Softbrands India was rejected and the whole batch was remitted.
• ADIT v E-Funds IT Solution Inc Supreme CourtHelps taxpayer
  We outsource back-office work to our Indian subsidiary. Does that give us a permanent establishment in India?
  No, not by itself. The Revenue must prove that a fixed place in India was at the disposal of the foreign company and that the foreign company carried on its own business through it. Close association between parent and subsidiary, and the fact that the Indian company depends on the group for its work, do not answer that question, and the functions-assets-risks analysis borrowed from transfer pricing is not the test for whether a fixed place permanent establishment exists.
• GE Oil & Gas India P Ltd v Addl/Jt/Dy/Asst CIT High CourtCuts both waysValidity unconfirmed
  You are an eligible assessee with a transfer pricing adjustment and the faceless unit passed a final order instead of a draft. What relief will the court give?
  The order goes, but not always as a clean quashing. The Madras High Court set aside a final order passed three days after the show cause notice cum draft assessment order and directed that the impugned order be treated as a draft assessment order, leaving the assessee to work out its remedies against it under s.144B.
• Pfizer Healthcare India P Ltd v JCIT High CourtHelps taxpayer
  The TPO's order was one day late. Does that kill the transfer pricing addition?
  Yes. The sixty days run backwards from the s.153 limitation date, excluding that date itself, so an order passed on the sixtieth day is out of time. The requirement is mandatory, not directory, limitation goes to jurisdiction, and an order a single day late is non est along with everything built on it.
• 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.
• PCIT v Softbrands India Pvt Ltd High CourtCuts both waysValidity unconfirmed
  The Tribunal excluded some comparables in my transfer pricing case. Can the department take that to the High Court as a question of law?
  Not without showing perversity. The Karnataka High Court dismissed the Revenue's appeal, holding that no substantial question of law arises where the dispute is about whether comparables were rightly picked or filters rightly applied. Following its own judgment of 25 June 2018 in the same assessee's case, it held that unless ex facie perversity in the Tribunal's findings is established, an appeal under section 260A does not lie, at the instance of either side. Mere dissatisfaction with the Tribunal's findings of fact is not a sufficient reason to invoke section 260A. The appeal was dismissed with no order as to costs.
• Turner International India Pvt Ltd v DCIT High CourtHelps taxpayer
  After the Tribunal remanded my transfer pricing case, the assessing officer went straight to a final assessment order without a draft order. Is that order valid?
  No. The Delhi High Court set aside the final assessment orders for assessment years 2007-08 and 2008-09, the demand notices and the penalty proceedings, because the assessing officer did not first pass a draft assessment order as section 144C(1) mandatorily requires. The Court held the point was no longer res integra, following Zuari Cement, whose affirmation by the Supreme Court through dismissal of the Revenue's special leave petition it noted, along with Vijay Television, ESPN Star Sports and International Air Transport Association. It rejected the Revenue's argument that the omission was a curable defect to be remedied by a remand.
• Bausch & Lomb Eyecare (India) Pvt Ltd v ACIT High CourtHelps taxpayerValidity unconfirmed
  The TPO says my advertising and marketing spend built my foreign parent's brand and has added a mark-up. There is no agreement with the parent about it. Can he do that?
  No. The Delhi High Court held that before Chapter X can be used at all, the Revenue must show an international transaction exists. For advertising, marketing and promotion spend that means showing an agreement, arrangement or understanding with the associated enterprise obliging the Indian company to spend excessively to promote the foreign brand. It cannot be inferred from shareholding, from the incidental benefit to the brand owner, or from the bright line test, which Sony Ericsson had already rejected. There is no machinery provision to identify or price such a transaction. The assessee's appeals were allowed and the Revenue's dismissed.
• CIT v Pentair Water India P Ltd High CourtHelps taxpayerValidity unconfirmed
  The TPO benchmarked my small captive unit against Infosys and Wipro. Can turnover be ignored?
  No. Turnover is obviously a relevant factor in judging comparability, because scale drives bargaining power, risk profile and margins. Companies with turnover 23 to 65 times that of the tested party were rightly excluded, and functional similarity alone does not conclude the enquiry.
• Rampgreen Solutions P Ltd v CIT High CourtHelps taxpayer
  My company runs voice-based call centres, but the Transfer Pricing Officer has benchmarked me against high-margin analytics companies because we are all called ITeS — can he do that?
  No. The Delhi High Court held on 10 August 2015 that where the tested party is not a knowledge process outsourcing provider, a KPO cannot be used as a comparable. The broad label of information technology enabled services covers services of completely different content and value, and Rule 10B(2)(a) requires comparability to be judged by reference to service characteristics. eClerx and Vishal Information Technologies were both excluded — eClerx as a KPO doing data analytics and financial services work, Vishal because it outsourced most of its work and so had a wholly different cost structure. The Tribunal's order and the final assessment order were set aside.
• ChrysCapital Investment Advisors v DCIT High CourtCuts both ways
  The TPO kept a comparable with an abnormal profit margin. Can I get it excluded just for that?
  No, not on the margin alone. A company that otherwise satisfies Rule 10B(2) is not excluded merely because it presents a peculiar feature such as a huge profit or a huge turnover. What the high margin does is trigger an enquiry: the officer must ask whether it flows from a comparability defect that materially affects price or profit, and if it does, attempt to eliminate the difference under Rule 10B(3) — exclusion follows only if that cannot be done.
• Sony Ericsson Mobile Communications India P Ltd v CIT High CourtCuts both waysUnder appeal
  The TPO says my advertising spend is higher than comparables and has added the excess as brand building for my foreign parent. Can he do that?
  Not by that route. The bright line test — treating advertising, marketing and promotion spend above a comparable's level as a separate transaction of brand building for the foreign associated enterprise — has no statutory mandate, and the parameters the Special Bench laid down in L.G. Electronics do not bind either side. The Delhi High Court set the Tribunal's approach aside as based on an erroneous legal standard and sent the matters back for fresh consideration.
• Shell India Markets P Ltd v ACIT High CourtHelps taxpayerValidity unconfirmed
  The TPO says we issued shares to our parent too cheaply. Can he tax the shortfall?
  No. The issue of equity to a non-resident parent is on capital account and gives rise to no income, and Chapter X is machinery for computing income at arm's length, not a charge. With no income there is nothing for the transfer pricing machinery to work on, and re-characterising the alleged shortfall as an interest-bearing loan has no statutory foundation.
• CIT v Cushman and Wakefield (India) P Ltd High CourtCuts both waysValidity unconfirmed
  The Transfer Pricing Officer says my group companies gave me no benefit and has put the arm's length price at nil. Can he decide that, and can the Assessing Officer still disallow the payment after the reference?
  It depends on who is deciding what. The Delhi High Court held that the jurisdictions are distinct. The Transfer Pricing Officer determines the arm's length price of the referred transaction, and may find it to be nil if a comparable independent entity would pay nothing, but he cannot decide whether services were rendered or whether a benefit accrued - that is disallowance, and it belongs to the Assessing Officer under section 37. Equally, a reference to the Transfer Pricing Officer does not concede the deduction: the Assessing Officer can still verify whether the transactions are real, though he is bound by the arm's length price the Transfer Pricing Officer has approved. Both findings of the Tribunal were set aside and the matter remanded.
• Li & Fung India Pvt Ltd v CIT High CourtHelps taxpayerValidity unconfirmed
  I run a captive sourcing arm paid cost plus 5 per cent. The TPO has ignored my cost base and applied a mark-up to the FOB value of the goods my group company sources through me. Can he do that?
  No. The Delhi High Court held that broad-basing the profit determining denominator to the entire free-on-board value of contracts entered into by the associated enterprise is contrary to the Act and the Rules. The exercise finds no mention in either. The Transfer Pricing Officer had not disturbed the comparables or the method, and had shown neither how the Indian company bore significant risk nor what locational advantage the associated enterprise enjoyed. Findings of "significant risk" and "functional risk" cannot rest on vague generalities. The addition of Rs.57.65 crore was deleted and the Tribunal's order set aside.
• CIT v Agnity India Technologies P Ltd High CourtHelps taxpayer
  The Transfer Pricing Officer has put Infosys into my comparables. I am a small captive software unit working only for my parent - can I get it thrown out?
  Yes. The Delhi High Court upheld the Tribunal's exclusion of Infosys Technologies Ltd from the comparable set of a captive software developer. Infosys was a giant with Rs.9,028 crore of revenue against the assessee's Rs.16.09 crore, it bore full entrepreneurial risk, owned branded products, spent heavily on advertising and research, and delivered half its work onsite. The assessee was a risk-free captive doing only offshore contract development for its parent. With Infosys and Satyam out, the one surviving comparable gave 11.11%, below the assessee's own 17% margin. No substantial question of law arose and the Revenue's appeal was dismissed.
• CIT v EKL Appliances Ltd High CourtHelps taxpayerValidity unconfirmed
  The Transfer Pricing Officer says our royalty to the parent is worth nil because we have been making losses for years — can he wipe out the whole payment?
  No. The Delhi High Court held on 29 March 2012 that a Transfer Pricing Officer must price the transaction the associated enterprises actually entered into, not decide whether they should have entered into it. Rule 10B(1)(a) does not authorise disallowance because the expenditure was unnecessary, imprudent or unremunerative, or because the assessee kept making losses. The quantum can be examined, but wholesale disallowance on that reasoning is not contemplated. The OECD guidelines allow a transaction to be recharacterised only in two exceptional cases, and neither applied. Brand fee of Rs.3,42,97,940 and Rs.3,99,51,000 for the two years was restored to the assessee.
• Vestas Wind Technology India P Ltd v ITO ITATHelps taxpayerValidity unconfirmed
  The AO disallowed interest paid to my foreign parent under s.94B. Does the treaty help?
  It did here. Section 94B restricts deduction only where the lender is a non-resident associated enterprise and not where the lender is domestic, which the Tribunal held is discrimination caught by Article 24(4) of the India-Denmark treaty; the treaty prevailed and the entire disallowance was deleted, including the amount the assessee had disallowed itself.
• DCIT v Priya Blue Industries P Ltd ITATHelps taxpayerValidity unconfirmed
  The AO has levied a s.271AA penalty saying I did not maintain transfer pricing documentation, without saying which documents. Does that penalty stand?
  No, on this decision. A penalty under s.271AA has to identify the information or document prescribed by s.92D read with rule 10D that was not maintained or furnished; a general assertion will not do, and here neither the assessment order nor the penalty order said which document was missing. The Tribunal gave a second and independent ground: the penalty was passed in a perfunctory manner without the requisite show-cause notice and without proper opportunity, the officer having called for rule 10D documents without naming any clause of the rule. That the transactions the penalty was levied on had not been adjusted by the Transfer Pricing Officer at all was added as a further point, not as the basis of the decision.
• Samsung R&D Institute India Bangalore P Ltd v JCIT ITATHelps taxpayer
  My foreign group companies ship me handsets, network equipment and other test gear free of cost so that I can test the software I write for them, and I send it back or scrap it when the testing is done. The AO has added the value under s.28(iv) as a benefit arising from my business. Can he?
  No, on these facts. The Bangalore Bench deleted an addition of Rs 7,37,33,056 under s.28(iv) on equipment supplied free of cost by the assessee's associated enterprises for testing software the assessee had developed for them. Two things carried it: the equipment was either returned or destroyed after testing, so nothing irretrievable or of enduring nature was made available to the assessee, and the price for the software development services had already been settled under a Mutual Agreement Procedure resolution between the competent authorities of India and Korea, in which the cost of indirect benefits should have been embedded - so if there were a nexus at all it belongs in a transfer pricing adjustment and not in a second addition under s.28(iv). The same order also deleted a s.40(a)(i) disallowance of depreciation on capitalised software, following the coordinate bench in the assessee's own case. Note what the order does not do: it decides nothing under s.194R.
• STEAG Energy Services (India) P Ltd v ACIT ITATHelps taxpayerValidity unconfirmed
  Only a small adjustment survived my appeal. Does the tolerance band wipe it out completely?
  Yes, if the surviving variation is within the notified percentage of the transaction value. The proviso to s.92C(2) is a deeming provision: once the variation is inside the band, the price actually charged is taken to be the arm's length price and there is nothing left to adjust.

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.