Section 92CA Reference to Transfer Pricing Officer

Section 92CA(1): Where any person, being the assessee, has entered into an international transaction or specified domestic transaction in any previous year, and the Assessing Officer (AO) considers it necessary or expedient to do so, he may, with the previous approval of the Principal Commissioner or Commissioner, refer the computation of the arm’s length price in relation to the said international transaction or specified domestic transaction under section 92C to the Transfer Pricing Officer.

Section 92CA(2): The Transfer Pricing Officer shall serve a notice on the assessee requiring him to produce or cause to be produced any evidence on which the assessee may rely in support of the computation made by him of the arm’s length price in relation to the international transaction or specified domestic transaction referred to in subsection (1).

Section 92CA(3): On the date specified in the notice under subsection (2), or as soon thereafter as may be, after hearing such evidence as the assessee may produce, including any information or documents referred to in section 92D and after considering such evidence as the Transfer Pricing Officer may require on any specified points, and after taking into account all relevant materials which he has gathered, the Transfer Pricing Officer shall, by order in writing, determine the arm’s length price in relation to the international transaction or specified domestic transaction in accordance with sub-section (3) of section 92C and send a copy of his order to the Assessing Officer and the assessee.

Section 92CA(4): On receipt of the order under sub-section (3), the Assessing Officer shall proceed to compute the total income of the assessee under sub-section (4) of section 92C having regard to the arm’s length price determined under sub-section (3) by the Transfer Pricing Officer.

Section 92CA(5): The Transfer Pricing Officer may amend any order passed by him under sub-section (3) to rectify any mistake apparent from the record and shall send a copy of such amended order to the Assessing Officer and the assessee.

Section 92CA(6): The Transfer Pricing Officer shall, for the purposes of determining the arm’s length price under this section, have all the powers that are vested in an Assessing Officer under sections 131(1) and 133(6).

Section 92CA(7): The Transfer Pricing Officer, on receipt of a reference under sub-section (1) of section 92CA, shall pass an order under sub-section (3) within the period referred to in section 92CA(3A).

Section 92CA(8): With the Principal Commissioner’s or Commissioner’s approval, the Transfer Pricing Officer may extend the period referred to in subsection (7) by a further period or periods so that the aggregate period of such extensions does not exceed six months.

Purpose and Objective of Section 92CA

The primary objective of Section 92CA is to ensure that international and specified domestic transactions are conducted at arm’s length prices, thereby preventing the erosion of the tax base and profit shifting through transfer pricing manipulations. The provision aims to maintain fairness and transparency in transactions between associated enterprises and ensure that taxable profits are correctly reported and taxed in India.

Proper Reasoning

When an AO considers it necessary to refer a case to the TPO, the following reasoning should be employed:

1. Complexity of Transactions: The transactions involve complex pricing structures or significant volumes that require specialised knowledge to determine the ALP.
2. Inter-Company Relationships: The transactions are between associated enterprises where there is a potential for manipulation of prices to shift profits out of India.
3. Inconsistencies in Reporting: The documentation and reporting of the transactions contain inconsistencies or anomalies that need detailed examination.
4. Significant Impact on Tax Base: The transactions significantly impact the tax base, and accurate determination of ALP is crucial for proper tax assessment.

Legal Recourse and Legal Proceedings

If an assessee is subject to a reference to the TPO, the following steps are involved:

1. Notice by TPO: The TPO issues a notice to the assessee requiring the submission of evidence supporting the computation of ALP.
2. Submission of Evidence: The assessee submits the required evidence and documentation, including the Transfer Pricing Study Report, agreements, invoices, and other relevant documents.
3. Hearing: The TPO conducts a hearing, allowing the assessee to present their case and provide explanations.
4. Order by TPO: After considering the evidence, the TPO determines the ALP and issues an order, which is sent to both the AO and the assessee.
5. Assessment by AO: The AO proceeds to compute the total income of the assessee based on the ALP determined by the TPO.

Do’s and Don’ts

Do’s:

• Maintain comprehensive and accurate documentation of all international and specified domestic transactions.
• Ensure timely and complete submission of all required evidence and documentation to the TPO.
• Cooperate with the TPO during the hearing and provide all necessary explanations.
• Seek professional advice to ensure compliance with transfer pricing regulations and prepare robust documentation.

Don’ts:

• Do not ignore notices from the TPO or fail to submit required documentation.
• Avoid providing incomplete or inaccurate information that could lead to adverse determinations.
• Do not transact with associated enterprises without proper transfer pricing analysis and documentation.
• Avoid delaying responses or non-cooperation during the TPO’s inquiry process.

Example

Subject: Reference to Transfer Pricing Officer under Section 92CA

To: The Transfer Pricing Officer, [Name of the City], [Address of the TPO Office].

Date: [Date of Submission]

From, [Name of the Assessee], [Address of the Assessee], [Permanent Account Number (PAN)], [Email Address], [Contact Number].

Reference for Determination of Arm’s Length Price under Section 92CA

Respected Sir/Madam,

Under the notice dated [Date of Notice] issued by your office under Section 92CA(2) of the Income Tax Act, 1961, requiring submission of evidence in support of the computation of the arm’s length price (ALP) about the international transaction/specified domestic transaction undertaken by us, we submit the following:

Details of Transactions:

1. Transaction 1:
   • Nature of Transaction: [Description of Transaction]
   • Associated Enterprise: [Name and Address of Associated Enterprise]
   • Transaction Value: INR [Amount]
   • Method Used for ALP: [Method used, e.g., Comparable Uncontrolled Price (CUP), Resale Price Method (RPM), etc.]
   • Documentation Provided: [Details of Documentation, e.g., Transfer Pricing Study Report, Agreements, Invoices]
2. Transaction 2:
   • Nature of Transaction: [Description of Transaction]
   • Associated Enterprise: [Name and Address of Associated Enterprise]
   • Transaction Value: INR [Amount]
   • Method Used for ALP: [Method used]
   • Documentation Provided: [Details of Documentation]

Submission of Evidence:

We at this moment submit the following evidence in support of our computation of ALP:

1. Transfer Pricing Study Report for the Assessment Year [Year].
2. Copies of agreements and contracts with associated enterprises.
3. Invoices and receipts for the transactions.
4. Analysis and computation of ALP using the [Method used].
5. Any other relevant documents as required.

Request for Hearing:

We request a hearing to present our case and provide any further clarifications or evidence required by your office.

I appreciate your consideration.

Yours sincerely,

[Name of the Assessee]
[Signature]

Enclosures:

1. Transfer Pricing Study Report.
2. Copies of agreements and contracts.
3. Invoices and receipts.
4. Computation of ALP.
5. Other relevant documents.

Conclusion

Section 92CA of the Income Tax Act of 1961 is critical for ensuring that international and specified domestic transactions are conducted at arm’s length prices. This provision helps maintain the integrity of the tax base by preventing profit shifting and transfer pricing manipulations. By understanding the requirements, legal recourse, and proper procedures associated with Section 92CA, taxpayers can effectively comply with transfer pricing regulations and ensure accurate reporting of their transactions. Adequate documentation, timely responses, and cooperation with the TPO are vital in successfully navigating the transfer pricing assessment process.