{"id":4073,"date":"2017-08-18T18:39:37","date_gmt":"2017-08-18T13:09:37","guid":{"rendered":"https:\/\/taxclick.org\/?p=4073"},"modified":"2017-08-18T18:43:58","modified_gmt":"2017-08-18T13:13:58","slug":"secondary-adjustment-case-transfer-pricing","status":"publish","type":"post","link":"https:\/\/taxclick.org\/type\/income-tax\/secondary-adjustment-case-transfer-pricing\/","title":{"rendered":"Secondary Adjustment in case of Transfer Pricing"},"content":{"rendered":"

Introduction<\/strong><\/h2>\n

The concept of Secondary Adjustments is introduced in the arena of Transfer Pricing laws by Finance bill 2017 (hereinafter referred as the Bill). A new section 92CE is inserted in the Income Tax Act,1961(hereinafter referred as the Act), giving statutory validity to this concept. \u00a0The Act encompasses two types of adjustments in case of transfer pricing namely primary adjustment and secondary adjustment. \u201cPrimary adjustment\u201d to a transfer price means the determination of transfer price in accordance with the arm\u2019s length principle resulting in an increase in the total income or reduction in the loss, as the case may be, of the assessee. The Act lays down that a Secondary adjustment<\/em><\/strong> can be carried out in certain cases <\/em>where a Primary Adjustment<\/em><\/strong> to transfer price, \u2014<\/p>\n\n\n\n\n\n\n\n
(i<\/em>)<\/td>\nhas been made\u00a0suo motu\u00a0<\/em>by the assessee in his return of income;<\/td>\n<\/tr>\n
(ii<\/em>)<\/td>\nmade by the Assessing Officer has been accepted by the assessee;<\/td>\n<\/tr>\n
(iii<\/em>)<\/td>\nis determined by an advance pricing agreement entered into by the assessee under section 92CC;<\/td>\n<\/tr>\n
(iv<\/em>)<\/td>\nis made as per the safe harbour rules framed under section 92CB; or<\/td>\n<\/tr>\n
(v<\/em>)<\/td>\nis arising as a result of resolution of an assessment by way of the mutual agreement procedure under an agreement entered into under section 90 or section 90A for avoidance of double taxation,<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Secondary Adjustments<\/strong><\/h3>\n

According to Section 92CE of the Act “Secondary Adjustment” means an adjustment in the books of accounts of the assessee and its associated enterprise to reflect that the actual allocation of profits between the assessee and its associated enterprise are consistent with the transfer price determined as a result of primary adjustment, thereby removing the imbalance between cash account and actual profit of the assessee. In order to align the transfer pricing provisions in line with OECD transfer pricing guidelines and international best practices, this new section (92CE) is introduced in the extant tax regime.<\/p>\n

\"\"<\/a><\/p>\n

The need for secondary adjustments was first recognised in the case of PMP Auto Components Pvt Ltd [TS-263-ITAT-2014(MUM)-TP]. In this case the revenue authorities made secondary adjustment on account of interest chargeable on loan transaction with Associated Enterprise (AE) as the taxpayer had not realized any amount of interest from additional capital investment made into its AE. The Income Tax Appellate Tribunal ruled in the favour of the taxpayer holding that secondary adjustment is not permissible as per the then existing TP provisions. This triggered the government to introduce the new amendment relating to secondary adjustments<\/p>\n

Analysis of Section 92CE<\/strong><\/h2>\n\n\n\n\n\n\n\n
Sr No<\/strong><\/td>\nProvisions<\/strong><\/td>\nAnalysis<\/strong><\/td>\n<\/tr>\n
1.<\/td>\n\n

Section 92CE (1)<\/p>\n

It states that secondary adjustments can be made only in case of specified primary adjustments.<\/td>\n

\n

It entails that only in cases wherein a primary adjustment falls within the purview of instances laid down under 92CE.<\/p>\n

When primary adjustment<\/p>\n

    \n
  • \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 has been made suo motu by the assessee in his return of income;<\/li>\n
  • \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 made by the Assessing Officer has been accepted by the assessee;<\/li>\n
  • \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 is determined by an advance pricing agreement entered into by the assessee under section 92CC;<\/li>\n
  • \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 is made as per the safe harbour rules framed under section 92CB; or<\/li>\n
  • \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 is arising as a result of resolution of an assessment by way of the mutual agreement procedure under an agreement entered into under section 90 or section 90A for avoidance of double taxation,<\/li>\n
  • <\/li>\n<\/ul>\n<\/td>\n<\/tr>\n
2.<\/td>\nInapplicability of Section 92CE (1) in certain cases<\/td>\nSection 92CE (1) shall not apply in the following cases<\/p>\n
    \n
  • \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Where the primary adjustment does not exceed INR 10 million and<\/li>\n
  • \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 If the primary adjustment is made in respect of an AY commencing on or before the 1st day of April, 2016<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n
3<\/td>\nSection 92CE (2)<\/td>\n\n
    \n
  • \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Secondary adjustments introduced where primary adjustments result in increase in total income or reduction in loss.<\/li>\n
  • \u00a0\u00a0\u00a0\u00a0\u00a0 Excess money available with its AE as a result of primary adjustment, if not repatriated to India within the prescribed time, to be treated as an interest-bearing advance<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n
4.<\/td>\nSection 92CE (3)<\/td>\nDefinitions<\/p>\n