Monday, January 7, 2013

TP adjustments to be governed by SAAR as contained in sec. 92; Sec.40A(2) can’t be imported for such adjustments

Anti-avoidance provisions of Act, override all other provisions of Act; hence, disallowance made under section 40A(2) is not required to be made for TP adjustments

In the instant case, the Tribunal held as above on the basis of following reasonings:

1) The TP provisions in Chapter X are special provisions and section 92(1) thereof mandates that any income arising from an international transaction shall be computed having regard to the arm's length price (ALP);

2) Chapter X being brought in as an anti-avoidance measure to protect the tax base of the country, provisions thereof would override the other provisions of the Act, including section 40A(2); and

3) The Explanation to section 92(1) clarifies that the allowance for any expense or interest arising from an international transaction shall also be determined having regard to the ALP, and, therefore, the disallowance should be made under section 92(1) and not under section 40A(2) - Toyota Kirloskar Motors (P.) Ltd. v. ACIT [2012] 28 293 (Bangalore - Trib.)

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