Section 92C(2) of the Income Tax Act
Income-tax Act, 2025: s.165
Section 92C(2) falls under section 92C of the Income-tax Act, 1961, which corresponds to section 165 (Determination of arm’s length price) of the Income-tax Act, 2025.
Read section 165 of the 2025 Act
Correspondence checked against the ICAI tabular mapping of the two Acts and the BharatTax.co section commentary.
The decision most relied on for Section 92C(2) is Aztec Software & Technologies Services Ltd. v. Asstt. CIT (107 ITD 141), cited in 90 of the 356 judgments on BharatTax that turn on this section.
Leading authorities on Section 92C(2)
OECD Transfer Pricing Guidelines can be referred to for resolving transfer pricing disputes in India, even though India is not an OECD member, provided they are consistent with Indian statutory regulations. Availability of exemption under Section 10A does not bar the applicability of Section 92C and 92CA.
Notional interest on delayed payments received from an Associated Enterprise (AE) cannot be treated as part of the income for tax purposes, thereby no question of law arises regarding such adjustments by the TPO/AO.
Transfer pricing adjustments must be restricted to international transactions with associated enterprises and cannot be made at the entity level or in respect of transactions with unrelated parties.
Disallowance of expenses cannot be made if their genuineness is not challenged. For unexplained money, possession of gold jewellery by married ladies up to 500 grams is considered explained.
The cost base for applying the operating profit over total cost margin in transfer pricing cannot be broadened to include costs not incurred by the assessee. Tax authorities cannot impute costs incurred by third parties or associated enterprises for computing the assessee's net profit margin.
The Transfer Pricing Officer (TPO) cannot make adjustments to the entire segment of manufacturing activity. Adjustments can only be made to the extent of international transactions and only to the extent of arm's length price.
Interest on outstanding receivables from associated enterprises is considered an international transaction under Section 92B, requiring separate benchmarking, and is not automatically covered by working capital adjustments.
A new undertaking is not deprived of its status as a separate and distinct entity merely because it is to a certain extent dependent on an existing unit, if the nature of the technology and mechanism of production warrants it.
The Transactional Net Margin Method (TNMM) requires the use of net operating profit, not cash profit, for determining Arm's Length Price (ALP), in line with Section 92C and Rule 10B(1) of the Income-tax Act.
The ITAT Mumbai, in the case of West Coast Paper Mills (P.) Ltd. v. CIT, concurred with the findings of the CIT(A) concerning deductions under Section 80IA.
