Section 92C(3) of the Income Tax Act
Income-tax Act, 2025: s.165
Section 92C(3) 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(3) is Chryscapital Investment Advisors (India) Pvt. Ltd. v. DCIT (376 ITR 183), cited in 170 of the 176 judgments on BharatTax that turn on this section.
Leading authorities on Section 92C(3)
For transfer pricing comparability analysis, companies should not be excluded solely based on higher turnover if they are otherwise functionally comparable, unless the turnover difference reflects fundamental functional dissimilarities, brand value, or risk profiles that materially impact profitability.
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.
The use of LIBOR is upheld for benchmarking interest on loans/advances to foreign AEs for transfer pricing adjustments, and notional interest on amounts receivable from AEs must be calculated using LIBOR.
Expenditure incurred for making advertisement films is revenue expenditure if it relates to an ongoing business. However, if the expenditure is for a brand to be used in a business yet to commence, it is capital expenditure.
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.
Companies engaged in different activities, such as skill development, tourism research, and environment, are considered functionally different and not comparable to the assessee. Headcount is an appropriate allocation key for common indirect expenses within various business segments.
