Section 92CA(1) of the Income Tax Act
Income-tax Act, 2025: s.166
Section 92CA(1) falls under section 92CA of the Income-tax Act, 1961, which corresponds to section 166 (Reference to Transfer Pricing Officer) of the Income-tax Act, 2025.
Read section 166 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 92CA(1) is LG Electronics India Pvt. Ltd. v. ACIT (140 ITD 41), cited in 107 of the 168 judgments on BharatTax that turn on this section.
Leading authorities on Section 92CA(1)
The Assessing Officer or Transfer Pricing Officer can benchmark Advertisement, Marketing, and Promotion (AMP) expenses as an international transaction if it creates or is intended to create economic or commercial benefit for an associated enterprise. The 'bright line' method can be used for this purpose.
Companies with significantly different turnovers (e.g., one above Rs. 200 crores and another below) cannot be considered comparable in transfer pricing analysis. Turnover is a relevant factor in assessing comparability.
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.
Failure to follow the procedure laid down in Section 144C(1) of the Income-tax Act, 1961, constitutes a breach of mandatory provisions, rendering the final assessment order void.
When determining comparable companies for transfer pricing, there should be an upper limit for turnover, as size impacts business operations. Companies with significantly higher turnover than the assessee should generally be excluded.
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.
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.
Where a provision made for a Non-Performing Asset (NPA) is no longer required, its reversal is to be charged under Section 41(1) of the Income-tax Act as a remission or cessation of liability. This principle applies when an NPA begins performing again.
