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TRANSFER PRICING – Specified Business Transactions


“Specified Business Transactions”

 Section 92 deals with provision of how to compute income in respect of assesse who has entered into a specified business transactions.

Provision of Transfer Pricing are introduced with the reason to keep an eye over practice of diverting or reducing the Tax liability by entering into transactions at higher or lower prices as compared to market prices with one or more associated enterprises.

As per Section 92, where any specified business transactions is carried out between associated enterprises then such transaction should be carried out at Arm Length’s prices. In other words, computation of Income or allowance of expenses with associated enterprises should be done on the basis of Arm’s length prices.

Now, What are Specified Business Transactions ?

Ans.  It means any of the below transaction which is not an international transactions: –


Nature of TransactionsBrief Description of Transactions
i) Any expenditure in respect of which payment has been made or is to be made to a person referred to in clause (b) of sub-section (2) of section 40ASection 40A(2)(b) gives list of entities which are treated as related entities of a taxpayer, i.e. any relative of an individual taxpayer, director in the case of a company, a partner in the case of a partnership firm, etc.
ii) Any transaction referred to in section 80A.As per section 80A(6) when a taxpayer claiming deduction under various sections, i.e. sections 80-IA, 80-IAB, 80-IB, 80-IC, 80-ID, 80-IE etc., carries certain transactions with its associated entities, these transactions should be carried out at fair market value. So, if a transaction is covered under section 80A, then it will be treated as a specified domestic transaction.
iii) Any transfer of goods or services referred to in sub-section (8) of section 80-IA.Section 80-IA provides for deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, telecommunication services, power generation, etc.Section 80-IA(8) covers inter-unit transfer of goods and services by an entity claiming deduction under section 80-IA.
v) Any transaction, referred to in any other section under Chapter VI-A or section 10AA, to which provisions of sub-section (8) or sub-section (10) of section 80-IA are applicable.

Section 10AA provides for exemption in respect of income generated by a unit located in Special Economic Zone. 

Under Chapter VI-A there are various sections under which the taxpayer can claim deduction. Only those sections of Chapter VI-A are relevant to which the provisions of section 80-IA(8) and (10) are applicable.

Section 92 shall be applicable only when aggregate amount of specified Transactions entered during the year is Rs. 20 Cr or more.

Now,  How to compute Arm’s Length Price ?

Ans. Following methods are been defined to compute Arm’s Length Price: –

  • Comparable Uncontrolled Price Method
  • Resale Price Method
  • Cost Plus Method
  • Profit Split Method
  • Transactional Net Margin Method
  • Such other method as may be prescribed by CBDT


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