TRANSFER PRICING PROVISIONS | SPECIFIED DOMESTIC TRANSACTIONS | KEY REQUIREMENTS | PENALTY FOR NON- COMPLIANCE

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30 th November is about to come various assesses are concerned about their transfer pricing Return under the provisions of the Income Tax Act . For this purpose assesse has to keep & maintain certain documents. In this post we will discuss regarding these but before we would like give a small overview of the provisions of Specified Domestic transactions.

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What is the meaning of Specified Domestic Transactions?

Specified Domestic transactions means any of the below mentioned transactions whose aggregate value entered by the assesse exceeds Rs 5 Crores (with effect from 1 st April 2016 this limit has been increased to 20 Crores) which is not covered under international transaction:-

1. Any Expenditure in respect of which payment is paid/payable to any person specified under section 40A (2) (b) of the act. This section mainly covers the person who are related parties of the assesse.
2. Any Transaction mentioned in Section 80A.
3. Any transfer of services or goods as mentioned in sub section 8 of Section 80-IA.
4. Any transaction between the assesse and person mentioned in Section 80- IA (10).
5. Any other transaction as may be prescribed.

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What is Arm’s Length Price for Specified Domestic transactions and what are the methods to calculate the same?

Section 92 of the act provides that if assesses carried a transaction with is associated enterprise then the amount of transaction must be settled as per arm length price.

This section is applicable only when amount of all the transactions exceeds the above mentioned limits of Rs 5 Crore (Rs. 20 Crore from 01.04.2016)

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Methods to calculate Arm’s length Price for Specified Domestic transactions

1. Cost Plus Method
2. Resale price Method
3. Profit Split Method
4. CUP Method (Comparable Uncontrolled Price Method)
5. Transactional Net Margin Method
6. Any other method as may be prescribed by Central Board of Direct Taxes.

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What documents needs to be kept and maintain under Specified Domestic transactions?

1. Detailed Description of the ownership, Shareholding, associated enterprises.
2. Complete profile of all group.
3. Broad Description of the business of the company.
4. Functions performed by the assesse and its associated enterprises.
5. Records of budgets, analyses of the assesse.
6. Details of uncontrolled transactions to analyze CUP method.
7. Any other information that may be relevant with associated enterprises and can be useful for specified domestic transactions.

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What are the penalties for noncompliance of the above mentioned provisions of Specified Domestic transactions?

# Penalties mention in section 271AA will apply if assesse fails to keep and maintain information as prescribed for specified domestic transaction.

# Penalties mentioned in section 271BA will apply if assesse fails to obtain report from a practicing chartered accountant in prescribed form as required for specified domestic transaction.

# Penalties mentioned in section 271G will apply if department requires some information and assesse fails to produce the same.

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KIP SHARING