Secondary adjustment - Section 92CE - International Taxation - Income Tax

Secondary adjustment - Section 92CE Meaning of Primary Adjustment and Secondary Adjustment Primary adjustment to a transfer price means the determination of transfer price in accordance with the arm s length principle resulting in an increase in total income or reduction in the loss, as the case may be, of the assessee. Secondary adjustment means an adjustment in the books of accounts of the assessee and its associated enterprises to reflect with the actual allocation of profits between assessee and its associated enterprises are consistent with the transfer price determined as result of primary adjustment, thereby removing the imbalance between cash account and actual profit of the assessee. Cases where secondary adjustment has to be made - Section 92CE requires assessee to carry out secondary adjustment where the primary adjustment to transfer price,- (i) has been made suo moto by the assessee in his return of income; (ii) made by the Assessing Officer has been accepted by the assessee; (iii) is determined by an advance pricing agreement entered into by the assessee u/s 92CC , on or after the 1st day of April, 2017 (iv) is made as per the safe harbour rules framed u/s 92CB ; (v) is arising as a result of resolution of an assessment by way of the mutual agreement procedure under an agreement entered into under section 90 or section 90A for avoidance of double taxation, No requirement of secondary adjustment in certain cases - Such secondary adjustment, however shall not be carried out if, (i) the amount of primary adjustment made in any previous year does not exceed 1 crore rupees; and (ii) the primary adjustment is made in respect of an assessment year commencing on or before the 1st day of April, 2016. Non-repatriation of excess money by the associated enterprise deemed to be an advance - Where, as a result of primary adjustment to the transfer price, there is an increase in the total income or reduction in the loss, as the case may be, of the assessee, the excess money which is available with its associated enterprise, if not repatriated to India within the time as may be prescribed, shall be deemed to be an advance made by the assessee to such associated enterprise and the interest on such advance, shall be computed in such manner as may be prescribed. Note:- associated enterprise shall have the meaning assigned to it u/s 92A(1) (2) arm s length price shall have the meaning assigned to it in clause (ii) of section 92F excess money means the difference between the arm s length price determined in primary adjustment and the price at which the international transaction has actually been undertaken Time limit for repatriation of excess money or part thereof - Rule 10CB prescribes time limit for repatriation of excess money or part thereof shall be on or before 90 days from the date given in column (3) in the case mentioned in column (2) of the table and Interest thereon to be levied to make it part of income of the assessee on such deemed advance to AE and the period from which interest is chargeable on the excess money or part thereof which is not repatriated in such case is given in column (4). [ Rule 10CB(1) (3) ] S.No. Case Date Period (1) (2) (3) (4) (i) Where primary adjustments to transfer price has been made suo-moto by the assessee in his return of income from the due date of filing of return u/s 139(1) from the due date of filing of return u/s 139(1) (ii) If the primary adjustments to transfer price as determined in the of Assessing Officer or the appellate authority has been accepted by the assessee from the date of the order of Assessing Officer or the appellate authority from the date of the order of Assessing Officer or the appellate authority (iii) In a case where primary adjustment to transfer price is determined by an advance pricing agreement entered into by the assessee u/s 92CC in respect of a previous year, - (a) if the advance pricing agreement has been entered into on or before the due date of filing of return for the relevant previous year from the due date of filing of return u/s 139(1) from the end of the month in which the advance pricing agreement has been entered into by the assessee u/s 92CC (b) if the said agreement has been entered into after the due date of filing of return for the relevant previous year from the end of the month in which the advance pricing agreement has been entered into from the due date of filing of return u/s 139(1) (iv) In the case of option exercised by the assessee as per the safe harbour rules under section 92CB from the due date of filing of return u/s 139(1) from the due date of filing of return u/s 139(1) (v) Where the primary adjustment to transfer price is determined by such resolution under a Double Taxation Avoidance Agreement entered into under section 90 or section 90A from the date of giving effect by the Assessing Officer under rule 44H (this rule has been omitted w.e.f. 06-05-2020) to the resolution arrived at under mutual agreement procedure (MAP) from the date of giving effect by the Assessing Officer under rule 44H (this rule has been omitted w.e.f. 06-05-2020) to the resolution arrived at under mutual agreement procedure (MAP) Rate of Interest for the purpose of Computation on interest on excess money or part thereof, if not repatriated within the prescribed time u/s 92CE(1) [ Rule 10CB(2) ] S.No. Case Rate (i) In the cases where the international transaction is denominated in Indian rupee At the one year marginal cost of fund lending rate (MCLR) of SBI as on 1st of April of the relevant previous year + 3.25% (ii) In the cases where the international transaction is denominated in foreign currency At six month London Interbank Offered Rate as on 30th September of the relevant previous year +3.00% Note:- In case (ii) above, the rate of exchange for the calculation of the value in rupees of the international transaction denominated in foreign currency shall be the telegraphic transfer buying rate of such currency on the last day of the previous year in which such international transaction was undertaken. Option to pay additional Income Tax, if the excess money not repatriated In case excess money not repatriated within time limit of prescribed as per Rule 10CB, Assessee has option to pay additional income tax @ 20.9664% (i.e., tax@18% plus surcharge@12% plus cess @4%) on such excess money or part thereof, as the case may be.