Do transfer pricing rules apply to Indian entities?

By Ajit Tolani and Ashish Bhatnagar, Economic Laws Practice
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Since India’s transfer pricing regulations were introduced in 2001, taxpayers have completed seven rounds of audits. In the past three audits, 44% to 52% of the cases selected for scrutiny were subjected to an adjustment with the quantum of adjustment jumping to as high as ₹445 billion (US$8.3 billion).

Ajit Tolani
Ajit Tolani

Recent developments

In recent times, transfer pricing authorities have started attempting to apply regulations for international transactions even to transactions between domestic taxpayers, or in joint venture cases. These issues came up for consideration before the Hyderabad Income Tax Appellate Tribunal (ITAT) in the case of M/s Swarnandhra IJMII Integrated Township Development Company Pvt Ltd v DCIT. Here, ruling the case in the appellant’s favour, the ITAT held transfer pricing to be inapplicable on transactions between domestic entities.

The ITAT’s observations had some interesting postulates which helped clarify the issues.

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Economic Laws Practice is a full-service law firm with headquarters in Mumbai and offices in New Delhi, Pune and Ahmedabad. Ajit Tolani is a partner at the firm and Ashish Bhatnagar is a senior associate.

ELP

Economic Laws Practice

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Tel: +91 22 6636 7000

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Email: AjitTolani@elp-in.com

AshishBhatnagar@elp-in.com