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CS Professional · Advanced Direct Tax Laws and Practice · Transfer Pricing and General Anti Avoidance Rules (GAAR)

Meera Components Ltd has an international transaction with its associated enterprise in Singapore. The transaction was actually undertaken at Rs 4.20 crore, while the arm's length price determined in the primary adjustment is Rs 5.00 crore, and the adjustment is accepted by the company. What is the 'excess money' as defined for secondary adjustment under the Income-tax Act, 2025?

Excess money is the arm's length price determined in the primary adjustment minus the actual transaction price. Here Rs 5.00 crore less Rs 4.20 crore gives Rs 0.80 crore. The other figures use the wrong base or add the prices together.

  1. ARs 5.00 crore
  2. BRs 4.20 crore
  3. CRs 0.80 croreCorrect
  4. DRs 9.20 crore

Explanation

Excess money is the difference between the arm's length price determined in the primary adjustment and the price at which the transaction was actually undertaken: 5.00 - 4.20 = Rs 0.80 crore. Rs 5.00 crore wrongly uses the whole ALP, and Rs 9.20 crore wrongly adds the two figures. Rs 4.20 crore is only the actual price. Since the primary adjustment of Rs 0.80 crore is below Rs 1 crore, section 170(1) would not even require a secondary adjustment, but the definition of excess money is unaffected.

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