CA Final · Direct Tax Laws & International Taxation · Profits and Gains of Business or Profession

Sagar Gems Ltd opted for safe harbour for selling raw diamonds. Gross receipts are Rs 2,00,00,000 and it declares profit of exactly 4%. Opening WDV of the block of plant is Rs 30,00,000 and depreciation computed at the normal rate would be Rs 4,50,000. It also incurred Rs 1,00,000 of other deductible business expenses under section 30 to 34 provisions. It entered a specified domestic transaction in the year. Which statement is correct?

No further deductions are allowed because they are deemed already given effect to, WDV is computed as if depreciation were actually allowed, and sections 171 and 172 continue to apply to the specified domestic transaction under Rule 100(4). Safe harbour does not switch off transfer pricing provisions.

1. AFurther depreciation of Rs 4,50,000 is allowed in addition to the declared profit, and WDV becomes Rs 25,50,000
2. BNo further deduction under sections 28 to 34 is allowed, WDV is computed as if depreciation was allowed, and transfer pricing provisions of sections 171 and 172 still apply to the transactionCorrect
3. CNo further deduction is allowed and WDV remains Rs 30,00,000 as no depreciation is deemed allowed
4. DTransfer pricing provisions are excluded for the specified domestic transaction because safe harbour applies