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CS Executive · Tax Laws and Practice · Deductions

Under the Income-tax Act, 2025, an eligible undertaking of Sharma Infra Ltd transfers goods to another business of the same assessee at a recorded price below market value. How must the profits of the eligible undertaking be computed for the incentive deduction?

Profits are computed as if the transfer had been made at the market value of the goods on the date of transfer. Section 122(6) of the Income-tax Act, 2025 overrides a mismatched recorded price, preventing inflation of eligible-undertaking profits through below-market or above-market inter-unit transfers.

  1. AAs if the transfer had been made at the market value of the goods on the date of transferCorrect
  2. BAt the recorded transfer price as per the accounts of the undertaking
  3. CAt the cost of production of the goods to the undertaking
  4. DAt the average of the recorded price and the market value

Explanation

Section 122(6) says that where the consideration recorded in the accounts does not correspond to market value, the profits of the eligible undertaking are computed as if the transfer were at market value on the date of transfer. The recorded price, cost or an average is not the prescribed basis.

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