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

Under the Income-tax Act, 2025, which of the following best describes a 'primary adjustment' to a transfer price for the purposes of the secondary adjustment provision (section 170)?

A primary adjustment is the determination of the transfer price according to the arm's length principle that increases the assessee's total income or reduces its loss. The book adjustment aligning profit allocation is the secondary adjustment, a separate concept that follows it.

  1. ADetermining the transfer price as per the arm's length principle, resulting in an increase in total income or reduction in loss of the assesseeCorrect
  2. BAn adjustment in the books of the assessee and its associated enterprise to align actual profit allocation with the transfer price
  3. CPayment of additional income-tax at 18% on excess money not repatriated
  4. DDeeming the excess money lying with the associated enterprise to be an advance and computing interest on it

Explanation

Section 170(9)(c) defines primary adjustment as determination of transfer price as per the arm's length principle resulting in an increase in total income or reduction in loss. The second option describes the secondary adjustment, the third is the optional additional tax, and the fourth is the deemed advance consequence.

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