CS Professional · Advanced Direct Tax Laws and Practice · Transfer Pricing and General Anti Avoidance Rules (GAAR)
Zenith Pharma Ltd sold goods to its foreign associated enterprise at Rs 8 crore. The arm's length price determined in the primary adjustment is Rs 10.5 crore and Zenith accepts it. The excess money is not repatriated in the prescribed time. What is the 'excess money' and the consequence under section 170 of the Income-tax Act, 2025?
Excess money is the arm's length price minus the actual price, which is Rs 2.5 crore. Because it is not repatriated in time, it is deemed an advance made by Zenith to its associated enterprise, and interest on it is computed in the prescribed manner.
- ARs 2.5 crore; it is deemed an advance made by Zenith to the associated enterprise, with interest computed as prescribedCorrect
- BRs 10.5 crore; it is deemed an advance made to the associated enterprise
- CRs 2.5 crore; it is deemed a loan received by Zenith from the associated enterprise
- DRs 2.5 crore; it is exempt because the adjustment was accepted
Explanation
Excess money is the arm's length price less the actual price: 10.5 - 8 = Rs 2.5 crore. Since the primary adjustment increases income and the money is not repatriated in time, section 170(2) deems it an advance by the assessee to the AE, with interest per sub-section (4). The adjustment exceeds Rs 1 crore, so section 170(1) applies. The figure of Rs 10.5 crore uses the wrong base.
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