Practical experience on TP Assessment

Gaurav Jain & Drashti Sanghavi Parekh – [2021] 131 taxmann.com 274 (Article)

In 2016, with an intent to only select relevant taxpayers and consequently to reduce transfer pricing litigation, the Central Board of Direct Taxes changed the selection criteria from monetary threshold that was based on value of international transactions to risk-based parameters where taxpayers falling within prescribed risk parameter are selected as opposed to the broad-based approach used earlier.
On reference of a case by the Assessing Officer to the Transfer Pricing Officer (TPO), the TPO calls for supporting documents and evidence to determine the arm’s length price of the inter-company transactions. Determination of arm’s length price is a fact-finding exercise. The TPO scrutinizes these workings and typically raise objections on various grounds such as methodology adopted, comparable selected, risk adjustments and subsequently determination of arm’s length price as NIL.
Over the years, the number of transfer pricing cases scrutinized may have gone down, however, the transfer pricing issues and the quantum of transfer pricing adjustments has only increased.
This article discusses few practical challenges and experiences faced by the taxpayers during transfer pricing assessments.

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