ABC (P) Ltd., Bangalore is engaged in the manufacture of electronic goods and exporting the same to various associated and other enterprises across…

CA Final · Direct Tax Laws and International Taxation · RTP · May 2024
ABC (P) Ltd., Bangalore is engaged in the manufacture of electronic goods and exporting the same to various associated and other enterprises across Southeast Asia. The report with respect to its international transactions with AE has been furnished for all years. The company has applied for APA in respect of the transactions with its AE. Application was filed on 15th February 2023 which was signed on 5th May 2023. The company also applied in respect of the international transactions to which APA applies for rollback benefit which was agreed and signed in January 2024. The details of the status of income tax assessments are as follows: A.Y. 2018-19 The matter is pending before High Court with regard to acquisition of a company by the assessee and the dispute is about set off of loss of the erstwhile company.A.Y. 2019-20 and A.Y. 2020-21 There is no dispute and the assessments have been completed.A.Y. 2021-22 The assessment for the A.Y. 2021-22 was completed by making reference to the TPO who enhanced the arm's length price of the international transaction by 500 lakhs.A.Y. 2022-23 ALP of international transaction was disputed before the tribunal which set aside the order for fresh consideration by the Assessing Officer in November 2023.A.Y. 2023-24 The income tax return ('ITR') was filed on 29th December 2023. If the APA is applied, the ALP determined for the A.Y. 2021-22 would get enhanced by 300 lakhs as against 500 lakhs originally determined by TPO. Discuss the applicability of rollback agreement for various assessment years in case of ABC (P) Ltd.

Suggested Answer and Working Notes:

Rollback year means any previous year, falling within the period not exceeding four previous years, preceding the first of the five consecutive previous years for which advance pricing agreement is valid. The application for advance pricing agreement may be filed at any time before the first day of the previous year relevant to the first assessment year for which the application is made, in respect of transactions which are of a continuing nature from dealings that are already occurring; or before undertaking the transaction in respect of remaining transactions. In the present case, since ABC (P) Ltd. has made an application of APA and also opted for rollback provisions, the APA is apparently in respect of international transactions which are of continuing nature. Accordingly, the APA application filed on 15th February 2023 would be in respect of five previous years beginning with P.Y. 2023-24 relevant to the A.Y. 2024-25. Consequently, APA entered by ABC (P) Ltd. can provide for determining ALP in relation to international transaction entered during rollback years i.e., from A.Y. 2020-21 to A.Y. 2023-24 subject to satisfaction of certain conditions. In the present case, since A.Y. 2018-19 and A.Y. 2019-20 fall beyond the said four year period, ABC (P) Ltd. cannot avail roll back benefit in respect of these years. From A.Y. 2020-21 -A.Y. 2023-24, the applicability of rollback provisions would be as follows: Rollback year Applicability of rollback provisions A.Y. 2020-21 Yes, rollback provisions are applicable for A.Y. 2020-21. A.Y. 2021-22 Yes, rollback provisions are applicable for A.Y. 2021-22 even if ALP adjustment was reduced to addition of 300lakhs as against addition of 500lakhs originally determined by the TPO on account of APA, since such reduction in the amount of ALP adjustment does not result in reducing the total income or increasing the total loss, as declared in the return of income of the said year by ABC (P) Ltd. A.Y. 2022-23 Yes, roll back provisions are applicable for A.Y. 2022-23, since ITAT has only set aside the order for fresh consideration and the matter has not reached finality. A.Y. 2023-24 No, rollback provisions are not applicable for A.Y. 2023-24, since the return was filed belatedly u/s 139(4) on 29.12.2023.

Topics: Transfer Pricing

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