B Ltd. is an Indian Company located in Special Economic Zone (SEZ) in which TQR Inc., a Country C company is holding 30% shares and voting power.…

B Ltd, the Indian company and TQR Inc., the Country C company are deemed to be associated enterprises as per section 92A(2)(a), since TQR Inc. holds shares carrying 30% of voting power (which is not less than 26% of the voting power) in B Ltd. As per Explanation to section 92B, the transactions entered into between two associated or deemed associated enterprises for sale of product, lending or guarantee and provision of services relating to market research are included within the meaning of “international transaction". Accordingly, transfer pricing provisions would be attracted and the income arising from such international transactions have to be computed having regard to the arm's length price. (i) In this case, from the information given, the arm's length price has to be determined by taking the comparable uncontrolled price (CUP) method to be the most appropriate method. Particulars ₹ in lakhs Amount by which total income of B Ltd. is enhanced on account of adjustment in the value of international transactions: (i) Difference in price of LED stick @ $ 2 each for 90,000 pieces sold to TQR Inc. [$ 2 ($ 12 - $ 10) x 90,000 x 85) 153.00 (ii) Difference for excess payment of guarantee fee to TQR Inc. for loan borrowed from foreign lender [$ 3,000 ($ 15,000 - $ 12,000) x 85] 2.55 (iii) Difference for excess payment for services to TQR Inc. [$ 2,000 ($ 18,000 - $ 16,000) x 85] 1.70 157.25 (ii) B Ltd. cannot claim deduction under section 10AA in respect of 157.25 lakhs, being the amount of income by which the total income is enhanced by virtue of the first proviso to section 92C(4), since the adjustments are made by the Assessing Officer to determine the arm's length price.