ASHA (P) Ltd., located in Cochi, is engaged in the manufacturing of toys and exports them to various associated and other enterprises across…

CA Final · Direct Tax Laws and International Taxation · MTP · May 2025
ASHA (P) Ltd., located in Cochi, is engaged in the manufacturing of toys and exports them to various associated and other enterprises across Southern Countries. The company has consistently furnished reports regarding its international transactions with its associated enterprises, complying with transfer pricing regulations. On February 15, 2024, ASHA (P) Ltd. applied for an Advance Pricing Agreement (APA), which was subsequently signed on May 5, 2024, in order to ensure pricing certainty for these international transactions. The company also applied in respect of the international transactions to which APA applies for rollback benefit which was agreed and signed in January 2025. The details of the status of income tax assessments are as follows: Assessment Year Status of Assessment/Dispute 2019-20 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 2020-21 & 2021-22 There is no dispute and the assessments have been completed. 2022-23 The assessment for the A.Y. 2022-23 was completed by making reference to the TPO who enhanced the arm's length price of the international transaction by 500 lakhs. 2023-24 ALP of international transaction was disputed before the tribunal which set aside the order for fresh consideration by the Assessing Officer in November 2024. 2024-25 The income tax return ('ITR') was filed on 29th December 2024. If the APA is applied, the ALP determined for the A.Y. 2022-23 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 ASHA (P) Ltd.

Suggested Answer and Working Notes:

In the present case, since ASHA (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 2024 would be in respect of five previous years beginning with P.Y. 2024-25 relevant to the A.Y. 2025-26. Consequently, APA entered by ASHA (P) Ltd. can provide for determining ALP in relation to international transactions entered during rollback years i.e., from A.Y. 2021-22 to A.Y. 2024-25 subject to satisfaction of certain conditions. In the present case, since A.Y. 20219-20 and A.Y. 2020-21 fall beyond the said four-year period, ASHA (P) Ltd. cannot avail roll back benefit in respect of these years. From A.Y. 2021-22 to A.Y. 2024-25, the applicability of rollback provisions would be as follows: Rollback year Applicability of rollback provisions A.Y. 2021-22 Yes, rollback provisions are applicable for A.Y. 2021-22. A.Y. 2022-23 Yes, rollback provisions are applicable for A.Y. 2022-23 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 ASHA (P) Ltd. A.Y. 2023-24 Yes, roll back provisions are applicable for A.Y. 2023-24, since ITAT has only set aside the order for fresh consideration and the matter has not reached finality. A.Y. 2024-25 No, rollback provisions are not applicable for A.Y. 2024-25, since the return was filed belatedly u/s 139(4) on 29.12.2024.

Topics: Transfer Pricing

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