Vega Ltd., an Indian Company, is engaged in manufacturing activities by importing raw material from Solaris Inc. of UK. Solaris Inc. has a total…

CA Final · Direct Tax Laws and International Taxation · MTP · January 2026
Vega Ltd., an Indian Company, is engaged in manufacturing activities by importing raw material from Solaris Inc. of UK. Solaris Inc. has a total loan of 1 million pounds from XYZ Bank of UK. Out of that, Vega Ltd. guarantees 20% of total borrowings in case of any default made by Solaris Inc. During the financial year 2024-25, Vega Ltd. imported goods for 60 crores from Solaris Inc. Solaris Inc. supplied similar raw materials to unrelated parties with a mark-up of 20%, whereas, for Vega Ltd. it provided a mark-up of 25%. Vega Ltd. was allowed to use the brand name of Solaris Inc., without any payment and whereas the unrelated parties cannot use such brand name in India. The annual cost of brand value is 100 Lakhs. Vega Ltd. was allowed credit period of 2 months, whereas for the unrelated parties, Solaris Inc. allowed only 1 month as credit period. The interest cost may be taken as 12% per annum and the purchases were uniform throughout the year. The Assessing Officer referred the matter to Transfer Pricing Officer (TPO) for determination of Arm Length Price (ALP). You are required to (i) Compute the ALP and the adjustments to be made to the income of Vega Ltd. (ii) What is the due date for Vega Ltd. for furnishing audit report u/s 92E? (iii) What amount of penalty is leviable on Vega Ltd., if it fails to furnish audit report u/s 92E?

Suggested Answer and Working Notes:

(i) Vega Ltd., an Indian company and Solaris Inc. of UK, are deemed to be associated enterprises as per section 92A(2), since Vega Ltd. guarantees 10% or more of total borrowings of Solaris Inc. Further, the transaction of purchasing raw material falls within the meaning of "international transaction” under section 92B. Hence, transfer pricing provisions would be attracted in this case. Computation of Arm's length price and adjustment to be made as per Comparable Uncontrolled Price Method Particulars ₹ in crores Price of imported goods charged by Solaris Inc. from Vega Ltd. 60.00 Less: Mark up earned @ 25% [60crores x 25/125] from Vega Ltd. 12.00 48.00 Add: Mark up earned in uncontrolled comparable transaction @ 20% 9.60 Add: Adjustment on account of brand value [Annual cost of brand value] 1.00 Add: Adjustment on account of cost of credit for 1 month [12% x 1/12 x 57.60] 0.576 Arm's length price of raw material purchase 59.176 Less: Price at which raw material was imported by Vega Ltd. from Solaris Inc. 60.000 Adjustment to be made to the income of Vega Ltd. 0.824 (ii) Vega Ltd. is required to furnish the audit report under section 92E on or before 31.10.2025, being the specified date i.e., date one month prior to the due date for furnishing the return of income under section 139(1) for the relevant assessment year. (iii) If Vega Ltd. fails to furnish the audit report under section 92E, penalty of 1lakh would be leviable.

Topics: Transfer Pricing

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