Transfer Pricing Study Report: Section 92 Compliance — Documentation, Benchmarking & Filing Guide

Why Every MNE Needs a Transfer Pricing Study Report

India’s transfer pricing framework is among the most rigorous globally. The Indian Tax Department’s Transfer Pricing Officer (TPO) scrutinises international transactions to ensure profits are not artificially shifted to low-tax jurisdictions. A well-prepared TP Study Report is your primary defence during assessment proceedings.

The consequences of inadequate documentation are severe:

Penalty under Section 271AA: 2% of the value of each international transaction or specified domestic transaction for failure to maintain documentation as required under Section 92D. This is in addition to any adjustment made to income.

Penalty under Section 271BA: Rs. 1,00,000 for failure to furnish the report in Form 3CEB on or before the due date specified under Section 92E.

Penalty under Section 271G: 2% of the value of the international transaction or specified domestic transaction for failure to furnish information or documents as required under Section 92D(3) within the 30-day window (extendable by a further 30 days) when requested by the Assessing Officer or TPO.

TP Adjustment and Section 92C(4) proviso: Where the ALP determined by the TPO differs from the transfer price adopted by the assessee, the difference is added to the total income. Post the Finance Act, 2009 amendment, the proviso to Section 92C(2) allows a tolerance band — the variation between the arm’s length price determined under the Act and the price at which the international transaction has been undertaken shall not exceed the notified percentage (currently 1% for wholesale trading, 3% for all other cases as per CBDT notification).

At Virtual Auditor, we have prepared TP Study Reports for companies across sectors — IT/ITeS, pharmaceutical, manufacturing, trading, and financial services. Our approach integrates statutory compliance with strategic defence, ensuring the documentation holds up to TPO scrutiny during assessment proceedings under Section 92CA.

The Legal Framework: Sections 92 to 92F

Section 92 — Computation of Income from International Transactions at Arm’s Length Price

Section 92(1) is the charging section: any income arising from an international transaction shall be computed having regard to the arm’s length price. This applies to both income and expenditure. If a company pays its foreign AE above-market prices for services or goods, the excess is disallowed. If it receives below-market consideration for services rendered or goods supplied, the income is recomputed upward.

Section 92(2) provides that where in an international transaction, two or more associated enterprises enter into a mutual agreement or arrangement for the allocation or apportionment of any contribution or cost, the cost or expenditure allocated to the assessee shall be determined having regard to the arm’s length price.

Section 92(2A), inserted by the Finance Act, 2012, extended the application of Section 92 to specified domestic transactions as defined in Section 92BA. This brought domestic transactions between related parties above the Rs. 20 crore threshold within the transfer pricing ambit — a significant expansion that affected holding-subsidiary structures, partnerships, and Section 10AA/80-IA/80-IAB claimants.

Section 92A — Associated Enterprises

The definition of associated enterprises under Section 92A is expansive. Two enterprises are associated if one participates directly or indirectly in the management, control, or capital of the other, or the same persons participate in the management, control, or capital of both. Section 92A(2) enumerates specific deeming provisions — direct or indirect shareholding of 26% or more, appointment of more than half the board of directors, guarantee of 10% or more of borrowings, dependence on 90% or more of raw materials or consumables, and several other conditions.

The 26% threshold is notable — it is lower than the global norm of 50%. This means many minority investment structures trigger transfer pricing compliance in India. We frequently encounter situations where companies are unaware that their foreign minority shareholders create an associated enterprise relationship. Our initial engagement always includes an associated enterprise mapping exercise to identify all relationships that trigger Section 92A.

Section 92B — International Transactions

Section 92B(1) defines international transactions broadly to include purchase, sale, or lease of tangible or intangible property; provision of services; lending or borrowing money; and any other transaction having a bearing on the profits, income, losses, or assets of such enterprises. The Explanation to Section 92B(1), inserted by Finance Act, 2012, clarified that international transactions include capital financing, intangible property transactions, business restructuring, and cost-sharing arrangements.

Section 92B(2) provides a deemed international transaction provision — a transaction between an enterprise and a non-associated person is deemed to be between associated enterprises if there exists a prior arrangement or agreement between the non-associated person and the associated enterprise in relation to the transaction.

Section 92D — Documentation Requirements

Section 92D, read with Rule 10D, is the documentation backbone. Every person entering into international transactions or specified domestic transactions must maintain information and documents as prescribed. Rule 10D prescribes a detailed list of documents that must be maintained:

Rule 10D(1)(a): A description of the ownership structure of the assessee enterprise, including details of shares or other ownership interests held therein by other enterprises.

Rule 10D(1)(b): A profile of the multinational group of which the assessee enterprise is a part, along with the name, address, legal status, and country of tax residence of each enterprise of the group with which the assessee has entered into international transactions, and the ownership linkages among them.

Rule 10D(1)(c): A broad description of the business of the assessee and the industry in which the assessee operates, and the business environment.

Rule 10D(1)(d): The nature and terms of international transactions entered into, including the quantum and value of each transaction and the terms of payment.

Rule 10D(1)(e): A description of the functions performed, risks assumed, and assets employed by each party to the transactions.

Rule 10D(1)(f): A record of the economic and market analyses, forecasts, budgets, or any other financial estimates prepared for the purpose of the business.

Rule 10D(1)(g): A record of uncontrolled transactions for comparability analysis, including the nature, terms, and conditions, and any adjustments made to account for differences between the international transactions and the uncontrolled transactions.

Rule 10D(1)(h): A description of the methods considered, the most appropriate method selected, and the reasons for selection, including how the method was applied and the comparable data used.

Rule 10D(1)(m): Any other information, data, or documents that may be relevant for determination of the arm’s length price.

Section 92E and Form 3CEB

Section 92E mandates that every person entering into international transactions or specified domestic transactions must obtain a report from a Chartered Accountant in the prescribed form — Form 3CEB. This form requires the CA to certify the particulars of international transactions, the methods used for determining ALP, and the arm’s length price in respect of each transaction. The due date for filing Form 3CEB is one month prior to the due date for filing the return of income — effectively 31st October (for companies subject to transfer pricing) of the assessment year, per the CBDT notification prescribing return filing dates under Section 139(1).

How We Structure a Transfer Pricing Study Report

At Virtual Auditor, our TP Study Report follows a five-chapter structure that addresses every element required under Rule 10D while building a robust defence for assessment proceedings:

Chapter 1: Enterprise and Group Profile

We document the complete ownership structure, including direct and indirect shareholding patterns, downstream investments, and cross-holdings. For multinational groups, we map the global value chain — where R&D sits, where manufacturing occurs, where marketing and distribution functions are located, and how India fits within this chain.

This chapter also includes the industry and market analysis required under Rule 10D(1)(c). We source industry data from RBI bulletins, IBEF reports, industry-specific databases, and publicly available DPIIT data. The industry context establishes the economic environment in which the company operates and justifies the comparability adjustments applied later.

Chapter 2: Transaction Analysis and FAR

The Functional Analysis, Asset Analysis, and Risk Analysis (FAR) is the heart of every TP Study. We conduct detailed interviews with management and review contracts, invoices, and operational data to document:

Functions performed: Manufacturing, R&D, procurement, marketing, distribution, management, quality control, after-sales services. For each function, we document whether it is a routine function or a value-adding function, and the relative significance.

Assets employed: Tangible assets (plant, machinery, inventory), intangible assets (patents, trademarks, copyrights, technical know-how, customer relationships), and financial assets (receivables, investments).

Risks assumed: Market risk, credit risk, inventory risk, foreign exchange risk, R&D risk, product liability risk, capacity utilisation risk. The allocation of risks between the Indian entity and the foreign AE is critical — under OECD Guidelines Chapter I (as revised in 2017), the party that controls and has the financial capacity to assume a risk is entitled to the returns from that risk.

The FAR analysis directly determines the appropriate transfer pricing method and the comparability criteria for benchmarking. A company that performs routine contract manufacturing with limited risk profile should earn a stable, cost-plus return. A company that owns valuable intangibles and assumes market risk should earn a residual profit.

Chapter 3: Economic Analysis and Benchmarking

This is where the quantitative work happens. For each category of international transaction, we:

Select the Most Appropriate Method (MAM): From the five methods prescribed under Section 92C(1) — CUP, RPM, CPM, TNMM, and PSM — we select the method that is most appropriate having regard to the nature and class of transaction, class of associated persons, functions performed, and availability of reliable data. The selection must be documented with reasons, as required by Rule 10D(1)(h).

Search and select comparables: We use databases — primarily Prowess (CMIE), Capitaline, and Ace Equity — to identify comparable independent companies. The search strategy is documented step-by-step: database used, initial filters (SIC/NIC codes, turnover range, functional similarity), quantitative screens (related party transaction filter, persistent losses filter, peculiar year filter, different accounting year filter), and qualitative rejection criteria.

Apply comparability adjustments: Adjustments under Rule 10B(1)(e) for differences between the tested party and comparables — working capital adjustments (to normalise for differences in receivable days, payable days, and inventory days), risk adjustments, capacity utilisation adjustments, and accounting policy adjustments. Working capital adjustment is the most commonly applied and is computed using the PLI-weighted average approach.

Compute the arm’s length range: For multiple comparables, we compute the interquartile range of the PLI (typically Operating Profit/Operating Cost for TNMM, or Operating Profit/Sales for RPM/CPM). The arm’s length range is the 25th to 75th percentile. If the tested party’s PLI falls within this range, the transfer price is at arm’s length. If it falls below the 25th percentile, the adjustment is computed to bring it to the median (50th percentile) — this is the CBDT’s stated position, upheld in multiple ITAT decisions.

Chapter 4: Transaction-wise ALP Determination

For each international transaction, we present the complete analysis — tested party determination, method selected, comparable set with financials, PLI computation, arm’s length range, and conclusion on whether the transaction is at arm’s length. Where multiple transactions exist (e.g., provision of IT services, reimbursement of expenses, payment of royalty, interest on loans), each is analysed separately unless aggregation is warranted under the principles laid out in the Delhi High Court decision in Maruti Suzuki India Ltd. v. CIT and the OECD Guidelines Chapter III on aggregation of transactions.

We also document management fee transactions carefully. Management fees from the foreign parent to the Indian subsidiary are among the most heavily scrutinised transactions. The TPO will test three aspects: (1) whether services were actually rendered (the “benefit test”), (2) whether the services are not duplicative of functions already performed by the Indian entity, and (3) whether the quantum of fees is at arm’s length. We ensure our documentation includes evidence of services rendered — emails, reports, deliverables, time sheets — to satisfy the benefit test.

Chapter 5: Compliance Documentation

This chapter consolidates all supporting documents: contracts and agreements, invoices, correspondence, board resolutions authorising the transactions, RBI approvals (where applicable for FEMA-regulated transactions), and details of any Advance Pricing Agreement or Safe Harbour election.

Country-by-Country Reporting and Master File

The Finance Act, 2016 introduced a three-tier documentation structure aligned with the OECD BEPS Action 13 recommendations, effective from AY 2017-18:

Local File: This is the traditional TP Study Report as described above, maintained under Section 92D read with Rule 10D. The Local File contains detailed transaction-level documentation specific to the Indian entity.

Master File (Section 92D(1) read with Rule 10DA): The Master File is required where the consolidated group revenue exceeds Rs. 500 crore and the aggregate value of international transactions exceeds Rs. 50 crore (or intangible property transactions exceed Rs. 10 crore). The Master File must be filed in Form 3CEAA within the due date for filing the return of income. It contains a group-level overview — organisational structure, business description, intangible property ownership, intercompany financial activities, and financial and tax positions of constituent entities.

Country-by-Country Report (CbCR) — Section 286: The parent entity of an international group with consolidated group revenue exceeding Rs. 5,500 crore (approximately EUR 750 million, the OECD threshold) must file the CbCR in Form 3CEAD. The Indian constituent entity must file Form 3CEAC (notification of the parent entity or alternate reporting entity) and, in certain circumstances, Form 3CEAE (CbCR filing in India). The CbCR contains entity-by-entity data on revenue, profit, tax paid, stated capital, accumulated earnings, number of employees, and tangible assets for each tax jurisdiction where the group operates.

These three tiers together provide the tax authorities with a comprehensive picture — from the global group level (CbCR), to the group’s transfer pricing policies (Master File), to the specific transactions of the Indian entity (Local File).

Specified Domestic Transactions Under Section 92BA

The Finance Act, 2012 introduced specified domestic transactions (SDTs) into the transfer pricing framework through Section 92BA. As amended by the Finance Act, 2017, SDTs now cover:

Section 92BA(i): Expenditure in respect of which payment is made to a person referred to in Section 40A(2)(b) — i.e., expenditure paid to related parties that the AO considers excessive or unreasonable. This is the most commonly triggered provision for domestic groups.

Section 92BA(v) and (vi): Transactions referred to in Sections 80A and 80-IA(8)/80-IA(10) — inter-unit transfers at more than market value to claim higher deductions. This targets companies with eligible undertakings (SEZ units, infrastructure projects) that shift profits to the deduction-eligible unit through inflated transfer prices.

The aggregate value threshold for SDTs to be covered is Rs. 20 crore. Where SDTs are applicable, the entire documentation, benchmarking, and Form 3CEB certification requirements apply identically to international transactions.

Benchmarking Process: A Step-by-Step Walkthrough

Step 1: Identify the Tested Party

The tested party is the party to the transaction for which the method can be applied most reliably and for which the most reliable comparables can be found. In most Indian transfer pricing situations, the Indian entity is the tested party — the Indian company’s financial data is available, and Indian comparables are used.

However, in certain cases, the foreign AE may be the more appropriate tested party — for instance, where the Indian entity performs complex functions and owns significant intangibles, while the foreign AE performs limited-risk distribution. In such cases, we select the foreign AE as the tested party and benchmark against foreign comparables (sourced from databases like Bureau van Dijk Orbis or S&P Capital IQ).

Step 2: Database Search Strategy

The search strategy is documented exhaustively because it is the first thing the TPO will examine. We use Prowess (CMIE) as the primary database for Indian comparables, supplemented by Capitaline and Ace Equity for cross-verification. The search process follows this sequence:

Industry classification filter: Using NIC 2008 codes relevant to the tested party’s activities. For IT services companies, NIC codes 6201 (computer programming), 6202 (computer consultancy), 6209 (other IT services) are used. For pharmaceutical manufacturers, NIC 2100 series. We document which codes are included and the rationale for inclusion or exclusion of adjacent codes.

Turnover filter: We apply a turnover range based on the Indian TP practice — typically a range of 0.1x to 10x of the tested party’s turnover. This aligns with the ITAT’s acceptance of broad turnover bands, while avoiding comparables that are so dissimilar in scale that their profitability is driven by economies of scale rather than arm’s length pricing.

Related party transaction (RPT) filter: Companies with RPTs exceeding 25% of total revenue are excluded. Some TPOs apply a stricter 15% threshold; we document both and apply the more conservative threshold to build a robust set.

Persistent losses and peculiar year filter: Companies with persistent losses (losses in 3 or more of the last 5 years) are excluded, as their losses may be driven by factors unrelated to the transaction being benchmarked. Companies with extraordinary one-time events (mergers, demergers, significant asset write-downs) in the year under review are also excluded.

Functional similarity filter: This is a qualitative filter applied after the quantitative screens. We review the annual report and financial statements of each shortlisted comparable to verify functional similarity with the tested party. Companies that perform significantly different functions (e.g., a company owning significant intangibles being compared to a contract service provider) are rejected with documented reasons.

Step 3: PLI Computation and Comparability Adjustments

The Profit Level Indicator (PLI) is chosen based on the method selected:

TNMM: Operating Profit / Total Cost (OP/TC) or Operating Profit / Sales (OP/Sales). OP/TC is the more commonly used PLI for service transactions in India, as it eliminates differences in revenue recognition and focuses on cost efficiency.

RPM: Gross Profit / Sales (GP/Sales). Used where the tested party is a distributor.

CPM: Gross Profit / Total Cost of Goods (GP/COGS). Used where the tested party is a manufacturer.

Comparability adjustments are critical for TNMM benchmarking. The most commonly applied adjustment is the working capital adjustment, which adjusts for differences in credit terms (receivable days), payment terms (payable days), and inventory holding periods between the tested party and each comparable. The adjustment formula uses the risk-free rate (typically the SBI PLR or the 1-year T-bill rate) applied to the differential working capital employed.

Step 4: Arm’s Length Range and Conclusion

The interquartile range is computed from the adjusted PLIs of all accepted comparables. Where six or more comparables exist (as required for the range concept to apply under the amended Rule 10CA introduced by CBDT notification dated 19 May 2015), the 35th percentile to 65th percentile range is used. Where fewer than six comparables exist, the arithmetical mean is used, and the 3% tolerance band under the proviso to Section 92C(2) applies.

If the tested party’s PLI falls within the arm’s length range, no adjustment is required — the transfer price is deemed to be at arm’s length. If it falls below the lower bound, the adjustment is computed to bring it to the median of the comparable set.

Common Transaction Types and Benchmarking Approaches

IT/ITeS Services

The largest category of transfer pricing transactions in India. Indian IT/ITeS companies providing software development, maintenance, and support services to their foreign AEs are typically benchmarked using TNMM with OP/TC as the PLI. The CBDT’s Safe Harbour Rules under Rule 10TD prescribe specific margins for IT/ITeS — 17% OP/OC for IT services and 17% OP/OC for ITeS services (as per the revised safe harbour thresholds). Companies that adopt safe harbour are exempt from detailed benchmarking but must meet the eligibility criteria.

Royalty and Licence Fee Payments

Payment of royalty by the Indian subsidiary to the foreign parent for use of brand, technology, or know-how. The Comparable Uncontrolled Price (CUP) method is preferred where comparable licence agreements exist — sourced from databases like ICAI transfer pricing guidance notes, RoyaltyStat, or ktMINE. Where internal CUPs are unavailable, TNMM is applied at the entity level, testing whether the Indian entity’s profitability (after royalty payment) is comparable to independent entities performing similar functions.

Intra-group Loans and Guarantees

Loans advanced to or borrowed from the foreign AE, and corporate guarantees issued for AE borrowings. Interest on loans is benchmarked using CUP — the comparable uncontrolled price being the lending rate charged by banks to similar borrowers for similar tenors, adjusted for credit risk. For INR-denominated loans, SBI’s MCLR/EBLR for the relevant tenor is a starting point, with adjustments for credit quality. For foreign currency loans, LIBOR/SOFR + credit spread is used (SOFR having replaced LIBOR for new transactions). Corporate guarantee fees are typically benchmarked at 0.25% to 2% of the guaranteed amount, depending on the credit rating differential.

Management Fees

Intra-group management or shared services fees — typically charged by the parent to the subsidiary for group-level services (strategic planning, HR, legal, finance, IT infrastructure). The benchmarking approach involves (1) establishing that services were actually rendered and that the Indian entity derived a benefit (the “benefit test” articulated by the Delhi ITAT in Dresser-Rand India Pvt. Ltd. and other cases), (2) identifying the cost base of the services, and (3) applying an appropriate mark-up. The mark-up is benchmarked using TNMM or CPM against independent management consulting companies.

Reimbursement of Expenses

Reimbursements — whether received or paid — are transfer pricing transactions if they involve an element of mark-up or if the underlying service constitutes an international transaction. Pure cost reimbursements with no mark-up are often treated as pass-through, but the TPO may challenge whether the reimbursement is truly at cost. We document the nature of each reimbursement, the cost allocation methodology (headcount-based, revenue-based, or actual), and verify that no hidden mark-up exists.

Assessment and Dispute Resolution

Reference to TPO Under Section 92CA

Where the Assessing Officer considers it necessary to determine the ALP, or where the case is selected by CBDT through the risk-assessment-based selection process, the AO refers the matter to the Transfer Pricing Officer under Section 92CA. The TPO issues a notice, examines the TP documentation, and may propose adjustments. The TPO’s order is binding on the AO, who incorporates the TP adjustment into the draft assessment order.

Draft Assessment Order and DRP Under Section 144C

Where a TP adjustment or any variation prejudicial to the assessee is proposed, the AO issues a draft assessment order under Section 144C(1). The assessee has the option of filing objections with the Dispute Resolution Panel (DRP) under Section 144C(2) within 30 days of receipt. The DRP, a collegium of three CIT-rank officers, must issue directions within 9 months. The DRP can confirm, reduce, or enhance the adjustment. The AO must pass the final assessment order in conformity with the DRP’s directions within one month of receiving the directions.

Appeal to ITAT and Beyond

If the assessee is not satisfied with the DRP directions, an appeal lies before the Income Tax Appellate Tribunal (ITAT) under Section 253. The ITAT is a fact-finding body and can re-examine the entire TP analysis — the method selected, comparables accepted/rejected, adjustments applied, and the arm’s length range. ITAT decisions in transfer pricing are highly influential and are widely cited in subsequent proceedings.

For significant disputes, further appeal lies to the High Court under Section 260A (on substantial questions of law) and to the Supreme Court under Section 261. Companies may also invoke the Mutual Agreement Procedure (MAP) under India’s Double Taxation Avoidance Agreements (DTAAs) for cross-border resolution of transfer pricing disputes.

OECD Guidelines and Indian Transfer Pricing

India is not an OECD member but is a member of the OECD’s Inclusive Framework on BEPS. Indian transfer pricing regulations are substantially aligned with the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, particularly after the BEPS Action 8-10 revisions. However, important differences exist:

Method hierarchy: The OECD Guidelines do not prescribe a hierarchy — the most appropriate method is selected based on the facts. Indian law similarly requires the “most appropriate method” under Rule 10C, but historically, Indian TPOs have shown a preference for TNMM for service transactions and CUP for financial transactions.

Use of foreign comparables: The OECD Guidelines permit comparables from any jurisdiction. Indian TPOs and ITAT have historically preferred Indian comparables for benchmarking Indian entities, though the Delhi High Court in Li & Fung India Pvt. Ltd. and other cases has permitted foreign comparables where Indian comparables are unavailable or unreliable.

Intangible property: The OECD BEPS Actions 8-10 introduced the DEMPE concept — Development, Enhancement, Maintenance, Protection, and Exploitation of intangibles. The entity performing DEMPE functions is entitled to the returns from the intangible, regardless of legal ownership. Indian TP regulations incorporate this principle through the FAR analysis. We apply DEMPE analysis in all engagements involving intangible property transactions, documenting which entity performs each DEMPE function and the corresponding value allocation.

Location Savings: CBDT’s Circular No. 14/2001 recognises location-specific advantages, and the Delhi ITAT in Li & Fung held that location savings must be shared between the Indian entity and the foreign AE. This is an India-specific concept not explicitly addressed in the OECD Guidelines, and it has significant implications for IT/ITeS and shared services benchmarking.

Pricing for Transfer Pricing Study Reports

Our TP Study Report engagements are priced based on the complexity of transactions, the number of transaction categories, and the volume of data analysis required:

Basic TP Study (1-3 transaction categories, single AE, IT/ITeS or trading): Starting from Rs. 75,000 + GST. This covers the full documentation, benchmarking using TNMM/CUP, and Form 3CEB certification.

Standard TP Study (4-8 transaction categories, multiple AEs, manufacturing/pharma/financial services): Starting from Rs. 1,50,000 + GST. Includes detailed FAR, multi-method benchmarking, working capital adjustments, and CbCR/Master File advisory.

Complex TP Study (intangibles, business restructuring, cost-sharing arrangements, BEPS risk areas): Starting from Rs. 3,00,000 + GST. Includes DEMPE analysis, profit split computations, valuation of intangibles transferred, and strategic documentation for high-risk areas.

TP Dispute Support (TPO assessment, DRP objections, ITAT appeal): Priced separately based on scope. View our complete pricing or request a custom quote.

All engagements include Form 3CEB certification, a digital copy of the TP Study Report, and one round of review based on client feedback. Learn more about our Transfer Pricing practice.

Frequently Asked Questions

1. Who is required to prepare a Transfer Pricing Study Report in India?

Every person who has entered into an international transaction with an associated enterprise (as defined under Section 92A) or a specified domestic transaction (as defined under Section 92BA, with an aggregate value exceeding Rs. 20 crore) during the previous year must maintain documentation as prescribed under Section 92D read with Rule 10D. This applies to all entities — companies, LLPs, firms, and individuals — regardless of whether the transaction results in income or expenditure.

2. What is the due date for filing Form 3CEB?

Form 3CEB must be filed electronically on or before the due date for filing the return of income under Section 139(1). For companies subject to transfer pricing provisions, this is 30th November of the assessment year (as revised by Finance Act, 2020, from the earlier date of 30th September). However, the TP Study Report must be prepared contemporaneously — ideally before the due date — as it forms the basis for the Form 3CEB certification.

3. What is the difference between a TP Study Report and Form 3CEB?

The TP Study Report is the detailed documentation maintained under Section 92D / Rule 10D — it contains the enterprise profile, FAR analysis, economic analysis, benchmarking, and ALP determination. Form 3CEB is the Chartered Accountant’s report under Section 92E — it is a summary document that certifies the particulars of international transactions and specified domestic transactions, the methods used, and the arm’s length price. The TP Study Report is the underlying work; Form 3CEB is the statutory certification based on that work.

4. Can the TPO reject the method selected by the taxpayer?

Yes. The TPO has the power under Section 92CA to determine the arm’s length price using the most appropriate method. If the TPO considers that a different method is more appropriate given the nature of the transaction, the TPO may re-characterise the method. However, the TPO must provide reasons for rejecting the taxpayer’s method, and this rejection can be challenged before the DRP or ITAT. In practice, the TPO frequently rejects CPM/RPM in favour of TNMM, and may propose different comparables or reject comparables accepted by the taxpayer.

5. Is a TP Study required for transactions below a certain threshold?

There is no de minimis threshold for international transactions — even a single rupee transaction with an associated enterprise triggers documentation requirements under Section 92D. However, practical relief exists: (1) the Safe Harbour Rules under Section 92CB provide a simplified compliance route for eligible transactions, (2) the tolerance band under Section 92C(2) proviso (1% for wholesale trading, 3% for others) provides a margin of tolerance, and (3) the CBDT has indicated that low-value transactions may be documented with less extensive analysis, though this is not formally codified. For specified domestic transactions, the Rs. 20 crore aggregate threshold applies.

6. What databases are accepted by Indian TPOs for benchmarking?

Indian TPOs primarily use and accept Prowess (CMIE), Capitaline, and Ace Equity for Indian comparable searches. For foreign comparables (used in limited circumstances), databases like Bureau van Dijk Orbis, S&P Capital IQ, and Bloomberg are accepted. The TPO may also rely on the CBDT’s own internal databases and information gathered under Section 133(6) notices. We recommend using Prowess as the primary database, as it is the most widely accepted and offers the most comprehensive coverage of Indian companies.

7. How does the Advance Pricing Agreement (APA) programme interact with the TP Study?

An APA under Sections 92CC and 92CD provides prospective certainty on the arm’s length price for specified international transactions. Once an APA is in force, the covered transactions do not require separate benchmarking — the APA terms are determinative. However, the assessee must still file Form 3CEB and comply with the APA’s Annual Compliance Report requirements. Transactions not covered by the APA continue to require full TP documentation.

8. What happens if we have related party transactions with entities in tax treaty jurisdictions?

The existence of a DTAA does not exempt the assessee from transfer pricing compliance. The TP provisions apply regardless of whether a DTAA exists. However, the DTAA’s Associated Enterprises article (typically Article 9) and the Mutual Agreement Procedure (MAP) article provide additional dispute resolution mechanisms. Where a TP adjustment results in double taxation (income taxed in India and in the AE’s jurisdiction), the MAP can be invoked to seek relief.

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