Transfer Pricing Assessment in India - TPO Proceedings and ALP Determination | Expert CA

Transfer Pricing Assessment in India

TPO Proceedings Under Section 92CA -- ALP Determination, Show Cause Notices and TP Adjustment Defence

Transfer pricing assessment in India is conducted by the Transfer Pricing Officer (TPO) -- a dedicated income tax officer to whom the Assessing Officer refers the taxpayer's international transactions under Section 92CA. The TPO independently examines the arm's length nature of each transaction, calls for documents, conducts hearings, and passes a TP order determining the ALP. The difference between the TPO's ALP and the taxpayer's ALP becomes the TP adjustment incorporated into the draft assessment order. The taxpayer then has 30 days to choose between the DRP and CIT(A) for challenging the adjustment.

TP assessment proceedings require simultaneous defence on multiple fronts -- functional characterisation, method selection, comparables reliability, margin computation, and economic adjustments. Our team provides complete TP assessment support from the first TPO notice through the draft order and into the appeals phase.

TP Assessment Stages Under Section 92CA

Stage	Activity	Key Issue
TPO Reference	AO refers international transactions to TPO	All or select transactions referred; reference order issued to taxpayer
TPO Notice	TPO issues notices calling for documents and information	TP documentation, Form 3CEB, financial data, comparable data requested
Taxpayer Submission	Taxpayer submits TP documentation and additional comparables	Local File, FAR analysis, benchmarking study
TPO Hearing	TPO conducts hearing with taxpayer / representative	Comparable rejection, method challenge, functional characterisation dispute
Show Cause Notice	TPO issues SCN with proposed ALP and TP adjustment	Taxpayer submits counter-arguments and fresh comparables analysis
TPO Order	TPO passes order determining ALP under Section 92CA(3)	TP adjustment amount determined; communicated to AO for draft assessment order

Our TP Assessment Services

TPO Notice Response

Drafting responses to TPO information and document notices -- providing complete TP documentation, FAR analysis, comparables data, and supporting financials within the notice deadline.

TPO Hearing Representation

Representation at TPO hearings -- oral arguments on functional characterisation, method appropriateness, comparables reliability, and economic justifications for the taxpayer's intercompany pricing.

Show Cause Notice Response

Detailed written response to the TPO's show cause notice -- counter-arguments on proposed comparables, ALP computation errors, and economic adjustments, with refreshed benchmarking data.

Updated Benchmarking

Refreshed benchmarking study with the most recent financial year data and additional comparables -- strengthening the arm's length position before the TPO passes the final order.

TPO Order Analysis

Detailed analysis of the TPO's final order -- identifying factual and legal errors, quantifying the adjustment, and developing the strategy for the DRP objection or CIT(A) appeal.

Economic Adjustments

Preparation of working capital adjustments, risk adjustments, capacity utilisation adjustments, and other economic adjustments to improve comparability between the chosen comparables and the tested party's situation.

Frequently Asked Questions

Can the TPO examine transactions not referred by the AO?

Generally, the TPO's jurisdiction is limited to the transactions referred by the AO under Section 92CA. The TPO can enhance the ALP of referred transactions but cannot suo motu take up transactions not referred by the AO. Taxpayers should carefully review the reference order to identify which transactions are covered and monitor whether the TPO attempts to go beyond its jurisdictional mandate during assessment proceedings.

What happens if the taxpayer does not respond to TPO notices?

If the taxpayer does not respond, the TPO can proceed to make a best judgment ALP determination based on available information -- typically resulting in very high TP adjustments. The taxpayer also faces a penalty of 2% of the transaction value under Section 271AA for failure to maintain or furnish TP documentation, and potentially a 50% underreporting penalty under Section 270A. Responding to all TPO notices within the deadline -- or seeking a documented extension -- is essential.

Can the TPO reject the taxpayer's comparable companies?

Yes. The TPO can reject comparables based on functional differences, large related party transactions, extraordinary items in financials, turnover filters, or other comparability factors. The TPO can also introduce additional comparables that the taxpayer rejected. This battle over comparables is often the crux of TP assessments -- requiring detailed economic analysis and documented rationale for each inclusion and rejection decision in the original benchmarking study and in the TPO response submissions.

Facing TP Assessment Proceedings? Our TP Team Is Your Best Defence.

TPO notice responses, hearing representation, updated benchmarking, SCN replies, and TPO order analysis -- complete TP assessment support.