ABC Ltd., Chennai is a part of a large multi-national group. It is engaged in the manufacturing of kids' high-quality toys. During the financial year 2024-25, it sold goods to its foreign associated enterprise, Micky Inc

The issue involved is whether the action of the Assessing Officer is valid in law, in applying the Arm's Length Price (ALP) determined by the Transfer Pricing Officer (TPO) to the transactions with unrelated parties also. Section 92 of the Income-tax Act, 1961 provides that any income arising from an international transaction or specified domestic transaction shall be computed having regard to the arm's length price. As per section 92B, international transaction means a transaction, inter alia, between two or more associated enterprises, either or both of whom are non-residents. Further, section 92BA list out the transaction covered under specified domestic transaction. The ALP determined by the TPO will be binding on the AO. The ALP can be determined by the TPO, only in respect of transaction covered under the definition of international transactions and specified domestic transaction. Reading section 92B / 92BA with section 92, it can be said that, arm's length price needs to be computed for transaction which essentially mean transactions between two or more associated enterprises. Thus, the ALP, as determined by the TPO, can be applied by the AO, only in respect of transactions with Associated enterprises and not with other unrelated parties. Hence, the action of the Assessing Officer is not tenable in law for applying the ALP in respect of transactions with unrelated parties.