Tippu Yarns Ltd. (TYL), is an Indian company, engaged in numerous activities, including international transactions, during the financial year 2023-24. During the year, it sold to ER Inc. (ER) of USA, 20,000 refrigerators

CS Professional · Advanced Tax Laws · PYQS · December 2024
Tippu Yarns Ltd. (TYL), is an Indian company, engaged in numerous activities, including international transactions, during the financial year 2023-24. During the year, it sold to ER Inc. (ER) of USA, 20,000 refrigerators, each for a price of ₹ 1.30 lakh. Identical pieces were (22,000 refrigerators) sold to other buyers in the USA at ₹ 1.50 lakh per unit. ER holds 28% shares in TYL. Goods are sold to ER on CNF basis, while it is sold to other buyers on CIF basis. Marine insurance is ₹ 5,000 per unit. While the other buyers availed 2 months credit for making the payment, ER was given only 1 month time for making the trade payments. Cost of capital may be taken at 12% and supply may be assumed to be uniform throughout the year. Determine the arm's length price (ALP) per unit as per transfer pricing regulations using cost plus method and the addition, if any, to be made to the income of TYL, for the AY 2024-25. If the primary adjustment is proposed to be made by TYL suo motu at the time of filing of return of income (ROI), what is the time limit for repatriation of excess funds?

Answer & Explanation:

Answer 6(c) Two enterprises are deemed to be associated enterprises where one enterprise, directly or indirectly, holds shares carrying not less than 26% of the voting power in the other enterprise. Here, ER holds 28% in TYL. Hence, they are associated enterprises and transfer pricing provisions will apply. Determination of ALP as per Cost Plus Method Particulars Amounts in Rs. Price per unit to unrelated buyers 1,50,000 Less: Marine Insurance borne by TYL for others buyers (5000) Lessor credit period allowed to ER as compared to unrelated buyers (130000*12% *1/12) (1300) ALP per unit 1,43,700 Price charged to TYL 1,30,000 Increase to be made per unit 13,700 Total increase to be made (20,000*13700) Primary adjustment 27,40,00,000 Where the primary adjustment is made suo motu by TYL, the repatriation has to be made within 90 days from the due date for filing the ROI u/s 139(1) of the Income tax Act, 1961.

Topics: International Taxation

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