DOMESTIC TRANSFER PRICING - Specified Domestic Transaction (SDT) – Section 92BA

Sec.92BA reads as under:-

"For the purposes of this section and sections 92, 92C, 92D and 92E, "Specified Domestic Transaction" in case of an assessee means any of the following transactions, not being an international transaction, namely:—

• any expenditure in respect of which payment has been made or is to be made to a person referred to in clause (b) of sub-section (2) of section 40A;
• any transaction referred to in section 80A;
• any transfer of goods or services referred to in sub-section (8) of section 80-IA;
• any business transacted between the assessee and other person as referred to in sub-section (10) of section 80-IA;
• any transaction, referred to in any other section under Chapter VI-A or section 10AA, to which provisions of sub-section (8) or sub-section (10) of section 80-IA are applicable; or
• any other transaction as may be prescribed,
• and where the aggregate of such transactions entered into by the assessee in the previous year exceeds a sum of five crore rupees."

The following transactions constitute SDTs as per the definition given above:

• Expenditure incurred on related party as defined in sec. 40A(2)(b)
•  Any transaction referred to in sec. 80A
•  Inter unit transfers of goods / services between tax free and taxable units of an assessee;
• Business transactions between closely connected persons and the assessee running an eligible business;
• SEZ v. Non-SEZ units – transfer of goods / services;
• Any other transaction referred to in Chapter VIA to which provisions of sec. 80IA(8) or 80IA(10) are applicable;
• Any other transaction as may be prescribed.

SDTs are defined with an objective to check revenue leakage in respect of transactions that are susceptible for manipulation. In this regard typical transactions between a profit making entity and loss making entity of related parties, transactions between tax free unit and taxable unit of the same assessee and payment of managerial remuneration to directors of an assessee company etc., are covered to ensure that they are entered into at arm’s length and that there is no fiscal evasion. At the same time, it is critically important that administering arm’s length standard in respect of SDTs should not result in double taxation. What are the checks and balances in this regard is of utmost importance. We shall discuss this in more detail in later part of this article. CBDT reserved its power to notify any other transaction as SDT in future. This is generally called an "enabling clause" empowering the Board to notify any further transactions as SDTs. Till such notification is given by the Board neither the revenue nor the assessee has any power to rope in any other transaction as SDT.

2.1 The said amendments introducing Domestic Transfer Pricing from A.Y. 2013-14 are intended to examine related party transactions, transfers to SEZ from non-SEZ units of the same assessee, transactions between tax holiday assessee and closely connected persons and various other transactions of tax holiday assessees such as SEZ developer, etc., as to adherence with arm’s length principle. SDTs are to be examined in comparison with similar transactions with unrelated parties using the same six methodologies which are presently used in the international transfer pricing. Reference to Transfer Pricing Officer (TPO), service of notice and order to be made by the TPO are similar to what is available in the context of international transfer pricing. Documentation is to be maintained in respect of SDTs as per sec. 92D read with Rule 10D in the same manner as that of international transfer pricing. A report from an accountant is to be obtained under sec. 92E and the same should be filed along with the return.