Power of Assessing Officer – Income Tax

Power of Assessing Officer:

Section 92C(3) and (4) gives power to the Assessing Officer to determine the arm’s length price under the following circumstances and also empowers the Assessing Officer to re-compute total income of the assessee having regard to arm’s length price determined by him. It also provides that deduction under section 10AA and Chapter VI-A shall not be allowed from the additional income computed by him. For example, if the total income declared by the assessee in his return of income is, say Rs 7 lakhs and the total income computed by the Assessing Officer applying the arm’s length principle is, say Rs 9 lakhs, the difference of Rs 2 lakhs will not qualify for deduction under section 10AA or Chapter VIA.

The circumstances under which the Assessing Officer may invoke the power to determine arm’s length price are as follows:

(a) The price charged or paid in an international transaction has not been determined in accordance with section 92(1) and (2); or

(b) Any information and documents relating to an international transaction has not been kept and maintained by the assessee in accordance with the provisions contained in section 92D(1) and the rules made in this behalf (Rule 10D); or

(d) The assessee has failed to furnish within the specified time, any information or documents which he was required to furnish by a notice issued under section 92D(3).

Section 92C provides that if the total income of an associated enterprise is computed under this section on the determination of arm‟s length price paid to another associated enterprise, from which tax is deducted at source, the income of the other associated enterprise shall not be recomputed on this count. Therefore, if “A” Ltd. has paid royalty to “B” Ltd. (Non -Resident) @ 10% of sales and tax is deducted at source, “B” Ltd. cannot claim refund if the Assessing Officer has determined 8% as arm’s length price in the case of “A” Ltd. and disallowed 2% of the royalty amount.

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