Introduction: The Scrutiny Has Begun
It’s no longer just the large multinationals drawing attention—India’s tax authorities have now extended their transfer pricing radar to mid-sized and emerging MNCs, particularly those that have entered into international transactions between FY 2022–23 (i.e., AY 2023–24). In recent weeks, many such companies have begun receiving intimations and notices for transfer pricing assessments, triggering a phase that could shape not just the current audit cycle but also their broader tax profile for years to come.
For some, it may feel like a procedural checkpoint. But for those who understand how transfer pricing assessments can snowball into multi-year litigation, this is the moment to slow down, revisit every document, and make sure submissions are not just compliant—but airtight.
Because in transfer pricing, what you say—and how well you say it—at the TPO level can define your defence all the way up to the ITAT.
Why This Matters Now: The Expanding Net and Rising Stakes
The Transfer Pricing Officer (TPO) is no longer a passive reviewer. With the increasing digitization of scrutiny, exchange of information with treaty partners, and AI-driven data filters, even smaller cross-border transactions—once deemed routine—are being examined for profit shifting, delayed payments, intra-group services, and more.
For Assessment Year 2023–24, many companies with even modest-sized international dealings are receiving notices. What was earlier a “check-the-box” compliance exercise is now a frontline defence task—and failing to prepare a comprehensive response can have far-reaching consequences.
The First Line of Defence: Submissions Before the TPO
The most critical part of a transfer pricing assessment—often underestimated—is your submission before the TPO. This includes your:
- Transfer Pricing Study Report
- Supporting documentation
- Explanatory notes and factual representations
- Arguments justifying arm’s length nature
Once filed, these documents become part of your official record, and you cannot change, replace, or add substantially new arguments at later stages, including the DRP, CIT(A), or ITAT, unless the facts themselves have changed.
This is where many taxpayers go wrong. In the rush to comply with deadlines or due to underestimating the scrutiny, they submit generic, template-style documentation—and when an unfavourable adjustment comes in, they suddenly find they have no solid foundation to argue from.
Key Considerations Before Filing TP Submissions
1. Review, Don’t Rely Blindly on Past Reports
Even if you’ve had similar transactions in earlier years, do not copy-paste your previous transfer pricing report. The TPO is not bound by past assessments unless a specific ruling exists. Review changes in:
- Profitability of the Indian entity
- Benchmarking
- Functional profile of the overseas AE
- Market conditions (especially post-pandemic dynamics)
- Any updates in tax law or OECD guidance
2. Deep-Dive into Documentation
Every document you submit—whether invoices, agreements, cost allocations, or benchmarking studies—should tell a consistent and defendable story. Misalignments between your functional analysis and actual operations, or between intercompany agreements and invoices, are the first red flags for a TPO.
3. Be Strategic About Your Benchmarking
If you’re providing services, is your cost base and markup comparable to what independent entities earn? If you’re earning a lower margin, is there sufficient commercial justification? Did you consider all appropriate methods—not just TNMM?
A common mistake is assuming the TPO won’t scrutinize your method. In reality, the TPO is empowered to reject your method if a more reliable one is available. So make sure your benchmarking includes a well-reasoned justification for the selected method and comparables.
4. Build the Case for Commercial Justification
Transfer pricing isn’t just about numbers—it’s about economics and commercial rationale. Why was a service charged at a certain rate? Why did a delay in receivables occur? What benefits did the Indian entity receive?
If you can preemptively answer these questions—with documents, board resolutions, internal emails, or market data—you’re giving your submission real weight.
5. Revalidate Your Comparable Search and Filters
One of the most common reasons for TPO rejections is the use of outdated or poorly selected comparables. Transfer pricing reports often carry forward prior-year benchmarking without checking whether the underlying data, business models, or margins of the comparables remain valid.
Before you submit:
- Revisit the filters applied—whether turnover, employee cost, export revenue, or functional similarity—ensuring they are logically justified and consistently applied.
- Exclude companies with related-party transactions, inconsistent business models, or one-time extraordinary events unless you have strong justification.
- Make sure you’ve explained the rejection matrix—why certain companies were excluded even if they initially matched the criteria.
The quality of your benchmarking—in both selection and explanation—can determine whether your entire study is accepted or disregarded. A well-defended set of comparables reduces the likelihood of arbitrary additions by the TPO and strengthens your position across all future levels of appeal.
What Happens If You Don’t Get This Right?
Once the TPO issues an adverse adjustment—often based on flawed or incomplete documentation—you’re forced into the next round: representation before the Dispute Resolution Panel (DRP), CIT(A), or eventually the ITAT.
But if your original submission lacks depth or coherence, your ability to argue meaningfully diminishes. You might have valid theoretical grounds, but without factual backing submitted at the TPO level, the higher authorities often hesitate to admit new arguments or evidence, citing procedural constraints.
This is why we see many sound TP cases fail—not because they are wrong, but because they were not prepared to fight from the first round.
Looking Ahead: What Companies Should Do Now
If you have received a TP notice for AY 2023–24:
- Log in to your income tax portal regularly to ensure you don’t miss deadlines or intimation notices.
- Immediately engage with your in-house finance/tax teams or external advisors to begin preparing your submission.
- Review your TP documentation line-by-line to ensure that it is technically sound and factually accurate.
- Consider preparing alternative arguments or scenarios—for example, multiple benchmarking methods or comparables—to reinforce your position.
- Document everything—economic rationale, management discussions, board approvals—because in TP, the story behind the numbers matters as much as the numbers themselves.
Conclusion: The TPO Isn’t Just the Starting Point—It’s the Strongest Ground You’ll Stand On
Transfer pricing assessments are no longer a procedural formality—they’re the foundation of your company’s tax defence strategy. As scrutiny widens to include smaller companies, it’s critical that businesses treat their first submission not just as compliance, but as advocacy.
Because the reality is this: if your TP report isn’t strong enough to stand on its own at the TPO stage, it won’t carry you through litigation either.
Make your submissions count. Review, revise, and rethink—because in transfer pricing, the best way to avoid a tax war is to win the first battle well-prepared.
