Sec-80-ia(10)

The term ‘close connection’ has not been defined under the Act. In the absence of judicial precedents interpreting the term ‘close connection’, the term has to be understood normally or as ordinarily understood in common parlance.

The Law Lexicon legal Glossary defines the term ‘close connection’ as – “Persons closely related”. The person closely related can be interpreted as persons who are related to each other by way of participation in capital, management or control by one enterprise in the other enterprise or by way of common participation in capital, management or control by one enterprise in each of such enterprises whether directly or indirectly.

Further, the term "close connection" is quite vague which was also admitted by CBDT in a circular issued at the time of introduction of new TP provisions (Circular 14 of 2001)