cpe training_-_accountants_report_-__by_r_vikram

Accountant’s Report

u/s. 92E of the Income

Tax Act, 1961

CPE Study Circle Meeting at

SIRC of ICAI

12 November 2014

Finance Minister’s speech on the rationale for introducing

Transfer Pricing Regulations

“The presence of multinational enterprises in India and their

ability to allocate profits in different jurisdictions by

controlling prices in intra-group transactions has made the

issue of transfer pricing a matter of serious concern. I had set up

an Expert Group in November 1999 to examine the detailed

structure for transfer pricing legislation. Necessary legislative

changes are being made in the Finance Bill based on these

recommendations.”

Mr. Yashwant Sinha

Finance Minister, Government of India

February 28, 2001

Transfer Pricing Introduction in India

The Finance Act, 2001 introduced Transfer Pricing Regulation in India by substituting existing Section

92 of the Act and introducing new sections 92 to 92F w.e.f April, 2001 (from AY 2002-03). Rule 10A to

10E with reference these sections 92 have been notified subsequently.

The provisions of Chapter X as regards transfer pricing have been extended by Finance Act, 2012 to

specified domestic transaction (SDTs) with effect from assessment year 2013-14.

CBDT has issued the Notification #41 dated 10 June 2013 amending the relevant rules and revising

the Accountant’s Report in Form No. 3CEB to align the reporting requirements with the definition of

international transaction and the extended provisions of Transfer Pricing (TP) covering Specified

Domestic Transactions (SDT).

The Amended Income Tax Rules, has been brought with effect from the 1st of April 2013 - Primarily,

the words “International Transaction” has been substituted with “International transaction or a

Specified Domestic Transaction”

Transfer Pricing Provision

Legislative Framework

Section 92 – International and Specified Domestic

Transaction

Arms length Price

- Section 92C

Six Methods

- Rule 10B and 10C

Documentation

- Section 92D

Furnishing of factual information

- Rule 10D

Accountant’s Report

- Section 92E

True and Correct

- Rule 10E

Accountant’s Report – Section 92E

Section 92E

• Every person

• who has entered into an international transaction or SDT

during a previous year

• shall obtain a report from an accountant and furnish such

report

• on or before the specified date in the prescribed form

• duly signed and verified in the prescribed manner by

such accountant

• and setting forth such particulars as may be prescribed

Rule 10E

The report from an accountant required to be furnished

under section 92E by every person who has entered

into an international transaction or SDT during a

previous year, shall be in Form No. 3CEB and shall be

verified in the manner indicated therein

Traditionally Form No. 3CEB entailed

covering of International transactions

with Associated Enterprises

However Domestic Transfer Pricing was

made applicable from assessment year

2013 -14 whereby the existing Form

No. 3CEB was revised to include ‘Part C’

covering ‘clauses 21 to 25’ to capture data

relating to specified domestic

transactions (SDT)

With the advent of the same, the term

‘related party’ is also used along with the

traditional term Associated Enterprise for

addressing specified domestic

transactions

Form 3CEB

Every Person - Applies to both Residents & Non Residents (Foreign Companies) -Branch, PE.

No exemption from filing Form 3CEB - Even if, the Assessee has entered into international transactions

of INR 1, Form 3CEB must be filed.

Reporting of Domestic transactions is applicable if the aggregate value of the SDT is > INR 5 crore

The threshold limit for SDT can be computed either on net basis (i.e. without including indirect tax levies

like service tax, VAT, etc.) if the assessee is availing credit of those indirect taxes or on gross basis if the

assessee is not availing credit, depending upon the method of accounting regularly followed.

Report in the prescribed form – Information as required in respective clauses must be provided

Can be issued by Statutory auditor or any other CA in practice

Accountants Report – Sec 92E

Prepared by every person / enterprise entering

into an international transaction or SDT with AE /

related party

To be filed by the due date for filing return of

income

Opinion as to whether prescribed documents have

been maintained and the particulars in the report

are “true and correct”

An important document for the Assessing Officer

Contains summary of international transactions / SDTs;

Contains details of taxpayer;

Contains method employed to determine ALP

Date of e-filing of Form No. 3CEB is required to be

mentioned in the Return of Income

Digital Signature, Name, Membership number,

Date, Firm Name and Registration number

Form No. 3CEB

[See rule 10E]

Report from an accountant to be furnished under

section 92E relating to international transaction(s) or specified

domestic transaction(s)

1. We have examined the accounts and records of <<name of the

entity>>, with its registered office at <<insert address>> having

Permanent Account Number <<XXX>> that have been made available

to us relating to the international transaction(s) or specified domestic

transaction(s) entered into by the assessee during the previous year

ending on 31 March 2014.

2. In our opinion proper information and documents as are prescribed

have been kept by the assessee in respect of the international

transaction(s) or specified domestic transaction(s) entered into so far as

appears from our examination of the records of the assessee.

3. The particulars required to be furnished under section 92E are given in

the Annexure to this Form. In our opinion and to the best of our

information and according to the explanations given to us, the

particulars given in the Annexure, as read with notes appended thereto,

are true and correct.

Place :_______

Date : _______

For XXXX

Chartered Accountants

Membership Number

Features of Form 3CEB

Para 1

*I/we have examined the accounts and records of ……………….. (name and address of

the assessee with PAN) relating to the international transactions and specified

domestic transactions entered into by the assessee during the previous year ending on

31st March, ……….”

1. Cases where books/ accounts of foreign companies are not available ?

2. Reliance on the statutory audited results in case you are not the statutory auditor.

“For the purpose of this report we have relied upon the accounts of the assessee for the

year ended 31 March 2014 audited by <<insert name of the auditors>> vide their audit

report dated <<insert date>>.”

3. Reliance on management prepared accounts in case of different statutory year end.


Para 2

In *my/our opinion proper information and documents as are prescribed have

been kept by the assessee in respect of the international transactions and the

specified domestic transactions entered into so far as appears from *my/our

examination of the records of the assessee”.

1. Auditor signing the Form 3ceb, needs to check whether proper documentation

maintained

2. Documentation requirement prescribed in Sec 92 D read with Rule 10 D

3. Exemption from preparing detailed documentation, if the international transaction value

less than INR 1 crores - However, the Assessee must maintain documents to justify ALP.

4. More onus on auditor to satisfy whether adequate / appropriate documentation

maintained - - If any required document is not maintained, the Accountant should qualify

the report or disclose the same.

5. Reporting and Documentation, if SDT exceeds INR 5 crores


Para 3

The particulars required to be furnished under section 92E are given in the

Annexure to this Form. In *my/our opinion and to the best of my/our

information and according to the explanations given to *me/us, the particulars

given in the Annexure are true and correct”

1. True and correct v/s True and fair - Emphasis on factual accuracies.

2. Foreign companies – disclose the incapacity to gather all information

3. Limit the scope of work and review procedures to extent certified by him in

Form 3CEB

4. Most appropriate method - Para 9.17 of the revised GN

International Transaction – Section 92B

International Transactions

Tangible Property

Purchase, Sale, Transfer, Lease /Use of

property/article/ product/ thing

Includes Building, Vehicle, machinery etc.

Intangible property

Purchase, Sale, Transfer, Lease/Use of

IP

Includes Transfer of ownership/use of

rights/other commercial right

Marketing Intangibles

Capital Financing

Long/short term borrowing/lending

Guarantee

Purchase/Sale Securities

Advances/ receivables, Payments/any debt etc.

Provision of services

Market Research/ Development

Technical Service

Scientific Research

Legal/ Accounting Service etc.

Business restructuring

Transaction of Business restructuring/reorganization with AE irrespective of

bearing profit/income/loss or assets –at the time of transaction/future date

Specified Domestic Transactions – Section 92BA

Specified domestic transactions

Any expenditure in

respect of which payment

has been made or is to be made to a

person referred in clause (b) of subsection 2 of

40A

Any transaction

referred to in section 80A

Any transfer of goods or services

referred to in subsection (8) of section 80-

IA

Any business transacted between

assessee and other person as referred to in subsection (10) of section

80-IA

Any transaction

referred to in any other

section under Chapter VIA or section 10AA

to which subsection (8)

or (10) of section 80-IA

applies

Any other transaction as

may be prescribed

The New Form 3CEB

Vide the Notification, the Government has notified the new Form 3CEB, as part of Appendix –II of the

Primary Rules.

The 3CEB, erstwhile with 13 clauses for internal transactions has now been replaced with a new form,

with 25 clauses:

Further, as per Notification No. 4 of 2013, the filing of the Form 3CEB shall be mandatorily electronic.

Form 3CEB

Part A – General Information

9 Clauses (01-09)

Part B – International Transactions

11 Clauses (10-20)

Part C – Specified Domestic Transactions

5 Clauses (21-25)

Annexure to

Form No. 3CEB –

A Glimpse

Annexure to Form No. 3CEB

PART A

Clauses Description

Clause 1: Name of assessee Full and complete name

In case of change in name, write both new and old name

Clause 2: Address In case of foreign company, provide foreign address

Clause 3: PAN Permanent Account Number

Clause 4: Nature of business or

activities of the assessee

Code for nature of business to be filled in as per instructions for

filing Form ITR 6

Clause 5: StatusRefers to the person defined under Section 2(31) of the Act i.e.

Company in our case

Clause 6: Previous Year ended 31 March 2014

Clause 7: Assessment year 2014-15

Clause 8: Aggregate value of

international transactionsRefers to value of transactions as per books of accounts

Clause 9: Aggregate value of

specified domestic transactionsRefers to value of transactions as per books of accounts

Annexure to

Form No. 3CEB:

Part B –

International

Transactions

Clause 10: illustrationList of AEs with whom taxpayer has entered into international transactions

Details covered

• Legal organization chart covering all AEs , Name and the Address of each AE

• Nature of relationship with the AEs

• Business Description of AEs

Clause 10 : List of associated enterprises with whom the assessee has entered into international transactions

Sr. No. Name of the associated enterprise Nature of the relationship with the associated

enterprise as referred to in section 92A(2)

Brief description of the business carried on

by the associated enterprise

Clause 10(a) Clause 10(b) Clause 10(c)

1 XYZ

Tokyo, Japan

Holding / Subsidiary / Associate vide section….. Engaged in the business of …..

2

3

Key check points:

• Correct legal name of the AE (to be verified from the website / annual report / other documents)

• Nature of relationship - to be specific; reference to clause of 92A(2), verification using shareholding pattern,

investment schedule, notes to accounts, etc.

• Refer to register maintained under the companies act

• Details of common directors to evaluate the applicability of deemed AE.

Clause 11: illustration Particulars in respect of transactions in tangible property

Clause 11A : International transaction(s) in respect of purchase / sale of raw material, consumables or any other supplies for assembling or processing /

manufacturing of goods or articles from / to associated enterprises

Sr. No. Name and address of the

associated enterprise with

whom the international

transaction has been

entered into

Description of

transaction

Quantity purchased / sold Total amount paid / received or

payable / receivable in the

transaction

Method used for

determining the

arm’s length price

[See section 92C(1)]Unit of

Measurement

Quantity (i) as per books

of account

(ii) as computed

by the assessee

having regard

to the arm's

length price

Clause 11B(a) Clause 11B(b) Clause 11B(c) Clause 11B(d)

1 XYZ

Japan

Purchase of material

Clause 11B : International transaction(s) in respect of purchase / sale of traded / finished goods


associated enterprise

with whom the

international transaction

has been entered into

Description of transaction and quantity

purchased/sold

Total amount paid / received or payable /

receivable in the transaction

Method used for

determining the


[See section 92C(1)]Description of

transaction

Quantity (i) as per books of

account

(ii) as computed by

the assessee having

regard to the arm's

length price

Clause 11B(a) Clause 11B(b) Clause11B(c) Clause 11B(d)

1 XYZ Sale of finished products

Japan

Key check points:

• Verify value and quantitative details from notes to accounts (in addition to AS 18), invoices and ledger

accounts

• Customs valuation in case of imports and Standard pricing policy of the group.

• Basis of arriving at the purchase / sale price – Global Pricing policy of the Group

Clause 11...continued: illustration Particulars in respect of transactions in tangible property

Key check points: Clause 11C - capital assets

• Verification using fixed asset schedule.

• New Asset / used asset – Valuation report.

• In case of proprietary asset – basis of arriving at the cost and mark up charged, if any

• Customs valuation / independent valuer’s report in case of imports

• Clause 11C - Purchase / sale / transfer of any other tangible property or lease of such property – fixed assets

Clause 11C : International transaction(s) in respect of purchase, sale, transfer, lease or use of any other tangible property including transactions specified in

Explanation (i)(a) below section 92B(2)



with whom the

international transaction

has been entered into

Description of property and

nature of transaction

Number of units

of each category

of tangible

property involved

in the transaction

Amount paid / received of payable /

receivable in each transaction of purchase

/ sale / transfer / use, or lease rent paid /

received or payable / receivable in respect

of each lease provided / entered into

Method used for

determining the


[See section

92C(1)]

Description of

property

Nature of

transaction

(i) as per books of

account

(ii) as computed by the

assessee having regard

to the arm's length

price

Clause 11C(a) Clause 11C(b) Clause 11C(c) Clause 11C(d) Clause 11C(e)

1 XYZ

Clause 12: illustrationParticulars in respect of transactions of intangible property

• Transactions of purchase / sale / use of intangible

property i.e. marketing, technology related such

as know-how, patents, etc to be covered.

• Reliance on Valuation Report

• RBI approval is not a specified transfer pricing

method and often disputed by tax authorities

• Accountant’s Report needs to be filed for

foreign/non-resident entity, if there is income

earned from the Indian entity which is liable to tax

in India

Clause 12 : International transaction(s) in respect of purchase, sale, transfer, lease or use of intangible property including transactions specified in Explanation

(i)(b) below section 92B(2)


associated enterprise with whom

the international transaction has

been entered into

Description of intangible property and

nature of transaction

Amount paid / received or payable /

receivable for purchase / sale / transfer

/ lease / use of each category of

intangible property

Method used for

determining the arm’s

length price

[See section 92C(1)]

Description of

intangible property

Nature of

transaction

(i) as per books of

account

(ii) as computed by

the assessee having

regard to the arm's

length price

Clause 12(a) Clause 12(b) Clause 12(c) Clause 12(d)

1 XYZ

Japan

Use of Technical Know

how

Payment of

Royalty

Key check points

• Relevant agreements / similar arrangements with

other AEs / non AEs

• Computation of royalty as per existing agreement

• External comparables – data available on relevant

databases

• Withholding tax certificate and IT Return of foreign

enterprise

• Any foreign inward remittance / repatriation of

funds certificate

Clause 13: illustrationParticulars in respect of providing of services

• Services rendered / availed

• Amounts to be mentioned inclusive or exclusive of service tax?

• Note on Aggregation

Clause 13 : International transaction(s) in respect of services including transactions as specified in Explanation (i)(d) below section 92B(2)

Sr. No. Name and address of the associated

enterprise with whom the international

transaction has been entered into

Description of services provided /

availed to / from the associated

enterprise


receivable for the services provided / taken

Method used for

determining the


[See section 92C(1)](i) as per books of

account

(ii) as computed by

the assessee having

regard to the arm's

length price


1 ABC Inc.

Address >>>>

Key check points:

• Review the agreement(s), invoices, debit notes raised

• Check for CUP i.e., whether services are provided to unrelated parties

• Profitability of the entity / division (AE and Non AE)

Clause 14: illustrationParticulars in respect of lending or borrowing money

• Interest payments for loan taken / on debentures

• Interest receipts for loans given

• Interest free loans / borrowings

• Interest on overdue receivables / payables from / to

AEs

• Other capital financing transactions

• In case of loan transactions, whether loan amount or

interest is to be reported?

Clause 14 : International transaction(s) in respect of lending or borrowing of money including any type of advance, payments, deferred payments, receivable,

non-convertible preference shares / debentures or any other debt arising during the course of business as specified in Explanation (i)(c) below section 92B(2)




transaction has been entered

into

Nature of

financing

agreement

Currency in

which

transaction has

taken place

Interest rate charged /

paid

in respect of each

lending /

borrowing



Method used for

determining the


[See section

92C(1)](i) as per books of

account

(ii) as computed

by the assessee

having regard to

the arm's length

price

Clause 14(a) Clause 14(b) Clause 14(c) Clause 14(d) Clause 14(e) Clause 14(f)

1 XYZ Japan

Key check points

• Relevant agreement, Internal CUPs, existing

borrowing terms, etc

• Rate of interest on independent borrowings

by AEs

• Purpose for lending, source of funds in case

of lending, i.e. Internal accruals, foreign

borrowings, etc

• External CUP - PLR, LIBOR, US FED rates,

quotations, etc

Clause 15: illustration Particulars in respect of transactions in the nature of guarantee

• Explicit guarantees provided / received to /

from AEs

• Guarantee fees received and paid

• Free of cost transactions, including receipt

or provision of corporate guarantee. Note to

be mentioned in case of free guarantee for

purpose of justification / self - adjustment

• Note

Clause 15 : International transaction(s) in the nature of guarantee

Sr. No. Name and address of the associated enterprise

with whom the international transaction has

been entered into

Nature of guarantee

agreement

Currency in which

guarantee

transaction was

undertaken

Compensation / fees

charged / paid in

respect of the

transaction

Method used for


length price


Clause 15(a) Clause 15(b) Clause 15(c) Clause 15(d) Clause 15(e)

1 XYZ Inc.

Address >>>>

Key check points

• Whether guarantee provided in similar manner

for other group entities - Check for internal /

external CUPs i.e., whether guarantee

provided to AEs / non AEs

• Computation of guarantee fee in case

guarantee issued for part of the year

Clause 16: illustrationParticulars in respect of international transactions of purchase / sale of marketable securities,

issue / buyback of equity shares, and various types of convertible debentures / preference shares

• Purchase / sale of marketable securities /

equity shares / debentures / preference

shares

• Issue / subscription of various types of

shares / convertible debentures /

convertible preference shares

• Share valuation report may be considered

as justification under the Other Method for

subsequent issue of shares

Clause 16 : International transaction(s) in respect of purchase or sale of marketable securities or issue of equity shares including transactions

specified in Explanation (i)(c) below section 92B(2)

Sr. No. Name and address of the associated

enterprise with whom the

international transaction has been

entered into

Nature of transaction Currency in which

transaction was

undertaken

Consideration

charged / paid in

respect of the

transaction

Method used for


length price


Clause 16(a) Clause 16(b) Clause16(c) Clause16(d) Clause 16(e)

1 XYZ Japan

Key check points

• Taxability of transaction

• Requisite share valuation report

• Certificate of foreign inward remittance / share

certificate, etc

• Details of board minutes, shareholders meeting,

etc

• Whether receipt / payment of Share application

money needs to be reported?

Clause 17: illustration Particulars in respect of mutual agreement or arrangement

• Cost allocation agreements (with or

without any mark-up)

• Cost sharing agreements (with or

without any mark-up)

• Transactions where costs / services

pooled / centralized and charged at

cost plus mark-up

Clause 17 : International transaction with an associated enterprise or enterprises by way of a mutual agreement or arrangement for the allocation or

apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be

provided to any one or more of such enterprises


associated enterprise with whom

the international transaction has

been entered into

Description of such mutual

agreement or arrangement

Amount paid/ received or payable/ receivable in

the transaction

Method used for


length price


(i) as per books of account (ii) as computed by

the assessee having

regard to the arm's

length price


1 XYZ Japan

Key check points:

• Verification of basis for cost-sharing (relevant

agreement), cost details, etc

• Whether similar basis applied consistently for other

group entities

• Audit certificate for cost allocation if any, obtained by

the AE

• Documentary evidence to demonstrate services

received / rendered, benefits derived

Clause 18: illustrationParticulars in respect of international transactions arising out / being part of business

restructuring or reorganizations

• Cross border transfers of valuable intangibles

• Termination / renegotiation of existing arrangements

• Internal reallocation of FAR within group / shift in

allocation of profits

• Rationalisation / specialisation / de-specialisation of

operations / down sizing / closing of operations

• Change in operations / organization / nature / scope

of transactions amongst controlled entities

• Conversion of full-fledged distributors into limited-

risk distributors, etc

Clause 18 : International transaction(s) arising out / being part of any business restructuring or reorganization entered into by it with the associated

enterprise or enterprises as specified in Explanation (i)(e) below section 92B(2) and which has not been specifically referred to in any other clauses

Sr.

No.

Name and address of the associated

enterprise with whom the international


Nature of transaction Agreement in relation to

such business

restructuring /

reorganization

Terms of business

restructuring /

reorganization

Method used for


length price


Clause 18(a) Clause 18(b) Clause 18(c) Clause 18(d) Clause 18(e)

1 ABC Inc.

Address >>>>

Agency Services

Agreement

Key check points:

• Verification of basis for restructuring

(relevant agreement), reorganisation

details, etc.

• Cost benefit analysis (whether restructuring

commensurate with benefits derived)

• Profitability of AE / non AE before

restructuring, etc

Clause 19: illustrationParticulars in respect of any other transaction including the transaction having a bearing on the

profits, income, losses or assets of the assessee

• Reimbursements / recovery of expenses

• Goods / services received free of cost

• Other residual transactions not covered

in any other clauses

• Other items such as prior period

income, reversals of earlier years

figures may be covered with special

emphasis on ‘Notes’ to explain the same

Clause 19: Any other international transaction(s) including a transaction having a bearing on the profits, income, losses or asset but not specifically referred

to above, with associated enterprises





into

Description of transaction Amount paid / received or payable / receivable

in the transaction

Method used for


length price


(i) as per books of

account

(ii) as computed by

the assessee having

regard to the arm's

length price


1 ABC Limited Recovery of bank charges Comparable Uncontrolled

Price Method (Refer to Note

1 below)

Address >>>>

2 ABC Inc. Reimbursement of product liability

charges

Comparable Uncontrolled

Price Method (Refer to

Note 1 below)

Key check point :

• To ensure that reimbursement / recovery of

expenses are at actual cost and do not involve

any service, else need to disclose them under

relevant clauses

• Verify sample invoices.

Clause 20: illustrationParticulars of deemed international transactions

• A transaction entered into with non-AE

where prior arrangement for such

transaction/terms of such transaction are

determined in substance thus engaging

both parties

• Deemed international transactions where

an independent third party can be

interposed by two AEs to remain out of

transfer pricing provisions

Clause 20 : Any transaction with a person other than an AE in pursuance of a prior agreement in relation to the relevant transaction between such other person

and the associated enterprise

Sr. No. Name and address of the person other

than the associated enterprise with

whom the deemed international


Description of the transaction Amount paid / received or payable /


Method used for

determining the



(i) as per books of

account

(ii) as computed by

the assessee having

regard to the arm's

length price


1 XYZ Inc..

Address >>>>

Key check points

• Evidence regarding influence of AE on price,

terms of transactions, etc

• Details of prior arrangements / agreements

• Details of invoices, debit notes, etc

• Check for CUP i.e., whether goods / services

are provided to unrelated parties

Annexure to Form No.

3CEB:

Part C – Specified

Domestic Transactions

(SDT)

Clause 21: illustrationList of Related Parties with whom the assessee has entered into SDT with the necessary details

• Name, address and PAN of the related party(s)

• Nature of the relationship with related party

• Brief description of the business carried on by

the said related party

• Cover details of relationships with managerial

personnel, holding / subsidiary company, inter-

unit transactions and those with closely

connected persons

Clause 21 : List of associated enterprises with whom the assessee has entered into specified domestic transactions

Sr. No. Name of the associated enterprise Address of the associated

enterprise

PAN of the


Nature of the relationship with the


Brief description of the

business carried on by the

said associated enterprise

Clause 21 (a) Clause 21 (b) Clause 21 (c)

2 ABC India Medical Ltd

(Pune SEZ Unit)

Address >>>> PAN >>>> ABC India Pvt Ltd beneficially

owns shares having voting powers

of not less than 20% of ABC India

Medical Ltd

Manufacturing of

Pharmaceutical Products

Key check points:

• Correct legal name of the related party (to

be verified from the website / annual

report) along with PAN details, etc

• Nature of relationship - to be specific;

reference to clause of 92BA , verification

using shareholding pattern, investment

schedule, etc

• Whether indirect shareholding

relationships covered?

Clause 22: illustrationParticulars in respect of transactions in the nature of any expenditure

• Expenditures made to persons covered

under section 40A(2)(b) of the Act.

Emphasis on direct / indirect holding.

• Transactions where tax holiday / deduction

is claimed in respect of capital expenditure

• Managerial remuneration

• Expenditure for which no deduction/part

deduction has been claimed

• Reimbursements to related parties

Clause 22 : Specified domestic transaction(s) being any expenditure in respect of which payment has been made or is to be made to any person referred to in

section 40A(2)(b)

Sr. No. Name of the person with whom

the specified domestic


into

Description of the transaction along

with quantitative details, if any

Total amount paid or payable in the

transaction

Method used for


length price

[See section 92C(1)]Description of the

transaction


account

(ii) as computed by

the assessee having

regard to the arm's

length price

1 ABC India Support Limited

Key check points:

• Verify value and quantitative details from

notes to accounts (in addition to AS 18), tax

audit report, invoices and ledger accounts,

fixed assets schedule, etc

• Service / employment contracts / agreements

• Minutes of board meetings for managerial

remuneration

• Other relevant documents substantiating

expenditure

Clause 23: illustrationParticulars in respect of transactions in the nature of transfer or acquisition of any goods or

services

• SDTs in nature of transfer / acquisition of any goods or services referred to in 80A(6), 80IA(8) or

10AA

• Transactions for which tax holiday is not claimed by the Eligible Unit / Undertaking

• Above covers income as well as expenditure transactions

Clause 23B : Specified domestic transaction(s) in the nature of transfer or acquisition of any goods or services by an undertaking or unit or enterprise or eligible

business of the assessee [as referred to in section 80A(6), 80IA(8) or section 10AA] from another business of the assessee

Sr. No. Name and detail of business to which goods or services

have been acquired

Description of goods or

services acquired

Amount paid / payable for acquiring of

such goods or services

Method used for


length price


Name of business Details of business (i) as per books of

account

(ii) as computed by

the assessee having

regard to the arm's

length price

Clause 23B(a) Clause 23B(b) Clause 23B(c) Clause 23B(d)

1 ABC India Medical Ltd –

(Pune SEZ Unit)Manufacturer of

Medical ProductsSale of Medicines

Clause 23A : Specified domestic transaction(s) in the nature of transfer or acquisition of any goods or services by an undertaking or unit or enterprise or eligible

business of the assessee [as referred to in section 80A(6), 80IA(8) or section 10AA)] to any other business carried on by the assessee

Sr. No. Name and details of business to which goods or services

have been transferred

Description of goods

or services transferred

Amount received / receivable for transferring of

such goods or services

Method used for


length price


Name of business Details of business (i) as per books of account (ii) as computed by the


to the arm's length

price

Clause 23A(a) Clause 23A(b) Clause 23A(c) Clause 23A(d)

1 ABC India Support Ltd Operating retail

pharmacy stores

Purchase of

Medicines

Key check points:

• Verify value and quantitative details from notes to accounts (in addition to AS 18), invoices and ledger

accounts, fixed assets schedule, etc


• Check for CUP i.e., whether services are provided to unrelated parties

• Profitability of the entity / division (related party / non-related party)

• Whether inter unit cost allocations are equivalent to ‘expenditure’ – whether same is required to be

reported in this clause?

Clause 23: illustrationParticulars in respect of transactions in the nature of transfer or acquisition of any goods or

services

Clause 24: illustrationParticulars in respect of any SDT in the nature of business transacted

• Transactions resulting in more than

ordinary profits to an eligible business

under section 80IA (10) or 10AA

• Covers amounts paid / payable or

received / receivable

• TP study to be relied upon to

determine whether transactions are at

arm’s length. Accordingly to be

covered here only if transaction

resulting in more than ordinary profit

Clause 24 : Specified domestic transaction (s) in the nature of any business transacted which has resulted in more than ordinary profits to an eligible business to which

section 80IA(10) or section 10AA applies

Sr. No. Name of the person with whom the

specified domestic transaction has

been entered into

Description of the transaction including

quantitative details, if any

Total amount received / receivable or paid /

payable in the transaction

Method used for


length price

[See section 92C(1)]Description of the

transaction


account



to the arm's length

price

Clause 24 (a) Clause 24 (b) Clause 24 (c) Clause 24 (d)

1 ABC India Medical Limited Sale of Equipment 1 2,000,000 2,000,000 Other Method (Refer

to Note below)

Key check points:

• Verify value and quantitative details from notes to

accounts (in addition to AS 18), invoices and ledger

accounts, fixed assets schedule, etc


• Check for CUP i.e., whether services are provided to

unrelated parties

• Profitability of the entity / division (related party and Non

related party)

Clause 25: illustrationParticulars in respect of any other transactions

Clause 25 : Any other specified domestic transaction(s) not specifically referred to above in any other clauses, with an associated enterprise

Sr. No. Name of the person with whom the specified

domestic transaction has been entered into

Description of the

transaction

Amount paid/received or payable/receivable in

the transaction

Method used for


length price

[See section 92C(1)](i) as per books of

account



to the arm's length

price

Clause 25 (a) Clause 25 (b) Clause 25 (c) Clause 25 (d)

1 ABC India Medical Limited --- 2,000,000 2,000,000 Other Method (Refer

to Note below)

Key check point:

• This residual clause is to cover transactions which may be prescribed per Section 92BA(vi). As there are

no transactions which have been prescribed till date, this clause has to be replied by stating a “No”.

Form No. 3CEB checklist

General applicability:

• Ensure that the TP approach and disclosures

in Form No. 3CEB are consistent with previous

year

• Check references of notes against the amount

and follow consistent wordings in all annexures

• Ensure correct description of nature of

transaction

• All international transactions or SDTs, even

though insignificant, need to be reported

• If international transactions or SDTs not at ALP,

suitable note to be disclosed in Form

No. 3CEB for self adjustment

• Form No. 3CEB to be signed on / dated after

the date of audited accounts

• Return of Income to be filed / uploaded after

signing of Form No. 3CEB

Details / documents to be examined Verified

Audited accounts √

Notes to accounts – Forex Details √

AS 18 / related party disclosures √

Shareholding pattern and changes during

the year

√

Tax Audit Report √

Transfer Pricing Study Report √

Inter-company agreements √

Local / Global Transfer pricing policy √

Representation Letter √

Invoice / Ledger copy(s) √

Documents evidencing internal / external

Comparables

√

RBI / other regulatory approvals √

Responsibility of Taxpayer

• Identify all international transactions and SDT during the year with AE / related parties

• Determination of most appropriate transfer pricing methodology

• Recognizing comparable transactions / entities, as much as is relevant from TP perspective.

• Providing relevant industry-level and market-level information, such as key markets, major customers,

competitors etc.

• Providing insight into price-setting mechanism

(Transfer Pricing Study to cover the above)

• Determination of arms length price.

• Compilation of relevant documents as proof of Arm’s Length Price on real time basis

• Maintenance of transfer pricing documentation (as per section 92D r.w. Rule 10D)

• Furnish completed Annexure to Form No. 3CEB to the Accountant

• Approve the Form No. 3CEB uploaded online by the Chartered Accountant as a final step towards filing

of e-form

Responsibility of the Accountant

• Review accuracy and completeness of information compiled by taxpayer

• Reconcile transactions in Form No. 3CEB with audited accounts (related party disclosure, notes to

accounts)

• Verify details in tax audit report to ensure that relevant transactions with related parties in 40A(2)(b) are

covered

• Verify the details mentioned in the notes to accounts, register of transactions with related parties

• Test-check, invoices, negotiations, correspondence, ledger accounts, agreements, etc.

• Collate documents – 100% CUP details, reimbursement / recovery details, documents evidencing the

receipt of services and benefits, etc.

• Compare last year’s Form No. 3CEB with current year’s to ensure no regular international transactions

or SDT are missed out.

• ‘Smell test’ - to identify unreported transactions e.g. Guarantees given on behalf of subsidiaries,

interest free loan, loan taken and repaid in the same year, etc.

• Interview client to check if AE / related party relationship with any party exists under any clauses of

Section 92A(2) and also check if ‘Deemed International Transaction’ exist under Section 92B(2)

Penalties

Penalties under Section 271BA / 271 AA

Fails to furnish a report from an accountant as required by section 92E, attracts penalty of

INR 100,000

Fails to report any International transaction / SDT, attracts penalty of 2% of the value of such

transactions

E Filing

Register on Department’s Website

• Membership No, PAN & Date of Birth

• Enrolment Date & Digital Signature

Form 3CEB Preparation

• Offline – Utility

Form Submission

• Upload .xml File

• Attach Digital Signature

Register/Login on Department’s Web

Add CA

• Name & Membership No. of CA

• Form Type & Asst. Year

Form Acceptance

• Worklist – Accept/ Reject

File Return of Income - Mention Date of Furnishing of Report in ITR

Procedure For E-filing – Chartered Accountant

Procedure For E-filing – Taxpayer

Issues relating to filing of Form 3CEB

• Clause 5 - The drop down menu in the existing form does not have options for Branch, PE or a

foreign company.

• Absence of disclosure of explanatory Notes

• Qualified Accountant’s Report ?

• Method has to be mandatorily chosen from a drop down menu i.e, even for receivables / payables, a

method to benchmark will necessarily have to be chosen

• No option of attachment

• Special characters not allowed

• Limitation of words in sub-clause (eg. Business description was restricted to 100 words)

• Uploading of “xml” file through fake path

• Frequent changes by department of “xml” file structure

• Change in filing java utility.

• Format for Foreign company Form 3CEB?

• DSC of client needs to be registered

• PAN based

• Whether physical filing done / allowed ?

• Difficulties in identifying errors in the xml file.

Case Law on 271 BA

Case Ruling

Ajit Singh Rana v/s. ACIT

Amritsar ITAT held that ignorance of Law (CA not aware of TP provisions)

could not be considered as reasonable cause & hence penalty chargeable

u/s 271 BA from AY 03-04 to AY 05-06

Syscom Corporation

Limited v/s. DCIT

Assessee filed report u/s 92E filed on due date in Delhi instead of Mumbai,

but filed after two weeks in Mumbai after realizing the mistake

Mumbai ITAT held delay on account of technical nature a reasonable cause

for not applying penalty u/s 271BA

IL & FS Maritime

Infrastructure Company Ltd

v/s. ACIT

- Before Amendment to

section 92B

Mumbai ITAT held that assessee’s belief that share investment is not

transaction within the scope of sec. 92B is a reasonable clause and hence

delay in filing report u/s 92E not intentional.

Nectar Lifesciences Ltd vs.

DCIT

Delhi Tribunal held that Penalty u/s 271BA for non-furnishing of Form 3CEB

before specified date upheld; Form 3CEB is to be 'filed' on or before due

date of filing return of income; It is not 'annexed' to return; Rule 12(2)

providing 'no annexure to return' not relevant; Form 3CEB is an

Accountant's report & not Auditor's report

MRL

MRL is Management Representation in respect of Accountant’s Report under section 92E of the Income

Tax Act, 1961 relating to International /Specified Domestic Transactions of the assessee

Broad contents of MRL:

• Declaration as regards information / documents required as per Rule 10D are contained in TP Study

Report

• Declaration as regards completeness of international transactions and reconciliation with Audited

Financial Statements

• Ownership Structure

• International transactions / SDT

• Most Appropriate Method followed

• Reimbursement of expenses

• Note w.r.t. to each clause

Q&A

&Questions

Answers

Thank You

R Vikram

[email protected]

cpe training_-_accountants_report_-__by_r_vikram

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