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16 January, 2018

How To Handle A Transfer Pricing Audit For International Cases

under Indian Income Tax Act, 1961 – Some Practical Keynote
Points
How To Handle A Transfer Pricing Audit For International Cases under Indian
Income Tax Act, 1961 – Some Practical Keynote Points

By CA Ankit Gulgulia (Jain)

B.COM(H), FCA, CIFRS,CBV

Transfer pricing (TP) is a concept of taxation which seeks to tax transactions based on
propriety on not just the transaction value at which the transaction was undertaken
but a Arm’s Length Value. This one single mere fact makes the same vulnerable to so
many different views and subjectivity between the assessee and Income Tax
Department. Assumingly, as assessee you have received a Transfer Pricing
Audit/Reference Notice u/s 92CA of Income Tax Act,1961, this article aims to
discuss what shall be your mechanism for Successfully Handling of Such TP Audit.

As per Section 92CA,

Where any person, being the assessee, has entered into an international transaction
or specified domestic transaction in any previous year, and the Assessing Officer
considers it necessary or expedient so to do, he may, with the previous approval of
the Principal Commissioner or Commissioner, refer the computation of the arm's length
price in relation to the said international transaction or specified domestic transaction under
section 92C to the Transfer Pricing Officer.
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Firstly, not in all cases of Scrutiny u.s 143, you would find your case being referred to
TPO even in case of International Transactions done by you. Normally, the Income tax
Department have quantum of Turnover criterion say Rs 10 Cr etc to atleast consider it
to refer to TPO during scrutiny. Though it is not something freezed and even
suspicious pricing may force ITO to refer to TPO also.
Say that you were subjected to Scrutiny under Income Tax and now the case has been
referred to TPO, you need to follow a certain recommended modus operandi to ensure
high success rate in handling the case. Some of Key aspects are as under:-

a) Assessee needs to ensure all the records as prescribed under Section 92D and Rules
prescribed thereunder are available and duly collated in one Master File.
b) All the Financials Statements to be Filed in Separate File including the Basic Notice
papers as seeked by TPO.
c) Every Year all these Papers as prescribed in 92D along with Computation of Arm’s
Length Price shall be Collated and Certified by Chartered Accountant in Practice so as
to Constitute a “Transfer Pricing Study Report”. Note this different from TP
Certification conducted by Chartered Accountant and Filed as Form 3CEB every year
for such Assessee at the time of Annual Filing.
d) TP Study Report shall constitute of Detailed Study of assessee and transactions
undertaken with Associated Enterprises, Nature of Such Transactions and How the
Method of Computation have been arrived at.
e) Further, TP Study should give a clear idea about the transactions undertaken during
that year and what is ALP computed by such signing professional. Any divergence
must be treated in the Income Tax Return as Additional Income and tax thereon shall
become payable. Note there are provisions which make TP Adjusted Income
Divergence status Quo with Concealed Income, hence due care in TP is Very
Significant.
f) Once you are done with Subscribe
all the documents and TP
Free Email Study Report, IT Returns, Form
Updates
3CEB etc and all other documents as required by TPO, one must be prepared for Hard
ENTER
Grilling by YOUR NAMETax
the Income HERE... Enter your
Department email
on the address
Hearings in here...
the case. One Must be
 !

100% confident on the Transactions nature and computation modus with Legal
Arguments to back up to ensure you are able to present the case better.
g) Make Sure all the communications and correspondences are duly made in writing and
such submissions are acknowledged from IT Department.
h) All Emails and Soft Copies should be Marked only to Email Id’s as mentioned in the
Notice only.
i) In case of Conflict between you and Income Tax Department, you can move to higher
appeals as the case may be.

Trust the Above would be Useful in helping you Successfully Handling Transfer
Pricing Audit by Indian Income Tax Department.

CA Ankit Gulgulia(Jain)
Related Tags Income Tax, Incometax

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