Accountant’s Report

u/s. 92E of the Income

Tax Act, 1961

CPE Study Circle Meeting at

SIRC of ICAI

12 November 2014
Transfer Pricing Introduction in India

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 Provision

 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”
Legislative Framework

Section 92 – International
and Specified Domestic
Transaction

Arms length Price Documentation Accountant’s Report

- Section 92C - Section 92D - Section 92E

Furnishing of factual
Six Methods True and Correct
information
- Rule 10B and 10C - Rule 10E
- Rule 10D
Accountant’s Report – Section 92E
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
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
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.

Features of Form 3CEB

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

Features of Form 3CEB

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

Business
Tangible Property Intangible property Capital Financing Provision of services
restructuring

Purchase, Sale, Purchase, Sale,

Long/short term Market Research/
Transfer, Lease /Use of Transfer, Lease/Use of
borrowing/lending Development
property/article/ IP
product/ thing
Transaction of Business
restructuring/reorganizatio
n with AE irrespective of
Includes Transfer of bearing profit/income/loss
ownership/use of Guarantee Technical Service or assets –at the time of
Includes Building, rights/other commercial transaction/future date
Vehicle, machinery etc. right

Purchase/Sale
Scientific Research
Securities
Marketing Intangibles

Advances/ receivables, Legal/ Accounting

Payments/any debt etc. Service etc.
Specified Domestic Transactions – Section 92BA

Specified domestic transactions

Any Any
expenditure in Any business transaction
respect of Any transfer of transacted referred to in
which payment goods or between any other
Any assessee and section under Any other
has been services
transaction other person Chapter VIA or transaction as
made or is to referred to in
referred to in as referred to section 10AA may be
be made to a subsection (8)
section 80A in subsection to which prescribed
person referred of section 80-
in clause (b) of IA (10) of section subsection (8)
subsection 2 of 80-IA or (10) of
40A section 80-IA
applies
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:

Form 3CEB

Part A – General Part B – International Part C – Specified

Information Transactions Domestic Transactions

9 Clauses (01-09) 5 Clauses (21-25)

11 Clauses (10-20)

 Further, as per Notification No. 4 of 2013, the filing of the Form 3CEB shall be mandatorily electronic.
 Annexure to
Form No. 3CEB –
A Glimpse
Annexure to Form No. 3CEB

PART A

Clauses Description

Full and complete name

Clause 1: Name of assessee
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 Code for nature of business to be filled in as per instructions for
activities of the assessee filing Form ITR 6

Refers to the person defined under Section 2(31) of the Act i.e.
Clause 5: Status
Company in our case

Clause 6: Previous Year ended 31 March 2014

Clause 7: Assessment year 2014-15

Clause 8: Aggregate value of

Refers to value of transactions as per books of accounts
international transactions

Clause 9: Aggregate value of

Refers to value of transactions as per books of accounts
specified domestic transactions
 Annexure to
Form No. 3CEB:

Part B –
International
Transactions
Clause 10: illustration
List of AEs with whom taxpayer has entered into international transactions

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 Brief description of the business carried on
enterprise as referred to in section 92A(2) by the associated enterprise

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

1 XYZ Holding / Subsidiary / Associate vide section….. Engaged in the business of …..
Tokyo, Japan
2

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

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 Description of Quantity purchased / sold Total amount paid / received or Method used for
associated enterprise with transaction payable / receivable in the determining the
whom the international transaction arm’s length price
transaction has been Unit of Quantity (i) as per books (ii) as computed [See section 92C(1)]
entered into Measurement of account 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 Purchase of material
Japan
Clause 11B : International transaction(s) in respect of purchase / sale of traded / finished goods

Sr. No. Name and address of the Description of transaction and quantity Total amount paid / received or payable / Method used for
associated enterprise purchased/sold receivable in the transaction determining the
with whom the Description of Quantity (i) as per books of (ii) as computed by arm’s length price
international transaction transaction account the assessee having [See section 92C(1)]
has been entered into 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

• 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)
Sr. No. Name and address of the Description of property and Number of units Amount paid / received of payable / Method used for
associated enterprise nature of transaction of each category receivable in each transaction of purchase determining the
with whom the of tangible / sale / transfer / use, or lease rent paid / arm’s length price
international transaction property involved received or payable / receivable in respect [See section
has been entered into in the transaction of each lease provided / entered into 92C(1)]

Description of Nature of (i) as per books of (ii) as computed by the

property transaction account 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

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 12: illustration
Particulars in respect of transactions of intangible property

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)
Sr. No. Name and address of the Description of intangible property and Amount paid / received or payable / Method used for
associated enterprise with whom nature of transaction receivable for purchase / sale / transfer determining the arm’s
the international transaction has / lease / use of each category of length price
been entered into intangible property [See section 92C(1)]
Description of Nature of (i) as per books of (ii) as computed by
intangible property transaction account the assessee having
regard to the arm's
length price
Clause 12(a) Clause 12(b) Clause 12(c) Clause 12(d)
1 XYZ Use of Technical Know Payment of
Japan how Royalty

• Transactions of purchase / sale / use of intangible Key check points

property i.e. marketing, technology related such
as know-how, patents, etc to be covered. • Relevant agreements / similar arrangements with
other AEs / non AEs
• Reliance on Valuation Report • Computation of royalty as per existing agreement

• RBI approval is not a specified transfer pricing • External comparables – data available on relevant
method and often disputed by tax authorities databases
• Withholding tax certificate and IT Return of foreign
• Accountant’s Report needs to be filed for enterprise
foreign/non-resident entity, if there is income
earned from the Indian entity which is liable to tax • Any foreign inward remittance / repatriation of
in India funds certificate
Clause 13: illustration
Particulars in respect of providing of services

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 Description of services provided / Amount paid / received or payable / Method used for
enterprise with whom the international availed to / from the associated receivable for the services provided / taken determining the
transaction has been entered into enterprise arm’s length price
(i) as per books of (ii) as computed by [See section 92C(1)]
account the assessee having
regard to the arm's
length price

Clause 13(a) Clause 13(b) Clause 13(c) Clause 13(d)

1 ABC Inc.
Address >>>>

• Services rendered / availed

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

• Note on Aggregation

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: illustration
Particulars in respect of lending or borrowing money

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)

Sr. No. Name and address of the Nature of Currency in Interest rate charged / Amount paid / received or payable / Method used for
associated enterprise with financing which paid receivable in the transaction determining the
whom the international agreement transaction has in respect of each arm’s length price
transaction has been entered taken place lending / (i) as per books of (ii) as computed [See section
into borrowing account by the assessee 92C(1)]
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

• Interest payments for loan taken / on debentures

Key check points
• Interest receipts for loans given
• Relevant agreement, Internal CUPs, existing
borrowing terms, etc
• Interest free loans / borrowings
• Rate of interest on independent borrowings
• Interest on overdue receivables / payables from / to by AEs
AEs • Purpose for lending, source of funds in case
of lending, i.e. Internal accruals, foreign
• Other capital financing transactions borrowings, etc
• In case of loan transactions, whether loan amount or • External CUP - PLR, LIBOR, US FED rates,
interest is to be reported? quotations, etc
Clause 15: illustration
Particulars in respect of transactions in the nature of guarantee

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

Sr. No. Name and address of the associated enterprise Nature of guarantee Currency in which Compensation / fees Method used for
with whom the international transaction has agreement guarantee charged / paid in determining the arm’s
been entered into transaction was respect of the length price
undertaken transaction [See section 92C(1)]

Clause 15(a) Clause 15(b) Clause 15(c) Clause 15(d) Clause 15(e)
1 XYZ Inc.
Address >>>>

• Explicit guarantees provided / received to / Key check points

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
• 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: illustration
Particulars in respect of international transactions of purchase / sale of marketable securities,
issue / buyback of equity shares, and various types of convertible debentures / preference 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 Nature of transaction Currency in which Consideration Method used for
enterprise with whom the transaction was charged / paid in determining the arm’s
international transaction has been undertaken respect of the length price
entered into transaction [See section 92C(1)]
Clause 16(a) Clause 16(b) Clause16(c) Clause16(d) Clause 16(e)
1 XYZ Japan

• Purchase / sale of marketable securities / Key check points

equity shares / debentures / preference
shares • Taxability of transaction
• Requisite share valuation report
• Issue / subscription of various types of
shares / convertible debentures / • Certificate of foreign inward remittance / share
convertible preference shares certificate, etc
• Details of board minutes, shareholders meeting,
• Share valuation report may be considered etc
as justification under the Other Method for
subsequent issue of shares • Whether receipt / payment of Share application
money needs to be reported?
Clause 17: illustration
Particulars in respect of mutual agreement or arrangement

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
Sr. No. Name and address of the Description of such mutual Amount paid/ received or payable/ receivable in Method used for
associated enterprise with whom agreement or arrangement the transaction determining the arm’s
the international transaction has (i) as per books of account (ii) as computed by length price
been entered into the assessee having [See section 92C(1)]
regard to the arm's
length price
Clause 17(a) Clause 17(b) Clause 17(c) Clause 17(d)
1 XYZ Japan

• Cost allocation agreements (with or Key check points:

without any mark-up)
• Verification of basis for cost-sharing (relevant
• Cost sharing agreements (with or agreement), cost details, etc
without any mark-up) • Whether similar basis applied consistently for other
group entities
• Transactions where costs / services
pooled / centralized and charged at • Audit certificate for cost allocation if any, obtained by
cost plus mark-up the AE
• Documentary evidence to demonstrate services
received / rendered, benefits derived
Clause 18: illustration
Particulars in respect of international transactions arising out / being part of business
restructuring or reorganizations

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. Name and address of the associated Nature of transaction Agreement in relation to Terms of business Method used for
No. enterprise with whom the international such business restructuring / determining the arm’s
transaction has been entered into restructuring / reorganization length price
reorganization [See section 92C(1)]
Clause 18(a) Clause 18(b) Clause 18(c) Clause 18(d) Clause 18(e)
1 ABC Inc. Agency Services
Address >>>> Agreement

• Cross border transfers of valuable intangibles

Key check points:
• Termination / renegotiation of existing arrangements
• Verification of basis for restructuring
• Internal reallocation of FAR within group / shift in (relevant agreement), reorganisation
allocation of profits details, etc.
• Cost benefit analysis (whether restructuring
• Rationalisation / specialisation / de-specialisation of commensurate with benefits derived)
operations / down sizing / closing of operations
• Profitability of AE / non AE before
• Change in operations / organization / nature / scope restructuring, etc
of transactions amongst controlled entities

• Conversion of full-fledged distributors into limited-

risk distributors, etc
Clause 19: illustration
Particulars in respect of any other transaction including the transaction having a bearing on the
profits, income, losses or assets of the assessee

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
Sr. No. Name and address of the
associated enterprise with
whom the international
transaction has been entered
into
Clause 19(a)
1 ABC Limited
Address >>>>
2 ABC Inc.
Description of transaction
Clause 19(b)
Recovery of bank charges
Reimbursement of product liability
charges
Amount paid / received or payable / receivable Method used for
in the transaction determining the arm’s
(i) as per books of (ii) as computed by length price
account the assessee having [See section 92C(1)]
regard to the arm's
length price
Clause 19(c) Clause 19(d)
Comparable Uncontrolled
Price Method (Refer to Note
1 below)
Comparable Uncontrolled
Price Method (Refer to
Note 1 below)

• Reimbursements / recovery of expenses

Key check point :
• Goods / services received free of cost • To ensure that reimbursement / recovery of
expenses are at actual cost and do not involve
• Other residual transactions not covered any service, else need to disclose them under
in any other clauses relevant clauses
• Verify sample invoices.
• 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 20: illustration
Particulars of deemed international transactions

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 Description of the transaction Amount paid / received or payable / Method used for
than the associated enterprise with receivable in the transaction determining the
whom the deemed international (i) as per books of (ii) as computed by arm’s length price
transaction has been entered into account the assessee having [See section 92C(1)]
regard to the arm's
length price

Clause 20(a) Clause 20(b) Clause 20(c) Clause 20(d)

1 XYZ Inc..
Address >>>>

• A transaction entered into with non-AE Key check points

where prior arrangement for such
transaction/terms of such transaction are • Evidence regarding influence of AE on price,
determined in substance thus engaging terms of transactions, etc
both parties • Details of prior arrangements / agreements
• Details of invoices, debit notes, etc
• Deemed international transactions where
an independent third party can be • Check for CUP i.e., whether goods / services
interposed by two AEs to remain out of are provided to unrelated parties
transfer pricing provisions
Annexure to Form No.
3CEB:
Part C – Specified
Domestic Transactions
(SDT)
Clause 21: illustration
List of Related Parties with whom the assessee has entered into SDT with the necessary details

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 PAN of the Nature of the relationship with the Brief description of the
enterprise associated enterprise associated enterprise business carried on by the
said associated enterprise

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

2 ABC India Medical Ltd Address >>>> PAN >>>> ABC India Pvt Ltd beneficially Manufacturing of
(Pune SEZ Unit) owns shares having voting powers Pharmaceutical Products
of not less than 20% of ABC India
Medical Ltd

• Name, address and PAN of the related party(s) Key check points:

• Nature of the relationship with related party • Correct legal name of the related party (to
be verified from the website / annual
• Brief description of the business carried on by report) along with PAN details, etc
the said related party • Nature of relationship - to be specific;
reference to clause of 92BA , verification
• Cover details of relationships with managerial using shareholding pattern, investment
personnel, holding / subsidiary company, inter- schedule, etc
unit transactions and those with closely
connected persons • Whether indirect shareholding
relationships covered?
Clause 22: illustration
Particulars in respect of transactions in the nature of any expenditure

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 Description of the transaction along Total amount paid or payable in the Method used for
the specified domestic with quantitative details, if any transaction determining the arm’s
transaction has been entered Description of the Quantity (i) as per books of (ii) as computed by length price
into transaction account the assessee having [See section 92C(1)]
regard to the arm's
length price

1 ABC India Support Limited

• Expenditures made to persons covered Key check points:

under section 40A(2)(b) of the Act.
Emphasis on direct / indirect holding. • Verify value and quantitative details from
notes to accounts (in addition to AS 18), tax
• Transactions where tax holiday / deduction audit report, invoices and ledger accounts,
is claimed in respect of capital expenditure fixed assets schedule, etc
• Service / employment contracts / agreements
• Managerial remuneration
• Minutes of board meetings for managerial
• Expenditure for which no deduction/part remuneration
deduction has been claimed • Other relevant documents substantiating
expenditure
• Reimbursements to related parties
Clause 23: illustration
Particulars in respect of transactions in the nature of transfer or acquisition of any goods or
services

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 Description of goods Amount received / receivable for transferring of Method used for
have been transferred or services transferred such goods or services determining the arm’s
Name of business Details of business (i) as per books of account (ii) as computed by the length price
assessee having regard [See section 92C(1)]
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 Purchase of
pharmacy stores Medicines
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 Description of goods or Amount paid / payable for acquiring of Method used for
have been acquired services acquired such goods or services determining the arm’s
Name of business Details of business (i) as per books of (ii) as computed by length price
account the assessee having [See section 92C(1)]
regard to the arm's
length price
Clause 23B(a) Clause 23B(b) Clause 23B(c) Clause 23B(d)
1 ABC India Medical Ltd – Manufacturer of
(Pune SEZ Unit) Medical Products Sale of Medicines

• 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 23: illustration
Particulars in respect of transactions in the nature of transfer or acquisition of any goods or
services

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
• 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 (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 24: illustration
Particulars in respect of any SDT in the nature of business transacted

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 Description of the transaction including Total amount received / receivable or paid / Method used for
specified domestic transaction has quantitative details, if any payable in the transaction determining the arm’s
been entered into Description of the Quantity (i) as per books of (ii) as computed by the length price
transaction account assessee having regard [See section 92C(1)]
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)

• Transactions resulting in more than Key check points:

ordinary profits to an eligible business
under section 80IA (10) or 10AA • Verify value and quantitative details from notes to
accounts (in addition to AS 18), invoices and ledger
• Covers amounts paid / payable or accounts, fixed assets schedule, etc
received / receivable • Review the agreement(s), invoices, debit notes raised
• Check for CUP i.e., whether services are provided to
• TP study to be relied upon to
unrelated parties
determine whether transactions are at
arm’s length. Accordingly to be • Profitability of the entity / division (related party and Non
covered here only if transaction related party)
resulting in more than ordinary profit
Clause 25: illustration
Particulars 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 Description of the Amount paid/received or payable/receivable in Method used for
domestic transaction has been entered into transaction the transaction determining the arm’s
length price
(i) as per books of (ii) as computed by the [See section 92C(1)]
account assessee having regard
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:
Details / documents to be examined Verified
• Ensure that the TP approach and disclosures
Audited accounts √
in Form No. 3CEB are consistent with previous
year Notes to accounts – Forex Details √
• Check references of notes against the amount AS 18 / related party disclosures √
and follow consistent wordings in all annexures
Shareholding pattern and changes during √
• Ensure correct description of nature of the year
transaction
Tax Audit Report √
• All international transactions or SDTs, even
Transfer Pricing Study Report √
though insignificant, need to be reported
• If international transactions or SDTs not at ALP, Inter-company agreements √
suitable note to be disclosed in Form Local / Global Transfer pricing policy √
No. 3CEB for self adjustment
Representation Letter √
• Form No. 3CEB to be signed on / dated after
the date of audited accounts Invoice / Ledger copy(s) √

• Return of Income to be filed / uploaded after Documents evidencing internal / external √

signing of Form No. 3CEB 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

Procedure For E-filing – Chartered Accountant

Register on Department’s Form 3CEB Preparation Form Submission

Website • Offline – Utility • Upload .xml File
• Membership No, PAN & • Attach Digital Signature
Date of Birth
• Enrolment Date & Digital
Signature

Procedure For E-filing – Taxpayer

Add CA Form Acceptance

• Name & Membership No. of • Worklist – Accept/ Reject
Register/Login on CA
Department’s Web • Form Type & Asst. Year

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

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
Ajit Singh Rana v/s. ACIT
Syscom Corporation
Limited v/s. DCIT
IL & FS Maritime
Infrastructure Company Ltd
v/s. ACIT
- Before Amendment to
section 92B
Nectar Lifesciences Ltd vs.
DCIT
Ruling
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
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
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.
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

Answers

&
Questions
Thank You

R Vikram
ca.rvikram@gmail.com