TRANSACTIONS UNDER I.T.ACT–

TRANSACTIONS UNDER I.T.ACT–
SPECIFIED DOMESTIC TRANSACTIONS UNDER I.T.ACT– 18th October, Lucknow

Extension Of TP Laws To Domestic Transactions
Supreme Court in the case of CIT Vs Glaxo SmithKline Asia (P) Ltd. 195 Taxman 35 (SC) stated that the fair market value cannot be assigned to domestic transactions unless a specific regulation is there and suggested finance ministry should bring a proper legislation for the same. Adjustments made by TPO’s in 7 years- Rs.1,00,000 cr. Adjustments made by TPO’s in Rs.45,000 cr. In the above case the Supreme Court recommended that in cases Fair Value method has to be applied in related party transactions than there should be a proper empowerment to the AO in order to arrive at the FMV and not on any arbitrary basis and method of TP may be applied. SC- reversal of past judgements – penalty- satisfaction. Vodafone, 14A- bringing of rule 8D and other hosts of judgements.

Effective – AY I.T. Return / Report due date 30th November.

Concept of Transfer Pricing
Related Party Independent Entity Domestic Transactions Goods Services Intangible Loans Resident Resident Transfer Price Arm’s Length Price

Section 92 92. (2) Where in an international transaction or specified domestic transaction, two or more associated enterprises enter into 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, the cost or expense allocated or apportioned to, or, as the case may be, contributed by, any such enterprise shall be determined having regard to the arm's length price of such benefit, service or facility, as the case may be. The following sub-section (2A) shall be inserted after sub-section (2) of section 92 by the Finance Act, 2012, w.e.f : (2A) Any allowance for an expenditure or interest or allocation of any cost or expense or any income in relation to the specified domestic transaction shall be computed having regard to the arm's length price.

Section 92 92.(3) The provisions of this section shall not apply in a case where the computation of income under sub-section (1) or sub-section (2A) or the determination of the allowance for any expense or interest under that sub-section, or the determination of any cost or expense allocated or apportioned, or, as the case may be, contributed under sub-section (2) or sub-section (2A), has the effect of reducing the income chargeable to tax or increasing the loss, as the case may be, computed on the basis of entries made in the books of account in respect of the previous year in which the international transaction or specified domestic transaction was entered into.

Section 92 amended so as to include, apart from international transactions, ‘specified domestic transactions’. New Sub section (2A) specifies that the following ‘specified domestic transactions’ may be re- computed having regard to the ALP: any allowance for any expenditure or interest allocation of any cost, expense or income Provisions are applicable only if they are in favour of the revenue.

Specified Domestic Transaction
New Section 92BA: defines ‘specified domestic transaction’ as: Any expenditure in respect of which payment has been made or is to be made to a person referred to in section 40A(2)(b). (Any time during the previous year) Transactions of goods or services referred to in section 80A. Transfer of goods or services referred to in section 80IA(8) Transaction referred to in section 80IA(10) Transactions covered u/s 10AA. Any other transaction as may be prescribed. Where the aggregate of such transactions entered into by the assessee exceeds 5 crore in any year. Rs 5 crore limit no clarification whether each but I feel aggregate of all the above- we shall see the dilemma arising in section 80IA(10) .

Applicability IF > 5cr 40A(2)(b) Sec.80A(6) Sec.80IA(8)
Undertakings in FTZ, SEZ, Expenditure in respect of payments to persons specified u/s 40A(2)(b) Transactions of supply of goods/ services between businesses of an assessee where transfers are not at FMV. Inter unit transfer of goods and services between eligible undertaking and any other business of the assessee Transfer of goods and services between eligible business of an assessee and any other assessee IF + + + + Sec.92(1) Allocation/ Apportionment of common expense > 5cr 40A(2)(b) – the section does not apply to revenue or capital receipts or capital expenditure or revenue expenditure which is capitalised. This applies to computation of income from business or profession and income from other sources (Section 58(2)). Section 80A(6)- applies to all deductions under Chapter VI-A- which apply to all the sections and business, units, entities, eligible undertakings of the assessee inter se. The section has very wide coverage. It also covers units eligible for tax holidays u/s 10A, 10AA, 10B, 10BA

Applicability 80IA Income from infrastructure, telecommunication, Industrial Park, Power sector etc. 80IAB Income of an undertaking or enterprise engaged in development of SEZ 80IB Income from certain industrial undertakings and housing projects 80IC Income from industrial undertaking set up in Sikkim, HP etc. 80ID Income from hotels etc. in Delhi, Faridabad and other districts 80IE Income from eligible undertakings in North Eastern States As the above sections refer to applicability of section 80IA(8) and 80IA(10).

Persons Covered u/s 40A(2)(b)
ASSESSEE COVERED ALSO COVERED Individual Relatives Sec. 2(41) Company, Firm, AOP, HUF Director/Partner/ Member Relative of Director, Partner, Member Any Assessee Individual having substantial interest Relative of such individual AOP having substantial interest Its members and their relatives HUF having substantial interest Company having substantial interest. Its Directors, their relatives.

…. Contd corporate keep shares less than 20%- individually then the companies will excluded.

…. Contd. Section 2(41)“relative”, in relation to an individual, means the husband, wife, brother or sister or any lineal ascendant or descendant of that individual. Relative- Chacha not included, first cousins not included, Brother in law , Nana , Mama etc. Not included. Substantial interest => 20% . w.e.f , where a company has substantial interest in the business of an assessee, another company in which such company has a substantial interest will also be covered if any payment has been made to such company on account of any expenditure. keep shares less than 20%- individually then the companies will excluded.

Section 80IA(8) - internal transactions with more than one undertaking / units of the assessee, out of which one or more undertaking is enjoying tax holiday. Objective of the section- Tax holiday units charge more than the market value for goods or services used by non-eligible units thus reducing tax liability. “As per Section 80IA-(8), if the internal transfer of goods or services is not at fair market value, then profits or gains of transacting units shall be computed on the basis of ALP.” e.g. Unit in Uttarakhand supplying material to its unit in Kanpur. Also Allocation of expenses between units

Section 80IA (10): As per this clause, “where it appears to the AO” when due to close connection between assessee and ‘any other person’ or for any other reason, the eligible business of the assessee produces ‘more than the ordinary profit’, then for the purpose of deduction under this section, profit of the eligible business shall be determined by taking ALP of the transaction. Primary onus is on the taxpayer to prove that the transfer is at ALP. However, the department has to prove that the transaction is not at ALP.

Definitions…(an analysis)
Section 80IA (10): The section starts with “Where it appears to the AO” “close connection” not defined. “Any other reason” Profits of eligible unit are higher” How will the assessee presume this. Ambiguity and lot of discretion to the AO. Against the spirit of IT Act. All eligible units having transactions of over Rs 5 crores from a single person and showing higher profits could fall in this.

Issues… Company A has entered into international transactions with its A.E. aggregating to Rs.3 crores and transactions with specified parties u/s 40(A)(2)(b) aggregating Rs.3 crores. Will the “SDT” be covered under the Transfer Pricing provisions? X ltd. makes payments to a Y ltd. (a foreign company) for imports amounting to Rs 6 cr. Y ltd. holds a 21% shares in X ltd. The transaction is not covered under IT. Whether the same would be covered under SDT?

Issues… Whether the same are covered?
Corporate guarantee to a relative will be covered? Whether purchase of Capital Assets will be covered- (one case company has purchased from Directors) Partners contribution as stock in trade. Goods sold at lower value. Interest free loan. Payments for capital expenditure. On incomes other than PGBP.

Issues… Whether the assessee who has made following payments is covered? Salary to 3 directors Rs.30 lacs each. Purchases from related party Rs 2 cr. Sales to related party Rs. 2 cr Purchase of land from related party- Rs.2 cr. Interest paid to related parties Rs.1.50 cr. Corporate guarantee fee charged Rs.1 cr Allocation of common expenses with sister concern- Rs 50 lacs.

All three have Common Directors
Issue Manufacturing companies Marketing company M/s Parle Products Ltd., Rudrapur, availing deduction u/s 80IC M/s Parle Distributors Ltd., Mumbai, Supply of biscuits M/s Parle Foods Ltd., Mumbai, All three have Common Directors

Issue M/s Parle Products, Rudrapur, availing deduction u/s 80IC
Manufacturing companies Marketing company Covered by virtue of sec. 80IA(10) Covered by virtue of section 40A(2)(b) M/s Parle Products, Rudrapur, availing deduction u/s 80IC M/s Parle Distributors, Mumbai, Supply of biscuits Not covered M/s Parle Foods Ltd., Mumbai, All three have Common Directors

Issue Rudrapur Unit, eligible for deduction u/s 80IC
Manufacturing Units of Parle Products Limited Rudrapur Unit, eligible for deduction u/s 80IC Marketing Division, Mumbai Supply of biscuits Mumbai Unit All three are Units of the same Assessee

Issue Rudrapur Unit, eligible for deduction u/s 80IC
Manufacturing Units of Parle Products Limited Covered by virtue of sec. 80IA(8) Rudrapur Unit, eligible for deduction u/s 80IC Not covered Supply of biscuits Marketing Division, Mumbai Not covered Mumbai Unit All three are Units of the same Assessee

Transactions Not Covered
Amount received by an assessee/undertaking on sale/supply of goods or services, if such entity/unit is not enjoying any tax holidays. i.e though the payer shall be covered by virtue of section 40A(2)(b), the recipient shall not be covered. As regards units enjoying tax holidays, any transaction other than towards obtaining/providing goods or services, like financial transactions, payment for use of intangibles, etc. may not be covered for reporting purposes but can still fall under 80IA(10) I think so!! But would discuss with you.

Consequential Amendments
Following sections to apply in relation of ‘specified domestic transactions’: Section Description 92 Charging section 92BA Meaning of SDT 92C Computation of ALP 92CA Reference to TPO 92D Maintenance of information & documents by parties to a SDT. 92E Report from an accountant

Provisions Not Applicable
Section Description 92A Meaning of AE 92B Meaning of International Transactions 92CB Safe Harbour Rules 92CC Advance pricing agreement 92CD Effect of TP agreement 92F Definitions

Amendments in Transfer Pricing Provisions
Section 92B: New Explanation inserted to include the following transactions within the scope of an ‘international transaction’: various transactions in tangible property various transactions in intangible property. Not applicable to SDT Benefit of DTAA not available to SDT thus effect of change of ALP of one assessee shall not effect the change in the other. Certain transactions relating to intangibles etc. were adjudicated not to fall within them.- so amended. Retrospective amendment applicable w.e.f

…. Contd. Section 92C: The second proviso to section 92C has been amended so as to provide that the maximum variation between the transaction price and ALP not attracting addition, shall be such percentage as may be notified, subject to a maximum of 3%. Section 92CC & 92 CD: New sections have been inserted so as to introduce the concept of ‘Advance Pricing Agreement’. – Board to formulate a scheme. Not applicable in the cases of SDT. Modified return to be submitted within three months of the date of entering into APA, Dates of limitation modified. Earlier 5% that also on the market price value. Further there were controvercies whther 5% was a standard deduction. It has been clarified that where the variation is in excess of 5% the assessee shall not fall within the proviso.

Methods for determining ALP Section 92C read with rule 10B & 10C

Functional Analysis (FAR)
In transactions between two independent enterprises, it is essential to undertake a FAR analysis to arrive at the correct method and correct determination of ALP. “F”- Functions to be performed Functions to be performed in respect of each transaction. Roles of each party Stress on criticality of functions rather than number of functions. Functions performed, assets employed and risks assumed

Functional Analysis (FAR)
“A”- Assets Used: the functional analysis should consider the type of assets used: Plant and equipment Use of valuable intangibles, financial assets etc.; and The nature of assets used, such as age, market value, location, property right protections available etc. “R”- Risks assumed Financial Risk Product risk (R & D Risks, product liability risk) Market Risk The FAR analysis helps in determining the roles played by the parties to a transaction and their respective investment, risks and rewards. It is essential for documentation.

Methods for Computing ALP
Comparable Uncontrolled Price (CUP) – it is the most preferred method as per OECD. Identify comparable transactions Adjust prices charged to account for factors leading to differences in pricing between the transactions. COMP ARAB L E T RAN S AC T I ON Internal CUP Related A Ltd. Unrelated External CUP Modified return to be submitted within three months of the date of entering into APA, Dates of limitation modified. Earlier 5% that also on the market price value. Further there were controversies whether 5% was a standard deduction. It has been clarified that where the variation is in excess of 5% the assessee shall not fall within the proviso. A Ltd. Related B Ltd. Unrelated

Usage of CUP- cases Payments of Royalty Payments of interest.
Payments of Directors Remuneration. Purchases and sales of goods in case of a manufacturing undertakings.( 80IA units). Whether payment of Directors Remn. As approved by CLB be taken as reasonable.? Whether Commission paid to Directors with no additional evidence of work done could be justified? The FAR analysis helps in determining the roles played by the parties to a transaction and their respective investment, risks and rewards. It is essential for documentation.

Usage of CUP- cases Interest paid to related parties - 15%
Interest paid to Bank 12.5% Interest paid to unrelated parties – 14%. Internal CUP- 1% variation could be explained with the duration and terms and conditions. LT /ST Bank difference – Bank requires- Collateral security, Requires personal or corporate guarantee, Other conditions like Stock statements etc, Safe Harbor- rate of corporate guarantee- 2%. External Cup- what are those persons getting from other parties. The FAR analysis helps in determining the roles played by the parties to a transaction and their respective investment, risks and rewards. It is essential for documentation.

Resale Price Method (RPM)- Generally applied where materials are purchased from related enterprises for re-sale to unrelated enterprises (Not reverse) (Independent Distributor etc. who makes no value addition) Step I Identify resale price charged to unrelated party Step 2 Deduct normal G.P. margin on similar comparable uncontrolled transaction (Either own or comparable) Step 3 Deduct expenses on purchase Step 4 Deduct impact of other functional differences (Risks), if any. Step 5 The value arrived is the ALP as per RPM

Example of RSP Assessee purchases from sister concern a manufacturing concern a T-Shirt at Rs 200 per pc. and sells the same at Rs 220 per pc. Resale Price to unrelated party Rs 220 Gross Margin inunrelatedtransaction-10% Rs (either self or market trend) Purchase expenses incurred (say freight etc.) Rs 10 Adjustment of risks of AE say 2% Rs (credit period/ quality/ brand/ stocking etc.) ALP - (Rs ) Rs Purchased from AE Rs 200 adjustment to be made Rs 7.60 Modified return to be submitted within three months of the date of entering into APA, Dates of limitation modified. Earlier 5% that also on the market price value. Further there were controvercies whther 5% was a standard deduction. It has been clarified that where the variation is in excess of 5% the assessee shall not fall within the proviso.

Cost Plus Method (C+) – A margin is added to the cost and the comparison is made between a product in a controlled environment with that in an uncontrolled environment- Best in cases of service industry or cases where semi-finished goods are sold to related parties. Step I Identify Direct and Indirect costs in relation to production of goods/services supplied to related enterprise Step 2 Derive normal markup in similar internal or external uncontrolled transactions Step 3 Adjust markup for functional and other differences Step 4 Add the markup arrived in Step 3 to the total cost Step 5 The value arrived is the ALP as per CPM

Profit Split Method (PSM)- Generally where segregation of profits between related parties in respect of eligible transactions cannot be identified (integrated) and the profit has to be allocated on the basis of functions performed. Independent data can also be helpful in analysis. Also in case where intangibles play a vital role. E.g one case where there is a concern which is doing clinical trials for its holding and final billing is same. Services- composite service charge and functions divided between various parties. Or an entity manufacturing something to be used for manufacture by an AE of its own brand. Modified return to be submitted within three months of the date of entering into APA, Dates of limitation modified. Earlier 5% that also on the market price value. Further there were controvercies whther 5% was a standard deduction. It has been clarified that where the variation is in excess of 5% the assessee shall not fall within the proviso.

Profit Split Method- Example
Perfect Trials Ltd.(PTL) and Perfect Labs Ltd.(PLL) are related enterprises, engaged in conducting clinical trials PLL PTL Charges ‘y’ margin Customer Has technical staff Maintains lab Conducts trials Sends reports to PTL Has Brand value Identifies projects and customers Supervises operations of PLL Bears market/product risk Charges ‘x’ margin Total Margin = x + y To be split on the basis of FAR and independent commercial principals

Transactional Net Margin Method- Here the transactions of the assessee are compared with the “tested parties” whose transactions are entered in an uncontrolled environment. Comparison with independent entities. (Similar business and similar circumstances). Case of Granite miner selling granite.

TNMM Step I Compute net margin realised by an enterprise from its related enterprise (margin may be N.P.Ratio, ROI. Step 2 Similar margin realised by the enterprise from an unrelated enterprise or by other enterprises in the industry. (Internal TNMM) Or Margin of an uncontrolled party in an uncontrolled environment( comparable party). Step 3 Adjust margin for functional and other differences Step 4 The adjusted margin is used to calculate ALP.

Most Appropriate Method
Such other method prescribed by CBDT- not prescribed Most appropriate method be taken, If more than one methods is considered appropriate and result in different values, the arithmetic mean of the values shall be the ALP.

Most Appropriate Method- A Guideline as per guidance note of ICAI.
Traditional transaction Methods: S.No. Method Transaction for which it is suitable 1. CUP Method Loans, Royalties, service fees, transfer of tangibles (goods etc.) 2. Resale price method When distributor does not perform significant value addition to the project. 3. Cost plus method Sale of raw materials/semi finished materials Joint facility agreements Long term buy & Sell arrangements Provision of services TRANSACTION BASED APPROACH

Transaction for which it is suitable
Most Appropriate Method- A Guideline Transactional Profit Methods: S.No. Method Transaction for which it is suitable 4. Profit split method Provision of integrated services by more than one AE 5. Transaction Net margin Method Transfer of semi finished goods Distribution of finished products where resale price method appears to be inappropriate. Provision of services

If transactions are unique
If no method can be applied and the transactions are so unique then the assessee can apply Rule 10AB a sixth method . This rule provides that “ any method which takes into account the price which has been charged or paid, or which would have been charged or paid , for the same or similar uncontrolled transaction, with or between non-associated enterprises, under similar circumstances, considering all the relevant facts” No SDT as the total amount is Rs.5 crores Methods??? How will these be applied even if the same was over Rs.5 crore

The +- 3% Rule Second proviso to section 92C(2) provides that if the variation between ALP so determined and the price at which the SDT has taken place is does not excess such percentage as may be prescribed (not exceeding 3%) there shall be no adjustment made on the prices. If “a” is Arms Length Price. “b” is price of SDT then the variation permitted would be “a-b”/ “b” if is less than or equal to 3% then no adjustment required. Vide notification dated 15/4/2013- rate prescribed- 1% for wholesale traders and 3% for others. No SDT as the total amount is Rs.5 crores Methods??? How will these be applied even if the same was over Rs.5 crore

The +- 3% Rule Actual cases
a) Company purchasing scrap and selling it to a related party at zero margin and then purchasing ingots at fair market rates- Both cases above Rs. 5 cr. Scrap Sale- Rs 6 cr- 0.5% margin Ingots purchase- Rs 8 cr.- 2% Margin a) Impact on B b) Impact on A A B No SDT as the total amount is Rs.5 crores Methods??? How will these be applied even if the same was over Rs.5 crore

Cases: Actual cases Company A (Indian Co.) purchases material- Oil on High Seas basis. The Value of Oil is Rs PMT. The company sells the same on High seas to its AE at a margin of Rs 500 pmt. The value of sales are Rs 100 crores. Advise the company regarding applicability of SDT and the applicability of method. No SDT as the total amount is Rs.5 crores Methods??? How will these be applied even if the same was over Rs.5 crore

Issues… Issue – A company makes the following payments to Directors as commission MD- Technical Person- Rs 2 crore (Major shareholding) WTD- Non Technical – class 10th passed- 1 crore Other payments Rent paid to sister concern - Rs 30 lacs Interest to Sister concern A - 10%- 40 lacs Interest to sister concern B - 12%- 10 lacs Purchases from sister concern Rs – 1.20 cr. Now issues of TP. Effect of disallowance by the TPO. No SDT as the total amount is Rs.5 crores Methods??? How will these be applied even if the same was over Rs.5 crore

Issues… Directors remuneration How to benchmark ?
More difficult if directors have substantial interest. Now spouses or ladies remuneration subject to more scrutiny- Also disallowances u/s 64. Whether Schedule-XIII of the Companies Act could be a benchmark? Not applicable to Pvt Ltd Co.’s Report provides for Book Value, ALP and method of arriving the ALP – what method and what records. Commission to Directors a risky proposition now. Some judgments have also come for treating the same in lieu of dividend. (Section 36(1)(ii).) No SDT as the total amount is Rs.5 crores Methods??? How will these be applied even if the same was over Rs.5 crore

Issues… A unit generating electricity and availing benefit of section 80IA- supplies power to its related concern/ its own unit at Rs 10 per unit whereas power as per the government rate is Rs 4 per unit and 80% power used is from the Government by its own unit. Issue arising out of the above. Will will lead to an adverse inference by the AO.? Will the 80IA unit be able to show profits and take deduction u/s 80IA.

Documentation required

Documentation Rule 10D(1) - “Every person who has entered into an international transaction or SDT shall keep and maintain….”. The same has been added by the amendment in Rules on .. June 2013 where a new form has also been prescribed. Rule 10D(1) has 13 sub-clauses (a) to (m) which are very exhaustive and elaborate and in case of each case covered under SDT the same should have been started to have been maintained. Documentation must for all SDT covered cases.

Documentation- Sec.92D r.w.Rule 10D
Entity Related Transaction Related Price Related Profile of the Assessee Profile of Group Profile of the entity with whom IT/SDT is undertaken Broad description of Industry - Nature and terms Nature of property transferred and services rendered Quantitative & value wise details FAR analysis Description & reason for method for ALP Economic & financial analysis, forecasts or other estimates prepared Details of uncontrolled transactions Comparable data and financial information RULE 10D has not yet been amended so as to include SDT. The rule still talks of only Internatioanl transactions Profile of the Assessee- ownership structure, broad description of the of the assessee and the industry in which the assessee operates Profile of the group- if any, to which the assessee belongs- a description, other entities in the group, address and tax residence with whom transactions have been undertaken, nature of relationship with the entities

AUDIT REPORT

Scope of Audit Examination of records of only those transactions which relate to SDT/IT Not to express the True and Fair view on the Financial statements of the auditee. Ensure maintenance of appropriate documentation as per Rule 10D & report thereon. Not the duty of the CA to evaluate TP documentation and conclude on the Arms Length nature of the transaction. Ensure that the method stated by the auditee has actually been used for calculation of ALP Rule 10E and Form 3CEB are prescribed/notified in respect of International transactions. Though the Act has been amended, the said rule and form is yet to be revised.

Scope of Audit As per the Guidance Note of ICAI on Section 92E:
Para 9.17: The accountant must limit his scope of work and the review procedures to the extent certified in Form No.3CEB. For e.g. in the Annexure the method which has been used to determine the arm’s length price needs to be stated. In this context the accountant is only required to ensure that the method stated as being used to determine the arm’s length price by the assessee has actually been used and it is not the accountant’s responsibility to ensure that the method so used is the most appropriate method as prescribed by the Board. Rule 10E and Form 3CEB are prescribed/notified in respect of International transactions. Though the Act has been amended, the said rule and form is yet to be revised.

Scope of Audit Examination and certification of particulars given in Annexure to Form 3CEB to state whether they are “true and correct” Para 9.12 – CA should go through the records maintained by the taxpayer and match the same with documents prescribed however CA is not responsible for the content of the transactions and documentation maintained by the taxpayer. Para If any document is not maintained, then the accountant should suitably qualify his report or disclose the same in his report depending upon the facts and circumstances of each case. Rule 10E and Form 3CEB are prescribed/notified in respect of International transactions. Though the Act has been amended, the said rule and form is yet to be revised.

Audit Report- Form 3CEB PART A
Point 1- 7 : Basic information of the assessee- same as TAR Point No.8 & 9: Details of value of IT & SDT. PART B- Reporting of International Transactions Clauses 10- List and description of AE’s for IT’s Clauses – Reporting of Various IT’s & ALP PART-C- Reporting of SDT’s Clause 21- List and description of AE’s for SDT. Clause Reporting of Various SDT’s & ALP Essentials - Management representations - Where not applicable- N.A. should be given -

Audit Report- Form 3CEB Common transaction wise information called for under above clauses: Name and address of each AE Description of each transaction Total amount involved in each transaction (type) As per Books ALP, as computed by MAM Method used for determination of ALP Information has to be AE wise and also category/class of transaction wise.

Procedure of Assessment

Procedure Report as per form 3CEB has to filed online earlier Manual.
Now only the CA will sign and upload earlier both were signing. Keep a signed copy of the management with us. Revision of TP report ? Return in the respective form has to be uploaded. Case may be selected for scrutiny. The AO to complete all the routine scrutiny except provisions relating to the report under SDT. AO if he considers necessary and expedient so to do, may refer, SDT transactions to the TPO with the prior approval of the Commissioner- Thus the satisfaction of AO is a must. Even the approval of the Commissioner is mandatory (and should not be mechanical). As per the Instructions of the CBDT, all cases involving international transactions in excess of Rs.15 cr have to be essentially referred to the TPO. (not legal)

Procedure TPO can consider the issue under reference or any other issue relating to IT but not SDT (92CA/92CB not applicable). TPO has power of summon u/s 131, survey u/s 133A and collecting information u/s 133(6). No deduction (only enhancement) permissible in respect of adjustment by TPO. Enhancement only if variation between Transaction value and ALP worked out by TPO is more than 3% or 1%. Assessment by the TPO of SDT transactions. Same sent to AO and binding on him. No deduction u/s Chapter VI or 10A etc. on such enhancement. As per the Instructions of the CBDT, all cases involving international transactions in excess of Rs.15 cr have to be essentially referred to the TPO. (not legal)

Dispute Resolution Panel
Section 144C- In case of variations noted by TPO the AO shall give a draft order to the assessee The assessee may accept it or submit his objections The same will be referred to DRP (Dispute Resolution Panel). DRP may consider the issue referred or additional issues as well. The DRP (of Three Commissioners) shall pass an order which would be binding. The AO/ assessee may file an appeal against the order of the DRP.

Time Limits for Assessment & Re-Assessment
Proceedings under section Provisions w.e.f 143 21 months from the end of the Asst. Year 143 & 92CA 36 months from the end of the Asst. Year 148 12 months from the end of the Fin.Year in which notice issued 148 & 92CA 24 months from the end of the Fin.Year in which notice issued 250/254/263 12 months from the end of the Fin.Year in which order received 250/254/263 & 92CA 24 months from the end of the Fin.Year in which order received

Time Limitation for Passing Orders
If cases are referred to the TPO then the limitation is extended by one year i.e normally 2 years in such cases 3 years from end of AY. The TPO has to send a report at least 60 days before the end of limitation i.e 31 January now. There are separate limitations provided for in DRP.

100%-300% of tax on adjustment amount
Penalties.. Section Description Quantum 271AA failure to maintain prescribed documents or information 2% of transaction Value failure to report any international transaction or SDT which is required to be reported, Maintaining/furnishing any incorrect information or documents 271G Failure to furnish documents/information - - Do - - 271BA Failure to furnish report 1 lac 271(1)(c) If adjustment is made to income upon assessment 100%-300% of tax on adjustment amount “ Maintaining”??? To check section

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