Transfer pricing


24 June 2008

I understand that an accountant's report on Form No.3CEB to be furnished by an enterprise that has international transaction with its associate concern during a given accounting period, pursuant to section 92E of Income tax Act.

My company has not filed such report for the past two years, where we had international transaction with our overseas JV about Rs.3.75 Crores per year

Our Tax consultant says if the auditor of the company is of the opinion that the company has computed its tax having regard to the arm's length price, then the report is not necesaary to file.

a.Can anybody authoritatively confirm this contention of our consultant?

b. Also what is prescribed documentation to be kept as a proof of the same.

CA. Sandeep Choudhary (Expert)
25 June 2008

Section 92E states "Every person who has entered into an international transaction 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". Under Rule 10E, Form No. 3CEB has been prescribed.

Neither section 92E nor Rule 10E comtemplate waiver from condition of furnishing the report where tax is computed using arm's length price. The contention of your consultant is erroneous. The report is required.

The mandate for accountant's report under Income Tax law is not dependant on whether or not tax has been computed as per law. Once your turnover exceeds Rs. 40 lakhs, can you avoid Form No. 3CD on the grounds that tax is computed correctly as per the Act? A total of 40 different accountant's reports, certificates, etc. have been prescibed but there is no such report which is to be furnished only if tax is not computed as per the Act.

As regards Form No. 3CEB, CBDT Instruction No. 3 of 2003, dated 20-5-2003 states "In order to make a reference to the TPO, the Assessing Officer has to satisfy himself that the taxpayer has entered into an international transaction with an associated enterprise. One of the sources from which the factual information regarding international transaction can be gathered is Form No. 3CEB filed with the return which is in the nature of an accountant’s report containing basic details of an international transaction entered into by the taxpayer during the year and the associated enterprise with which such transaction is entered into, the nature of documents maintained and the method followed. Thus, the primary details regarding such international transactions would normally be available in the accountant’s report. The Assessing Officer can arrive at a prima facie belief on the basis of these details whether a reference is considered necessary."

The above para indicates that Form No. 3CEB dicsharges 2 functions:
1. It draws attention of the AO towards the fact that an international transaction has taken place.
2. It helps him in determining whether or not to make a reference to TPO u/s 92CA.

As per Circular no. 14/2001, "The accountant’s report only requires furnishing of factual information relating to the international transaction entered into, the arm’s length price determined by the assessee and the method applied in such determination. It also requires an opinion as to whether the prescribed documentation has been maintained."

The above CBDT pronouncements further confirm that furnishing of Form No. 3CEB cannot be avoided on the grounds that tax was ocmputed using arm's length price. The report only lays out the facts of the transaction before the AO.

u/s 271BA, a penalty of Rs. 1 lakh is leviable for not furnishing the report by due date of filing return. The penalty can be waived u/s 273B if 'reasonable cause' is shown.

Also note that under Rule 12(2), no document is attached to return w.e.f. AY 07-08. Assessee should obtain the report and retain it for production during assessment.

Satish K Sekhar.ACCA (Querist)
25 June 2008

Thank you Mr. Sandeep, please keep this open, let us have some more answers to it.

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