Transfer pricing audit

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Querist : Anonymous

Querist : Anonymous (Querist)

02 August 2012 I have a question regarding audit of an entity under Transfer Pricing and report under Section 92E. The company which audit is to be done has an associate enterprise in Germany. It is a Travel Service company and German tourists come from its associate enterprise in Germany and this company conducts tour here. Indian Company and German firm are separate entities. The Indian company sends its quotation on cost plus basis to German entity and after negotiation of rates the German firm confirms the tour. After the tour is conducted Indian Company generates Invoice in equivalent US $ and after that payment is received from Germany in US $. Please guide how to conduct this audit & how to make a report under sec 92E. I would be thankful if you could provide a filled report u/s 92E along with the annexures.

Amol S Joglekar

Amol S Joglekar (Expert)
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02 August 2012 Along with the regular audit, you need to take the audit report of transfer pricing from Chartered Accountant.

Arihanth Jain

Arihanth Jain (Expert)
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02 August 2012 Basics of TPR:
1. Identify the transcation, compare the same with comparable fare/uncontrolled one along with analysis of characteristics in both.
2. Choose best method to determine ALP
3. Compare & see that the transactions are in ALP.
Check all relevant documents to achieve the above steps. Further alot of homework will be required on ALP and obtaining related industry data.

Lastly, based on these facts, can't help on the 92E report with annexures. Need alot more data and analysis. Guess not possible for anyone to just sent one like this.

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Querist : Anonymous

Querist : Anonymous (Querist)

04 August 2012 It will be helpful if you could provide me audit report u/s 92E of any co. u have audited or a sample by deleting all data or putting other data so that I can get idea how to make a audit report u/s 92E and its annexures

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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02 August 2025 You're asking for practical guidance on preparing a **Transfer Pricing Audit Report under Section 92E** for an Indian company that provides **tour services to its foreign associated enterprise (AE)** — a **German travel company** — under a **cost-plus pricing model**.

You're also looking for a **sample Form 3CEB** (the prescribed TP audit report under Section 92E of the Income Tax Act, 1961) with annexures to understand how to structure and fill it.

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## ✅ Step-by-Step Guide: How to Conduct Transfer Pricing Audit & Prepare Form 3CEB

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### 🔹 **Step 1: Identify the International Transactions**

From your description:

* Indian Co. receives tourists from its **AE in Germany**.
* It invoices in **USD** based on cost-plus rates.
* Hence, **rendering of tour services** by Indian Co. to German AE is an **international transaction** under **Section 92B**.

📌 **International transaction** here:

> “Provision of services by Indian company to AE (German company)”

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### 🔹 **Step 2: Perform Transfer Pricing Analysis**

You'll need to follow this **TP process** (summarized):

1. **Functional Analysis (FAR)**:

* **Functions**: Travel arrangements, logistics, hospitality, etc.
* **Assets**: Human resources, vehicles, local vendor tie-ups
* **Risks**: Currency, operational, customer satisfaction, etc.

2. **Select the Most Appropriate Method (MAM):**

* Since you’re using **cost-plus**, it's often aligned with **Cost Plus Method** (Rule 10B(1)(c)) or **Transactional Net Margin Method (TNMM)** if margins are compared with industry data.

3. **Benchmarking/ALP Determination**:

* Compare the markup applied with industry comparables.
* Use databases like Prowess, Capitaline, etc., to find comparable service providers.
* Add markup (say 10–15%) based on comparables’ operating margins.

4. **Documentation (Rule 10D)**:

* Prepare a **TP Study Report**.
* Document nature of transaction, AE relationship, method used, comparables, FAR, economic analysis, etc.

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### 🔹 **Step 3: Prepare & File Form 3CEB**

📄 **Form 3CEB** is a **Chartered Accountant’s report** verifying the ALP and method used for each international transaction.

It contains 3 parts:

| Part | Description |
| ---------- | --------------------------------------------------------------------------------- |
| **Part A** | Basic info about the taxpayer (name, PAN, FY, etc.) |
| **Part B** | Details of international transactions |
| **Part C** | Details of Specified Domestic Transactions (if any – not applicable in your case) |

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### ✅ Sample Data Structure for Your Case in Form 3CEB (Illustrative)

Here's a basic mock-up for your scenario (names and values are placeholders):

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#### **Form 3CEB – Sample Extract**

**Part B – Clause 11: Provision of Services**

| Item | Details |
| --------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| Name of AE | Europa Reisen GmbH, Germany |
| Nature of Transaction | Provision of tour operating services |
| Description | Ground-level travel logistics for inbound German tourists |
| Amount | USD 150,000 |
| Method used | **Cost Plus Method** |
| ALP determined | USD 148,500 |
| Justification | Cost base of INR 1 crore + 12% markup; benchmarked with comparable Indian tour operators using Capitaline database. Markup falls within interquartile range. |

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### 📎 **Annexures to Include:**

1. **List of Associated Enterprises**
2. **Details of each transaction**
3. **Methodology of ALP determination**
4. **Copy of TP Study Report (if required by TPO)**
5. **FAR analysis tables**
6. **Comparables and financial data used for benchmarking**
7. **Invoices raised**
8. **Currency conversion rates used**
9. **Agreement/contract (if any) with AE**

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### 🧾 Filing Timeline & Compliance:

| Item | Due Date |
| ----------------------------- | ---------------------------------------------------------------------- |
| **Form 3CEB filing** | **31st October** following the end of FY (for companies subject to TP) |
| **Income Tax Return (ITR-6)** | Same due date |
| **Penalty for non-filing** | ₹100,000 under Section 271BA |

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### ⚠️ **Important Notes:**

* Ensure all your computations and reasoning are documented — the **TPO can question your markup** or challenge your comparables.
* You **cannot** rely solely on internal markup policy — you must **benchmark it externally** to prove ALP.
* Currency fluctuations should be consistently treated in invoices and benchmarking.

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### 📄 Sample 3CEB Format (Generic)

I can provide a **sample Form 3CEB (template)** in editable format (text or Excel structure). Since I can’t send files directly, I’ll give you a sample **template layout** here. Let me know if you'd like that.

Would you like me to generate a **filled mock Form 3CEB** (with sample figures, clauses, annexure references) right here?

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