Accountants Report Intensive Study Course on Transfer Pricing

ICAI Mumbai August 10, 2011 Presented By: Ms. Vaishali Mane Director Transfer Pricing Services Grant Thornton, India

Agenda
Legislative Framework in India Importance of Form 3CEB Form 3CEB Flow Form 3CEB Clauses Recent development Revision of Form 3CEB Management representation Letter Filing requirements in other countries

Legislative Framework in India Importance of Form 3CEB Form 3CEB Flow Form 3CEB Clauses Recent development Revision of Form 3CEB Management Representation Letter Filing requirements in other countries

Legislative Framework

InternationalTransaction

AssociatedEnterprise

TransferPricingapplies

StudyReport

AccountantsReport

Legislative Framework in India Importance of Form 3CEB Form 3CEB Flow Form 3CEB Clauses Recent development Revision of Form 3CEB Management representation Letter Filing requirements in other countries

Importance of a Form 3CEB

Statutory requirement in India Provides a birds eye view of the transfer pricing/transactions of the assessee to the Assessing Officer ('AO') Helps the AO to refer the transfer pricing matter to the special transfer pricing cell Helps the transfer pricing officer in the audit process Listing of Associated enterprise Contains a list of International transactions Highlights whether the transactions are complex Contains the value of international transactions The transfer pricing methods followed

Other aspects of Form 3CEB

It must be furnished on or before the due date applicable to such person or filing its return of income for the relevant assessment year; No exemption from filing Form 3CEB - Even if international transactions < 1 crore Under section 271 BA of the Act, inserted with effect from 1st April 2002, if a person fails to furnish this report, the Assessing Officer may direct that such person shall pay by way of penalty, a sum of Rs. 1 Lac

Legislative Framework in India Importance of Form 3CEB Form 3CEB Flow Form 3CEB Clauses Recent development Revision of Form 3CEB Management Representation Letter Filing requirements in other countries

Form 3CEB Flow

Email

Engagement on assignment

Checklist

Verification Process

Management Representation Letter

Issue Form 3CEB

Form 3CEB and Clauses in Form 3CEB

Engagement Process
Person entering into International transaction to obtain the report from an Accountant Accountant defined under Section 288 of the Act Chartered Accountants within the meaning of the Chartered Accountants Act, 1949 (38 of 1949); Statutory Auditor Communicate with the other accountant who has done examination in the earlier years Engagement Letter Two or more CA's can do examination An accountant responsible for writing or maintenance of accounts should not examine accounts

Email
Initially an email be sent to clients containing a Blank format / template of Form 3CEB, Annexure to Form 3CEB, Management Representation Letter and Appendices to the same If the client engagement has already been worked upon in the last year attach files of last year Other files

Information to be verified and data collected - Checklist

S. No. 1 2 3 4 5 6 7 8 9 10 11 12 Particulars Reconciliation with related party - AS 18 Reconciliation with Forex Transaction with respect to Notes to A/c Sample Testing - Trial balance / Ledger A/c Sample Invoice check/ debit notes PAN card copy available in file Form 27 - If applicable Signed Audited Financials Segmental Financials verified with audited accounts Copies of Agreement Budgets/ Forecast Management Representation Letter & Appendices thereto Tax Assessment inquiry

Form 3CEB
We have examined the accounts and records of ___, having their office at, ____ (PAN: __ relating to the international transactions entered into by the assessee during the previous year ended on ___. In our opinion, proper information and documents as are prescribed have been kept by the assessee in respect of the international transactions entered into, so far as appears from our examination of the records of the assessee. 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 are true and correct.

Case Study 1

Form 3CEB of a Permanent Establishment ('PE') in India

Legislative Framework in India Importance of Form 3CEB Form 3CEB Flow Form 3CEB Clauses Recent developments Revision of Form 3CEB Management Representation Letter Filing requirements in other countries

Clauses in Form 3CEB

Standard Information to filled up in all clauses

Particulars of the taxpayer Clauses 1 to 6 Particulars of AE's with whom the taxpayer has entered into international transaction Clause 7 Particulars in respect of International transactions
Tangible property Intangible property Services Lending and Borrowing Money Mutual Agreement/Arrangement Any other transaction Clause 8 Clause 9 Clause 10 Clause 11 Clause 12 Clause 13

Clauses 1 6
Name of the assessee New and old name to be disclosed Address of the assessee In case of Branch In case of Company In case of Foreign company or a PE Permanent Account Number Status Previous Year ended Assessment year

Clause 7: Details of AE
Name and addresses AE The relevant sub clause of section 92A (2) under which such relationship is covered should also be provided ; In most of the cases, the relationship would fall under sub clause (a) or (b) out of the thirteen sub clauses; Additional care should be taken for cases falling under the other clauses; Deemed AE Note to be disclosed

Clause 7: Details of AE
Clause 7 Information in respect of Associated Enterprises (AE's)
Sr. No. 1 Name and address of AE XYZ Corporation USA, P.O Box 661, Linville Road, Mt.Airy, New York, USA nc-27030 Nature of relationship with AE (Refer Note 1 Below) 100% Subsidiary Company under Section 92A(1)(a) read with Section 92A(2)(a) Brief description of AE's business Manufacturing & Trading of products

Notes: 1

Sections mentioned above refer to sections of the Income-tax Act, 1961.

Clause 8A and 8B: Raw Materials and Finished Goods

1.
2.

Transactions to be disclosed in Clause 8A and 8B

Cross-check the purchase/sale transactions of raw materials / finished goods with AS18

3.

As regards purchase of raw materials, ascertain whether the same are used further in the manufacturing process or sold to a third party for manufacture or resold to the AE.

4. 5. 6.

See the Ledger Account of the AE for the correctness of the amount Sample Invoices of the product sold Description of the product or terminology for describing the product

Clauses of Form 3CEB

Clause 8A Particulars in respect of Tangible Property - Purchase / Sale of Raw Materials
Description of transaction Quantity purchased (Refer Note 2 below) Nos Total Amount paid / payable as per books Total Amount paid / payable as per Arm's Length Price (as Method Used computed by assessee) (Refer Note 1 below) [See Section 92C(1)] (Rs.) 523,566 523,566 Transactional Net Margin Method ('TNMM')

Sr. No.

Name and address of AE

XYZ Corporation USA, Purchase of P.O Box 661, Linville Road, Packing Mt.Airy, New York, material USA nc-27030

Notes: 1 As per the Transfer Pricing study undertaken by the assessee, the Transactional Net Margin Method was determined to be the most appropriate method prescribed under Section 92C of the Income-tax Act, 1961. On the basis of the study, it was concluded that the prices of international transactions of the assessee were at arms length as provided under section 92C of the Income-tax Act, 1961. Accordingly, it was considered reasonable to use the book values of international transactions as representative of arms length price of all such transactions. 2 Although the quantities of spare parts/ consumables/ packing materials have been stated they are of different grades.

Clauses of Form 3CEB

Clause 8B
Particulars in respect of Tangible Property Import / Export of Finished Goods
Total Amount received / receivable as per books Total Amount received / receivable as per ALP Method Used

Sr. No.

Name and address of AE

Description of transaction

Class of Transaction

Quantity Sold in Pairs (Refer Note 2 below)

XYZ Corporation USA, P.O Box 661, Linville Road, Mt.Airy, New York, USA nc-27030

Sale of Finished Manufacturing Goods and Export of ______

8,624,472

(Refer Note 1 below) (Rs.) 274,963,573 274,963,573 Transactiona l Net Margin Method ('TNMM')

Notes: 1 As per the Transfer Pricing study undertaken by the assessee, the Transactional Net Margin Method was determined to be the most appropriate method prescribed under Section 92C of the Income-tax Act, 1961. On the basis of the study, it was concluded that the prices of international transactions of the assessee were at arms length as provided under section 92C of the Income-tax Act, 1961. Accordingly, it was considered reasonable to use the book values of international transactions as representative of arms length price of all such transactions. Although the quantities of socks have been stated they are of different grades.

Clause 8C: Tangible Movable/Immovable Property

1.
2. 3. 4. 5. 6. 7. 8. 9.

Disclose the details of Assets purchased / sold

Review the Asset Purchase Agreement Valuation certificate issued by an expert Shares purchased /sold Free of cost assets Assets purchased abroad and sold to India on back to back basis Transfer of assets to India at Book Value and the relevant documents Documents related to customs valuation Some examples

Clauses of Form 3CEB

Clause 8C Particulars in respect of Tangible Moveable/Immoveable Property - Purchase / sale of Capital Assets
Sr. No. Name and address of AE Description of property and nature of transaction Class of Transaction Total Amount paid / Number of units payable as per Total Amount of each category Arm's Length Price paid / payable as of moveable / (as computed by per books immovable assessee) property (Refer Note 1 below) (Rs.) 1 XYZ Corporation USA, P.O Box 661, Linville Road, Mt.Airy, New York, USA nc-27030 Purchase of Fixed Assets Import of plant & Machinery 1 No. 13,956 13,956 Method Used

[See Section 92C(1)] Comparable Uncontrolled Price Method ('CUP')

Notes: 1

As per the Transfer Pricing study undertaken by the assessee, the Comparable Uncontrolled Price Method was determined to be the most appropriate method prescribed under Section 92C of the Income-tax Act, 1961. On the basis of the study, it was concluded that the prices of international transactions of the assessee were at arms length as provided under section 92C of the Income Tax Act, 1961. Accordingly, it was considered reasonable to use the book values of international transactions as representative of arms length price of all such transactions.

Clause 9: Intangible property

International transaction(s) in respect of purchase/sale/use of intangible property such as know-how, patents, copyrights, licenses, etc For royalty CUP is the preferred method (where we find comparable agreements using Royalty Stat, Lexis Nexis etc.) IF CUP is not undertaken, TNMM could be used as the most appropriate method to test the arms length nature of royalty payment (assuming aggregation of transactions is possible)

RBI approvals?

Clause 9: Intangible property

Obtain and review the agreements. Ascertain the nature of benefits received from payment of royalty , designs, technical drawings, know how etc. Obtain Section 195 certificate, if necessary. To ascertain the impact of royalty payment in internal / external TNMM, review impact of royalty payments on the profitability of the relevant segment. Check if there is any CUP (royalty paid to third party before entering into contract with group entity). Also, check CUP in other countries ( if applicable) Review Group policy to ascertain if any other group entity that avails same / similar technical know-how at prescribed rate. Verify the calculation of royalty payments. Verify TP Report of the overseas entity ( if any)

Clauses of Form 3CEB

Clause 9 Particulars in respect of transactions in Intangible Property
Total Amount paid / Total Amount paid / payable as per Arm's Name and address of AE Method used for Length Price payable as per Description of each with whom the determining the arm's Sr. No. (as computed by books transaction international transaction length price assessee) (Refer Note 2 below) has been entered into (Refer Note 1below) Royalty for 6,828,753 6,828,753 Comparable 1 XYZ Inc Uncontrolled Price 1313, N. Market Street, Technical knowhow Method. Wilmington DE 198940001, UK.

Notes: 1 As per the Transfer Pricing study undertaken by the assessee, the Comparable Uncontolled Price Method was determined to be the most appropriate method prescribed under Section 92C of the Income Tax Act, 1961. On the basis of the study, it was concluded that the prices of international transactions of the assessee were at arms length as provided under section 92C of the Income-tax Act, 1961. Accordingly, it was considered reasonable to use the book values of international transactions as representative of arms length price of all such transactions.

Clause 10: Services

Covers international transaction(s) in respect of services such as financial, administrative, technical, commercial services, etc Review the Agreements for rendering /receiving services Nature of services rendered Compensation model Ownership of IP Payment terms comparable terms

Group Policy Ledger Accounts, Invoices

Clause 10: Services

Verify on a test check basis the documents for services availed: Emails Minutes of conference calls in case of any advice received In case of actual visits of foreign employees, details of tickets, hotel bills, services rendered while in India Review TDS certificates, if any

Clauses of Form 3CEB

Clause 10 Particulars in respect of services provided / availed off
Amount received or receivable for services provided to AE Sr. No. Name and address of AE with whom the international transaction has been entered into Description of services provided to AE As per books of accounts Arms' length price as computed by the assessee (Refer Note 1) (Rs.) XYZ Inc. 101,Main Street, 16th Floor, 1 Cambridge. Massachusetts -02142 ,USA Rendering of Software Devlopment services 159,030,979 159,030,979 Method used for determining the arm's length price [See Section 92C(1)] Transactional Net Margin Method

Notes: As per the Transfer Pricing study undertaken by the assessee, the Transactional Net Margin Method was determined to be the most 1 appropriate method prescribed under Section 92C of the Income Tax Act, 1961. On the basis of the study, it was concluded that the prices of international transactions of the assessee were at arms length as provided under section 92C of the Income-tax Act, 1961. Accordingly, it was considered reasonable to use the book values of international transactions as representative of arms length price of all such transactions.

Clause 11: Lending and Borrowings

International transaction(s) in respect of granting/receiving loans/ advances Name and address of AE Nature of financing arrangement Currency Interest rates

Clause 11: Lending and Borrowings

Review the loan agreements. Refer to AS-18 Related Party Transactions disclosures for loan transactions. Check for loans taken/given and repaid during the year itself Interest free loans given by Indian entity Case Laws Perot Systems TSI India Private Limited Case Laws VVF Limited

In case of Interest free loans given, examine the possibility of adjustment. Insist on a robust loan/interest rate benchmarking to mitigate possible risk exposure.

Clauses of Form 3CEB

Clause 11 Particulars in respect of lending / borrowing money granting / receiving loans / advances to / from associated enterprise
Sr. No. Amount of paid / payable Method used for Interest Name and address of AE Currency in determining the rate paid in with whom the Nature of which Arm's length price As per books international transaction transaction advance was respect of as computed by the Arm's Length Price of Accounts advance has been entered into received assessee ( Rs.) 1 XYZ Corporation USA, P.O Box 661, Linville Road, Mt.Airy, New York, USA nc-27030 Loan USD LIBOR + 2% xxxx xxxx [See Section 92C(1)] Comparable Uncontrolled Price Method

Notes: 1 As per the Transfer Pricing study undertaken by the assessee, the Comparable Uncontolled Price Method was determined to be the most appropriate method prescribed under Section 92C of the Income Tax Act, 1961. On the basis of the study, it was concluded that the prices of international transactions of the assessee were at arms length as provided under section 92C of the Income-tax Act, 1961. Accordingly, it was considered reasonable to use the book values of international transactions as representative of arms length price of all such transactions.

Clause 12: Mutual Agreements /Arrangements

This clause deals with 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 Particulars to be provided: Name and address of the AE Description of mutual agreement/ arrangement Amount As per books and ALP Method use

Type of transactions covered Cost Allocation / Cost sharing Arrangements Review the Agreements

Clauses of Form 3CEB

Clause 12 Particulars in respect of Mutual Agreement or Arrangement
Sr. No. Name and address of AE Description of mutual agreement / arrangement Total Amount received / Total Amount received receivable as per Arm's / receivable as per Length Price (as computed books by assessee) (Refer Note 1) Rs. 1 Management Fees XYZ Corporation USA, P.O Box 661, Linville Road, Mt.Airy, New York, USA nc-27030 xxxx xxxx Transactional Net Margin Method ('TNMM') Method Used

Notes: 1 As per the Transfer Pricing study undertaken by the assessee, the Transactional Net Margin Method was determined to be the most appropriate method prescribed under Section 92C of the Income-tax Act, 1961. On the basis of the study, it was concluded that the prices of international transactions of the assessee were at arms length as provided under Section 92C of the Income-tax Act, 1961. Accordingly, it was considered reasonable to use the book values of international transactions as representative of arms length price of all such transactions.

Management Service Fees Gemplus India Pvt. Ltd.

Facts of the Case:
Gemplus Singapore Gemplus Singapore

As per Management Services Agreement (MSA), Gemplus Indias AEs would provide need-based services. Services rendered were billed by the AEs on the basis of time spent with an overall fixed cap. Selected the TNMM as the MAM. TPO contended that management services fees paid to AEs not deductible as the taxpayer did not prove that commensurate benefits accrued from these services. Taxpayer failed to prove the aspects, the management service fees were not at ALP and hence not allowable.

100%

Renders marketing and sales support, customer service support, finance, accounting and administration support and legal support services.

Gemplus India Pvt. Gemplus India Pvt. Ltd. Ltd.

Management Service Fees Gemplus India Pvt. Ltd.

Gempluss contention
Commendable Sales turnover Commendable Sales turnover achieved, which would not achieved, which would not have been possible without have been possible without services rendered by AE services rendered by AE exclusively for the business of exclusively for the business of the assessee the assessee

TPO / CIT(A) contention

Taxpayer did not derive any Taxpayer did not derive any specific benefit from the specific benefit from the management services and management services and hence the payment towards hence the payment towards management services was not management services was not justified and disallowed the justified and disallowed the expenses claimed. expenses claimed.

ITAT contention
Imperative on the part of Imperative on the part of Taxpayer to establish that the Taxpayer to establish that the payment were made payment were made commensurate to the volume commensurate to the volume and quality of services and and quality of services and such cost are comparable. such cost are comparable.

There was no material on There was no material on records to show that no records to show that no services were rendered and services were rendered and that the payments were that the payments were excessive compared to excessive compared to analogous transaction. analogous transaction.

MSA has been entered before MSA has been entered before the FY, and hence not possible the FY, and hence not possible to contemplate the nature and to contemplate the nature and volume of services and their volume of services and their compensation compensation

No details available on No details available on records with respect to the records with respect to the nature of services rendered by nature of services rendered by the AE to Taxpayer and, the AE to Taxpayer and, hence, the TPO was justified. hence, the TPO was justified.

Management Service Fees Gemplus India Pvt. Ltd.

Gempluss contention
Employed aahandful of persons Employed handful of persons in India and all the technical in India and all the technical expertise was provided by the expertise was provided by the AE on aaneed basis. AE on need basis.

TPO / CIT(A) contention

Taxpayer already has qualified Taxpayer already has qualified personnel in its service in India personnel in its service in India and the Taxpayer has already and the Taxpayer has already incurred expenditure for similar incurred expenditure for similar services. services.

ITAT contention
TNMM, could not be accepted TNMM, could not be accepted to determine the AL nature of to determine the AL nature of the services fees as the the services fees as the payment terms were payment terms were independent of the nature or independent of the nature or volume of services volume of services TPO was justified. TPO was justified. Taxpayer failed to prove the Taxpayer failed to prove the benefit test, the management benefit test, the management services fees was not at arms services fees was not at arms length and hence not allowed. length and hence not allowed.

Services rendered by the AE Services rendered by the AE were billed on the basis of the were billed on the basis of the time spent for services time spent for services rendered to the Taxpayer, with rendered to the Taxpayer, with an overall fixed cap. an overall fixed cap.

Cost has been apportioned by Cost has been apportioned by the AE for different countrythe AE for different countrycentres on aamutually agreed centres on mutually agreed basis and not on the basis of basis and not on the basis of actual services rendered. actual services rendered.

Benefit test and robust documentation are keys for proving management fees to be at ALP

Clause 13: Other Transactions

Any other international transaction not specifically referred to above

Transactions reported in clause 13 pertain to re imbursements of expenses Free of cost transactions disclosed by way of a note Documentary evidence to be reviewed:
Nature of reimbursement of expenses description Debit notes to understand description of expenses charged / recovered Support documents and vouchers

Clauses of Form 3CEB

Clause 13 Particulars in respect of any other transactions Reimbursements / Others Receipts / Other payments
Sr. No. Name and address of AE Description of each transaction Total Amount paid / payable as per books Total Amount paid / payable as per Arm's Length Price (as computed by assessee) (Refer Note 1) Rs. 1 Method Used

XYZ Corporation USA, P.O Box 661, Linville Road, Mt.Airy, New York, USA nc-27030

Reimbursement for travelling

18,025

[See Section 92C(1)] 18,025 Comparable Uncontrolled Price Method ('CUP')

Refer Note 2 below Notes: As per the Transfer Pricing study undertaken by the assessee, the Comparable Uncontrolled Price Method was determined to be the most appropriate method prescribed under Section 92C of the Income-tax Act, 1961. On the basis of the study, it was concluded that the prices of international transactions of the assessee were at arms length as provided under Section 92C of the Income-tax Act, 1961. Accordingly, it was considered reasonable to use the book values of international transactions as representative of arms length price of all such transactions.

Legislative Framework in India Importance of Form 3CEB Form 3CEB Flow Form 3CEB Clauses Recent development Revision of Form 3CEB Management Representation Letter Filing requirements in other countries

Recent development Amadeus India Pvt. Ltd.

Facts of the Case:
Amadeus Associated Enterprises AEs Responsible for providing software access to the subscribers of the Amadeus products and computer database within the Indian subcontinent. TNMM selected as MAM - PLI selected as OP/TC - TPO did not raise any objection to the method adopted or computation of ALP TPO alleged that assessee had incurred more than normal sales and marketing expenses to build aMaDEUS brand, which is legally owned by Amadeus Spain. TPO compared AMP/Sales% of 3 companies of 12.16% with assessees AMP% of 40.87%, hence adding a mark-up of 10% on more than normal marketing expenses TPO passed a draft order, later confirmed by DRP

Provides data processing and related services to its AEs.

Amadeus India Pvt. Ltd. Amadeus India

Marketing Intangibles Amadeus India Pvt. Ltd.

Amadeuss contention
Incurred normal sales and Incurred normal sales and marketing expenses as the marketing expenses as the same were not disallowed by same were not disallowed by AO u/s 37(1) AO u/s 37(1)
rd AMP expenses were 33rdparty AMP expenses were party expenses and the same were expenses and the same were not recognised by the not recognised by the assessee as an international assessee as an international transaction in Form 3CEB transaction in Form 3CEB

TPO / CIT(A) contention

Assessee had incurred more Assessee had incurred more than normal sales and than normal sales and marketing expenses to build marketing expenses to build brand in India, which is legally brand in India, which is legally owned by Amadeus Spain. owned by Amadeus Spain. When aafile is referred to TPO, When file is referred to TPO, the AO is referring to the entire the AO is referring to the entire gamut of international gamut of international transactions transactions AMP expenditure should be AMP expenditure should be considered as an international considered as an international transaction within meaning of transaction within meaning of Section 92B(1) of the Act Section 92B(1) of the Act

ITAT contention
Deletion of AMP expenditure Deletion of AMP expenditure related adjustments made by related adjustments made by TPO as he acted beyond his TPO as he acted beyond his jurisdiction, without approval jurisdiction, without approval from CIT from CIT The role of the TPO is The role of the TPO is restricted to only that restricted to only that transaction, referred to him by transaction, referred to him by the AO (CBDT Inst. 33of 2003) the AO (CBDT Inst. of 2003) Plain reading of Sec. 92CA(1) Plain reading of Sec. 92CA(1) nowhere reveals that TPO can nowhere reveals that TPO can take any transaction suo moto take any transaction suo moto for verification and adjustment for verification and adjustment

TPO did not conclude that TPO did not conclude that AMP expenditure incurred is an AMP expenditure incurred is an international transaction international transaction

Marketing Intangibles Amadeus India Pvt. Ltd.

Amadeuss contention
Avoidance of tax was not Avoidance of tax was not condition precedent for condition precedent for invoking TPR invoking TPR

TPO / CIT(A) contention

The TPR does not require the The TPR does not require the form but also the overall form but also the overall arrangement/substance of the arrangement/substance of the transactions before determining transactions before determining ALP. ALP. Assessee incurred costs under Assessee incurred costs under aamutual agreement, not in mutual agreement, not in writing, but proved from the writing, but proved from the conduct of the parties conduct of the parties

ITAT contention
Bright Line Test done by TPO Bright Line Test done by TPO by applying AMP/Sales as aa by applying AMP/Sales as base for benchmarking is not base for benchmarking is not 11of the 55methods prescribed of the methods prescribed under TPR in India under TPR in India

Proposed budget 2011 gives TPO the power to evaluate transaction not referred by AO

Recent development Open Technologies India Private Limited

Facts of the Case:
Assessee had not furnished Accountants Report before the due date of filing ROI for AY 2006 07 Had obtained the Form 3CEB on September 1, 2006 which was before the due date Penalty proceedings under Section 271 BA of the Act were initiated by the AO

Open Technologies India Private Limited

Taxpayers contention
Online filing of return was Online filing of return was mandatory for the first time mandatory for the first time None of the documents were None of the documents were filed like audited accounts, filed like audited accounts, TDS certificate, Form3CEB etc TDS certificate, Form3CEB etc Form 3CEB filed in the due Form 3CEB filed in the due course of assessment. Affidavit course of assessment. Affidavit from Director and CA were from Director and CA were submitted that Form 3CEB was submitted that Form 3CEB was obtained on 11-9 -2006 obtained on -9 -2006

AO / CIT(A) contention
AO did not accept the AO did not accept the contention and levied the contention and levied the penalty under Section 271 BA penalty under Section 271 BA

ITAT contention
Assessee had obtained the Assessee had obtained the Form 3CEB before the due Form 3CEB before the due date of return filing date of return filing

CIT (A) upheld the penalty CIT (A) upheld the penalty levied by the AO levied by the AO

Section 273B provides that no Section 273B provides that no penalty under Section 271 BA penalty under Section 271 BA will be leviable ififthere is will be leviable there is reasonable case for failure to reasonable case for failure to comply comply Assessee was under genuine Assessee was under genuine belief that Annexures were not belief that Annexures were not to be filed with the return. to be filed with the return.

Penalty was deleted

Legislative Framework in India Importance of Form 3CEB Form 3CEB Flow Form 3CEB Clauses Recent development Revision of Form 3CEB Management Representation Letter Filing requirements in other countries

Revision of Form 3CEB

Prior to Merger

Facts of the Case:

AE AE

K Ltd, M Ltd and C Ltd are separate legal entities in India They have filed their Form 3CEB for April 2009 to March 2009 by September 2009 The group wants to merge K ltd and M Ltd into C Ltd and have a single entity in India The Scheme of Amalgamation is approved by the High Court in October 2009 w.e.f January 1, 2009.

Out of India

In India

K Ltd K Ltd

M Ltd M Ltd

C Ltd C Ltd

Revision of Form 3CEB

Post Merger

AE AE

Out of India

Form 3CEB filed by the Form 3CEB filed by the entities are revised entities are revised

In India April to March April to Dec April to Dec

C Ltd C Ltd K Ltd K Ltd M Ltd M Ltd

Revision of Form 3CEB

No specific provisions in the Income tax Act for revision of Form 3CEB Guidance Note silent on this No legal precedent Revision of Form 3CEB transaction affects the income reported in the Return of Income Section 139 (5)

Revision of Form 3CEB Some examples

Transaction not disclosed Wrong amount has been disclosed Wrong AE details have been disclosed Original 3CEB based on unaudited financials and the revised 3CEB is based on audited financials

Legislative Framework in India Importance of Form 3CEB Form 3CEB Flow Form 3CEB Clauses Recent Developments Revision of Form 3CEB Management Representation Letter Filing requirements in other countries

Management Representation Letter

Information and Documents maintained in the Study Report Ownership Structure Details of Associated Enterprises and international transactions with the associated enterprises Segmental Financials of the Company Confirmation on foreign currency disclosures Confirmation on re - imbursements of expenses

Legislative Framework in India Importance of Form 3CEB Form 3CEB Flow Form 3CEB Clauses Recent developments Revision of Form 3CEB Management Representation Letter Filing requirements in other countries

Filing Requirements US and UK

US

Filing of Form 5471 and 5472 Copy of CSA Statement filed

UK

None Specified

Filing Requirements Western Europe

Spain Netherlands Disclose details of RPT in forms filed for returns Returns include one question whether any RPT State whether TP document maintained Total amount of all RPT

Italy

Germany France

None None

Filing Requirements Asia

Malaysia Transactions with related party to be disclosed

Vietnam

Form GCN-01/QLT to be filed Form to be filed within 90 days from year end 3A Identity of related party and transaction detail 3A-1 Existence of study to support ALP

Indonesia

Thailand

No disclosure

Thank you