Volume 6, Issue 10


28 June 2013


Tax Alert

Accountant’s Report (Form No. 3CEB) made more exhaustive and onerous

In order to clarify a few ambiguities and further strengthen transfer pricing provisions in India, the Finance Act 2012 brought about two major amendments:

However, there was no clarity on the consequential amendments to Income Tax Rules, particularly with respect to the reporting requirements in the Accountant’s Report (Form 3CEB).

Accordingly, the CBDT vide its notification No. 41/2013 dated 10 June 2013, amended the Rules 10A to 10E, thereby expanding the rules to bring under its ambit specified domestic transactions along with international transactions. Further, the rules now include definitions of the terms ‘Associated Enterprise’ and ‘Enterprise’. Additionally, the Accountant’s Report (in Form 3CEB) has been amended. The salient features are:

  • The report requires separate disclosure under ‘Part C’ for ‘Specified Domestic Transactions’
  • It now comprises of 25 clauses as against  13 clauses previously
  • It requires a mention of the nature of business or activities of the taxpayer according to the instructions for filling ITR-6
  • It requires the taxpayer to furnish details with respect to the aggregate value of international transactions and specified domestic transactions according to the books of accounts.

Additional reporting requirements with respect to International Transactions

Additional clauses have been added to the Accountant’s Report along with elaborate reporting requirements in Part–B with respect to the following international transactions:
  • With respect to the clause pertaining to the lending or borrowing of money, the list of transactions covered has been expanded to include any type of advance, payments, deferred payments, receivables, non-convertible preference shares/debentures or any other debt arising during the course of business. This clause requires the taxpayer to furnish details such as the nature of financing agreement, interest rate and amount charged/paid, and the method used for determining arm’s length price.
  • With respect to guarantees given/taken, the taxpayer is required to furnish details such as the nature of guarantee agreement, compensation charged/paid, and the method used for determining arm’s length price.
  • With respect to the purchase or sale of marketable securities, issue and buyback of equity shares, convertible debentures/preference shares, the taxpayer is required to furnish details such as the nature of transaction, consideration charged/paid, and the method used for determining arm’s length price.
  • With respect to business restructuring or reorganisation, the taxpayer is required to furnish details such as the nature of transaction, agreement with respect to business restructuring/reorganisation, terms of business restructuring/reorganisation, and the method used for determining arm’s length price.
  • With respect to deemed international transactions, the taxpayer is required to furnish details such as description of the transaction, amount paid/payable or received/receivable, and the method used for determining arm’s length price.

Reporting requirements under ‘Part C (Specified Domestic Transactions)’

This new section of the report requires the following disclosures with respect to specified domestic transactions:

  • List of the associated enterprises, along with their name, address, PAN, nature of relationship and brief description of the business carried on by the associated enterprise
  • Transactions in nature of any expenditure to any person specified in 40A(2)(b)
  • Transactions in nature of transfer or acquisition of any goods and services by any undertaking/unit/enterprise enjoying tax holiday/ tax exemption/profit-linked deductions
  • Transaction in nature of any business transacted, which has resulted in more than ordinary profits derived from transactions with closely connected persons
  • Any other specified domestic transactions not covered above

Further, with respect to the above, the taxpayer is required to furnish details such as the name of the person with whom specified domestic transactions have been undertaken, description of the transaction, description of goods/services transferred/acquired, amount received/receivable or paid/payable, and the method used for determining arm’s length price.

SKP’s Comments

This notification brings in the much-needed clarity with respect to the reporting requirements of specified domestic transactions and international transactions as well. It is now pertinent for the taxpayer to exercise prudence for disclosure and reporting of all transactions since not reporting a transaction would result in a penalty of 2% of the value of the transaction.

With respect to the reporting requirements for share capital transactions, the tax authorities have made their intention very clear that these would be considered as international transactions subject to transfer pricing. The issue of applicability of transfer pricing to share capital transactions has been the “eye of the storm” in recent months, with the tax authorities slapping a whopping adjustment of INR 350 billion on 27 different companies in the recent round of transfer pricing audits. Similarly, the other amendments in Form 3CEB reflect the intention of the tax authorities to bring a wide range of transactions within the ambit of transfer pricing, irrespective of their impact on profits or taxes.

Lastly, now Form 3CEB needs to be filed online rather than in physical form on or before 30 November.