Budget 2019: Clarification with regard to power of Assessing Officer in respect of modified return of income filed in pursuance to signing of Advance Pricing Agreement (APA)

Section 92CC of the Act empowers the Central Board of Direct Taxes (CBDT) to enter into an APA, with the approval of the Central Government, with any person for determining the Arm’s Length Price (ALP) or specifying the manner in which ALP is to be determined in relation to an international transaction which is to be entered into by that person. The APA is valid for a period, not exceeding five previous years, as may be specified therein. This section also provides for rollback of the APA for four years. Thus, once the APA is entered into, the ALP of the international transaction, which is subject matter of the APA, would be determined in accordance with such APA.

In order to give effect to the APA, section 92CD also provides for mechanism, including filing of modified return of income by the taxpayer and manner of completion of assessments by the Assessing Officer having regard to terms of the APA.

Sub-section (3) of this section deals with a situation where assessment or re-assessment has already been completed, before expiry of the time allowed for filing of modified return. Apprehensions have been expressed stating that due to the use of words “assess or reassess or recompute”, the Assessing Officer may start fresh assessment or reassessment in respect of completed assessments or reassessments of the assessees who have modified their returns of income in accordance with the APA entered into by them, while the intention of the legislature is for Assessing Officer to merely modify the total income consequent to modification of return of income in pursuance to APA.

It is, therefore, proposed to amend sub-section (3) of section 92CD to clarify that in cases where assessment or reassessment has already been completed and modified return of income has been filed by the tax payer under sub-section (1) of said section, the Assessing Officers shall pass an order modifying the total income of the relevant assessment year determined in such assessment or reassessment, having regard to and in accordance with the APA.

This amendment will take effect from 1st September, 2019.

[Clause 29]

Extract of Clause 29 of Finance Bill 2019

29. Amendment of section 92CD.

In section 92CD of the Income-tax Act, with effect from the 1st day of September, 2019,––

(a) in sub-section (3), for the words “proceed to assess or reassess or recompute the total income of the relevant assessment year”, the words “pass an order modifying the total income of the relevant assessment year determined in such assessment or reassessment, as the case may be,” shall be substituted;

(b) in sub-section (5), in clause (a), the words “of assessment, reassessment or recomputation of total income” shall be omitted.

Note on Clause 29 of Finance Bill 2019

Clause 29 of the Bill seeks to amend section 92CD of the Income-tax Act relating to effect to advance pricing agreement.

Sub-section (3) of the said section provides that if the assessment or reassessment proceedings for an assessment year relevant to a previous year to which the agreement applies have been completed before the expiry of period allowed for furnishing of modified return under sub-section (1), the Assessing Officer shall, in a case where modified return is filed in accordance with the provisions of sub-section (1), proceed to assess or reassess or recompute the total income of the relevant assessment year having regard to and in accordance with the agreement.

It is proposed to amend the said sub-section so as to provide that the Assessing Officer shall, in a case where modified return is filed in accordance with the provisions of sub-section (1), pass an order modifying the total income of the relevant assessment year, determined in such assessment or reassessment, as the case may be, having regard to and in accordance with the terms of the advance pricing agreement.

It is further proposed to make consequential amendment in sub-section (5) of the said section.

These amendments will take effect from 1st September, 2019.

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