The chronology of a typical transfer pricing proceeding is as follows:
-Filing of the Income-tax return by an Assessee
-Reference made by the Assessing Officer (‘AO’) to the Transfer Pricing Officer (‘TPO’)
-Transfer pricing proceedings conducted by the TPO and passing of the TP order.
-AO passes draft assessment order (‘DAO’) incorporating the additions proposed by the TPO
-Within 30 days of receipt of the DAO, the Assessee has the option of approaching either Commissioner of Income-tax – Appeals (‘CIT(A)’) or the Dispute Resolution Panel (‘DRP’)
-If no intimation is received within 30 days by the Assessee, the AO would issue the Final Assessment Order.
-In case the Assessee has approach the DRP against the additions proposed in the DAO, the Final Assessment Order can only be passed by the AO after receiving directions from the DRP.
-Against the FAO, the Assessee may go for further appeal before the Income-Tax Appellate Tribunal, the High Court and the Supreme Court (sequentially)
Key aspects to remember in relation to a TP proceedings are as follows:
- The Central Board of Direct Taxes (‘CBDT’) has issued Instruction 3/2016 Dated: 10/03/2016 providing guidelines for implementation of the transfer pricing provisions by the AO and the TPO.
- The reference to the TPO by the AO needs prior approval of the jurisdictional Principal Commissioner of Income-tax (‘PCIT’) or CIT.
- If the case has been picked up on account of a Transfer Pricing Risk parameter at the scrutiny stage – the AO is mandated to make a reference to the TPO.
Cases selected for scrutiny on non-transfer pricing parameters can also be referred to the TPO in circumstances wherein the AO suspects the presence of international transactions or when a transfer pricing adjustment in excess of Rs. 10 crores was made in an earlier assessment year. - The CBDT acknowledges that aggregation of transactions could be undertaken by an Assessee for the purpose of benchmarking a transaction, and in this backdrop, several transactions can be referred to the TPO if the scrutiny is picked up on account of TP risk parameters in relation to a particular international transaction.
Legislative Provisions to remember:
Section 92CA of the Income-tax Act, 1961 (‘ITA’)
(1) Where any person, being the assessee, has entered into an international transaction or specified domestic transaction in any previous year, and the Assessing Officer considers it necessary or expedient so to do, he may, with the previous approval of the Principal Commissioner or Commissioner, refer the computation of the arm’s length price in relation to the said international transaction or specified domestic transaction under section 92C to the Transfer Pricing Officer.
Section 92CA(3A) of the ITA
…….an order under sub-section (3) may be made at any time before sixty days prior to the date on which the period of limitation referred to in section 153, or as the case may be, in section 153B for making the order of assessment or reassessment or recomputation or fresh assessment, as the case may be, expires: (TLDR: the TP order should be issued at least 60 days prior to the due date for completion of assessment)
Section 92C(3) of the ITA
Where during the course of any proceeding for the assessment of income, the Assessing Officer is, on the basis of material or information or document in his possession, of the opinion that—
(a) the price charged or paid in an international transaction or specified domestic transaction has not been determined in accordance with sub-sections (1) and (2); or
(b) any information and document relating to an international transaction or specified domestic transaction have not been kept and maintained by the assessee in accordance with the provisions contained in sub-section (1) of section 92D and the rules made in this behalf; or
(c) the information or data used in computation of the arm’s length price is not reliable or correct; or
(d) the assessee has failed to furnish, within the specified time, any information or document which he was required to furnish by a notice issued under sub-section (3) of section 92D,
the Assessing Officer may proceed to determine the arm’s length price in relation to the said international transaction or specified domestic transaction in accordance with sub-sections (1) and (2), on the basis of such material or information or document available with him:
Provided that an opportunity shall be given by the Assessing Officer by serving a notice calling upon the assessee to show cause, on a date and time to be specified in the notice, why the arm’s length price should not be so determined on the basis of material or information or document in the possession of the Assessing Officer.
Section 92E of the ITA
Every person who has entered into an international transaction or specified domestic 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.
Section 153(1) of the ITA
No order of assessment shall be made under section 143 or section 144 at any time after the expiry of twenty-one months from the end of the assessment year in which the income was first assessable: [AY 2017-18 & prior – 21 months for assessment completion]
Provided that in respect of an order of assessment relating to the assessment year commencing on the 1st day of April, 2018, the provisions of this sub-section shall have effect, as if for the words “twenty-one months”, the words “eighteen months” had been substituted: [AY 2018-19 – 18 months for assessment completion]
Provided further that in respect of an order of assessment relating to the assessment year commencing on or after the 1st day of April, 2019, the provisions of this sub-section shall have effect, as if for the words “twenty-one months”, the words “twelve months” had been substituted: [AY 2019-20 & AY 2020-21 – 12 months for assessment completion]
Provided also that in respect of an order of assessment relating to the assessment year commencing on or after the 1st day of April, 2021, the provisions of this sub-section shall have effect, as if for the words “twenty-one months”, the words “nine months” had been substituted. [AY 2021-22 onwards – 9 months for assessment completion]
Section 153(4) of the ITA
Notwithstanding anything contained in sub-sections (1), (2) and (3), where a reference under sub-section (1) of section 92CA is made during the course of the proceeding for the assessment or reassessment, the period available for completion of assessment or reassessment, as the case may be, under the said sub-sections (1), (2) and (3) shall be extended by twelve months. [If reference to TPO is made, add 12 months to the above time periods for completion of assessment]
Reference:
Instruction 3/2016 Dated: 10/03/2016
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The views expressed in this article are the personal views of the author. The views / the analysis contained therein do not constitute a legal opinion and are not intended to be an advice. You may reach out to me at [email protected].
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very good article Amar Bhai. keep it up.