Section 92D provides that every person who has entered into an international transaction or specified domestic transaction, during a previous year, shall keep and maintain such information and documents, prescribed by the Board, as will assist the Assessing Officer/ Transfer Pricing Officer to compute the income arising from that transaction, having regard to the ALP.

Rule 10D prescribes the information and documents required to be kept and maintained under section 92D i.e., Local File. Further Rule 10DA prescribes information and document to be kept and maintained under proviso to sub-section (1) of section 92D i.e., Master File.

Section 286 provides that every parent entity or alternate reporting entity (designated by parent) of an international group that is resident in India, shall for every reporting accounting year, furnish a report in the form and manner as may be prescribed, within the due date provided in subsection (1) of section 139. In case of a constituent entity resident in India, the parent of which is not resident in India, such entity shall notify whether it is the alternate reporting entity of the international group or the details of the parent entity/ alternate reporting entity and the country of which such entities are resident. Further, Rule 10DB prescribes rules relating to furnishing of CbC Report.

This responsibility of an enterprise to keep and maintain prescribed documents arises because of its unique position of being in control and custody of information that is necessary to verify whether the international transaction or specified domestic transaction to which it was party was carried out on the arm’s length principle.

OECD in Transfer Pricing Guidelines, 2017 asserts the three main objectives of maintaining transfer pricing documentation:

“1. To ensure that taxpayers give appropriate consideration to transfer pricing requirements in establishing prices and other conditions for transactions between associated enterprises and in reporting the income derived from such transactions in their tax returns;

2. to provide tax administrations with the information necessary to conduct an informed transfer pricing risk assessment; and

3. to provide tax administrations with useful information to employ in conducting an appropriately thorough audit of the transfer pricing practices of entities subject to tax in their jurisdiction, although it may be necessary to supplement the documentation with additional information as the audit progresses.”

The requirement to keep and maintain such information and documents as prescribed in Rule 10D i.e., Local File with respect to an international transaction has, however, been waived in the case of those persons who have entered into international transactions the aggregate value of which, as recorded in the books of account, does not exceed one crore rupees – Rule 10D(2).

Persons who are so exempted from the mandatory requirement of keeping and maintaining information and documents prescribed as per Rule 10D shall, nevertheless, on the basis of the material in their possession, have to substantiate that the income on the international transactions entered into by them has been computed in accordance with the provisions of section 92 -proviso to Rule 10D(2).

By virtue of sub-section (2) of section 92D, the Board is empowered to prescribe the period for which the assessee must maintain the prescribed information and records. Pursuant thereto, the Board has stipulated that the prescribed information and documents prescribed as per Rule 10D (i.e., Local File) and Rule 10DA (i.e., Master File) be kept and maintained for a period of eight years from the end of the relevant assessment year – Rule 10D(5) and Rule 10DA(7).

For example: For Financial Year 2018-19, an Assessee has to maintain prescribed information and documents for 8 years from the end of the relevant assessment year (2019-20), i.e. until Financial Year 2028-29. 

Under section 92D (3), the Assessing Officer or the Commissioner (Appeals) during the course of any proceeding under the Act may require a person who has entered into an international transaction or specified domestic transaction to furnish any information or document, which he was expected to maintain under section 92D (1). The person shall furnish the information or document called for within thirty days from the date of receipt of a notice issued in this regard. 

Where, for any reason, the person is unable to produce the required information or documents within the stipulated period of thirty days, the Assessing Officer or Commissioner (Appeals) may, on an application made by the person, extend the period by a further period or periods not exceeding, in all, thirty days.

Under section 92E, 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. “Specified date” shall have the same meaning as assigned to due date in Explanation 2 below subsection (1) of section 139.

The above-mentioned Explanation reads as under: [Based on Finance Act 2019 (No. 2)]

“In case of an assessee who is required to furnish a report referred to in section 92E, the due date means the 30th day of November of the assessment year.”

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May 2021