This article is written by Daisy Jain, a student at the Institute of Law, Nirma University. This article gives you an overview of Section 92E of Income Tax Act, 1961. This article also deals with the applicability of Section 92E. 

It has been published by Rachit Garg.

Introduction 

The Indian enterprises now face a lot of problems as a result of the economy’s accelerating globalization. One of these concerns is Transfer Pricing (TP), which refers to the cost of selling tangible or intangible assets and providing services to connected businesses. Transfer pricing provisions were added to Chapter X of the Income Tax Act of 1961 by the Finance Act of 2001 in accordance with international standards.

Chapter X of the Income Tax Act, 1961 (hereinafter referred to as the “IT Act”) covers the provisions pertaining to specific provisions which deal with tax exemptions. It consists of Sections 92 to 94B. The IT Act of 1961, Section 92E mandates that individuals engaging in certain domestic or international transactions obtain a report from an accountant.

Meaning of Section 92E of Income Tax Act 

Any person who engaged in a stipulated domestic transaction or an international transaction during the preceding year is required to get a report from an accountant and submit it on or before the given date in the predefined format, validly signed and authenticated in the required form by the accountant, and containing any prescribed details. 

As per the transfer pricing regulations, anyone who participated in international or specified domestic transactions in the preceding year is required to obtain a report from an accountant. According to the Chartered Accountants Act of 1949, the accountant must be a Chartered Accountant (CA) with a current certificate of practice and the required credentials. You must submit this report in Form 3CEB in accordance with Section 92E at least one month before the deadline for submitting Income Tax Returns (ITRs) under Section 139. The deadline under Section 92E is 30th November 2021 to 31st January 2022 of the applicable assessment year. The report must be verified and signed by all chartered accountants engaged in its creation, and contain all the necessary information. To undertake an audit under Section 92E, the taxpayer must provide a letter of invitation to the chartered accountant. A person who can authenticate the return of income or someone appointed by the company to make the appointment must sign this appointment letter.

Applicability of Section 92E of Income Tax Act

Section 92E is only applicable to specified domestic transactions and international transactions. International transactions involving two or more associated enterprises are subject to the provisions of Section 92E. Such transactions must incorporate either one or both non-resident applicants. Specific domestic transactions are also covered under Section 92E of the Income Tax Act, 1961. All types of transactions that qualify as international transactions have been clarified under the Finance Act, 2012. Below are a few of these transactions:

• Buying, selling, or renting any kind of material or immaterial property.
• Agreement for division of costs and expenses for any gain, service, or facility between two or more Associated Enterprises (AE) obtaining or lending money. 
• Any transaction that results in a loss or gain in income or in the asset(s).
• Agreement-based transaction between a corporation and a party other than an AE.

Section 92(3) states that the rules of Section 92E do not apply in cases where there are chances of higher losses or lower income taxes in India. 

What are international and specified domestic transactions under Section 92E of Income Tax Act

In regard to transfer pricing regulation, a transaction between two or more associated enterprises in which tangible or intangible property is sold, bought, leased, or provided as a service, or where money is lent or borrowed, may be referred to as an ‘international transaction’ if one or both parties are non-residents. It is crucial to remember that an agreement by a company with someone other than the associated enterprise will be regarded as an international agreement by two associated enterprises provided the following conditions are met:

1. Such other party and the associated enterprise have a previous agreement in connection to the applicable transaction, or
2. Regardless of whether the other person is a non-resident or not, the conditions of the applicable transaction are in essence decided between the other party and the associated enterprise when the party, the associated enterprise, or both of them are non-residents.

Contents of the report

Every individual who participates in an international transaction or a specified domestic transaction during the preceding year must get a report from the chartered accountant in Form No. 3CEB and submit it to the tax authorities by November 30 of the applicable evaluation year. Kindly refer to the latest draft of Form No. 3CEB to get to know the structure and all the requisite details that are needed to be filled in the report of Form No. 3CEB.

The first part of Form No. 3CEB  

The auditor must declare in the first part of this report that he has reviewed the assessee’s financial statements and other documents that pertain to the overseas transactions the assessee carried out during the reporting year. Also required is a statement from the auditor about whether the assessee has preserved the required transfer pricing papers.

The second part of Form No. 3CEB 

The auditor must provide information about international transactions in the second section of the report, including:

• A list of affiliated businesses; 
• Information on and a description of any transactions involving purchases, sales, service provision, mortgages, developments, etc.
• The arm’s length price of the aforementioned transactions which is calculated using the transfer pricing method. Arm’s length price is defined as a price that is applied or intended to be used in a transaction between parties other than associated firms under unregulated circumstances
• The overall sum of the transaction which is determined according to the books of accounts. 

Form No. 3CEB

Below mentioned is the format of Form No. 3CEB. This is a specimen of Form No. 3CEB. It is always advisable to seek professional help while filling out such a form.

Report from an accountant to be furnished under section 92E relating to the international transaction(s) and specified domestic transaction(s) (see rule 10E of Income Tax Rules)

1. *I/We have examined the accounts and records of…………………………………………… (name and address of the assessee with [Permanent Account Number or Aadhaar Number]) relating to the international transaction(s) and the specified domestic transaction(s) entered into by the assessee during the previous year ending on 31st March, ……………. 
2. In*my/our opinion proper information and documents as are prescribed have been kept by the assessee in respect of the international transaction(s) and the specified domestic transactions entered into so far as appears from *my/our examination of the records of the assessee. 
3. The particulars required to be furnished under section 92E are given in the Annexure to this Form. In*my/our opinion and to the best of my/our information and according to the explanations given to *me/us, the particulars given in the Annexure are true and correct. 

Place: ……………… **Signed …………………………………………………. 

Date: ……………….. Name: ……………………………………………………. 

Address:……………………………………………….. ………………………………………………………………… 

Membership No. : ………………………………… 

Notes: 

1. *Delete whichever is not applicable.
2. **This report has to be signed by—

(i) a chartered accountant within the meaning of the Chartered Accountants Act, 1949 (38 of 1949); or

(ii) any person who, in relation to any State, is, by virtue of the provisions in sub-section (2) of section 226 of the Companies Act, 1956 (1 of 1956), entitled to be appointed to act as an auditor of companies registered in that State.  

Penalties for not furnishing the report under Section 92E of Income Tax Act

If a situation arises where the person fails to submit the report for its furnishing, then that person shall be held liable to be charged for the penalties. Section 271BA deals with the penalty provisions for the failure to furnish the report under Section 92E. Section 271BA, which imposes a fine of Rs. 1 lakh on anyone who fails to provide a report from an accountant as considered necessary by Section 92E, and Section 271AA, which imposes a fine on anyone who fails to maintain and keep information and documents related to international transactions, are the sections that encompass the penalty provisions for international transactions in general.

In the case of Ajit Singh Rana v. Assistant Commissioner of Income Tax (2021), an issue was raised that ignorance of the law by the accountant cannot be a reasonable cause for levying a penalty under Section 271BA. It was ruled that the assessee’s chartered accountant’s ignorance of the law was not a valid excuse for failing to submit the audit report about its international transactions and for not imposing a fine under Section 271BA. The Assessing Officer discovered that the assessee had not provided the audit report about its international transactions as needed to be produced under Section 92E in the case at hand for the assessment years 2003-2004 and 2006-2007, and as a result, the Assessing Officer instituted the penalty proceedings. It was additionally argued that the initiation of penalty proceedings was done after the limitation period of 4 years. The Commissioner disagreed with the contentions of the assessee and thereby upheld the Assessing Officer’s decision. Ignorance of the law is no defence, and it is particularly unlikely that the chartered accountant who reviewed the assessee’s accounts and whom the assessee claims procured the audit report from but who failed to submit the audit report together with the return of income, could be a legitimate excuse under Section 92E for failing to file the audit report.

Conclusion 

Now we shall conclude Section 92E of the Income Tax Act, 1961. Anyone engaging in international and specified domestic transactions is required by Section 92E of the Income Tax Act to acquire and provide an audit report from a chartered accountant. A minimum of two Account Executives, one of which must be a non-resident, must be covered by Section 92E’s provisions. As stated in Section 92BA, the Section also applies to specified domestic transactions.

Frequently Asked Questions

What are the remedies available if the report is not furnished under Section 92E?

Penalties for not furnishing the report under Section 92E of Income Tax Act, 1961, have been duly stated under Section 271BA of the Act. According to Section 271BA, the assessing officer may impose a fine of Rs. 1,000,000 if an individual fails to submit the report required by Section 92E.

What is the role of Form 3CEB?

A chartered accountant’s report, Form 3CEB, must be provided in cases of overseas transactions and certain domestic transactions regulated by Section 92E. It is delivered electronically and demands DSC’s signature. Rule 10E specifies that Form 3CEB is necessary. 

What is the meaning of ‘specified domestic transaction’?

Every Section 80A-covered transaction is regarded as a specific domestic transaction (SDT). It relates to business transactions covered by Sections 80IA(10), 10AA, or 115BAB(4), as well as transfers of goods and services under Section 80IA(8). Taxpayers must conduct these transactions with associated enterprises at a just market value in order to be eligible for deductions under various sections.

References  

• https://www.researchgate.net/publication/268183572_The_Indian_Response_to_Transfer_Pricing
• https://www.mondaq.com/india/transfer-pricing/668304/transfer-pricing-in-international-transactions-an-overview
• http://www.cas.ind.in/wp-content/uploads/1GN-on-Transfer-pricing-2016.pdf
• https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3744562 

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