Section 92E : Report From An Accountant To Be Furnished By Persons Entering Into International Transaction

What is section 92E?

An audit report from a Chartered Accountant is required to be obtained & furnished in Form 3CEB by every person who has entered into :

• an international transaction or
• a specified domestic transaction

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What is the meaning of International transactions as per section 92B?

A transaction which fulfill the following conditions :

• A transaction done between two or more associated enterprises AND
• At least one must be Non Resident

Also, such transactions should be in nature of

i) Purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money

ii) A mutual agreement or arrangement between two or more associated enterprises and terms of transaction are pre determined like allocation of cost

Now we need to understand the meaning of Associated enterprises

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What is the meaning of Associated Enterprises as per section 92A ?

• An enterprise taking part directly or indirectly in the
  1. management or
  2. control or
  3. capital
  of the other enterprise.
• An enterprise in respect of which the person participating in management or control or capital, directly or indirectly, or through intermediaries are the same persons who participate in a similar manner in the other enterprise.
• One enterprise holds, directly or indirectly, at least 26% of the voting power in the other enterprise.
• Any person or enterprise holds, directly or indirectly, shares 26% of the voting power in each of such enterprises
• A loan advanced by one enterprise to the other enterprise,at least 51% book value of the total assets of the other enterprise.
• In case where one enterprise give guarantee for at least 10% of the total borrowings of the other enterprise.
• Any person appoints more than half of the BOD or one or more Executive Director of each of such enterprise.
• When the appointment of more than half of the directors or members of the governing board, or one or more of the executive directors or executive members of the governing board is made by the same person or persons
• The business of such enterprise is wholly dependent on knowhow, copyright, patent, secret formula of other enterprise.
• 90% or more of the raw materials and consumables required by one enterprise, are supplied by the other enterprise.
• The goods or articles manufactured one enterprise, are sold to the other enterprise , and the prices and other conditions are influenced by such other enterprise.
• Where one enterprise is controlled by an individual, the other enterprise is also controlled by such individual himself or through his relative or jointly by such individual and his relative.
• Where one enterprise is controlled by a HUF and the other enterprise is controlled by either
  1. A member of such Hindu undivided family, or
  2. By a relative of such Hindu undivided family member, or
  3. Jointly by such member and his relative.
• One enterprise has at least 10% interest in another enterprise being partnership Firm, AOP, BOI.
• In case any relationship of mutual interest exists between the two enterprises.
• When the assessee enters into a transaction in which one of the parties to the transaction is a person located in a notified jurisdictional area, then all the parties to the transaction are deemed to be the associated enterprises as per section 92A of the income tax act.

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What is the meaning specified domestic transactions as per section 92BA ?

Previously, only cross border transactions were covered under transfer pricing rules. However, the Finance Act, 2012 extended it scope and covered some specified domestic transactions with related parties within the country Now, we will understand which transactions are referred as specified domestic transactions :

"specified domestic transaction" means

• any transaction given under section 80A;
• any transfer of goods or services referred u/s 80-IA(8);
• any business transacted between the assessee and other person as referred u/s 80-IA(10);
• any transaction, referred to in any other section under Chapter VI-A or section 10AA, to which provisions of section 80-IA(8)/(10) are applicable; or
• any business transacted between the persons referred to in section 115BAB(4);
• any other transactions as may be prescribed,

and where the aggregate of such transactions entered into by the assessee in the previous year exceeds a prescribed sum of Rs 20cr rupees.

If the threshold limit is crossed, the transfer pricing requirements will be required to be complied by the taxpayers with reference to all transactions regardless of the fact that the value of some transactions may be very small or nominal.

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What are the types of information and documents that are required to maintain in relation to international transactions ?

A person has to keep and maintain given below information & documents in relation to the international transactions which is given under Rule 10D of Income Tax Rules

 

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What is the penalty for not furnishing report u/s 92E?

If you fail to furnish report u/s 92E then penalty amounting to Rs 1,00,000 may be levied by the assessing officer as per section 271BA.