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    1. Form 3CEB

     

    Section 92E requires every person entering into an international transaction or specified domestic transactions with their related parties to obtain an accountant's report to be submitted on or before the due date for filing tax return. Form 3CEB prescribed is declaration by the accountant about examination of accounts with an Opinion on information and documents prescribed by Rule 10D and maintained by the assesse.

     

    Challenges

     

    ØTransaction not having effect on profits, income, losses and assets should it be reported by way of note or disclosed as an international transactions in the Form 3CEB. Example: Disclosure of the amount receivables/payables from/to the AE

     

    ØEarlierthe reporting in certain cases was being done by way of providing details of such transactions by way of only notes to the Form 3CEB. In order to further streamline the reporting, the format of the Form 3CEB was revised in June 2013, which now includes specific clauses asking for information on such types of international transactions.

     

    ØAllofthese changes coupled with enhanced powers of the Transfer Pricing Officer to scrutinise any international transaction not already referred to him by the Assessing Officer or reported in Form 3CEB, has led to mounting pressure on the taxpayer to make full disclosure about any and all international transactions.

     

    ØIdentify the impact of change in definition of international transactions

     

    – How to report business restructuring reorganization

     

    – How to value and determine ALP of intangible assets like customer list, human capital and any other kind of intangibles

     

    ØCheckfor application of method with relevance to the international transactions.

     

    ØIdentification and reporting of international transactions to be reported which are received or provided free of cost in the Form 3CEB

     

    ØPenalties under section 271 BA of INR 1,00,000 are attracted on failure to report any transaction in form 3CEB. 2% of the value of international transactions u/ 271BA.

     

     

     

     

     

     

     

     

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    1. TP Documentation

     

    What is Transfer Pricing Report?

     

    Section 92D, of the Income Tax Act requires companies having International transactions > 1crore and Domestic Transactions (tax holiday related entities and their transactions)> 20 crores with their related parties, to maintain information and documentation as prescribed in Rule 10D.

     

    Challenges in furnishing information as per rule 10D:

     

    ØAvailability of financial information of comparables ØAvailability of External Comparables which are functionally similar ØTransaction-wise analysis vs. aggregation approach ØDetermination/Availability of CUP data

     

    ØAvailability of documentation to substantiate benefit test (Management fees/ Intra-group services)

    ØAvailability of Independent Comparables. Companies having no related PROCPL party transactions

    ØSelection of Tested Party

    ØSelection of PLI

    ØSelection of most appropriate method

    ØReliability and sources of data to present the industry overview.

    ØPenalty under section 271AA, Sec 271G- 2% of the value of transaction.

     

    1. Undoing of SDT – TP provisions under Sec 40A (2)(b):

     

    ØInitially from 2012 to 2016, section 92BA of the Act, inter-alia provide that any expenditure in respect of which payment has been made by the assessee to certain "specified persons" under section 40A(2)(b) are covered within the ambit of specified domestic transactions.

     

    ØInorder to reduce the compliance burden of taxpayers, the indian government through FA 2017 has removed the SDT compliances for transactions section 40A(2)(b) and has excluded it from the scope of SDT Provisions u/s 92BA.

     

    ØEventthough there is change in the scope of the SDT provisions, form 3CEB has not been modified till date. Thus, Assessee’s and professionals have to take note of this significant change and maintain notes for non-disclosure and document the positions to be taken for the Specified Domestic transactions and attach the same along with Form 3CEB upload.

     

     

    1. Safe Harbour Rules (SHR) -“Safe harbour” is defined as circumstances in which the tax authority shall accept the transfer price declared by the taxpayer to be at arm’s length. (Rule 10TD of the Income Tax Rules). The last date for filing safe harbour application for FY 2016-17 is 30-11-2017 or before filing the return of income. (details of SHR are provided in our SBS WIKI)

     

     

     

     

     

     

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    TP Challenges to be faced and Compliances

     

     

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    Challenges

     

    ØTheSHR cover only certain specified/eligible transactions. Therefore w.r.t the other transactions, one would need to consider benchmarking the same in its TP documentation in the normal course. Such transactions can still be subject to a routine TP audit/adjustments, if not properly benchmarked.

     

    ØForm3CEFA is a self declaration to be signed by the person authorized to sign the tax return and not in the nature of a Chartered Accountant’s (CA) certificate. Thus it creates a more onerous obligation on the taxpayer to ensure that the election is made after satisfying all the eligibility criterion and a detailed review of the SHR.

     

    ØItsnotjust the prescribed margins/mark-ups which needs to be met, one would also need to satisfy the other prescribed pre-conditions,like falling within the definitions prescribed in the SHR, to be eligible to opt for the SHR

     

    ØDefinitions prescribed under the SHR are very technical (relating to software development, contract R&D etc.). Need to undertake a detailed interview/ discussion with the business team of the taxpayer to technically evaluate the coverage/appropriate classification of activities undertaken as IT, ITeS, KPO & Contract R&D.

     

    ØMaintenance of the following documents is required which could be potentially called for during scrutiny process.

     

    • TP documentation and inter company agreements detailing the FAR profile as well as the activity profile of the taxpayer;

     

    • details on the list of employees in India and at the AE location, their qualifications and role played by the parties to satisfy that the prescribed conditions are met [Rule 10TB(2)];

     

    • Email correspondences exchanged during the year, copies of project reports/SOWs as evidence with regard to the actual conduct of the parties;

     

    Segmental details with evidences where the taxpayer has opted for more than one category of eligible international transaction with different prescribed mark-ups.

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    As per section 45 of ITA, 1961 income from transfer of capital asset is chargeable to tax under the head Capital Gains in the year in which transfer took place. This section is subject to provisions of Section 54/54B/54D/54EC……

     

    Assessee can claim deduction or exemption for capital gain arising on transfer of capital asset by investing or purchasing a new asset referred to in various sections mentioned in Section 54/54B/ 54D/54 EC etc.

     

    Section 2(47) which defines the word ‘transfer’ in the context of capital asset provides that allowing the possession of immovable property by contract of nature referred to in section 53A of Transfer of Property Act1 is chargeable to tax in the hands of transferor.

     

    Whether buyer or transferee take reference to the above definition and claim exemption under the head capital gain by taking possession of the immovable property without registered sale deed.

     

    Judicial Analysis:

     

    86 taxmann.com 217- Chandigarh Tribunal Anil Bishnoi vs Ass. CIT

     

    Facts:

     

    Assessee sold for a consideration of Rs. 1,29,00,000/- and claimed deduction U/S 54B by purchasing agricultural lands one worth of Rs. 28,84,500/- through registered sale deed and other one of Rs. 1,00,00,000/- through agreement to sell which is not registered.

     

    Assessing Officer has denied exemption in relation to the investment of Rs. 1,00,00,000/- on the contention that the purchase was not registered. He further contended that to claim exemption the assesse should buy the property through a registered deed. He further observed that the word purchase is not akin to the word transfer as defined U/S 2(47).

     

    Assessee contended that entire purchase consideration is paid through cheque and possession of the land is taken by him with right to use the land or to sell it further.

     

    The assessee has file an appeal against the order of AO before CIT(A). The CIT(A) upheld the order passed by the AO.

     

    Further assessee has filed an appeal before tribunal against the order of CIT(A).

     

     

     

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    C.S.ATWAL vs CIT 59 Taxmann.com 359 the Punjab and Haryana High Court held that the provisions of section

     

     

     

     

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    The ITAT held that if capital gains are deemed to have been earned by the assessee on transfer of land as per the provisions of Section 2(47) of the Act, as per which the registration of the sale deed is not necessary, the consequences are that the seller or the assessee is said to have transferred his right in property and consequently those rights are acquired by the transferee;

     

    If in the case of transferor, the same is to be treated as sale, then, we do not find any reason to give a different meaning to the word 'Purchase'. If someone has sold a property, consequently the other person has purchased the said property. If the transfer of property is complete as per the definition of transfer u/s 2(47) of the Act, the assessee is made labile to pay tax on the capital gains earned by him, on the same analogy, the transfer is also complete in favour of the purchaser also.

     

    Gulshan Malik vs CIT 223 Taxman 243 – DELHI HIGH COURT

     

    Facts: -

     

    The assessee and his wife had booked an apartment by payment of certain amount and buyer’s agreement was executed. Subsequently, assessee has entered into an agreement to sell to sell their booking rights or interest in the apartment.

     

    The AO treated the income from transfer of allotment rights as ‘Short Term Capital Gain’ and denied exemption U/S 54 on reinvestment. The CIT(A) and ITAT upheld the order of the AO.

     

    The High Court held that enjoyment of property as well any interest in any of transferable capital asset was included within the ambit of ‘Capital Asset’. Even booking rights or rights to purchase the apartment or to obtain its letter was also capital asset.

     

    Sanjeev Lal vs CIT- 46 taxmann.com 300- Supreme Court

     

    Facts: -

     

    The assessee has acquired a residential property in terms of will executed by his grandfather. The assessee has entered into an agreement to sell in respect of the said property and received certain amount by way of earnest money. However, the sale deed was executed later and purchased a new residential house beyond one year from the date of executing the sale deed but the new purchase was within in one year prior to the date of executing the agreement to sell.

     

    The AO held that the assessee was not entitled to deduction U/S 54 considering the date of execution of sale deed.

     

    Assessee filed an appeal before CIT(A) who upheld the order of AO. Later the ITAT and High Court also upheld the decision of AO.

     

     

     

     

     

     

     

     

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    Important aspect of acquisition of asset under the head Capital Gain

     

     

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    The Honorable Supreme Court held that “even after executing an agreement to sell an immovable property in favour of one person, tries to sell the property to another such an act would not be in accordance with law because once an agreement to sell is executed in favour of one person, the said person gets a right to get the property transferred in his favour by filing a suit for specific performance and therefore, without hesitation one can say that some right, in respect of the said property, belonging to the assessee had been extinguished and some right had been created in favour of the vendee/transferee, when the agreement to sell had been executed”.

     

    Looking at the provisions of section 2(47) of the Act, which defines the word "transfer" in relation to a capital asset, one can say that if a right in the property is extinguished by execution of an agreement to sell, the capital asset can be deemed to have been transferred.

     

    Conclusion: - Considering the harmonious construction of the provisions which subserve the object and purpose should also be made while constructing any provisions of the Act and more particularly when one is concerned with the exemption from payment of tax.

     

    The definition of the word transfer which provides that allowing the possession of immovable property in part performance of contract nature is chargeable to tax the same analogy can applied while claiming the exemption U/S 54/54B/ 54F etc. where by buyer has taken possession of immovable property but the registration of sale deed was not done.

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    Bitcoin – for some people, this may be something making them exited and sleepless while for some others, it may be the first time they have come across such a term. 

    Many believe it to be the greatest digital invention while some are convinced of its failure in near future. 

    Some see it as undisputed future global currency, many believe it as a better investment asset (digital gold) in fact to be better than gold. 

    Some say it is the ultimate solution to modern day tyranny, some say it only fuels terrorism(physical and cyber) and results in financial chaos while most other people are yet to know about what exactly a bitcoin is. 

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