Section 92CD Of The Income Tax Act: A Comprehensive Guide
The Finance Act 2012 introduced the concept of Advance Pricing Agreement (APA) with Section 92CC and Section 92CD. APA is an agreement between an assessee and the tax authority determining the arm’s length price and manner of its calculation for international transactions. Various countries like the US, Canada, Australia, China, and India adopted APA in 2012 to attract foreign investments.
Section 92CD of the Income Tax Act stipulates when you must file modified returns after entering such agreements. Read along to know the details of this Section.
Table of contents
What is Section 92CD of the Income Tax Act?
While Section 92CC deals with all conditions of setting up an APA, Section 92CD sets up requirements for filing modified Income Tax Returns (ITR). Any person entering into an APA needs to file a modified ITR within three months from the end of the month of an agreement. This modified return has to reflect the modification of your taxable income with respect to signing an APA.
This Section applies to any taxpayer who has furnished ITR under Section 139 before the date of such an agreement. These modified returns will serve the same purpose as one filed u/s 139. Section 92CD also provides the mechanism of filing modified returns and completing its assessments by your Assessing Officer (AO).
The Concept of Advance Pricing Agreements
An advance pricing agreement is made between any taxpayer and CBDT (Central Board of Direct Taxes) to determine its arm’s length price (ALP). Its purpose is to provide tax certainty for multinational enterprises (MNEs), solve transaction disputes and increase tax revenue in the country.
APA specifies the ALP or how to determine it for international transactions entered into by any taxpayer. One can determine the ALP through one of the methods provided by Section 92C(1) of the IT Act following necessary adjustments. Advance pricing agreements have a maximum validity of five years for specific transactions with a rollback option for four years.
The provisions of Section 92 to Section 92F aim to provide a statutory framework for computing fair, reasonable profits and taxes in India. Their purpose is to prevent the erosion of profits by MNCs from the country. Section 92CC authorises the CBDT to enter into an APA with any person. Section 92CD of the Income Tax Act provides the mechanism for filing modified returns after entering into an APA.
Also read: Income Tax Calendar: Due Dates and TDS for AY 2022-23
Sub-sections of Section 92CD of the IT Act
Here are the various sub-sections of Section 92CD:
- Section 92CD(1): This states that anyone opting for an APA needs to file a modified ITR within three months.
- Section 92CD(2): All other provisions of Section 92CD would apply in the same way as returns u/s 129. However, a few exceptions are applicable.
- Section 92CD(3): This sub-section deals with a situation where assessment or reassessment is completed before the expiry of the timeframe available for furnishing modified returns. If such a return followed provisions of sub-section(1), the AO would reassess/recompute your total income for the relevant assessment year.
- Section 92CD(4): This refers to a case where assessment/reassessment procedures for an assessment year before an advance pricing agreement are pending. When you file a modified return, the AO will complete assessment/reassessment proceedings taking into consideration the agreement and modified ITR.
- Section 92CD(5): It states that an AO has to complete assessment/reassessment proceedings under sub-section(3) within a year from the financial year of filing a modified ITR. This subsection will apply regardless of the provisions of Section 144C, Section 153 or Section 153B.
The second part of this subsection states that the period of limitation under Section 144C, Section 153 and Section 153B would be extended by 12 months.
- Section 92CD(6): This states that ‘agreement’ in Section 92CD of the Income Tax Act is referred to in Section 92CC. It also says when assessment/reassessment for an assessment year is considered to be complete. It is completed when an assessment/reassessment order is passed or the limitation period under Section 143(2) is over.
Final Word
Section 92CD of the Income Tax Act states the conditions for filing a modified return of income and the mechanisms for it. It also states how an Assessing Officer should deal with assessment/reassessment with regards to APA.
FAQs on Section 92CD of the Income Tax Act
Ans: Arm’s length price is a concept that makes sure that all parties in a transaction act in their self-interest. Under the Companies Act 2013, two related parties should conduct arm’s length transactions in such a way as if they were unrelated. For international transactions, expenses, allowances, and interests are valued as per the arm’s length price.
Section 92F stipulates two conditions for the price applied for two unrelated persons in uncontrolled situations. These are as follows:
a) Persons involved in a transaction should be unrelated and not associated with each other.
b) For calculating arm’s length price, parties cannot control, mould or suppress the conditions to get pre-determined results
Ans: An advance pricing agreement covers the following:
a) Determining ALP or the manner of its determination
b) International transactions covered by APA
c) Definition of all relevant terms
d) Transfer pricing methodology
e) Critical assumption
Ans: There is no statutory obligation for taxpayers to disclose all inter-company/related party transactions though it is a good idea. The need to apply for an APA rests on the decision of the taxpayer. Thus, APA proposals are independent and binding only on the person who has entered into one. Section 92CC of the Income Tax Act decides the structure of APAs in India. APAs are valid for a maximum period of 5 years with an option for renewal.
Disclaimer
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
Read More on Income Tax Act
