Power of Board to make Safe Harbour Rules - Section 92CB read with Rule 10TD of income Tax Rules - International Taxation - Income Tax

Power of Board to make Safe Harbour Rules - Section 92CB Read With Rule 10TD of Income Tax Rules Safe Harbour means circumstances in which the income-tax authorities shall accept the transfer price or income, [ w.e.f. from the A.Y. 2020-21 deemed to accrue or arise under section 9(1)(i) ], as the case may be, declared by the assessee. Section 92C of the Income Tax Act provides for the adjustment in the transfer price of a specified domestic transaction with an associated enterprise if the transfer price is not equal to the arm s length price. As a result, a large number of such transactions are being subjected to adjustment giving rise to considerable dispute. To overcome this section 92CB was inserted to empower Board to formulate safe harbour rules. (1) The determination of - (a) Income referred in Section 9(1)(i) or (b) arm s length price u/s 92C or 92CA shall be subject to safe harbour rules. As per Rule 10TD of Income Tax Rule The Board has been empowered by inserting section 92B by the Finance act (No. 2) Act, 2009 (w.e.f. 01.04.2009) to formulate safe harbour rules (i.e. to provide the circumstances in which the income tax authorities shall accept the transfer price. Where an eligible assessee has entered into an eligible international transaction and the option exercised by the said assessee is not held to be invalid under rule 10TE , the transfer price declared by the assessee in respect of such transaction shall be accepted by the income-tax authorities , if it is in accordance with the circumstances as specified in rule 10TD(2) or rule 10TD(2A). [ Rule 10TD(1) ] The circumstances referred to in sub-rule (1) in respect of the eligible international transaction specified in Rule 10TD(2) or (2A) shall be as specified in the corresponding entry. [ Rule 10TD(2) or (2A) ] In these cases has an option to exercise Safe Harbour Rules by submitting Form No. 3CEFA. In case the option of safe harbour exercised under sub-rule (2A) of rule 10TD , remain valid for 5 year. [ Third Proviso of Rule 10TE(2) ] The provisions of rules 10TD (1) and (2) shall apply for the assessment year 2013-14 and four assessment years immediately following that assessment year. [ Rule 10TD(3) ] The provisions of rules 10TD (1) and (2A) shall apply for the assessment year 2017-18 and two assessment years immediately following that assessment year: where an eligible assessee is eligible to exercise option under rule 10TD(2) or, as the case may be, rule 10TD(2A) above, the assessee shall have the right to choose the option which is most beneficial to him. [ Rule 10TD(3A) ] The provisions of rules 10TD (1) and (2A) shall apply for the assessment years 2020-21, 2021-22, 2022-23, 2023-24 and 2024-25 . [ Rule 10TD(3B) ] No comparability adjustment and allowance under the second proviso to sub-section of section 92C shall be made to the transfer price declared by the eligible assessee and accepted under rules 10TD (1) and (2) or, as the case may be, rule 10TD(2A) above. [ Rule 10TD(4) ] The provisions of sections 92D and 92E in respect of an international transaction shall apply irrespective of the fact that the assessee exercises his option for safe harbour in respect of such transaction. [ Rule 10TD(5) ] Procedure of filing of Form 3CEFA for exercising the safe harbour rule [ Rule 10TE of Income Tax Rules ] For the purposes of exercise of the option for safe harbour, the assessee shall furnish a Form 3CEFA, complete in all respects, to the Assessing Officer. Such Form shall be furnished by the assessee on or before the due date specified in Explanation 2 below section 139(1) for furnishing the return of income for- (i) the relevant assessment year, in case the option is exercised only for that assessment year; or (ii) the first of the assessment years, in case the option is exercised for more than one assessment year: [ Sub Rule (1) ] The return of income shall be furnishe d by the assessee on or before of furnishing of Form 3CEFA. The option for safe harbour validly exercised shall continue to remain in force for the period specified in Form 3CEFA or a period of five years whichever is less: That the assessee shall, in respect of the assessment year or years following the initial assessment year, furnish a statement to the Assessing Officer before furnishing return of income of that year, providing details of eligible transactions, their quantum and the profit margins or the rate of interest or commission shown: Provided further that an option for safe harbour shall not remain in force in respect of any assessment year following the initial assessment year, if - (i) the option is held to be invalid for the relevant assessment year by the Transfer Pricing Officer under sub-rule (11) or by the Commissioner under sub-rule (8) in respect of an objection filed by the assessee against the order of the TPO under sub-rule (11) , as the case may be; or (ii) the eligible assessee opts out of the safe harbour , for the relevant assessment year, by furnishing a declaration to that effect, to the Assessing Officer. Provided also that nothing contained in this sub-rule shall apply to the option for safe harbour validly exercised under sub-rule (3B) of rule 10TD. [ Sub Rule (2) ] On receipt of Form 3CEFA,the Assessing Officer shall verify whether- (i) the assessee exercising the option is an eligible assessee; and (ii) the transaction in respect of which the option is exercised is an eligible international transaction, before the option for safe harbour by the assessee is treated to be validly exercised. [ Sub rule (3) ] Where the Assessing officer doubts the valid exercise of the option for the safe harbour by an assessee, he shall make a reference to the Transfer Pricing Officer for determination of the eligibility of the assessee or the international transaction or both for the purposes of the safe harbour. [ Sub rule (4) ] For the purposes of sub-rule (4) and sub-rule (10) , the Transfer Pricing Officer may require the assessee, by notice in writing, to furnish such information or documents or other evidence as he may consider necessary, and the assessee shall furnish the same within the time specified in such notice. [ Sub rule (5) ] The Transfer Pricing Officer shall, by order in writing, declare the option exercised by the assessee under sub-rule (1) to be invalid and cause a copy of the said order to be served on the assessee and the Assessing Officer. in the following cases where (a) the assessee does not furnish the information or documents or other evidence required by the Transfer Pricing Officer; or (b) the Transfer Pricing Officer finds that the assessee is not an eligible assessee; or (c) the Transfer Pricing Officer finds that the international transaction in respect of which the option referred to in sub-rule (1) has been exercised is not an eligible international transaction, Opportunity of being heard:- no order declaring the option exercised by the assessee to be invalid shall be passed without giving an opportunity of being heard to the assessee. [ Sub rule (6) ] Appeal against order of TPO:- If the assessee objects to the order of the Transfer Pricing Officer under sub-rule (6) or sub-rule (11) declaring the option to be invalid, he may file his objections with the Commissioner, to whom the Transfer Pricing Officer is subordinate, within fifteen days of receipt of the order of the Transfer Pricing Officer. [ Sub rule (7) ] On receipt of the objection referred to in sub-rule (7) , the Commissioner shall after providing an opportunity of being heard to the assessee pass appropriate orders in respect of the validity or otherwise of the option exercised by the assessee and cause a copy of the said order to be served on the assessee and the Assessing Officer. [ Sub rule (8) ] Ensure Declared Transfer price according to rules or not:- In a case where option exercised by the assessee has been held to be valid, the Assessing officer shall proceed to verify whether the transfer price declared by the assessee in respect of the relevant eligible international transactions is in accordance with the circumstances specified in rule 10TD(2) or (2A) and, if it is not in accordance with the said circumstances , the Assessing Officer shall adopt the operating profit margin or rate of interest or commission specified in rule 10TD(2) or (2A). [ Sub rule (9) ] Where the facts and circumstances on the basis of which the option exercised by the assessee was held to be valid have changed and the Assessing Officer has reason to doubt the eligibility of an assessee or the international transaction for any assessment year other than the initial Assessment Year falling within the period for which the option was exercised by the assessee, he shall make a reference to the Transfer Pricing Officer for determination of eligibility of the assessee or the international transaction or both for the purpose of safe harbour. Explanation.- For purposes of this sub-rule the facts and circumstances include:- (a) functional profile of the assessee in respect of the international transaction; (b) the risks being undertaken by the assessee; (c) the substantive contractual conditions governing the role of the assessee in respect of the international transaction; (d) the conduct of the assessee as referred to in rule 10TB (2) or (3); or (e) the substantive nature of the international transaction. [ Sub rule (10) ] The Transfer Pricing Officer on receipt of a reference under sub-rule (10) shall, by an order in writing, determine the validity or otherwise of the option exercised by the assessee for the relevant year after providing an opportunity of being heard to the assessee and cause a copy of the said order to be served on the assessee and the Assessing Officer. [ Sub rule (11) ] Nothing contained in this rule shall affect the power of the Assessing Officer to make a reference under section 92CA in respect of international transaction other than the eligible international transaction. [ Sub rule (12) ] Where no option for safe harbour has been exercised under sub-rule (1) by an eligible assessee in respect of an eligible international transaction entered into by the assessee or the option exercised by the assessee is held to be invalid, the arm s length price in relation to such international transaction shall be determined in accordance with the provisions of sections 92C and 92CA without having regard to the profit margin or the rate of interest or commission as specified in sub-rule (2) or, as the case may be, sub-rule (2A) of rule 10TD. [ Sub rule (13) ] Time Period for Passing Reference or Order:- For the purposes of this rule,- (i) no reference under sub-rule (4) shall be made by an Assessing Officer after expiry of a period of two months from the end of the month in which Form 3CEFA is received by him; (ii) no order under sub-rule (6) or sub-rule (11) shall be passed by the Transfer Pricing Officer after expiry of a period of two months from the end of the month in which the reference from the Assessing officer under sub-rule (4) or sub-rule (10) , as the case may be, is received by him; (iii) the order under sub-rule (8) shall be passed by the Commissioner within a period of two months from the end of the month in which the objection filed by the assessee under sub-rule (7) is received by him. [ Sub rule (14) ] (15) If the Assessing Officer or the Transfer Pricing Officer or the Commissioner, as the case may be, does not make a reference or pass an order, as the case may be, within the time specified in sub-rule (14) , then the option for safe harbour exercised by the assessee shall be treated as valid. [ Sub rule (15) ]