THE Central Board of Direct Tax (“CBDT”) has introduced the following changes in relation to Form 3CEB
compliance for the Assessment Year (“AY”) 2013-14 and onwards:
The CBDT has revised the Form 3CEB that would be applicable for the AY 2013-14 and onwards.
The revised form 3CEB has expanded the reporting requirements in alignment to the amendments
introduced by Finance Act 2012 retrospectively clarifying the definition of ‘international transaction’
and expanding the ambit of Transfer Pricing (“TP”) regulations to cover Specified Domestic
Transactions (“SDT”); and
The form 3CEB is required to be filed online from AY 2013-14 and onwards.
To consider the effect of the changes as above on the transactions undertaken by the Company with its
Associated Enterprises (“AE”) it would be relevant to understand in detail the significance of the said
changes. In this regard, we have provided in this note below the background, synopsis and our brief
analysis of the significance of the said changes.
2. UPDATE ON NEW FORM 3CEB:
The CBDT on June 10, 2013 has issued a Notification number 41 of 2013 which among other things has
revised the form 3CEB that would be applicable for the AY 2013-14 and onwards.
The background and significance of this change is briefly analyzed below:
2.1 New form 3CEB – Synopsis of the change
The revised form 3CEB prescribed, for the annual reporting of international transactions with it AE, and
SDT, interalia requires specific reporting of various international transactions including transactions in the
nature of guarantee, business reorganization/ restructuring, purchase/sale of securities and issue /
buyback of equity shares, debentures, preference shares.
The significance of this change is discussed hereunder:
2.2 Significant aspects of the revised form 3CEB
Aggregate value of international transactions and SDT as per books of account are to be
This change coupled with the introduction of the online filing of form 3CEB may enable the
Revenue Authorities (“RA”) to program their systems to enable identification of cases
where the mandatory TP documentation is to be maintained (ie where value of the
International transaction exceeds1 Million) and cases that needs to be referred to the
Transfer Pricing Officer (“TPO”) (ie where the value of the international transactions
exceeds INR 150 million).
Aspects in relation to the international transactions:
Issuance of shares, and convertible debentures are to be reported (clause 16)
While the Hyderabad ITAT in the case of Vijai Electrical has held that investment in the
share capital in an overseas subsidiary is not an international transaction as per the TP
provisions of the Act, the revised form makes it a requirement to report issuance of shares
As you would be aware, the TPO’s in the recent audit cycle has started enquiring on the
assumptions (including those pertaining to the growth rates factored) forming the basis of
the valuation at which the shares are issued to the AEs. The specific requirement to report
the said transactions could bring greater focus on these transactions in a TP audit, where
the basis adopted for valuing the shares etc could be questioned and consequential
adjustments could be made alleging short receipt of consideration for issue of shares, and
payment of excess consideration in case of subscription to shares.
Buyback of equity shares etc are to be reported (clause 16)
‘Buyback of shares’ was hitherto not specifically included under the definition of
international transaction (vide explanation introduced under section 92B of the Income-tax
Act, 1961 (“Act”) in 2012), although several other transactions such as guarantees issued,
purchase / sale / transfer of intangibles, capital financing, business restructuring were
specifically clarified as falling within the ambit of this term. Nevertheless, it is now
specifically included as a transaction requiring reporting in the revised form 3CEB and by
implication being considered as an international transaction, notwithstanding no
amendments in law.
With effect from June 1, 2013, a distribution tax at 20 percent (apart from surcharge and
cess) has been introduced on buy back of shares in the hands of the company, which
undertakes the buyback of shares pursuant to the introduction of section 115QA under the
Act. Simultaneous amendments have been made to section 10(34A) of the Act exempting
the income in the hands of the shareholder Thus, while it should be possible to argue that
there would be no income arising in the hands of the shareholder, it may not be possible to
do so in the hands of the company, which undertakes a buyback of shares.
Guarantees provided to AEs or received from AEs and the corresponding fees charged are to be
You may note that the Finance Act 2012 specifically included guarantees as an
international transaction as per section 92B of the Act, while the Hyderabad ITAT in the
case of Foursoft Ltd had earlier held that a guarantee does not constitute an international
International transaction arising from business restructuring and reorganization transactions are
required to be reported separately
Considering the guidance provided in the OECD TP guidelines, the transaction of business
restructuring may include any change in the functional profile of the assessee or
alternatively involve the termination or substantial renegotiation of existing arrangements.
Transactions referred to under the explanation 1(b) to section 92B which deals with aspects such
as transfer or use of intangibles property are to be reported
In this regard, it is relevant to note that the Finance Act 2012 has with retrospective effect
from April 1, 2002 clarified on the definition of the term Intangible Property and among
other things has defined the term to include: customer related, human capital related,
contract related intangibles which inturn includes customer lists, customer contracts,
trained and organized work force, employment agreements, favourable supplier contracts,
within the definition of the term Intangible property. Hence any transaction involving
transfer or use of the same would need to be specifically identified and reported.
Deemed international transaction entered in to by the assessee are to be reported separately
The Hyderabad ITAT in the case of Swarnandhra IJMII Integrated Township Development
Company Pvt. Ltd has held that for a transaction between an assessee and a third party to
be considered as deemed international transaction as per section 92B(2) of the Act at least
one of the parties to the transaction must be a non-resident. The revised form 3CEB now
specifically requires reporting of any transaction entered in to by the assessee with a
person other than an AE in pursuance of a prior agreement in relation to the relevant
transaction between such other person and the AE. Hence any transactions of the said
nature wherein the prices are decided under a global master services agreement entered in
to by the AE may require specific reporting under this clause.
Aspects in relation to SDT:
The form has also introduced a separate part for reporting SDTs, which requires the reporting of
payments to related parties referred to under section 40A(2)(b), and reporting of transactions
undertaken by the unit of the assessee eligible for certain tax incentives to which the provisions of
section 80IA(8), with its other business units. Further, reporting is also required for SDT resulting
in more than ordinary profits to an eligible business under section 80IA(10) or section 10AA of the
2.3 Penalty for non compliance
Section 271AA of the Act (amended with effect from July 2012), provides for a penalty at 2 percent of the
value of international transaction for failure to report any international transaction. Hence, the nonreporting
of an international transaction in the form 3CEB could result in stringent penal consequences
from the AY 2013-14.
3. MANDATORY ONLINE FILING OF FORM 3CEB FROM AY 2013-14
It is also relevant to note that the CBDT had also recently issued a notification (dated May 1, 2013)
interalia providing for compulsory electronic filing of form 3CEB from AY 2013-14 and onwards.
Due to the nature of changes, the following practical aspects may also arise:
Any additional notes, caveats or disclosures cannot be made in the form itself and may have to
provided in a separate document that may have to be furnished as an attachment;
Given that the format does not permit import of data from other soft forms such MS excel
spreadsheets, the data updation could be cumbersome particularly when the data to fed in the
form is voluminous on account of large number of transactions etc
4. WAY FORWARD
Considering the above changes in law and the penal consequences of non-reporting a transaction with
effect from AY 2013-14, reporting of transactions such as buyback of shares, issue of shares,
debentures, transfer or use of intangibles etc and SDTs in the form 3CEB would become very relevant.
The form 3CEB for the AY 2013-14 is due to be filed by November 30, 2013 and the same is to be filed
online after being digitally signed by the Chartered Accountant. Where the taxpayer believes that the
transactions are not subject to Transfer Pricing and nevertheless, wishes to file a form 3CEB by way of
abundant caution then the due date for filing the tax return would be September 30, 2013 and not the
extended timeline of November 30, 2013.
In view of the above, given the sweep of changes, it would be useful to identify the reporting and other
compliances required to be undertaken by the companies for the AY 2013-14 and subsequent years,
where the aforesaid international transactions and SDTs have been undertaken.