Latest Blogs from SBS and Company LLP

    Liberalised Remittance Scheme - Provisions Of FEMA

    The legal framework for administration of foreign exchange transactions in India is provided by the Foreign Exchange Management Act, 1999. Under the Foreign Exchange Management Act, 1999 (FEMA), which came into force with effect from June 1, 2000, all transactions involving foreign exchange have been classified either as capital or current account transactions. All transactions undertaken by a resident that do not alter his / her assets or liabilities, including contingent liabilities, outside India are current account transactions.

    Service Tax On Reimbursable Expenditure - Paradox Rejuvenated


    Incurring of reimbursable expenditure by service provider during the course of providing his services and service receiver subsequently reimbursing them is the inevitable business expediency in certain service sectors. Inclusion of this expenditure in the value of taxable service for the purpose of paying service tax seems to be never ending litigation between Revenue and taxpayer. With the recent judicial pronouncements, it appeared that this issue is settling in a manner acceptable to taxpayer and Revenue. But Revenue hascome up with a heavy punch by amending the definition of ‘Consideration’ in the explanation to Section 67 to seek the last laugh in this regard. Let us analyze how distorting the amendment is capable of!

    Transfer Pricing Compliances For Intragroup Transactions

    1. Transfer Pricing (‘TP’) continuous to be the most controversial areas in international tax and more particularly in India. It is reported that more TP disputes arise in India vis-à-vis all other countries put together. Opinions continue to differ in India on various aspects of transfer pricing ranging from what constitutes an international transaction, who all can be considered as Associated Enterprises (‘AEs’), the factual understanding of the business of the Assessee and the international transactions, the most appropriate method in the facts & circumstances of the international transaction and finally the computation of Arm’s Length Price (‘ALP’), making TP a contentious issue between the Taxpayers/Assessee and the tax authorities.

    2. Relevant regulations

    The main legal provisions dealing with transfer pricing are Section 40A (2), Sec 92-92F, Sec 271,271AA, 271BA and 271G of the Income Tax Act, 1961, and Rule 10 to 10E of the Income Tax Rules, 1962.

    3. OECD guidelines treatment

    The Indian legislation is broadly based on the OECD guidelines. In conformity with the OECD guidelines, the legislation prescribes the same five methods to compute the arm’s length price. Further, the revenue authorities generally recognize the OECD guidelines and refer to the same for guidance, to the extent they are not inconsistent with the domestic law.

    4. Hierarchies/pricing methods

    The Indian legislation prescribes the following methods: CUP, Resale Price, Cost Plus, Profit Split and Transactional Net Margin Method. The legislation also grants the power to the Central Board of Direct Taxes (CBDT) to prescribe any other method; however, no other method has been prescribed by the CBDT to date. No hierarchy of methods exists. The most appropriate method should be applied.

    1. The past four cycles of transfer pricing audits in India have indicated the reliance of taxpayers on the

    Transactional Net Margin Method on account of the paucity of price and gross margin data in the

    public domain. The Indian Tax Authority recognizes the limitations of information available in

    databases and taxpayers’ inability to apply some of the transaction-base methods.

    1. Accountants Report – Form 3CEB
    2. a) To be obtained by every tax payer filing a return in India and having international transaction
    3. b) To be filed by due date for filing return of income (30 November)

     c)         Essentially comments on the following:

    whether the tax payer has maintained the transfer pricing documentation as required by the legislation,


    • whether as per the transfer pricing documentation the prices of international transactions are at arm’s length, and


    • certifies the value of the international transactions as per the books of account and as per the transfer pricing documentation are “true and correct”


    d) Procedural changes have been made by Central Board of Direct Taxes (CBDT) inrespect of mode of filing Form 3CEB w.e.f FY 12-13.

    e) Tax payers who are required to furnish reports/certificates under the Income Tax Act,1961(“Act“) are mandatorily required to e-file certain specified documents (in addition to the Return) before the relevant due date. These, interalia, includes Form 3CEB.

    1. f) CBDT has also notified the new format Form 3CEB which interalia, provides for the reporting requirements taking into account the extended scope of international transaction and the specified domestic transaction.


    • The scope of the term “international transaction” was expanded by the Finance Act, 2012 to include business restructuring, intragroup financing arrangements, etc.


    • Additionally, specified domestic transactions have also been brought under the ambit of the transfer pricing regulations.

    g) This new format of Form 3CEB also requires reporting of the following transactions:

    Transactions relating to share capital — transactions such as purchase or sale of marketable securities and issue and buyback of equity shares;


    • Transactions in the nature of guarantee;


    • International transactions arising out of/ being part of business restructuring or reorganization; and


    •          Specified domestic transactions

    1. Documentation requirements – TP Documentation Study /review

    A detailed list of contemporaneous mandatory documents is in Rule 10D (1). The categories of documentation required are:

    1. Documentation deadlines

    The information and documentation specified should, as far as possible, be contemporaneous and exist by the specified date of the filing of the income tax return, which has been fixed by the Indian government as 30th November following the end of the financial year.

    1. Although an Accountant’s Report must be submitted along with the tax return, the taxpayer is not required to furnish the transfer pricing documentation with the Accountant’s Report at the time of filing the tax return. Transfer pricing documentation must be submitted to the tax officer within 30 days of receipt of the notice during assessment proceedings.
    2. Transfer pricing penalties

    The Indian tax law provides for the imposition of the following transfer pricing penalties. For inadequate documentation, the taxpayer is fined 2% of the transaction value. For not furnishing sufficient information or documents requested by the tax officer, the taxpayer is fined 2% of the transaction value. If due diligence efforts to determine the arm’s length price have not been made by the taxpayer, then 100% to 300% of incremental tax on transfer pricing adjustments may be levied by the tax officer.



    Quantum of


    271 (1) (c)

    In case of an adjustment post assessment, if regarded

    as concealment of income

    100-300% of the

    tax leviable on

    the amount of



    Failure to maintain TP documentation, failure to report the

    transaction,  maintenance or   furnishing  of   incorrect


    2% of the

    value of the



    Failure to furnish Form 3CEB

    INR 100,000


    Failure to furnish TP documentation with the tax officer

    2% of the value

    of the transactions

    1. In most cases, penalties are generally kept in abeyance until the matter is settled in appeals. The existing approach to penalties is not expected to change over the next two years.
    2. Penalty relief

    Penalties may be avoided if the taxpayer can demonstrate that it has exercised good faith and due diligence in determining the arm’s length price. This is also demonstrated through proper documentation and timely submission of documentation to the revenue authority during assessment proceedings.

    1. Transfer Pricing Assessment

    The selection of cases for TP audits in India are primarily based on materiality of the value of the international transaction. As per the CBDT instructions, the following categories of cases/returns are compulsorily selected for TP audit:

    Cases where value of the international transactions exceed Rs 15 crores;

    Cases involving addition in an earlier year on the issue of TP in excess of Rs 10 Cr, which is confirmed in appeal or pending before an appellate authority.

    Further, the AO scrutinising a return of an Assessee having international transactions with AEs, can refer the case for TP audit, if he considers it necessary or expedient, with the approval of the Jurisdictional Commissioner.

    In India, TP audits are conducted by specialist officers notified as Transfer Pricing Officers (‘TPO’) by the CBDT. The DGIT (International Taxation) and DIT(TP) distribute the work among the TPOs stationed at various cities across India.

    14. Issues and Practical challenges in TP Assessment

    • Transfer pricing in case of loss making companies challenged;
    • Transactions with AEs located in tax heavens under heavy scrutiny
    • Peers with different transfer pricing policies/significantly higher profitability used as benchmarks
    • Cost sharing /cost allocation/reimbursement /management fees transactions and payments for the use of intangibles questioned
    • Commensurate benefit expected to be demonstrated
    • Limited information provided on secret comparables/confidential information
    • Continued non-acceptance of economic adjustments (Risk adjustment, depreciation adjustment, working capital adjustment, capacity utilisation adjustment etc)
    • Insistence on segmental dataFinancial transactions looked at closely (Loans, guarantees, etc)
    • Strict comparability of product/service ignored while applying CU P method
    • Financial transactions looked at closely (Loans, guarantees, etc)
    • Insistence on segmental data

    This article is contributed by Partners of SBS and Company LLP - Chartered Accountant Company. You can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.


    Condonation Of Delay In Filing Refund Claim And Claim Of Carry Forward Of Losses

    No Condonation for claim of refund or loss shall be entertained beyond six years from the end of the assessment year for which application or claim is made. The limit of six years is uniform for all authorities considering the application or claim.

    In case where refund claim has arisen consequent to a Court Order, the period for which any such proceedings were pending before any Court of Law shall be ignored while calculating the said period of six years, provided such Condonation application is filed within six months from the end of the month in which such Court Order was issued or the end of financial year, whichever is later.

    A belated application for claim of additional amount of refund after completion of assessment for the same year (Supplementary claim of refund) can be admitted subject to conditions.

    Companies Amendment Act, 2015 [No.21 Of 2015]

    All are aware that on the pretext of ease of doing business in India, some amendments were proposed to the Companies Act, 2013 and the said amendments were approved by the Union Cabinet on 02.12.2014.

    The said Amendment Bill was placed in the Lower house (Lok Sabha) of the Parliament and the same was approved on 17. 12.2014, and the Upper House (Rajya Sabha)approved the said Amendment Bill on 13.05.2015. The Amendment Bill received the assent of theHon’ble President on 25.05.2015, and notified in the Gazette on the 26.05.2015.

    Since, not all the provisions for which amendments have been made in the Amendment Act, have been notified, the Central Government has vide commencement notification Dated:29.05.2015, had notified 29.05.2015, as the appointed date for coming in to force of the Sections 1 to 12, 15 to 23 of the said Amendment Act.

    The Amendments under the Companies (Amendment) Act, 2015, predominantly hover over the aspect of “ease of doing business”. Subsequent to the coming in to force of the Amendment Act, the Central Government has also altered the relevant Rules and has notified the relevant Amendment rules, pursuant to the Amendment Act.

    A couple of amendments in the Amendment Act, are for incorporating some provisions, which were erroneously left out in the respective provisions of the Companies Act, 2013, but included in the Rules framed thereunder the respective section.




    under the CA,


    Section No. in



    Existing provision in the

    Section/Clause in the CA, 2013

    Amendment relating to




    to     Section 2

    (68), (71) and

    Section 11

    2 and 4

    Section2(68),      (71)– As                         per the

    definition, a Private Company to have a

    minimum paid-up capital of Rs.1 Lakh

    and Public Company to have minimum

    paid-up capital of Rs.5 lakhs.

    Section 2 (68), (71) - Deletion of the

    requirement as to Minimum Capital i.e.,

    Rs. 1 Lakh for Private Companies and Rs. 5

    Lakhs for Public Companies.

    Now a company can be

    incorporated with paid-up

    capital of Rs.1/-, may be.

    Section 11 – Declaration as to receipt

    of the minimum paid-up capital from

    the subscribers.

    Section 11 – Omitted.

    No    requirement    of filing

    commencement of business





    under the CA,


    Section No. in



    Existing provision in the

    Section/Clause in the CA, 2013

    Amendment relating to




    to sections 9,

    12, 22, 46 and


    3, 5, 6, 7 and


    Section-9-Company to have Common


    Section-12-Company to have its name

    engraved in legible characters on its


    Section-22-Execution                                        of                                    Bills of

    Exchange, authorisation to execute

    under the Common Seal.

    Section-46-Issue      of                        Certificates

    (Share/Debenture) to be issued under

    the Common seal of the Company.

    Section -223-nspectors report to be

    authenticated by the Common Seal of

    the Company.

    Amendment as to making commonseal

    optional, and consequential changes for

    authorisation  for execution         of

    documents for companies having no

    Common Seal.   i.e., authorisation shall

    be made by Two Directors or 1 Director

    and 1 CS, if the Company has CS



    Insertion      of

    new Section

    76 A


    No section

    Section – 76 A - Punishment for deposits

    acceptedin violation of the provisions of

    the said Act;


    On Company:

    To refund the deposit with

    interest +Fine not less than

    Rs.1 Cr and upto Rs. 10 Cr.

    On every Officer:

    7 years imprisonment or fine

    not less than Rs. 25 Lakhs and

    upto Rs. 2 crores or with both

    + if proved that punishment if

    the violation is committed

    knowingly, under Section 447.




    under the CA,


    Section No. in



    Existing provision in the

    Section/Clause in the CA, 2013

    Amendment relating to




    to Section 117

    (3) (g)


    117 (3) (g) – Resolutions passed in

    pursuance of Section 179 (3) are to be

    filed with the Registrar of Companies.

    Amendment to prohibit public

    inspection of Board resolutions filed in

    the Registry.

    Board Resolution cannot to be

    inspected by others.

    Further, the many items as

    prescribed under the relevant

    rules     have   also                been

    considerably Omitted by the

    relevant amendment Rules



    to sub-

    section (1) of

    section 123


    No proviso in the Principal Act

    Amendment to include provisions for

    writing off past                 losses/depreciation

    before declaring dividend for the year

    Erroneously missed out in the

    Principal Act, but was given as

    an amendment to the relevant

    rules made under the section.



    to sub-

    section (6) of

    section 124


    Section 124 (6) - All shares in respect

    of which unpaid or unclaimed

    dividend has been transferred under

    sub-section        (5)                          shall                          also                          be

    transferred by the company in the

    name of Investor Education and

    Protection       Fund                        along with a


    for the words,       brackets and figure

    “unpaid or unclaimed dividend has been

    transferred under sub-section (5) shall

    also be”, the words “dividend has not

    been paid or claimed for seven

    consecutive years or more shall be” shall

    be substituted;

    Amendment so as to rectify the

    requirement of transferring equity

    shares for which unclaimed/unpaid

    dividend has been transferred to the

    Investors Education and                                Protection

    Fund even though subsequent

    dividend(s) has been claimed and paid.





    under the CA,


    Section No. in



    Existing provision in the

    Section/Clause in the CA, 2013

    Amendment relating to




    to sub-section

    (3) of section

    134 and sub-

    section (12) of

    section 143

    12 and 13

    134 (3)(ca) – New provision – Details

    as to the frauds as reported by the

    Auditor to be included in the Directors


    143 (12) – reporting of Fraud by the


    Disclosures to be made in the Board's


    Alteration to       incorporate                           enabling

    provisions to       prescribe thresholds

    beyond which fraud shall be reported to

    the Central Government. Below the

    threshold, it will be reported by the

    Auditor to the Audit Committee.

    Some relief to the Auditors.



    to clause (iv)

    of sub-section

    (4) of section



    New proviso to Section 177 (4) (iv) –

    giving powers to Audit Committee.

    Inclusion of proviso, empowering Audit

    Committee to give omnibus approvals for

    Related party transactions on annual

    basis, subject to conditions as may be





    to Section 185



    New sub-sections 185 (1) (c) & (d) –

    These subsections were earlier

    included in the rules

    Alteration to provide for exemption for

    loans/ guarantees/securities                                             by                                               a

    Company to its wholly owned

    subsidiaries and guarantees/securities

    given by a company to its subsidiaries for

    the loans availed by it from Banks/FI.











    under the CA,


    Section No. in



    Existing provision in the

    Section/Clause in the CA, 2013

    Amendment relating to




    to sub-section

    (1) of section



    188 (1) – Requirement of prior

    approval of the members by way of

    special   resolution for transactions

    with the related party.

    188 (3) – Requirement of special

    resolution for transaction by the

    Director      or employee with the


    Alteration      for                      replacing                      'special

    resolution' with 'resolution' for approval

    of Related party transactions by non‑

    related shareholders;

    to exempt     relatedparty transactions

    between holding companies and wholly

    owned subsidiaries (WOS) whose

    accounts are consolidated.

    Relaxed to ordinary resolution.




    to sub-section

    (6) of section



    212 (6) – Releasing of accused on bail.

    Many sections were covered

    Alteration    to remove the repetition of

    sections, which attract punishment for

    fraud under Section 447




    to Sub-Section

    (1) of Section



    248 (1)-Power of Registrar to remove

    the name of the Company from the

    Register of Companies

    Alteration as to removal of Clause (b) of

    Subsection (1) of Section 248- As to

    receipt of minimum subscription and

    filing of commencement of business with





    to sub-section

    (4) of section



    419 (4)-Powers of the president of the

    NCLT to constitute benches for

    disposal of cases as to rehabilitation,

    restructuring, reviving or winding up

    of companies

    Alteration as to deletion of the word

    Winding-up, so as to enable the, taking‑

    up cases relating to winding-up by 2‑

    member Bench instead of a 3-member or

    a larger Bench.





    under the CA,


    Section No. in



    Existing provision in the

    Section/Clause in the CA, 2013

    Amendment relating to




    to       sections

    435 and 436

    21 and 22

    435 (1) – establishment of special

    courts for trial of offences.

    436 (1) – Offences trailable by Special


    Earlier no limit was mentioned in the

    respective    sections,                         now,                         the

    amendment provides for Special Courts

    to    try     only        offences        carrying

    imprisonment of two years or more.

    And all other offences shall be tried, as

    the case may be, by a Metropolitan

    Magistrate or a Judicial Magistrate of the

    First Class having jurisdiction to try any

    offence under this Act or under any

    previous company law.




    to Section 462


    462 – Power of Central Government

    to exempt certain class of companies

    from provisions of the Act.

    Amendment to Sub-Section (2) of

    Section 462, as to the manner of placing

    the    notifications issued         by the CG

    pursuant to Section sub-section (1). The

    content of Sub-section has been altered

    and divided in to new Sub-Section (3) &




    This article is contributed by Partners of SBS and Company LLP - Chartered Accountant Company. You can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

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