Statutory Reporting & Penalties for persons entering into international and specified domestic transactions : Clause 172 of the Income Tax Bill, 2025 Vs. Section 92E of the Income-tax Act, 1961

Clause 172 Report from an accountant to be furnished by persons entering into international transaction or specified domestic transaction.

Income Tax Bill, 2025

Introduction

Clause 172 of the Income Tax Bill, 2025, introduces a statutory requirement for persons entering into international transactions or specified domestic transactions to obtain and furnish a report from an accountant. This clause, situated within the broader framework of special provisions relating to the avoidance of tax, signifies the legislature's continuing commitment to ensuring transparency, accountability, and compliance in cross-border and specified domestic dealings. The provision is substantially similar to the existing Section 92E of the Income-tax Act, 1961, which, along with Section 271BA and Rule 10E of the Income-tax Rules, 1962, forms the core of the Indian transfer pricing compliance regime.

This commentary provides an in-depth analysis of Clause 172, its objectives, detailed provisions, practical implications, and a comparative evaluation with the extant legal framework, namely Section 92E, Section 271BA, and Rule 10E. The analysis also explores the legislative intent, policy considerations, and the potential impact on stakeholders, while highlighting areas of continuity, change, and possible ambiguity.

Objective and Purpose

The primary objective of Clause 172, echoing its predecessor Section 92E, is to ensure that taxpayers engaged in international transactions or specified domestic transactions maintain transparency in their dealings and comply with the arm's length principle as mandated by Indian transfer pricing regulations. The requirement to obtain a report from an independent accountant serves as a critical compliance tool for the tax authorities to monitor, assess, and scrutinize such transactions, thereby curbing practices of base erosion and profit shifting (BEPS).

The legislative intent is rooted in the need for effective oversight of cross-border transactions, which are susceptible to manipulation for tax avoidance. By mandating a certified report, the legislature aims to:

• Facilitate the detection and prevention of transfer pricing abuses.
• Provide a standardized mechanism for taxpayers to disclose relevant particulars concerning their international and specified domestic transactions.
• Strengthen the evidentiary basis for tax assessments and audits in respect of transfer pricing matters.
• Align Indian tax law with international best practices and recommendations of the OECD in the context of transfer pricing documentation and compliance.

The inclusion of "specified domestic transactions" (SDTs), following the amendments brought by the Finance Act, 2012, reflects a policy shift to extend transfer pricing compliance beyond cross-border dealings to certain high-value domestic transactions between related parties, thereby plugging potential loopholes in the domestic tax base.

Detailed Analysis of Clause 172 of the Income Tax Bill, 2025

Key Elements

1. Applicability: The clause applies to "every person" who has entered into (a) an international transaction, or (b) a specified domestic transaction during a tax year. The language is broad and encompasses all categories of taxpayers-individuals, firms, companies, LLPs, etc.-engaged in such transactions.
2. Obligation to Obtain and Furnish Report: The taxpayer is required to:
   • Obtain a report from an "accountant"-a term defined in the Income-tax Act, 1961, generally referring to a chartered accountant within the meaning of the Chartered Accountants Act, 1949.
   • Furnish the report on or before the "specified date"-typically the due date for filing the income tax return, unless otherwise notified.
3. Prescribed Form and Verification: The report must be in the prescribed form, signed and verified in the prescribed manner by the accountant, and must set forth such particulars as may be prescribed. This ensures uniformity and completeness in the information furnished.
4. Regulatory Backing: The provision contemplates further prescription of the form, particulars, and manner of verification through subordinate legislation (rules or notifications), thereby allowing flexibility and adaptability in the compliance mechanism.

Interpretive Considerations

Clause 172 is drafted in mandatory terms, using "shall," indicating a statutory obligation and not a mere procedural formality. The absence of compliance would attract penal consequences, as is the case under the existing regime.

The use of the phrase "such particulars as prescribed" leaves the door open for the Central Board of Direct Taxes (CBDT) to specify, via rules, the exact nature and scope of disclosures required. This enables the authorities to respond dynamically to evolving tax avoidance strategies.

Practical Implications

Impact on Taxpayers

The practical effect of Clause 172 is to impose a compliance burden on taxpayers engaged in international or specified domestic transactions. They must:

• Maintain detailed documentation and records to facilitate the preparation of the accountant's report.
• Engage a qualified accountant, usually a chartered accountant, to review, certify, and report on the transactions in the prescribed format.
• Ensure timely submission of the report to avoid penal consequences.

Compliance Requirements

The requirement to furnish a report in the prescribed form (currently Form 3CEB u/r 10E) necessitates the disclosure of comprehensive details, including:

• Nature and value of international/SDTs.
• Relationship between the parties.
• Method of determining arm's length price (ALP).
• Supporting documentation justifying the pricing and terms of the transactions.

Failure to comply results in penal provisions, as discussed below.

Regulatory Oversight and Enforcement

The accountant's report serves as a crucial document for the tax authorities in scrutinizing transfer pricing compliance. It forms the basis for further inquiries, audits, and potential adjustments. The prescribed particulars ensure that the authorities have access to all relevant information at the outset, facilitating efficient administration and enforcement.

Comparative Analysis with Existing Law

Comparison with Section 92E of the Income-tax Act, 1961

Aspect	Clause 172 of the Income Tax Bill, 2025	Section 92E of the Income-tax Act, 1961
Applicability	Every person entering into international or specified domestic transaction during a tax year	Every person entering into international or specified domestic transaction during a previous year
Obligation	Obtain and furnish report from an accountant in prescribed form, signed and verified as prescribed, setting forth prescribed particulars	Obtain and furnish report from an accountant in prescribed form, signed and verified as prescribed, setting forth prescribed particulars
Specified Date	On or before the specified date	On or before the specified date
Prescribed Form	Form and particulars to be prescribed (likely to continue as Form 3CEB)	Form and particulars prescribed u/r 10E (Form 3CEB)
Scope	Substantially similar; covers both international and specified domestic transactions	Substantially similar; covers both international and specified domestic transactions (SDT included w.e.f. 2013)

The comparison reveals that Clause 172 is, in essence, a restatement of Section 92E, with minor drafting changes. The substitution of "tax year" for "previous year" is in line with the terminology used in the new Income Tax Bill, but does not alter the substance.

Comparison with Section 271BA of the Income-tax Act, 1961

Section 271BA provides for a penalty of INR 1,00,000 in case of failure to furnish the report required u/s 92E. While Clause 172 itself does not stipulate the penal consequence, it is expected that the new legislation will contain a corresponding penal provision, maintaining the established compliance framework.

Aspect	Clause 172 of the Income Tax Bill, 2025	Section 271BA  of the Income-tax Act, 1961
Nature	Compliance requirement (reporting)	Penalty for non-compliance with reporting requirement
Penalty Quantum	Not specified in the clause; likely to be specified elsewhere in the Bill	INR 1,00,000 for failure to furnish report u/s 92E
Trigger	Failure to furnish accountant's report	Failure to furnish accountant's report as required by Section 92E

The penalty provision u/s 271BA acts as a deterrent against non-compliance and ensures the sanctity of the reporting requirement. The absence of a corresponding clause in Clause 172 is likely a matter of legislative structuring, with penalties being addressed in a separate chapter or section.

Comparison with Rule 10E of the Income-tax Rules, 1962

Rule 10E prescribes the form (Form 3CEB) in which the accountant's report must be furnished, along with the manner of verification. The rule is an essential adjunct to Section 92E, operationalizing the reporting requirement.

Aspect	Clause 172 of the Income Tax Bill, 2025	Rule 10E of the Income-tax Rules, 1962
Prescribed Form	To be prescribed by rules (presumably Form 3CEB or its updated equivalent)	Form No. 3CEB
Verification	To be prescribed	Verified in the manner indicated in Form 3CEB
Scope	Enabling provision; details to be set out in rules	Operational provision; sets out the exact form and particulars

The new regime under Clause 172 is likely to continue with the same or a similar form and manner of verification, unless there is a policy decision to revise the reporting format.

Key Issues, Ambiguities, and Potential Challenges

1. Definition and Scope of "Accountant"

Both the current and proposed provisions refer to "an accountant," a term defined in Section 288(2) of the Income-tax Act, 1961, to mean a chartered accountant. The continued use of this term maintains the requirement for professional certification and accountability.

2. Prescribed Form and Particulars

The clause leaves the form and particulars to be prescribed by subordinate legislation. While this provides flexibility, it also introduces uncertainty until the relevant rules are notified. Any delay or ambiguity in prescribing the form could create compliance challenges.

3. Timing and Due Date

The "specified date" is not defined in the clause itself but is typically linked to the due date for filing the income tax return. Clarity in the rules will be essential to avoid disputes regarding the timeframe for compliance.

4. Overlap with Other Documentation Requirements

Taxpayers are also required to maintain contemporaneous transfer pricing documentation u/s 92D (and corresponding provisions in the new Bill). The interplay between the accountant's report and other documentation requirements needs to be clear to avoid duplication and confusion.

5. Penalty Mechanism

While Section 271BA currently provides a specific penalty for non-compliance, the absence of a penalty clause in Clause 172 necessitates a review of the penalty framework in the new Bill to ensure that the deterrent effect is preserved.

6. Digital Filing and Verification

With increasing digitization, the form and manner of verification may evolve to include digital signatures and electronic filing. The rules will need to address these procedural aspects to facilitate ease of compliance.

Practical Implications for Stakeholders

For Taxpayers

• Mandatory engagement of an accountant for certification of international and specified domestic transactions.
• Increased compliance costs, particularly for entities with multiple or complex transactions.
• Potential exposure to penalties and scrutiny in case of non-compliance or incomplete disclosures.
• Enhanced need for robust transfer pricing documentation and internal controls.

For Accountants

• Greater responsibility and professional risk in certifying the accuracy and completeness of the report.
• Need for specialized knowledge of transfer pricing regulations and evolving jurisprudence.
• Exposure to disciplinary action in case of negligence or misrepresentation.

For Tax Authorities

• Availability of standardized and comprehensive information for risk assessment and audit selection.
• Facilitation of targeted inquiries and adjustments in transfer pricing cases.
• Potential reduction in litigation through improved upfront compliance.

Comparative Perspective: International Jurisdictions

Many jurisdictions, including OECD member countries, require transfer pricing documentation and, in some cases, a certification or report by an independent professional. The Indian regime, by mandating a certified report, is aligned with global best practices but is distinctive in its formalization and penalty structure. Clause 172 continues this approach, ensuring India remains in step with international norms while addressing domestic policy concerns.

Conclusion

Clause 172 of the Income Tax Bill, 2025, represents a continuation of the established framework for transfer pricing compliance in India. It retains the essential features of Section 92E, mandating the furnishing of a certified accountant's report for international and specified domestic transactions. The provision is central to the administration and enforcement of transfer pricing regulations, serving the twin goals of transparency and deterrence against tax avoidance.

The practical implications for taxpayers, accountants, and tax authorities are significant, necessitating robust compliance mechanisms and professional diligence. The comparative analysis reveals substantial continuity with the existing law, with any changes likely to be procedural or terminological rather than substantive. The effectiveness of the provision will, however, depend on the clarity and adequacy of the prescribed rules, the penalty framework, and the adaptability to technological advancements in tax administration.

As India's transfer pricing landscape continues to evolve, Clause 172 will play a pivotal role in shaping compliance behavior and supporting the broader objectives of tax fairness and integrity.

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Full Text:

Clause 172 Report from an accountant to be furnished by persons entering into international transaction or specified domestic transaction.

 

 

Dated: 25-4-2025