Section 92E of Income Tax Act – Transfer Pricing Audit & Compliance

Summary Points:

1. Section 92E says that if a company does business with related parties or foreign companies, it must file Form 3CEB, signed by a Chartered Accountant, to keep deals fair.
    
2. If you don’t follow the tax rules, you can get into trouble. You may be fined, checked, or asked to pay more. Even during COVID, the rules stayed fair. Section 92E made sure people paid taxes honestly.
    
3. Missing tax deadlines can lead to big problems like fines or checks. Even when COVID gave more time, the rules under Section 92E stayed clear to keep tax filing honest and fair.

Bonus Point: Section 92E requires businesses with international or specified domestic dealings to submit a CA-certified report in Form 3CEB along with their tax return, ensuring fair and transparent pricing.

Section 92E requires businesses with international or specified domestic transactions to obtain a CA-certified report.

This report, filed in Form 3CEB with tax returns, ensures fair pricing and compliance.

Let’s understand it with the help of an example:

Let’s say BrightTech Pvt. Ltd. (India) sells software services to its group company in London. The fair market value of these services is ₹40 crore, but BrightTech decides to bill only ₹25 crore. By doing this, it reduces its taxable profit in India by ₹15 crore and shifts the profit to London, where taxes may be lower. 

As a result, BrightTech saves almost ₹4.5 crore in Indian taxes because 30% of ₹15 crore comes to that amount. Isn’t it interesting how just underbilling can change the entire tax picture? 

This is exactly why Section 92E of the Income Tax Act is in place; it ensures companies play fair and don’t shift profits unfairly.

This blog will help you understand what Section 92E is, why Form 3CEB is important, and how it helps stop tax evasion in cross-border and related-party transactions.

What is Section 92E of the Income Tax Act?

Section 92E makes businesses report cross-border or domestic related-party transactions through Form 3CEB. A chartered accountant certifies these dealings to ensure tax compliance and prevent profit shifting or manipulation.

Let’s understand it with the help of an example:

Imagine XYZ Pvt. Ltd. (India) buys raw materials from its parent company in the USA.

• Cost of raw material: ₹10 crore
   
• But XYZ shows in its accounts that it paid ₹15 crore (extra ₹5 crore) to reduce its taxable profit in India.

Without checks, XYZ pays less tax in India, while its USA parent enjoys inflated profits.

Here’s where Section 92E steps in like a tax detective.

• The company must hire a Chartered Accountant to prepare Form 3CEB.
   
• The CA checks if ₹15 crore is a fair price or an inflated trick.
   
• If it’s not fair, the tax department can correct it and recover tax.

So, think of Section 92E as the referee in an international tax football match.
It makes sure companies don’t pass the ball unfairly between countries just to avoid tax goals!

Applicability of Section 92E:

Section 92E applies when businesses have international or domestic transactions with related enterprises. At least one party in these dealings must be a non-resident to trigger Section 92E rules.

Let’s understand it with the help of an example:

Picture this: ABC Pvt. Ltd. (India) sells IT services to its sister company in Singapore.

Let’s take a simple example to understand how underpricing between related companies can impact taxes under Section 92E.

• Actual fair market price for services = ₹50 crore
   
• But ABC bills only ₹30 crore to the Singapore company (₹20 crore less).

This gap of ₹20 crore reduces ABC’s profit in India and helps shift income to Singapore, possibly saving taxes—highlighting why fair pricing and Form 3CEB are so important.

Why would ABC do this?

Because less revenue in India means less taxable profit in India, and more profit is recorded in Singapore (where taxes may be lower).

Here’s where Section 92E jumps in like a tax superhero.

Now, let’s see how Section 92E steps in to handle this kind of unfair pricing between group companies.

• Since this is a transaction between associated enterprises (both under the same group), and one party (Singapore) is a non-resident, Section 92E applies.
   
• ABC must hire a Chartered Accountant to file Form 3CEB, ensuring the price matches fair market value.
   
• If not, the Indian tax department adjusts it back to ₹50 crore and taxes it properly.

By applying Section 92E and using Form 3CEB, the tax department ensures companies can't dodge taxes by underpricing—keeping the system fair and transparent.

Think of it like this:
 

If two brothers own companies in different countries, they can’t secretly “sell a BMW for the price of a bicycle” just to save tax. Section 92E makes sure the deal is fair, transparent, and at market value.

Consequences of Non-Compliance with Section 92E:

Late filing of Form 3CEB under Section 92E attracts a straight penalty of ₹1,00,000. It can also invite tax scrutiny, extra interest, and more penalties for transfer pricing violations.

Let’s understand it with the help of an example:

Imagine TechWorld Pvt. Ltd. (India) has business with its parent company in the UK.

• They complete all transactions correctly but forget to file Form 3CEB on time.
   
• When the deadline passes, the tax department sends a notice.

Consequence 1: A fixed penalty of ₹1,00,000 under Section 271BA, no excuses, no discounts.

Consequence 2: The tax department may put TechWorld under the “microscope” of scrutiny.

Consequence 3: If prices look fishy, they may demand extra tax, interest, and penalties.

So instead of saving effort, TechWorld ends up with:

Skipping Section 92E compliance might seem easy at first, but here’s what it can actually cost a company like TechWorld.

• ₹1,00,000 gone in penalty
   
• Sleepless nights worrying about scrutiny
   
• More money is lost if irregularities are found.

As you can see, avoiding proper filing not only leads to financial penalties but also invites stress and deeper scrutiny from tax authorities.

Think of it like forgetting to wear a helmet while riding a bike.

To understand how one mistake can lead to bigger trouble, here’s a simple real-life comparison.

• The fine is fixed (₹1,00,000 penalty).
   
• But if the police find more violations (like no license or insurance), the trouble multiplies.

Just like traffic rules, tax rules need to be followed carefully one slip can uncover many issues and lead to higher penalties.

That’s exactly what happens when companies ignore Section 92E: one miss can snowball into bigger financial pain.

Recent Developments and Amendments in Section 92E Compliance:

Section 92E has mostly kept its core rules the same across AY 2018–19, AY 2019–20, and AY 2020–21. Businesses still had to file Form 3CEB through a Chartered Accountant for international and specified domestic transactions.

However, something unusual happened during the COVID-19 pandemic. Since businesses faced operational hurdles, the government stepped in and gave deadline extensions for filing. This meant companies got extra time to submit Form 3CEB without facing penalties.

But if you still missed filing during those years, the obligation hasn’t magically disappeared. It’s like an overdue homework assignment; you can’t ignore it forever. The smart move is to rectify or revise your report, even late, to reduce risks of penalty, scrutiny, or compliance issues later.

• Core rules = same 
   
• Deadlines = extended due to COVID-19 
   
• Missed filing? Better to fix it now

Who Is Liable for Audit Under Section 92E?

Anyone entering into international or specified domestic transactions must get a Section 92E audit report. The report, certified by a Chartered Accountant, must be filed via Form 3CEB before the deadline.

Let’s understand it with the help of an example:

Let’s say GlobalTextiles Pvt. Ltd. (India) buys fabric from its associated company in Italy.

• The value of the transaction in one year is ₹25 crore.
   
• Since this is an international transaction with an associated enterprise, Section 92E applies.

What does GlobalTextiles need to do?

• They must hire a Chartered Accountant.
   
• The CA verifies the deal price (to ensure it’s fair and not manipulated).
   
• The CA then prepares Form 3CEB and files it before the due date.

If GlobalTextiles skips this audit, they face a penalty of ₹1,00,000 and possible scrutiny.

Think of Section 92E like a compulsory referee check in a game.
If you’re playing an “international match” (international or related-party transactions), you must call the referee (CA audit). Skipping it means you’re playing unfairly, and the umpire (tax department) won’t spare you! 

Conclusion

Section 92E of the Income Tax Act makes sure companies deal fairly in international and related-party transactions. Businesses must file Form 3CEB, certified by a Chartered Accountant, to show correct pricing and tax compliance. 

Missing it can bring penalties and scrutiny. Even with the COVID deadline relief, the rule stayed. Section 92E ensures that business taxation remains fair and transparent.

FAQs:

Q: What is the time limit for condonation of delay in income tax?

You must apply within 5 years from the end of the relevant assessment year, excluding court case duration. If based on a court order, apply within 6 months from the order date.

Q: What is the threshold limit for transfer pricing audit applicability?

A: A transfer pricing audit is required if international transactions exceed ₹1 crore or specified domestic transactions exceed ₹20 crore in a financial year.

Q: What happens if we do not respond to an income tax notice?

A: Ignoring a notice can lead to penalties up to ₹10,000, imprisonment up to one year, and even reassessment under Section 148 for undisclosed income.

Q: What is the penalty for not filing a transfer pricing report?

A: Non-compliance attracts a penalty of 2% of the value of each international transaction for missing documentation, report, or information.

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