Income Tax Act

Official PDF pages 231–235

SOURCE PDF PAGE 231
(9) The agreement referred to in sub-section (1), may, subject to such conditions,
procedure and manner as may be prescribed, also provide for determining the—
( a )   arm’s length price or specify the manner in which the arm’s length price
shall be determined in relation to the international transaction entered
into by the person;
( b )   income referred to in   section 9(2), or specifying the manner in which
the said income is to be determined, as is reasonably attributable to the
operations, transactions and activities carried out in India by or on behalf
of that non-resident person,
during any period not exceeding four tax years preceding the first of the tax years
referred to in sub-section (4) and the arm’s length price of such international trans -
action or the income of such person shall be determined in accordance with the
said agreement.
(10) Where an application is made by a person for entering into an agreement
referred to in sub-section (1), the proceedings shall be deemed to be pending in the
case of the person for the purposes of this Act till such agreement is entered into,
or such proceedings are closed as may be prescribed.
(11) For the purposes of this section, the Board may prescribe a scheme specifying
therein the manner, form, procedure and any other matter in respect of the advance
pricing agreement.
Effect to advance pricing agreement.
169.  
23
[ (1) Irrespective of anything to the contrary contained in section 263,
where an income is modified as a result of advance pricing agreement entered
into with any person then, such person shall, or any other person being an associated
enterprise may,—
( a )   furnish a return or a modified return in accordance with and limited to the
agreement; and
( b )   the time period for furnishing such return or modified return shall be three
months from the end of the month in which the agreement was entered
into,
where the tax years relevant for such return or modified return shall be the years cov -
ered by such agreement. ]
(2) Except as provided in this section, all other provisions of this Act shall apply
accordingly as if the modified return is a return furnished under section 263.
(3) Where a modified return is furnished under sub-section (1), and assessment or
reassessment proceedings, in respect of a tax year to which the agreement applies,
were initiated before the filing of such return then,—
23.   Substituted by the Finance Act, 2026, w.e.f.   1-4-2026 . Prior to its substitution, sub-section
(1) read as under :
“(1) If a return of income for any tax year covered by an advance pricing agreement has
been furnished by any person, before the date of entering into the said agreement, he shall,
irrespective of anything to the contrary contained in section 263, furnish a modified return,
in accordance with and limited to the agreement, in respect of such tax years, within three
months from the end of the month in which the agreement was entered into.”

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( a )   if such proceedings have been completed before the filing of such return,
the Assessing Officer shall pass an order modifying the total income of
the relevant tax year; or
( b )   if such proceedings are pending on the date of filing of modified return,
the Assessing Officer shall proceed to complete them,
as per the agreement after taking into consideration the modified return so
furnished.
(4) Irrespective of anything contained in section 275 or 286 or 296,—
( a )   the order in respect of a case falling under sub-section (3)( a ) shall be
passed within one year from the end of the financial year in which the
modified return under sub-section (1) is furnished;
( b )   in respect of a case falling under sub-section (3)( b ), the period of limita -
tion as provided in section 275 or 286 or section 296 for completion of
pending assessment or reassessment proceedings shall be extended by
twelve months.
(5) For the purposes of this section,—
( a )   “agreement” means an agreement referred to in section 168(1);
( b )   the assessment or reassessment proceedings for a tax year shall be deemed
to have been completed where—
( i )   an assessment or reassessment order has been passed; or
( ii )   no notice has been issued under section 270(8) till the expiry of the
limitation period provided under the said section.
Secondary adjustment in certain cases.
170.   (1) An assessee shall make a secondary adjustment in every case where
primary adjustment of one crore rupees or more to the transfer price—
( a )   has been made by the assessee on his own in his return of income;
( b )   made by the Assessing Officer has been accepted by him;
( c )   is determined by an advance pricing agreement entered into by him
under section 168;
( d )   is made as per the safe harbour rules made under section 167; or
( e )   is arising as a result of resolution of an assessment by way of the mutual
agreement procedure under an agreement entered into under section 159
for avoidance of double taxation.
(2) The excess money or part thereof available with its associated enterprise shall
be deemed to be an advance made by the assessee to such associated enterprise if—
( a )   as a result of primary adjustment to the transfer price, there is an increase
in the total income or reduction in the loss, as the case may be, of the
assessee; and
( b )   such excess money or part thereof is not repatriated to India within the
time as may be prescribed.
(3) The excess money or part thereof referred to in sub-section (2) may be repatriated
from any of the associated enterprises of the assessee which is not a resident in India.

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(4) The interest on advance as referred to in sub-section (2) shall be computed in
such manner as may be prescribed.
(5) Without prejudice to the provisions of sub-section (2), where the excess money or
part thereof has not been repatriated within the prescribed time, the assessee may,
at his option, pay additional income-tax at the rate of 18% on such excess money
or part thereof, as the case may be.
(6) The tax on the excess money or part thereof so paid by the assessee under
sub-section (5) shall be treated as the final payment of tax in respect of the excess
money or part thereof not repatriated and no further credit thereof shall be claimed
by the assessee or by any other person in respect of tax so paid.
(7) Deduction under any other provision of this Act shall not be allowed to the
assessee in respect of the amount on which tax has been paid as per sub-section (5).
(8) In a case where the additional income-tax referred to in sub-section (5) is
paid by the assessee, he shall not be required to make secondary adjustment under
sub-section (1) and compute interest under sub-section (4) from the date of pay -
ment of such tax.
(9) For the purposes of this section,—
( a )   “arm’s length price” shall have the meaning assigned to it in section
173( a )
83
;
( b )   “excess money” means the difference between the arm’s length price
determined in primary adjustment and the price at which the inter-
national transaction has actually been undertaken;
( c )   “primary adjustment” to a transfer price, means the determination of
transfer price as per the arm’s length principle resulting in an increase
in the total income or reduction in the loss, as the case may be, of the
assessee;
( d )   “secondary adjustment” means an adjustment in the books of account
of the assessee and its associated enterprise to reflect that the actual
allocation of profits between the assessee and its associated enterprise
are consistent with the transfer price determined as a result of primary
adjustment, thereby removing the imbalance between cash account and
actual profit of the assessee.
Maintenance, keeping and furnishing of information and document by certain
persons.
171.   (1) Every person, who—
( a )   has entered into an international transaction or specified domestic
transaction; or
( b )   is a constituent entity of an international group,
shall keep and maintain such information and document in respect thereof and for
such period and in such manner, as may be prescribed.
(2) The Assessing Officer or the Commissioner (Appeals) may, during any proceeding
under this Act, require any person referred to in sub-section (1)( a ) to furnish any

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information or document referred therein within ten days from the date of receipt
of a notice issued in this regard.
(3) For the purposes of sub-section (2), the Assessing Officer or the Commissioner
(Appeals) may, on an application made by such person, extend the period of ten
days by a further period not exceeding thirty days.
(4) Every person referred to in sub-section (1)( b ) shall furnish the information and
document referred to in sub-section (1) to the authority prescribed under section
511(1), in such manner, on or before such date, as may be prescribed.
(5) For the purposes of this section,—
( a )   “constituent entity” shall have the meaning assigned to it in section
511(10)( d );
( b )   “international group” shall have the meaning assigned to it in section
511(10)( g ).
Report from an accountant to be furnished by persons entering into inter-
national transaction or specified domestic transaction.
172.   Every   person   who   has   entered   into   an   international   transaction   or
specified domestic transaction during a tax year shall obtain a report from
an accountant and furnish such report on or before the specified date in the pre -
scribed form duly signed and verified in the manner as may be prescribed by such
accountant and setting forth such particulars as may be prescribed.
Definitions of certain terms relevant to determination of arm’s length price, etc.
173.   For the purposes of this section and sections 161, 162, 163, 165, 171 and 172,
unless the context otherwise requires,—
( a )   “arm’s length price” means a price which is applied or proposed to be
applied in a transaction between persons other than associated enter -
prises, in uncontrolled conditions;
( b )   “enterprise” means a person (including a permanent establishment of
such person) who is, or has been, or is proposed to be, engaged in any
activity relating to—
( i )   the production, storage, supply, distribution, acquisition or control
of articles or goods; or
( ii )   know-how, patents, copyrights, trade-marks, licences, franchises
or any other business or commercial rights of similar nature; or
( iii )   any data, documentation, drawing or specification relating to any
patent, invention, model, design, secret formula or process of which
the other enterprise is the owner or in respect of which the other
enterprise has exclusive rights; or
( iv )   provision of services of any kind; or
( v )   carrying out any work in pursuance of a contract; or
( vi )   investment or providing loan; or
( vii )   business of acquiring, holding, underwriting or dealing with shares,
debentures or other securities of any other body corporate,

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whether such activity or business is carried on, directly or through one
or more of its units or divisions or subsidiaries, or whether such unit or
division or subsidiary is located at the same place where the enterprise
is located or at a different place or places;
( c )   “permanent establishment”, referred to in clause ( b ), includes a fixed
place of business through which the business of the enterprise is wholly
or partly carried on;
( d )   “specified date” means the date one month before the due date for fur -
nishing the return of income under section 263(1) for the relevant tax
year;
( e )   “transaction” includes an arrangement, understanding or action in
concert,—
( i )   whether or not such arrangement, understanding or action is formal
or in writing; or
( ii )   whether or not such arrangement, understanding or action is in -
tended to be enforceable by legal proceeding.
Avoidance of income-tax by transactions resulting in transfer of income to
non-residents.
174.   (1) Where there is a transfer of assets before and after the commencement
of this Act, and by virtue or in consequence of it,—
( a )   either alone; or
( b )   in conjunction with associated operations,
any income becomes payable to a non-resident, the provisions of this section shall
apply.
(2) If any person (“first mentioned person”), by means of any transfer referred to in
sub-section (1), either alone or in conjunction with associated operations, acquires
any rights,—
( a )   by virtue of which he has, within the meaning of this section, power to
enjoy, whether forthwith or in the future, any income of a non-resident;
and
( b )   such income would have been chargeable to income-tax if it were such
first mentioned person’s income,
then, that income shall, whether or not it would have been chargeable to income-tax
under any other provisions of this Act, be deemed to be the income of such first
mentioned person for all the purposes of this Act.
(3) If any such first mentioned person receives or is entitled to receive any capital
sum,—
( a )   the payment of which is in any way connected with the transfer or any
associated operations; and
( b )   whether before or after any such transfer,
then any income, which has become the income of a non-resident by virtue or in
consequence of such transfer, either alone or in conjunction with associated oper -