Records to be maintained [Section 92D]: 

Section 92D imposes responsibility on every person who enters into an international transaction to keep and maintain such information and documents in respect thereof as may be prescribed by CBDT. The Bo ard is empowered to prescribe the period for which the information and documents shall be kept and maintained. Further, the Assessing Officer or the Commissioner (Appeals) may, in the course of any proceedings under the Income-tax Act, require any person who has entered into an international transaction to furnish any such prescribed information or documents within a period of thirty days from the date of receipt of a notice issued in this regard. The requisition period may, on request, be extended further for a period not exceeding thirty days by the Assessing Officer or the Commissioner (Appeals).

Rule 10D(1) provides for the information and documents to be kept and maintained by the assessee. Under this Rule, the following information and documents have to be maintained:

(i) A description of the ownership structure of the assessee enterprise with details of shares or other ownership interest held therein by other enterprises;

(ii) A profile of the multinational group of which the assessee enterprise is a part along with the name, address, legal status and country of tax residence of each of the enterprises comprised in the group with whom international transactions have been entered into by the assessee, and ownership linkages among them;

(iii) A broad description of the business of the assessee and the industry in which the assessee operates, and the business of the associated enterprises with whom the assessee has transacted;

(iv) The nature and terms (including prices) of international transactions entered into with each associated enterprise, details of property transferred or services provided and the quantum and the value of each such transaction or class of such transaction;

(v) A description of the functions performed, risks assumed and assets employed or to be employed by the assessee and by the associated enterprises involved in the international transactions;

(vi) A record of the economic and market analyses, forecasts, budgets or any other financial estimates prepared by the assessee for the business as a whole and for each division or product separately, which may have a bearing on the international transactions entered into by the assessee;

(vii) A record of uncontrolled transactions taken into account for analysing their comparability with the international transactions entered into, including a record of the nature, terms and conditions relating to any uncontrolled transaction with third parties which may be of relevance to the pricing of the international transactions;

(viii) A record of the analysis performed to evaluate comparability of uncontrolled transactions with the relevant international transaction;

(ix) A description of the methods considered for determining the arm‟s length price in relation to each international transaction or class of transaction, the method selected as the most appropriate method along with explanation as to why such method was so selected, and how such method was applied in each case;

(x) A record of the actual working carried out for determining the arm’s length price, including details of the comparable data and financial information used to apply the most appropriate method, and adjustments, if any, which were made to account for differences between the international transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions;

(xi) The assumptions, policies and price negotiations, if any, which have critically affected the determination of the arm‟s length price;

(xii) Details of the adjustments, if any, made to transfer prices to align them with arm’s length prices determined under the Income-tax Rules and consequent adjustment made to the total income for tax purposes;

(xiii) Any other information, data or documents, including information or data relating to the associated enterprise, which may be relevant for determination of the arm’s length price.

Rule 10D(2) provides that in a case where the aggregate value of international transactions does not exceed Rs 1 crore, it will not be obligatory for the assessee to maintain the above information and documents. Considering the wording of this Rule it appears that this limit will apply with reference to the aggregate value of the international transactions with each associated enterprise and not with reference to the aggregate value of the international transactions with all associated enterprises during the financial year put together.

However, it is provided that in the above cases also the assessee will have to substantiate that the income arising from the international transactions with associated enterprises, as disclosed by the accounts, is in accordance with section 92. This will mean that, even if the aggregate value of the international transactions is less than Rs 1 crore, the assessee will have to maintain adequate records and evidence to show that the international transactions with associated enterprises are on the basis of arm’s length principle.

The information to be maintained by the assessee, is to be supported by authentic documents. These documents may include the following:

(i) Official publications, reports, studies and data bases from the Government of the country of residence of the associated enterprise, or of any other country;

(ii) Reports of market research studies carried out and technical publications brought out by institutions of national or international repute;

(iii) Price publications including stock exchange and commodity market quotations;

(iv) Published accounts and financial statements relating to the business affairs of the associated enterprises;

(v) Agreements and contracts entered into with associated enterprises or with unrelated enterprises in respect of transactions similar to the international transactions;

(vi) Letters and other correspondence documenting any terms negotiated between the assessee and the associated enterprise;

(vii) Documents normally issued in connection with various transactions under the accounting practices followed.

It is also provided that the information and documents to be maintained should be contemporaneous and should exist latest by the date specified for getting the audit report. In the case of international transactions which continue to have effect over more than one financial year, fresh documents will not be required to be maintained for each year if there are no significant change which may affect the determination of arm’s length price. The above information and documents are required to be maintained for a period of eight years from the end of the relevant assessment year.