Importance of Documentation Practitioners’ Checklist &

CA Prachi ShahDinesh R. Shah & Co.Chartered AccountantsAhmedabad

Importance of Documentati

on Practitioners’ Checklist&

DOCUMENTATION (RULE 10D)

Questionnaire to be sent to the

client

Accountant’s Report including Practitioners’ Checklist

Confirmation letter from client about factual data

Checklist for carrying out Audit

DOCUMENTATION

Check List of Documentation [ Rule 10D]

Questionnaire to be sent to the Client

Check List for Carrying out the Audit

Confirmation Letter from Client about

Factual Data

Accountant’s Report including

Practitioners’ Checklist

RELIANCE ON SUPPORTING DOCUMENTATION

Judicial pronouncement

Accounting Standard, Guidance notes, Standard on

Accounting issued by ICAI

In differences in the opinion, both the view and relevant

information shall be referred

Exercise reasonable care to ensure that prima facie and

based on information that is made available, the list of

AE/Related parties and list of International/domestic

transaction is reasonably complete and correct

Verify the computation of ALP whether in accordance with

the records maintained along with the data of

uncontrolled transactions

CHECK LIST OF DOCUMENTATION [RULE 10D]

Rule 10D provides 13 items of mandatory

documentation and additional 7 items as supporting

documentation

These can be broadly classified into 3 types:

Documents retained for period of 8 Years

Enterprise-wise

documents

Transaction specific

documents

Computation related

documents

ENTERPRISE-WISE DOCUMENTS

Ownership Structure of the Tested Party

Profile of Multinational Group / Group companies

with whom Domestic Transaction have been entered

into by the Tested Party

Broad description of the business of the Tested Party

as well as of AE/related party and industry in which

Tested Party operates.

TRANSACTION SPECIFIC DOCUMENTS

Nature & Terms of transaction entered into with each AE.

Description of FAR Analysis

Record of Economic & market Analysis, Forecasts,

Budgets or any other Financial estimates which may

have bearing on International transaction.

Record of uncontrolled transaction taken into account for

analyzing & evaluating their comparability

COMPUTATION RELATED DOCUMENTS

Description of methods considered for determining the

Arm’s Length Price (ALP).

Record of actual working carried out for determining the

ALP.

Assumptions, Policies & Price Negotiations, if any, which

have critically affected determination of ALP.

Details of Adjustments

Any Other Information.

QUESTIONNAIRE TO BE SENT TO THE CLIENT

Audited financial statement

Shareholding Pattern and overall structure of the group

Details of the transactions entered into by the company with its AE.

Detailed break up party wise and transaction wise related party disclosure as required by AS 18

Detailed of foreign exchange gain/loss as reported along with the reconciliation with the related party disclosure

Copy of Documents to prove the identity, genuineness of transactions and creditworthiness of the AE’s.

Certain other details of transactions

Details of Reimbursement with supporting documents.


Copy of the agreement entered into with AE’s / Related

Party

Copy of the approval received from RBI under FEMA, if

any

Copy of the order received from Special Valuation

Branch issued by the Custom Authorities

Transfer Pricing Policy of the group for determination of

inter-company transfer price

Details of transactions for which no consideration has

been charged/received, if any


Details of Contingent Liabilities and guarantees/

advances for borrowings appearing in audited

accounts

Details of payments made by the AE. If there are

delays, then the number of days of delay and the

imputed cost

Segmental Accounts of different functional activities (

manufacturing, distribution, provision of services,

etc.) and the basis on which the cost has been

allocated


Details of same/ similar type of transactions entered

into with independent third parties which can be

considered as internal comparable uncontrolled

transaction for the International transactions with AE’s

Transfer Pricing Study report providing Functional

analysis for the different types of the activities, the

methodology for determination of ALP, benchmarking

exercise carried out for arriving at the ALP

Details as regards any change in the methodology

followed as compared to the earlier years and the

reason for change

Sample Copies of invoice of international transactions

CHECK LIST FOR CARRYING OUT THE AUDIT

Questionnaire to be sent to the client before

commencement of assignment

Check list to be sent for information/data and

documents

Check list for verifying contents of Form 3CEB

Confirmation letter about the Factual data

Transfer Pricing Study report

Standard notes for issuance of the Form 3CEB

Transfer Pricing Accountants’ report of the foreign party

Management representation letter

CHECK LIST FOR CARRYING OUT THE AUDIT

Trial Balance

Copies of Agreements

Register of Director ( Section 301)

Register of Loans and Investment ( Section 372A)

Form 27Q copies ( TDS on Payment to Non-resident)

Segment Financial Accounts

Budget / Forecast

In case of the reimbursement transactions – supporting

back to back invoices

CONFIRMATION LETTER FROM CLIENT ABOUT FACTUAL DATA

The Confirmation letter is essential for :

◦ Confirming that reports issued is solely used for internal

purpose for supporting inter-company policies.

If the Report is used for some other purpose then the client

is required to obtain written consent of the Accountant.

◦ Confirmation regarding all information's were made

available and were reliable, genuine and complete.

◦ Confirmation that company has not entered into any

transaction with any uncontrolled third parties under

similar condition, which are comparable to the international

transaction that our company has entered into with our AE.

Notes forming part of 3CEB

If Assessee has exercised option under proviso to

section 92C(2) of the Income Tax Act 1961 the

same should be the part of such Standard notes.

Further we can include notes if any Quantity

details are not provided or No Arm’s Length Price

has been ascertained for any transactions.

STANDARD NOTES FOR ISSUANCE OF FORM 3CEB

Identification of International/Domestic Transaction

Nature of Transactions

Availability of Comparables in the market

Reliability and accuracy of data for comparables

TRANSACTIONAL EXAMINATIONFOCUS AREAS

Identification

NatureAvailabilit

y

Reliability and

Accuracy

Identification mean

To scrutinize the transactions with AEs/ related parties

e.g. Transactions involving Tangible assets or Intangible Assets

And

To ascertain which type of transactions have been

made with its AE’s/related party

e.g. Purchase, Sale, Services, Reimbursement,

Royalty etc.

IDENTIFICATION

Nature to mean if transaction have been identified as

Purchase transaction then whether Purchase to say

Purchase of RM, Purchase of Goods, Purchase of

Services.

This issue is technical because If nature is decided

properly then selection of method to determine Arm’s

Length will be relaxed.

NATURE

The most technical issue related to Transactional

Examination is to find out comparable transactions which

have same effects that of the Assessee company such as

◦ An independent enterprises sells the same product or

services as it is sold between two associated enterprises

◦ The uncontrolled transaction should reflect goods of a similar

type, quality and quantity as those between associated

enterprises and

◦ It relate to transaction taking place at a similar time and

stage in the production/distribution chain, with similar

condition.

AVAILABILITY

Transactions can be taken as comparable only when

source of data is reliable.

Generally, publically available sources are reliable.

E.g. Company Affairs Site, Company’s own site

But it doesn’t mean data from private source is not

reliable but reliability should be measured for any

type of transactions.

RELIABILITY

ACCOUNTANT’S REPORT

Compile and furnish details of international transactions for reporting in form 3CEB

Ensure Completeness of the listing of International transactions

Ensure Completeness of the list of AE's

Compute the ALP and select the MAM

ANNEXURE TO FORM NO 3CEB INCLUDES

3 Parts

Part A – General Information

Part B – International transactions

Part C – Specified Domestic transactions


Item 1,2,3 and 5 (Part A)

Item 4 (Part A)

Item 9 (Part A)

Item 21(Part C)

Item 22(Part C)

Item 23(Part C)

Item 24(Part C)

Item 25(Part C)

Practitioners’ Checklist….


Item 4 (Part A)

Item 9 (Part A)

Item 21(Part C)

Item 22(Part C)

Item 23(Part C)

Item 24(Part C)

Item 25(Part C)

Item 1,2,3 and 5: Name, Address, PAN Number and Status

a. Copy of the PAN Card;

b. Latest Assessment order;

c. In case of change in name, copy of the certificate evidencing

such change from ROC or other relevant authority as

applicable;

d. In case of change of address, copy of communication with the

AO intimating the change of address.




Item 4 (Part A)

Item 9 (Part A)

Item 21(Part C)

Item 22(Part C)

Item 23(Part C)

Item 24(Part C)

Item 25(Part C)

Item 4 : Nature of business or activities of the assessee

a. Code for nature of business to be filled in as per instructions for filling form ITR ;

b. Cross check with the relevant column in the tax audit report;c. Cross check with the disclosure in the audited accounts as regards

segment reporting;d. Peruse the Directors’ Report for description of the business activities

of the assessee;e. Cross check with the relevant column in the return of income;f. Peruse the DTP Study Report for the description of the business

mentioned therein;g. Peruse the Company’s Memorandum of Association or a firm’s

partnership deed;h. Make sure that the businesses of the eligible units are also

mentioned, even though the units are captive in nature.




Item 4 (Part A)

Item 9 (Part A)

Item 21(Part C)

Item 22(Part C)

Item 23(Part C)

Item 24(Part C)

Item 25(Part C)


Item 9 : Aggregate value of SDT as per books of account

a. Get the break-up of all the SDTs and aggregate them, whether they are items of income or expense;

b. Take a management certificate that these are the only SDTs entered into during the year;

c. Cross check with the transactions reported at item 28 of Form 10CCB;

d. Cross check with the transactions reported at item 18 of Form 3CD;

e. Cross check with the related parties disclosure to the extent possible so as to ensure that nothing reported there and that also ought to have been considered in Form 3CEB is missed out;

f. Cross check with the reporting in Part C of this report.



Item 4 (Part A)

Item 9 (Part A)

Item 21(Part C)

Item 22(Part C)

Item 23(Part C)

Item 24(Part C)

Item 25(Part C)


Item 21:List of associated enterprise with whom the assessee has entered into specified domestic transactions

a. List of ownership structure of the assessee (required under Rule 10D(1)(a);

b. Examine the nature of business carried on by them from the information available with the assessee; cross check with the web sites, the annual accounts of the assessee and/or the annual accounts of the AEs, the contracts entered into with them, the public database etc. (Rule 10D(1)(b) / (c));

c. Get the completed list of AEs with whom the assessee has entered into SDTs;

d. Cross check with the ledger accounts of all AEs gathered in (a) above to make sure that the list provided in (c) is exhaustive;


Item 21 ….

e. Take a management certificate that these are the only associated enterprises and the only SDTs;

f. Cross check with the disclosure made in the Register maintained u/s. 301 of the Companies Act;

g. Cross check with the declarations filed by the directors u/s. 299 of the Companies Act;

h. Cross check with the disclosure made in the books of account as per AS 18;

i. Cross check with the disclosures made in Form 3CD in relation to section 40A(2);

j. Cross check with the segment reporting made by the assessee as per AS 17;


Item 21 ….

k. Get details of the geographical locations from which the assessee is carrying on business since two different geographical locations carrying on same business may also be regarded as two AE for SDT;

l. Cross check with the list of shareholders of a closely held company and the shareholding pattern disclosed by a public listed company;

m. In case of listed companies, examine the disclosures made by the company under SEBI requirements in respect of group companies and promoter group details of the company;

n. Also examine any other disclosures made under other regulatory requirements;

o. Check returns of income and assessment records of past years to check if any issues in respect of section 40A(2), 80A(6), 80IA (8) or 80IA (10) had arisen.



Item 4 (Part A)

Item 9 (Part A)

Item 21(Part C)

Item 22(Part C)

Item 23(Part C)

Item 24(Part C)

Item 25(Part C)


Item 22 : Related Party Expenditure (Section 40A(2))

a. Identify the 40A(2) parties out of the list of AEs furnished and examined as above with the help of the chart set out at Appendix 5;

b. Get the details of each of the transactions covered u/s. 40A(2) like the nature of goods and services involved, quantum and value of each transaction (required under Rule 10D(1)(d));

c. Cross check with the tax audit report;d. Examine the contracts and the terms and conditions of such

transactions (required under Rule 10D(1)(d));e. Get a complete log of the functions performed, risks assumed and

assets employed by the assessee and by the AEs in each of the transactions so as to be able to carry out a proper TP analysis (required under Rule 10D(1)(e)), Also examine the contracts referred to in (d) above for this;


Item 22 : Related Party Expenditure (Section 40A(2))

f. Verify the transactions reported from the invoices and other documentary evidences relating thereto (may be on a test check basis);

g. Ensure the maintenance of the necessary documentation for enabling the TP study, either from TP Study report and/or independently (Rule 10D (1) (f) to Rule 10D (1) (m));

h. Review the documentation keeping in view the illustrative list provided in Rule 10D(3). See Appendix 2.



Item 4 (Part A)

Item 9 (Part A)

Item 21(Part C)

Item 22(Part C)

Item 23(Part C)

Item 24(Part C)

Item 25(Part C)


Item 23 : Inter unit transfer of goods and services (Section 80IA(8))

a. Cross check with Audit Report in Form 10CCB;b. Peruse the accounts maintained in respect of the eligible unit or

undertaking;c. Cross check the inter unit transfers in the stock records including the

summary stated in the tax audit report or in the back up workings in respect thereof in case of stock transfers;

d. Peruse the documentation like challans, proforma invoices, excise records, gate passes, employee log books, etc. for verification of inter unit transfers of goods and services;

e. Ensure that allocation of common head office or other expenses have been done, preferably supported by a cost accountant certificate relating to the appropriateness of allocation keys based on cost accounting principles;

f. Examine all TP documentation as enumerated in relation to item 22 above.



Item 4 (Part A)

Item 9 (Part A)

Item 21(Part C)

Item 22(Part C)

Item 23(Part C)

Item 24(Part C)

Item 25(Part C)


Item 24 : Inter AE transfer of goods and services (Section 80IA(10))

a. The practitioner may choose to mention a disclaimer note so as to convey that the section talks of “close connection or any other reason” while the Form talks of “AEs”. In absence of specific definition of “close connection” the reporting is restricted to persons referred to in section 40A(2) only;

b. All other check points as mentioned in relation to item 22 and 23 above may be kept in view.



Item 4 (Part A)

Item 9 (Part A)

Item 21(Part C)

Item 22(Part C)

Item 23(Part C)

Item 24(Part C)

Item 25(Part C)


Item 25 : Any other SDTs

a. The item may have to be filled in only after any other transactions are introduced within the meaning of SDTs by virtue of the powers vested in the CBDT under Section 92BA(vi). Till such time, this portion may have to be marked as “Not Applicable”.

THANK YOU

Keep