Check list of Documentation

Report
Importance of
Documentation
&
Practitioners’
Checklist
Dinesh R. Shah & Co.
Chartered Accountants
Ahmedabad
Accountant’s Report including
Practitioners’ Checklist
Confirmation letter from client
about factual data
Checklist for carrying
out Audit
Questionnaire to be
sent to the client
 Check
List of Documentation [ Rule 10D]
 Questionnaire
 Check
to be sent to the Client
List for Carrying out the Audit
 Confirmation
Letter
from
Client
about
Factual Data
 Accountant’s
Checklist
Report including Practitioners’

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

Rule 10D provides 13 items of mandatory documentation and
additional 7 items as supporting documentation

These can be broadly classified into 3 types:
Enterprisewise
documents

Transaction
specific
documents
Documents retained for period of 8 Years
Computation
related
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.

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

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.

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 intercompany 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

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

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

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.

Identification of International/Domestic Transaction

Nature of Transactions
Identification
Nature
Availability
Reliability
and Accuracy

Availability of Comparables in the market

Reliability and accuracy of data for comparables
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.

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.
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.

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.

Compile and furnish details of international
transactions for reporting in form 3CEB

Ensure Completeness of
International transactions

Ensure Completeness of the list of AE's

Compute the ALP and select the MAM
the
listing
of
3 Parts
 Part
A – General Information
 Part
B – International transactions
 Part
C – Specified Domestic transactions
Practitioners’ Checklist
Item 1,2,3
and 5 (Part A)
Item 4
(Part A)
Item 9
(Part A)
Item 23
(Part C)
Item 22
(Part C)
Item 21
(Part C)
Item 24
(Part C)
Item 25
(Part C)
Practitioners’ Checklist….
Item 1,2,3
and 5 (Part A)
Item 4
(Part A)
Item 9
(Part A)
Item 23
(Part C)
Item 22
(Part C)
Item 21
(Part C)
Item 24
(Part C)
Item 25
(Part C)
Practitioners’ Checklist….
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.
Practitioners’ Checklist….
Item 1,2,3
and 5 (Part A)
Item 4
(Part A)
Item 9
(Part A)
Item 23
(Part C)
Item 22
(Part C)
Item 21
(Part C)
Item 24
(Part C)
Item 25
(Part C)
Practitioners’ Checklist….
Item 4 : Nature of business or activities of the assessee
a.
b.
c.
d.
e.
f.
g.
h.
Code for nature of business to be filled in as per instructions for filling
form ITR ;
Cross check with the relevant column in the tax audit report;
Cross check with the disclosure in the audited accounts as regards
segment reporting;
Peruse the Directors’ Report for description of the business activities
of the assessee;
Cross check with the relevant column in the return of income;
Peruse the DTP Study Report for the description of the business
mentioned therein;
Peruse the Company’s Memorandum of Association or a firm’s
partnership deed;
Make sure that the businesses of the eligible units are also
mentioned, even though the units are captive in nature.
Practitioners’ Checklist….
Item 1,2,3
and 5 (Part A)
Item 4
(Part A)
Item 9
(Part A)
Item 23
(Part C)
Item 22
(Part C)
Item 21
(Part C)
Item 24
(Part C)
Item 25
(Part C)
Practitioners’ Checklist….
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.
Practitioners’ Checklist….
Item 1,2,3
and 5 (Part A)
Item 4
(Part A)
Item 9
(Part A)
Item 23
(Part C)
Item 22
(Part C)
Item 21
(Part C)
Item 24
(Part C)
Item 25
(Part C)
Practitioners’ Checklist….
Item 21:List of associated enterprise with whom the
assessee has entered into specified domestic
transactions
a.
b.
c.
d.
List of ownership structure of the assessee (required under Rule
10D(1)(a);
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));
Get the completed list of AEs with whom the assessee has entered
into SDTs;
Cross check with the ledger accounts of all AEs gathered in (a) above
to make sure that the list provided in (c) is exhaustive;
Practitioners’ Checklist….
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;
Practitioners’ Checklist….
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.
Practitioners’ Checklist….
Item 1,2,3
and 5 (Part A)
Item 4
(Part A)
Item 9
(Part A)
Item 23
(Part C)
Item 22
(Part C)
Item 21
(Part C)
Item 24
(Part C)
Item 25
(Part C)
Practitioners’ Checklist….
Item 22 : Related Party Expenditure (Section 40A(2))
a.
b.
c.
d.
e.
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;
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));
Cross check with the tax audit report;
Examine the contracts and the terms and conditions of such
transactions (required under Rule 10D(1)(d));
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;
Practitioners’ Checklist….
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.
Practitioners’ Checklist….
Item 1,2,3
and 5 (Part A)
Item 4
(Part A)
Item 9
(Part A)
Item 23
(Part C)
Item 22
(Part C)
Item 21
(Part C)
Item 24
(Part C)
Item 25
(Part C)
Practitioners’ Checklist….
Item 23 : Inter unit transfer of goods and services
(Section 80IA(8))
a.
b.
c.
d.
e.
f.
Cross check with Audit Report in Form 10CCB;
Peruse the accounts maintained in respect of the eligible unit or
undertaking;
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;
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;
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;
Examine all TP documentation as enumerated in relation to item 22
above.
Practitioners’ Checklist
Item 1,2,3
and 5 (Part A)
Item 4
(Part A)
Item 9
(Part A)
Item 23
(Part C)
Item 22
(Part C)
Item 21
(Part C)
Item 24
(Part C)
Item 25
(Part C)
Practitioners’ Checklist….
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.
Practitioners’ Checklist
Item 1,2,3
and 5 (Part A)
Item 4
(Part A)
Item 9
(Part A)
Item 23
(Part C)
Item 22
(Part C)
Item 21
(Part C)
Item 24
(Part C)
Item 25
(Part C)
Practitioners’ Checklist….
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”.
Keep
THANK
YOU

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