Safe Harbour Rules - Immediate actions required - CBDT Instructions
IN order to apprise the CCIT(CCAs) about the provisions of Safe Harbour Rules as notified by the Board vide Notification No. on 18th September 2013, Chairperson, CBDT held a video conference with CCIT(CCAs) New Delhi, Mumbai, Kolkata, Bangalore, Ahmedabad, Hyderabad, Chennai, Pune, Chandigarh and DGIT (International Taxation) on 17th December at 10.30 am.
The CBDT Chairperson provided a summary of Rules 10TA to 10TG relating to Safe Harbour prescribed under Section 92CB of the Income-tax Act. It was informed by the Chairperson that Safe Harbour options in Form 3CEFA would have been filed by 30th November, 2013 and that all CCIT(CCAs) should ensure that the Assessing Officers (AOs) carefully verify and provide in writing to the Board the details of all Form 3CEFA received by them.
Safe Harbour option in Form 3CEFA would have been filed in paper format with the AOs, and should not be confused with Form 3CEB (detailing International Transactions) which is filed electronically. Under the Rules, the AO is required to examine the form and decide within 2 months from the end of the month in which the option was filed, whether to accept the Safe Harbour option or to make a reference to the TPO. If no action is taken within this period by the AO, the Safe Harbour option will be considered as having been accepted, and may then remain valid for 5 years.
For minor defects in Form 3CEFA the AO can provide an opportunity to the taxpayer to rectify the same. However, the statutory time limit of 2 months provided in Rule 10TE (14)(i) cannot be exceeded by the AO under any circumstances.
AO is required to verify the eligibility of the assessee and the international transactions. As per Rule 10 TF, Safe Harbour Rules will not apply to eligible international transactions entered into with an associated enterprise located in any country or territory notified under Section 94A, for example Cyprus, or in a no tax or low tax country or territory as defined in the Rules.
AO should take note of those cases where the taxpayer has opted for Safe Harbour but has reported rates or margins less than the Safe Harbour rates or margins. In such cases, the income is to be computed on the basis of the Safe Harbour rates or margins only.
CBDT Chairperson further emphasized that as stated clearly in the Rules, the Safe Harbour rates or margins specified therein are not to be considered as a benchmark by the AO or TPO in cases not covered by the Safe Harbour Rules. In cases where assessee has not opted for Safe Harbour or the option has not been found to be valid, and a regular transfer pricing audit is considered necessary, such transfer pricing audit will be carried out without regard to the Safe Harbour rates or margins.
CBDT Letter in F. No. 500/139/2012-FTD-I , Dated: December 20, 2013