Income Tax 2025

Appearance

Effect to advance pricing agreement. ​

169(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.

169(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.

169(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,––

  • (a) if such proceedings have been completed, 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.

169(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 limitation as provided in section 275 or 286 or section 296 for completion of pending assessment or reassessment proceedings shall be extended by twelve months.

169(5) ​

In 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.
Explanation

Section Summary: ​

Section 169 of the Income Tax Act deals with the effect of an Advance Pricing Agreement (APA) on income tax returns and assessments. An APA is an agreement between a taxpayer and the tax authority (CBDT in India) that determines the transfer pricing methodology for international transactions in advance, providing certainty to taxpayers. This section outlines the process for filing a modified return when an APA is entered into after the original return has been filed, and how it impacts ongoing or completed assessments.

Key Changes: ​

  1. Modified Return Requirement: Taxpayers must file a modified return within three months from the end of the month in which the APA is entered into, if the original return was filed before the APA.
  2. Impact on Assessments: If assessment or reassessment proceedings are ongoing or completed, the Assessing Officer must modify the total income as per the APA.
  3. Extended Time Limits: The time limit for completing assessments or reassessments is extended by 12 months if a modified return is filed during pending proceedings.

Practical Implications: ​

  1. For Taxpayers:
    • Taxpayers who have entered into an APA must ensure timely filing of a modified return to reflect the agreed-upon transfer pricing methodology.
    • This provides certainty and avoids disputes related to transfer pricing adjustments.
  2. For Assessing Officers:
    • Officers must adjust assessments or reassessments based on the modified return and the APA terms.
    • The timeline for completing assessments is extended to accommodate the modified return.
  3. For Businesses:
    • Businesses with international transactions benefit from reduced litigation risk and clarity on transfer pricing methods.
    • Compliance burden increases slightly due to the need to file a modified return.

Critical Concepts: ​

  1. Advance Pricing Agreement (APA): A pre-determined agreement between the taxpayer and tax authorities on the transfer pricing methodology for international transactions.
  2. Modified Return: A revised return filed to align with the terms of the APA.
  3. Assessment/Reassessment: The process of determining taxable income by the tax authorities.
  4. Section 275, 286, 296: These sections deal with time limits for completing assessments, reassessments, and other proceedings. Section 169 overrides these limits in specific cases.

Compliance Steps: ​

  1. Identify APA Applicability: Determine if the APA applies to the tax years for which returns have already been filed.
  2. File Modified Return: Submit a modified return within three months from the end of the month in which the APA is entered into.
  3. Communicate with Assessing Officer: If assessments are pending or completed, ensure the officer is aware of the APA and modified return.
  4. Monitor Timelines: Be aware of the extended timelines for assessments (12 months) if a modified return is filed during pending proceedings.

Examples: ​

  1. Scenario 1: A company files its income tax return for FY 2022-23 in July 2023. In December 2023, it enters into an APA with the tax authorities. The company must file a modified return by March 2024 (three months from December 2023) to reflect the APA terms.
  2. Scenario 2: A company is under reassessment for FY 2021-22 when it enters into an APA in January 2024. The company files a modified return in February 2024. The Assessing Officer must complete the reassessment by March 2025 (12 months extension from the original deadline).

This section ensures that APAs are effectively implemented and provides clarity on the procedural steps for taxpayers and tax authorities.