ADVANCE PRICING AGREEMENT (S. 92CC & 92CD)
BY ANSHUL SEHGAL & ARJUN NIHAL SINGH
Sections 92CC and 92CD  read with Rules 10F to 10T and 44GA under the Income Tax Rules, 1962  were introduced in the Finance Act, 2012 have been inserted in the Income Tax Act, 1962  to provide the Advance Pricing Agreement  Regime in the Indian transfer pricing environment.
The relevant provisions of the Income Tax Act, 1962 are read as follows:-
1.1. SECTION 92CC – ADVANCE PRICING AGREEMENT
1) The Board, with the approval of the Central Government, may enter into an advance pricing agreement with any person, determining the arm™s length price or specifying the manner in which the arm™s length price is to be determined, in relation to an international transaction to be entered into by that person.
2) The manner of determination of arm™s length price referred to in sub-section (1), may include the methods referred to in sub-section (1) of section 92C or any other method, with such adjustments or variations, as may be necessary or expedient so to do.
3) Notwithstanding anything contained in section 92C or section 92CA, the arm™s length price of any international transaction, in respect of which the advance pricing agreement has been entered into, shall be determined in accordance with the advance pricing agreement so entered.
4) The agreement referred to in sub-section (1) shall be valid for such period not exceeding five consecutive previous years as may be specified in the agreement.
5) The advance pricing agreement entered into shall be binding”
(a.) on the person in whose case, and in respect of the transaction in relation to which, the agreement has been entered into ; and
(b.) on the Commissioner, and the income-tax authorities subordinate to him, in respect of the said person and the said transaction.
6) The agreement referred to in sub-section (1) shall not be binding if there is a change in law or facts having bearing on the agreement so entered.
7) The Board may, with the approval of the Central Government, by an order, declare an agreement to be void abinitio, if it finds that the agreement has been obtained by the person by fraud or misrepresentation of facts.
8) Upon declaring the agreement void ab initio,”
(a.) all the provisions of the Act shall apply to the person as if such agreement had never been entered into ; and
(b.) notwithstanding anything contained in the Act, for the purpose of computing any period of limitation under this Act, the period beginning with the date of such agreement and ending on the date of order under sub-section (7) shall be excluded :
Provided that where immediately after the exclusion of the aforesaid period, the period of limitation, referred to in any provision of this Act, is less than sixty days, such remaining period shall be extended to sixty days and the aforesaid period of limitation shall be deemed to be extended accordingly.
9) The Board may, for the purposes of this section, prescribe a scheme specifying therein the manner, form, procedure and any other matter generally in respect of the advance pricing agreement.
10) Where an application is made by a person for entering into an agreement referred to in sub-section (1), the proceeding shall be deemed to be pending in the case of the person for the purposes of the Act.
1.2. Section 92CD – Effect to advance pricing agreement
1) Notwithstanding anything to the contrary contained in section 139, where any person has entered into an agreement and prior to the date of entering into the agreement, any return of income has been furnished under the provisions of section 139 for any assessment year relevant to a previous year to which such agreement applies, such person shall furnish, within a period of three months from the end of the month in which the said agreement was entered into, a modified return in accordance with and limited to the agreement.
2) Save as otherwise provided in this section, all other provisions of this Act shall apply accordingly as if the modified return is a return furnished under section 139.
3) If the assessment or reassessment proceedings for an assessment year relevant to a previous year to which the agreement applies have been completed before the expiry of period allowed for furnishing of modified return under sub-section (1), the Assessing Officer shall, in a case where modified return is filed in accordance with the provisions of sub-section (1), proceed to assess or reassess or recompute the total income of the relevant assessment year having regard to and in accordance with the agreement.
4) Where the assessment or reassessment proceedings for an assessment year relevant to the previous year to which the agreement applies are pending on the date of filing of modified return in accordance with the provisions of sub-section (1), the Assessing Officer shall proceed to complete the assessment or reassessment proceedings in accordance with the agreement taking into consideration the modified return so furnished.
5) Notwithstanding anything contained in section 153 or section 153B or section 144C,”
(a.) the order of assessment, reassessment or recomputation of total income under sub-section (3) shall be passed within a period of one year from the end of the financial year in which the modified return under sub-section (1) is furnished ;
(b.) the period of limitation as provided in section 153 or section 153B or section 144C for completion of pending assessment or reassessment proceedings referred to in sub-section (4) shall be extended by a period of twelve months.
6) For the purposes of this section,”
(a.) “agreement” means an agreement referred to in sub-section (1) of section 92CC ;
(b.) the assessment or reassessment proceedings for an assessment 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 sub-section (2) of section 143 till the expiry of the limitation period provided under the said section.
2. MEANING OF APA
An APA is an agreement between the taxpayer and the tax authority on the pricing of future intercompany transactions. The taxpayer and tax authority mutually agree on the transfer pricing methodology (˜TPM™) to be applied and its application for a certain future period of time for covered transactions (subject to fulfillment of critical assumptions.
APA is an effective tool used in several countries with established transfer pricing regimes to avoid potential disputes in a cooperative manner.
APA is an arrangement that determines, in advance of controlled transactions, an appropriate set of criteria (e.g., method, comparables and appropriate adjustments thereto, critical assumptions as of future events) for the determination of the transfer pricing for those transactions over a fixed period of time.  An APA is formally initiated by a taxpayer and requires negotiations between the taxpayer, one or more associated enterprises, and one or more tax administrations. APAs are intended to supplement the traditional administrative, judicial and treaty mechanisms for resolving transfer pricing issues. They may be most useful when traditional mechanisms fail or are difficult to apply. The success of the APA programmes depend on the care taken in determining the proper degree of specificity of the arrangement based on critical assumptions, the proper administration of the programme, and the presence of adequate safeguards to avoid the pitfalls described in the OECD Report, in addition to the flexibility and openness with which all parties approach the process. The OECD report  states that There are some continuing issues regarding the form and scope of APAs that require greater experience for full resolution and agreement among member countries such as the question of unilateral APAs. While it is too early to make a final recommendation whether the expansion of such programmes should be encouraged, it seems likely that in certain circumstances they will aid in resolving transfer pricing disputes. The committee on Fiscal Affairs intends to monitor carefully and expanded use of APAs and to promote greater consistency in practice among those countries that chose to use them.
2.1. TYPES OF APAs 
An APA may be unilateral, bilateral or multilateral, as explained below:
- UNILATERAL APA entered into between a taxpayer and the tax administration of the country where it is subject to taxation
- BILATERAL APA entered into between the taxpayers, the tax administration of the host country and the foreign tax administration.
- MULTILATERAL – APA entered between the taxpayers, the tax administration of the host country and more than one foreign tax administrations.
The Indian APA rules allow for all the three types of APAs.