By CA Surekha S Ahuja
The Hidden Governance Risk Behind Form 3CEAA and Master File Filings
One of the most dangerous assumptions in Indian transfer pricing compliance is the belief that “our CA will take care of everything.”
This assumption is not only incorrect — it is statutorily fatal.
Under the Income-tax Act, 1961, key transfer pricing disclosures are required to be made by the entity itself, not by a Chartered Accountant. Yet, the penal consequences attach automatically to the entity, even when senior management claims ignorance.
The Statutory Architecture Most Management Teams Miss
Dual-layer compliance framework under Indian TP law
The law consciously separates certification from governance disclosure:
-
Section 92E read with Rule 10E
→ Requires Form 3CEB, certified by a Chartered Accountant -
Section 92D read with Rule 10DA & Rule 10DB
→ Requires Master File (Form 3CEAA) and CbCR-related filings, to be filed by the entity itself
This separation is deliberate.
The legislature treats:
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Arm’s length pricing as a professional certification issue
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Group structure, intangibles, inter-company arrangements, and value creation as management-level disclosures
Why “We Didn’t Know” Has No Legal Standing
Form 3CEAA is not a CA-certified form
Form 3CEAA (Master File):
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Is filed electronically by the entity
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Uses the entity’s PAN and DSC
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Does not require CA certification
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Is governed by Rule 10DA of the Income-tax Rules, 1962
Legally, it is a self-declaration of group facts, not an audit document.
Strict liability penalty regime applies
Section 271GB imposes penalties for:
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Failure to furnish Master File
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Furnishing incomplete or inaccurate information
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Failure to furnish information within prescribed time
Mens rea (intent) is irrelevant.
Ignorance, internal miscommunication, or advisor oversight do not constitute reasonable cause.
Exact Penal Consequences — No Discretion, No Warnings
Penalty structure under Section 271GB
| Nature of default | Penalty |
|---|---|
| Failure to furnish Master File (Form 3CEAA) | ₹5,00,000 |
| Failure to furnish information or documents | ₹5,000 per day |
| Continued failure after notice | ₹50,000 per day |
| Furnishing inaccurate information | ₹5,00,000 |
These penalties:
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Are mechanical
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Are often system-detected
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Can be initiated years later during assessment or risk review
Why the Law Places Responsibility on Directors, CEO & CFO
OECD BEPS Action 13 alignment
India’s Master File and CbCR regime is aligned with OECD BEPS Action 13, which treats:
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Group structure
-
DEMPE functions
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Financing arrangements
-
Intangible ownership
as strategic governance information, not accounting data.
Therefore, the law assumes:
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Management knowledge
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Board-level oversight
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Internal control responsibility
A Chartered Accountant can certify pricing —
but cannot assume responsibility for facts that only management controls.
The Most Common Failure Pattern (Ground Reality)
In practice, non-compliance usually arises because:
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CFO believed turnover threshold applies universally
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CEO was unaware that even one foreign AE transaction triggers Part A
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Directors assumed 3CEB filing covers everything
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Reimbursements or cost allocations were not treated as TP transactions
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No one internally “owned” Form 3CEAA
These are governance failures, not tax calculation errors.
Can Anything Be Done If the Deadline Is Missed?
Late compliance — limited but critical options
The law does not provide automatic condonation, but the following actions can materially reduce exposure:
Immediate corrective filing
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File pending Form 3CEAA before detection
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Demonstrates bona fide intent
Section 273B defence (limited scope)
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Reasonable cause can be argued only in exceptional cases
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Requires strong documentation (system failure, regulatory ambiguity)
Penalty mitigation strategy
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Respond comprehensively to notice under Section 271GB
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Demonstrate absence of inaccurate reporting
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Seek penalty restriction to minimum slab
Important:
Once a system-generated notice is issued, damage control replaces compliance.
Who Is Legally Responsible — Clarity for Boards
| Role | Legal Exposure |
|---|---|
| Board of Directors | Ultimate statutory responsibility |
| CEO | Group disclosures, structure accuracy |
| CFO / Finance Head | Transaction identification & filings |
| CA | Certification under Section 92E only |
A CA cannot file Form 3CEAA on behalf of management,
but penalties still fall on the entity.
Governance Safeguards Every Organisation Must Implement
Non-negotiable best practices
-
TP Trigger at Payment Stage
Any foreign payment → TP review triggered automatically -
Explicit Internal Ownership
One designated officer responsible for Master File & CbCR -
Quarterly TP Governance Note to Board
Not an annual post-mortem exercise -
Advisor ≠ Owner
External professionals advise; management remains accountable
The Hard but Necessary Truth
Transfer Pricing compliance is no longer a tax formality.
It is a board-level governance obligation.
Organisations that fail to internalize this will continue to face:
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Automatic penalties
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Retrospective notices
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Audit red flags
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Investor discomfort
Final Professional Takeaway
If a Director, CEO, or CFO does not know that:
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Form 3CEAA is mandatory
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It must be filed by the entity
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Penalties are strict and daily
then the organisation is already exposed, even if Form 3CEB is perfectly filed.
