My APA covers the year and I filed the modified return under s.92CD and offered the additional income - can the Assessing Officer reopen that year and re-examine whether I complied with the agreement?
The client is an Indian company running a captive software development centre in a special economic zone at Bengaluru, assessed by a circle under the international taxation charge. A unilateral advance pricing agreement with the CBDT was signed on 12 February 2024. It covers assessment years 2021-22 to 2025-26 and carries rollback for assessment years 2017-18 to 2020-21, and it fixes the arm's length price for the software development services segment at an operating margin of 17.5 per cent on operating cost, computed on a cost base defined in the agreement. Modified returns for all nine years went in on 9 February 2025. For AY 2023-24 the modified return offered additional income of Rs 8,64,00,000 to bring the segment to the agreed margin, and claimed the s.10AA deduction on the enhanced profit. On 14 July 2026 a notice under s.148A issued for AY 2023-24. The information relied on is an internal audit objection saying two things: that the s.10AA deduction on the additional income is barred by the proviso to s.92C(4), and that the company's allocation of common costs to the segment departs from the cost base in the agreement, so the agreed margin was not in fact achieved. No compliance audit under Rule 10-O has been taken up for the year. Separately, a TPO order under s.92CA(3) for AY 2026-27 - a year the agreement does not cover - proposes an adjustment benchmarked against the same 17.5 per cent.
Separate the notice into its two halves before answering either. The deduction point is an ordinary question of law that can be answered on the record and probably won. The cost-allocation point is not a merits question at all: it is an examination of whether the agreement was complied with, and that examination belongs to the Transfer Pricing Officer through the compliance audit and to nobody else. Answered as a merits argument it will be decided on merits; taken as a jurisdictional objection it may end the reassessment. Draft the reply so the jurisdictional objection comes first and is not diluted by the answer on the deduction.
Rule 10-O requires the assessee to furnish an annual compliance report, and Rule 10P places the compliance audit of the agreement with the Transfer Pricing Officer having jurisdiction over the assessee, for each year the agreement covers. The Delhi High Court held on 25 September 2025 that this is the only route by which the Department may question compliance: the assessment unit had no jurisdiction to examine APA compliance on its own or to make a reassessment on that footing, and an addition of Rs 106,47,00,730 fell with the reassessment. On these facts no audit has been taken up for AY 2023-24, and the officer's information is an audit objection about the cost base - a compliance question wearing the clothes of an escapement of income. Say that in terms in the s.148A reply, and ask in writing whether a Rule 10P audit has been initiated for the year and what it found.
Where the assessee computes the arm's length price itself pursuant to an agreement entered into with the Board, none of the conditions in s.92C(3) is satisfied, so s.92C(4) never comes into operation and its proviso never operates. A High Court so held in September 2025 and the bar was held not to touch the s.10AA exemption on income the assessee itself offered. A Bench put it more widely in June 2026: where an APA has been entered into between the Indian associated enterprise and the CBDT, that agreement governs the determination of the arm's length price for every year it covers and the price falls to be determined solely on the basis of the APA. The proviso is aimed at income by which the Assessing Officer enhances the declared total income; income offered in a modified return under the agreement is not such an enhancement. The Tribunal reached the same result for s.10A in 2019 and for income enhanced under a mutual agreement procedure resolution in 2020.
Once a modified return is filed under s.92CD it has to be treated as a return furnished under s.139, and a High Court held in June 2025 that the earlier return and the earlier assessment order lose their efficacy for all practical purposes, so a fresh assessment order is what has to be passed. That was said in setting aside a s.263 notice issued on the superseded order, but the reasoning matters here for a different reason: the thing on the record for AY 2023-24 is the modified return and the assessment made on it, and the information in the s.148A notice has to engage with that. An audit objection that reads the original return, the original margin and the original deduction has not identified any escapement, because those figures were displaced when the modified return went in. Attach the modified return, its acknowledgement and the order passed on it to the reply.
Since 1 April 2022 an audit objection is on the statutory list of what counts as information suggesting escapement, so arguing that an objection can never found a notice will fail and should not be attempted. What can be argued is that this objection is a view on a question of law taken on material already on the record, and that reassessment is a power to reassess and not a power to review - a fresh view on material already considered is a change of opinion and cannot support reopening. The agreement, the modified return and the segmental working were all before the officer when the assessment on the modified return was made. Prior approval of the specified authority is a condition of both the s.148A stage and the s.148 notice, and since 1 September 2024 the rank is Additional or Joint Commissioner or Director; ask for the approval and check the rank. Compute the s.149 outer date and the s.153 date separately, because they are different clocks.
Rollback under s.92CC(9A) and Rule 10MA is all four years or none: the applicant has to apply for all four or not apply at all, subject only to the transaction not existing in a year or the rollback conditions failing for that year. It is not available for a year in which the return was filed under s.139(4), nor where the Tribunal has finally decided the year. A notice touching a rollback year therefore has to be tested against a different set of conditions from a notice touching a covered year: if rollback failed for that year, the agreement does not fix the price for it at all and the ordinary Chapter X machinery revives, with the modified return filed for it left exposed. Read the agreement itself and confirm which of AY 2017-18 to AY 2020-21 actually carry rollback and which were dropped in the negotiation.
If the Board believes the agreement is not being complied with or that a critical assumption has changed, Rule 10Q allows it to revise the agreement on three grounds - a change in critical assumptions or a failure to meet a condition, a change in law that modifies a matter covered by the agreement, or a request from the competent authority of the other country - and Rule 10R allows cancellation, each with an opportunity to be heard. If it believes the agreement was obtained by fraud or misrepresentation of facts, s.92CC(7) allows it, with the Central Government's approval, to declare the agreement void ab initio, and s.92CC(8) then applies the Act as if the agreement had never been entered into. Saying this in the reply shows that the objection is about which authority exercises which power, not about escaping scrutiny, and it is the answer to the officer's inevitable point that the assessee wants a year no one may look at.
Section 92CC(4) caps an agreement at such period not exceeding five consecutive previous years as is specified in it, and s.92CC(3) gives it force only in respect of the years it covers; s.92CC(9A) extends it backwards through rollback and no further. The Pune Bench held in July 2026 that comparing the operating margin agreed in an agreement covering AY 2014-15 to AY 2018-19 with the actual margin earned in AY 2020-21, not a covered year, is inappropriate and against the provisions of the Act. The five-year term binds the Department as much as it binds the assessee. AY 2026-27 falls outside this agreement, the 17.5 per cent figure cannot be imported into it as a benchmark, and the year has to be tested on its own comparables under s.92C.
If the reassessment proceeds and any variation is proposed following a transfer pricing reference, the company is an eligible assessee and the officer must forward a draft order under s.144C before making it; skipping the draft order is treated as a jurisdictional failure that s.292B cannot cure, and thirty days then run to accept it or object before the Dispute Resolution Panel. Whether the s.144C periods run inside the s.153 limitation or on top of it is the largest open limitation question in transfer pricing, and a two-judge Bench of the Supreme Court delivered a split verdict on it in August 2025, one judge holding the s.144C timelines independent of s.153(3) and the other holding the whole procedure must finish inside it; the matter went to the Chief Justice. Compute both dates and take both grounds. On the demand, a Bench has stayed the balance where the year under appeal fell within a pending APA's rollback period, and another directed deletion and refund of the s.234B and s.234C interest charged on income that crystallised only on the agreement.
The deduction half is usually won. With High Courts now saying in terms that s.92C(3) is never attracted where the price comes from an APA and that the proviso to s.92C(4) therefore never operates, an officer pressing it is pressing against the current, and the s.10AA or Chapter VI-A claim on the offered income survives. The compliance half is less predictable. Where no Rule 10P audit has been taken up, the best outcome is that the reassessment is dropped or quashed for want of jurisdiction, and that has happened at High Court level; the commoner outcome is that a compliance audit is taken up and the same question comes back properly, which buys time rather than the point. The AY 2026-27 adjustment usually survives to the Panel and is then decided on comparability rather than on s.92CC(4). Very few of these are lost on the margin itself.
