Rules 113 to 117 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Rules 113 to 117 of the Income-tax Rules, 2026 govern an advance pricing agreement after signature: an annual compliance report in Form No. 52 due within thirty days of the return due date or ninety days of signing, whichever is later; a compliance audit by the Transfer Pricing Officer within six months of receiving it; revision under rule 115; cancellation under rule 116; and the modified return that gives effect to a rollback under rule 117.
Rule 113 — the annual compliance report
| Point | Requirement |
|---|---|
| Form | Form No. 52 |
| To whom | The Principal Chief Commissioner of Income-tax (International Taxation) |
| For which years | Each year covered in the agreement |
| Deadline | Within thirty days of the due date of filing the income-tax return for that year, or within ninety days of entering into the agreement, whichever is later |
| Distribution | The Principal Chief Commissioner sends one copy each to the competent authority of India, the Commissioner having jurisdiction over the assessment, and the Transfer Pricing Officer having jurisdiction |
An advance pricing agreement is commonly signed after several covered years have already passed their return due dates. Without the ninety-day limb, the reports for those years would be late on the day the agreement was signed. The rule gives ninety days from signing to file all of them. That is a real but short window, and it applies to every back year at once — so the reports should be drafted while the agreement is being finalised, not after.
Timeliness here is not a formality. Rule 116(1)(b) makes failure to file the annual compliance report in time a ground for cancelling the agreement, and rule 116(1)(c) does the same for a report containing material errors.
Rule 114 — the compliance audit
- The Transfer Pricing Officer having jurisdiction over the assessee carries out the compliance audit of the agreement for each year covered.
- He may require the assessee to substantiate compliance with the terms of the agreement, including satisfaction of the critical assumptions, correctness of the supporting data or information, and consistency of the application of the transfer pricing method; and to submit any information or document establishing compliance.
- He submits the compliance audit report for each covered year to the Principal Chief Commissioner (International Taxation) for a unilateral agreement, or to the competent authority of India for a bilateral or multilateral one, with his findings.
- The Principal Chief Commissioner forwards the report to the Board where there is a finding of failure and cancellation is required.
- The report is furnished within six months from the end of the month in which the annual compliance report is received.
Sub-rule (6) — the benefit the whole process is for
"The regular audit of the covered transactions shall not be undertaken by the Transfer Pricing Officer, if an agreement has been entered into under rule 109, except where the agreement has been cancelled under rule 116."
This is the payoff. Covered transactions are removed from regular transfer pricing audit and replaced by a compliance audit that checks adherence to the agreement rather than re-examining the pricing. It also explains why cancellation is so consequential: the exemption in sub-rule (6) is expressly lost on cancellation, and the covered years return to regular audit.
Rule 115 — revision
The three grounds — sub-rule (1)
- (a) a change in critical assumptions or failure to meet a condition subject to which the agreement was entered into;
- (b) a change in law that modifies any matter covered by the agreement but is not of a nature which renders the agreement non-binding; or
- (c) a request from the competent authority of the other country, in a bilateral or multilateral agreement.
Who may initiate, and the consent requirement
| Sub-rule | Rule |
|---|---|
| (2) | The Board may revise suo motu, or on the request of the assessee, the competent authority of India, or the Principal Chief Commissioner (International Taxation) |
| (3) | Except where revision is on the assessee's own request, the agreement shall not be revised unless the assessee has been heard AND is in agreement with the proposed revision |
| (4) | Where the assessee does not agree, the agreement may be cancelled under rule 116 |
| (5) | Where the Board does not agree with the assessee's request, it rejects it in writing giving reasons |
| (6) | The rule 109 procedure may be followed, so far as applicable, to arrive at the revised agreement |
| (7) | The revised agreement shall include the date till which the original agreement applies and the date from which the revised agreement applies |
Sub-rule (3) gives the assessee a genuine veto: a revision it does not accept cannot be imposed. Sub-rule (4) then supplies the consequence — the agreement may be cancelled instead. So the real choice on an unwelcome revision is between accepting revised terms and losing the agreement altogether, with the covered years returning to regular audit under rule 114(6). It is a negotiation, not a right of refusal without consequence.
Rule 116 — cancellation
The four grounds — sub-rule (1)
- (a) the compliance audit under rule 114 has resulted in a finding of failure to comply with the terms of the agreement;
- (b) the assessee has failed to file the annual compliance report in time;
- (c) the annual compliance report furnished contains material errors; or
- (d) the agreement is to be cancelled under rule 115(4) (assessee not in agreement with a revision) or rule 117(7) (effect cannot be given to a rollback through the applicant's failure).
The process — sub-rules (2) to (7)
- A reasonable opportunity of being heard is given before cancellation.
- For a bilateral or multilateral agreement, the competent authority of India communicates with the other competent authority or authorities and provides reasons for the proposed cancellation.
- The order of cancellation is in writing, gives reasons for cancellation and for non-acceptance of the assessee's submissions, and specifies the effective date where applicable.
- An order under section 168(7) declaring the agreement void ab initio on account of fraud or misrepresentation of facts is likewise in writing with reasons.
- The cancellation order is intimated to the Assessing Officer and the Transfer Pricing Officer having jurisdiction.
Note the difference between the two outcomes. Cancellation has an effective date and ends the agreement prospectively from it. A declaration under section 168(7) that the agreement is void ab initio treats it as never having existed — reserved for fraud or misrepresentation of facts.
Rule 117 — giving effect to a rollback
| Sub-rule | Step |
|---|---|
| (2) | The applicant furnishes a modified return of income under section 169 for each rollback year, with proof of payment of any additional tax arising as a consequence of and computed in accordance with the rollback provision |
| (3) | That modified return is furnished along with the modified return for the first of the tax years for which the agreement was requested |
| (4) | Any appeal filed by the applicant pending before the Commissioner (Appeals), Appellate Tribunal or High Court for a rollback year on an issue that is the subject matter of the rollback shall be withdrawn, to the extent covered by the agreement, BEFORE furnishing the modified return for that year |
| (5) | Any appeal filed by the Assessing Officer or the Commissioner pending before the Appellate Tribunal or High Court on such an issue shall be withdrawn within three months of the applicant filing the modified return |
| (6) | The applicant, Assessing Officer or Commissioner shall inform the Dispute Resolution Panel, Commissioner (Appeals), Appellate Tribunal or High Court of the agreement containing the rollback provision, with a copy, as soon as practicable |
| (7) | Where effect cannot be given to the rollback provision for any rollback year on account of failure on the part of the applicant, the agreement shall be cancelled |
If the applicant's own failure prevents effect being given to the rollback for any rollback year — a modified return not filed, an appeal not withdrawn, additional tax not paid — the agreement is cancelled. Not the rollback provision; the agreement. Anyone taking rollback should treat the sub-rule (2) to (4) steps as conditions of keeping the forward-looking certainty they paid Rs 20 lakh for, and sequence the appeal withdrawal before the modified return, as sub-rule (4) requires.
The post-signature calendar
- On signing — withdraw applicant appeals on rollback issues (rule 117(4)); inform the appellate forums (rule 117(6)).
- With the first covered year's modified return — file the rollback modified returns and pay the additional tax (rule 117(2) and (3)).
- Within ninety days of signing, or thirty days after each return due date, whichever is later — file Form No. 52 for every covered year (rule 113(3)).
- Within three months of the modified return — the department withdraws its own appeals (rule 117(5)).
- Within six months of each Form No. 52 — the Transfer Pricing Officer files the compliance audit report (rule 114(5)).
- Continuously — monitor critical assumptions and notify changes under rule 110(5).
Compliance checklist
- Draft the Form No. 52 reports for back years while the agreement is being finalised — ninety days from signing goes quickly.
- Treat the report deadline as a cancellation risk, not an administrative one.
- Check the report for material errors before filing; rule 116(1)(c) is a cancellation ground.
- Maintain evidence that critical assumptions held and that the method was applied consistently — that is what the compliance audit tests.
- On a proposed revision, weigh acceptance against cancellation, including the loss of the rule 114(6) audit exemption.
- For rollback, withdraw applicant appeals before filing the modified return, and file all rollback modified returns together with the first covered year's.
- Pay the additional tax and attach proof with each modified return.
- Inform every appellate forum holding a covered issue, with a copy of the agreement.
Common mistakes
- Missing the ninety-day window for back-year compliance reports after signing.
- Filing the modified return before withdrawing the appeal.
- Filing rollback modified returns separately from the first covered year's.
- Assuming a rollback failure only affects that year. Rule 117(7) cancels the agreement.
- Refusing a revision without pricing in cancellation.
- Treating the compliance audit as a re-run of the pricing analysis rather than a test of adherence.
- Not notifying appellate forums of the agreement.