India's Central Board of Direct Taxes (CBDT) issued Instruction No.3 of 2016 on March 10, (New Guidance) to provide guidance to Assessing Officers in selecting cases for transfer pricing (TP) audits in relation to international transactions and specified domestic transactions. The CBDT had earlier replaced Instruction No.3 of 2003 (under which the selection of cases was based on a monetary threshold of the value of the international transactions entered into during a particular tax year) and issued Instruction No.15 of 2015 (Updated Guidance) in October 2015 for selection of cases for TP audits on the basis of risk parameters. However, based on suggestions received from stakeholders, the New Guidance has been issued. While the New Guidance re-affirms that cases would be selected for audits based on "TP risk parameters" under the Computer Assisted Scrutiny Selection system, it also indicates circumstances under which cases would also be selected for audits manually. The New Guidance also clarifies that the primary responsibility for undertaking TP audits is that of specialized Transfer Pricing Officers.

A Tax Alert prepared by Ernst & Young India, and attached below, provides additional details.

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