Revising or Cancelling an APA — The Complete Process Explained

Once an Advance Pricing Agreement is in place, circumstances may change that require revision or cancellation of the agreement. The Income Tax Act, 2025 provides a clear framework for both revision and cancellation. Understanding this process is essential for taxpayers to manage their APA effectively.

Revision of an APA

Grounds for Revision

An agreement may be revised if:

1. Change in Critical Assumptions: There is a change in critical assumptions or failure to meet a condition subject to which the agreement has been entered into

2. Change in Law: There is a change in law that modifies any matter covered by the agreement but is not of the nature which renders the agreement to be non-binding

3. Request from Competent Authority: There is a request from competent authority of the other country requesting revision of agreement, in case of bilateral or multilateral agreement

Who Can Initiate Revision

The agreement may be revised by the Board:

• Suo motu
• On request of the assessee
• On request of the competent authority of India
• On request of the Principal Chief Commissioner of Income-tax (International Taxation)

Revision Procedure

Opportunity of Hearing: Except when the agreement is proposed to be revised on the request of the assessee, the agreement shall not be revised unless an opportunity of being heard has been provided to the assessee.

Assessee's Agreement: If the assessee is not in agreement with the proposed revision, the agreement may be cancelled.

Board's Rejection: If the Board is not in agreement with the request of the assessee for revision of the agreement, the Board shall reject the request in writing giving reason for such rejection.

Procedure: For the purpose of arriving at the agreement for the proposed revision, the procedure provided for the original APA application may be followed.

Effective Date

The revised agreement shall include:

• The date till which the original agreement is to apply
• The date from which the revised agreement is to apply

Cancellation of an APA

Grounds for Cancellation

An agreement may be cancelled for any of the following reasons:

1. Compliance Audit Failure: The compliance audit has resulted in the finding of failure on the part of the assessee to comply with the terms of the agreement

2. Failure to File Report: The assessee has failed to file the annual compliance report in time

3. Material Errors: The annual compliance report furnished by the assessee contains material errors

4. Revision Disagreement: The agreement is to be cancelled under the revision procedure

Cancellation Procedure

Opportunity of Hearing: The Board shall give a reasonable opportunity of being heard to the assessee before proceeding to cancel an application.

Communication with Competent Authority: The competent authority of India shall communicate with the competent authority of the other country or countries and provide reason for the proposed cancellation of the agreement in case of bilateral or multilateral agreement.

Order of Cancellation: The order of cancellation of the agreement shall be in writing and shall provide:

• Reasons for cancellation
• Reasons for non-acceptance of submission of the assessee, if any

Effective Date: The order of cancellation shall also specify the effective date of cancellation of the agreement, where applicable.

Void ab Initio Cancellation

Section 168(7)

The Board may, by an order, declare an agreement to be void ab initio if it finds that the agreement has been obtained by the person by fraud or misrepresentation of facts.

Consequences

Upon declaring the agreement void ab initio:

• All provisions of the Act apply as if such agreement had never been entered into
• The period beginning with the date of such agreement and ending on the date of the order is excluded for computing any period of limitation
• If immediately after exclusion, the period of limitation is less than sixty days, it is extended to sixty days

Communication of Cancellation

Intimation

The order of cancellation shall be intimated to:

• The Assessing Officer
• The Transfer Pricing Officer, having jurisdiction over the assessee

Consequences of Cancellation

For the Assessee

• The agreement no longer applies
• Transactions revert to regular transfer pricing rules
• Potential exposure to transfer pricing adjustments

For Tax Authorities

• The ability to audit the transactions
• Potential for reopening assessments

Expert Legal Guidance

Understanding the revision and cancellation process is essential for taxpayers with APAs. Anuj Desai & Associates provides expert advisory services on APA compliance, helping taxpayers manage revisions, avoid cancellation, and respond to cancellation proceedings.

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