TMI BlogIncome-tax (16th Amendment), Rules, 2015X X X X Extracts X X X X X X X X Extracts X X X X ..... roviso shall be inserted, namely:- Provided further that the first proviso shall not apply while analysing the comparability of an uncontrolled transaction with an international transaction or a specified domestic transaction, entered into on or after the 1st day of April, 2014. ; (ii) after sub-rule (4), the following sub-rule shall be inserted, namely:- (5) In a case where the most appropriate method for determination of the arm's length price of an international transaction or a specified domestic transaction, entered into on or after the 1st day of April, 2014, is the method specified in clause (b), clause (c) or clause (e) of sub-section (1) of section 92 C , then, notwithstanding anything contained in sub-rule (4), the data to be used for analysing the comparability of an uncontrolled transaction with an international transaction or a specified domestic transaction shall be,- (i) the data relating to the current year; or (ii) the data relating to the financial year immediately preceding the current year, if the data relating to the current year is not available at the time of furnishing the return of income by the assessee , for the assessment year rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and in the aforesaid period preceding it shall be included in the dataset instead of the price referred to in sub-rule (1): Provided further that in a case referred to in clause (ii) of sub-rule (5) of rule 10B, where the comparable uncontrolled transaction has been identified on the basis of the data relating to the financial year immediately preceding the current year and the enterprise undertaking the said uncontrolled transaction, [not being the enterprise undertaking the international transaction or the specified domestic transaction referred to in sub-rule (1)], has in the financial year immediately preceding the said financial year undertaken the same or similar comparable uncontrolled transaction then, - (i) the price in respect of such uncontrolled transaction shall be determined by applying the most appropriate method in a similar manner as it was applied to determine the price of the comparable uncontrolled transaction undertaken in the financial year immediately preceding the current year; and (ii) the weighted average of the prices, computed in accordance with the manner provided in sub-rule (3) , of the comparable uncontrolled transactions undertaken in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsists of six or more entries, an arm's length range beginning from the thirty-fifth percentile of the dataset and ending on the sixty-fifth percentile of the dataset shall be constructed and the arm's length price shall be computed in accordance with sub-rule(5) and sub-rule (6). (5) If the price at which the international transaction or the specified domestic transaction has actually been undertaken is within the range referred to in sub-rule (4), then, the price at which such international transaction or the specified domestic transaction has actually been undertaken shall be deemed to be the arm's length price. (6) If the price at which the international transaction or the specified domestic transaction has actually been undertaken is outside the arm's length range referred to in sub-rule (4), the arm's length price shall be taken to be the median of the dataset. (7) In a case where the provisions of sub-rule (4) are not applicable, the arm's length price shall be the arithmetical mean of all the values included in the dataset: Provided that, if the variation between the arm's length price so determined and price at which the internationa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar. The Profit level Indicator (PLI) used in applying the most appropriate method is operating profit as compared to operating cost (OP/OC). The weighted average shall be based upon the weight of OC as computed below: Sl. No. Name Year 1 Year 2 Year 3 [Current Year] Aggregation of OC and OP Weighted Average 1 2 3 4 5 6 7 1 A OC = 100 OP = 12 OC = 150 OP = 10 OC = 225 OP = 35 Total OC = 475 Total OP = 57 OP/OC = 12% 2 B OC = 80 OP = 10 OC = 125 OP = 5 OC = 100 OP = 10 Total OC = 305 Total OP = 25 OP/OC = 8.2% 3 C OC = 250 OP = 22 OC = 230 OP = 26 OC = 250 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g at 8.2% and ending at 10.57%. Therefore, if the transaction price of the international transaction or the specified domestic transaction has OP/OC percentage which is equal to or more than 8.2% and less than or equal to 10.57%, it is within the range. The transaction price in such cases will be deemed to be the arm's length price and no adjustment shall be required. However, if the transaction price is outside the arm's length range, say 6.2%, then for the purpose of determining the arm's length price the median of the dataset shall be first determined in the following manner: The data place of median is calculated by first computing the total number of data point in the data set * (50/100). In this case it is 7 * 0.5 = 3.5. Since this is not a whole number, the next higher data place, i.e; the value at the fourth place would have at least fifty percent. of the values below it (median). The median is the value at fourth place, i.e., 9%. Therefore, the arm's length price shall be considered as 9% and adjustment shall accordingly be made. IIIustration 2.- The data of the current year is available in respect of enterprises A , C, E, F and G at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S.I. No. 1 2 3 4 5 6 7 Values (-)5% 7.31% 9% 10% 10.57% 11.9% 12% If during the course of assessment proceedings, the data of the current year is available and the use of such data indicates that B has failed to pass any qualitative or quantitative filter or for any other reason the transaction undertaken is not a comparable uncontrolled transaction, then, B shall not be considered for inclusion in the dataset. Further, if the data available at this stage indicates a new comparable uncontrolled transaction undertaken by enterprise H, then, it shall be included. The weighted average and dataset shall be recomputed as under: Sl. No. Name Year 1 Year 2 Year 3 [Current Year] Aggregation of OC and OP Weighted Average 1 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 43.00 3 44.00 4 44.50 5 45.00 6 45.25 7 47.00 8 48.00 9 48.15 10 48.35 11 48.45 12 48.48 13 48.50 14 49.00 15 49.10 16 49.35 17 49.50 18 49.75 19 50.00 20 50.15 Applying the formula given in the Illustration 1, the data place of the thirty-fifth and sixty-fifth percentile is determined as follows: Thirty-fifth percentile place = 20* (35/100) = 7. Sixty-fifth percentile place =20* (65 /100) = 13. Since the thirty-fifth percentile place is a whole number, it shall be the ave ..... X X X X Extracts X X X X X X X X Extracts X X X X
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