TMI BlogComputation of arm's length price in certain casesX X X X Extracts X X X X X X X X Extracts X X X X ..... d to in sub-rule (1)], has in either or both of the two financial years immediately preceding the current year undertaken the same or similar comparable uncontrolled transaction then,- (i) the most appropriate method used to determine the price of the comparable uncontrolled transaction undertaken in the current year shall be applied in similar manner to the comparable uncontrolled transaction or transactions undertaken in the aforesaid period and the price in respect of such uncontrolled transactions shall be determined; 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 current year 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 undertakin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being assigned to the quantum of costs which has been considered for arriving at the respective prices; (iii) where the prices have been determined using the method referred to in clause (e) of sub-rule (1) of rule 10 B , the weighted average of the prices shall be computed with weights being assigned to the quantum of costs incurred or sales effected or assets employed or to be employed, or as the case may be, any other base which has been considered for arriving at the respective prices. (4) Where the most appropriate method applied is a method other than the method referred to in clause (d) or clause (f) of sub-section (1) of section 92 C and the dataset constructed in accordance with sub-rule (2) consists 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 pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovided that, if the number of values that are equal to or less than the aforesaid value is a whole number , then the median shall be the arithmetic mean of such value and the value immediately succeeding it in the dataset. IIIustration 1.- The data for the current year of the comparable uncontrolled transactions or the entities undertaking such transactions is available at the time of furnishing return of income by the assessee and based on the same, seven enterprises have been identified to have undertaken the comparable uncontrolled transaction in the current year. All the identified comparable enterprises have also undertaken comparable uncontrolled transactions in a period of two years preceding the current year. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et * (35/100) Total no. of data points in dataset * (65/100) Thus, the data place of the thirty-fifth percentile = 7*0.35 = 2.45. Since this is not a whole number, the next higher data place, i.e; the value at the third place would have at least thirty five percent. of the values below it. The thirty-fifth percentile is therefore value at the third place, i.e, 8.2%. The data place of the sixth-fifth percentile is = 7*0.65 = 4.55. Since this is not a whole number, the next higher data place, i.e; the value at the fifth place would have at least sixty five percent. of the values below it. The sixty-fifth percentile is therefore value at fifth place, i.e, 10.57%. The arm's length range will be beginning 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 E OC = 100 OP = (-) 5 Total OC = 100 Total OP = (-)5 OP/OC = (-)5% 6 F OC = 160 OP = 21 OC = 120 OP = 14 OC = 140 OP = 15 Total OC = 420 Total OP = 50 OP/OC = 11.9 % 7 G OC = 150 OP = 21 OC = 130 OP = 12 OC = 155 OP = 13 Total OC = 435 Total OP = 46 OP/OC = 10.57% From the above, the dataset will be constructed as follows: 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... From the above, the dataset will be constructed as follows: S.I. No. 1 2 3 4 5 6 7 Values (-)5% 9% 9.56% 10.57% 11.35% 11.9% 12% Illustration 3. - In a given case the dataset of 20 prices arranged in ascending order is as under: Sl. No. Profits (in Rs. Thousands) 1 2 1 42.00 2 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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