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Computation of arm's length price in certain cases

Computation of arm s length price in certain cases - Rule 10CA - Rule - Part D. - Special cases - Income Tax - Rule 10CA - 1[10 CA. Computation of arm's length price in certain cases.- (1) Where in respect of an international transaction or a specified domestic transaction, the application of the most appropriate method referred to in sub-section (1) of section 92 C results in determination of more than one price, then the arm's length price in respect of such international transaction o .....

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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 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 .....

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ub-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 immediatel .....

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n sub-rule (3) , of the comparable uncontrolled transactions undertaken in the aforesaid period of two years shall be included in the dataset instead of the price referred to in sub-rule (1): Provided also that where the use of data relating to the current year in terms of the proviso to sub-rule (5) of rule 10 B establishes that,- (i) the enterprise has not undertaken same or similar uncontrolled transaction during the current year; or (ii) the uncontrolled transaction undertaken by an enterpri .....

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dataset. (3) Where an enterprise has undertaken comparable uncontrolled transactions in more than one financial year, then for the purposes of sub-rule (2) the weighted average of the prices of such transactions shall be computed in the following manner, namely:- (i) where the prices have been determined using the method referred to in clause (b) 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 sales which has been .....

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omputed 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 rang .....

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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 .....

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o be the arm's length price . (8) For the purposes of this rule,- (a) "the thirty-fifth percentile" of a dataset, having values arranged in an ascending order, shall be the lowest value in the dataset such that at least thirty five percent. of the values included in the dataset are equal to or less than such value: Provided that, if the number of values that are equal to or less than the aforesaid value is a whole number, then the thirty-fifth percentile shall be the arithmetic mea .....

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n of such value and the value immediately succeeding it in the dataset; (c) "the median" of the dataset, having values arranged in an ascending order, shall be the lowest value in the dataset such that at least fifty percent. of the values included in the dataset are equal to or less than such value: Provided 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 immed .....

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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 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 .....

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otal 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 2.2% 6% 8.2% 9% 10.57% 11.9% 12% For construction of the arm's length range the data place of thirty-fifth and sixty-fifth percentile shall be computed in the following manner, namely: Total no. of data points in dataset * (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 no .....

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th 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 .....

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lue 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 time of furnishing the return of income by the assessee and the data of the financial year preceding the current year has been used to identify comparable uncontrolled transactions undertaken by enterprises B and D. Further, if the enterprises have also .....

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30 Total OP = 66 OP/OC = 9% 4 D OC = 220 OP = 22 Total OC = 220 Total OP = 22 OP/OC = 10% 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 cou .....

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erage 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 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 C OC = 250 OP = 22 OC = 230 OP = 26 OC = 250 OP = 18 Total OC = 730 Total OP = 66 OP/OC = 9% 3 D OC = 220 OP = 22 OC = 150 OP = 20 Total OC = 370 Total OP = 42 OP/OC = 11.35% 4 E OC = 100 OP = (-) 5 Total OC = 100 Total OP = (-)5 OP/OC = (-)5% 5 F O .....

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