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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 ..... 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 undertaking the international transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 price at which such international transaction or the spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 undertaken comparable uncontrolled transactions in earlier years as detailed in the table, the weighted average and dataset shall be computed as 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 Total OC = 205 Total OP = 15 OP/OC = 7.31% 3 C OC = 250 OP = 22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 average of the prices at the seventh and next higher, i.e; eighth place. This is (47+48) /2 =₹ 47,500 Similarly, the sixty-fifth percentile will be average of thirteenth and fourteenth place prices. This is (48.5+49) / 2 = ₹ 48,750 The median of the range (the fiftieth percentile place) = 20* (50/100)= 10 Since the fiftieth percentile place is a whole number, it shall be the average of the prices at the tenth and next higher, i.e; eleventh place. This is (48.35+48.45) / 2 =₹ 48,400 Thus, the arm's length range in this case shall be from ₹ 47,500 to ₹ 48,750. Consequently, any transaction price which is equal to or more than ₹ 47,500 but less than or equal to ₹ 48,750 shall be considered to be within the arm's length ran ..... X X X X Extracts X X X X X X X X Extracts X X X X
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