CBDT Keeps tolerance level for transfer pricing unchanged for AY 2015-16

CBDT vide notification no.86/2015/F.No.500/1/2014-APA-II, notified  the tolerance limits for international transactions / specified domestic transaction entered into by the assessee’s with associated enterprises as under:

  1. Wholesale Trading : 1%
  2. Others cases : 3%

For the purpose of this notification: Wholesale trading means an international transaction or specified domestic transaction of trading in goods which fulfills the following conditions:

  1. purchase cost of finished goods is 80% or more of the total cost pertaining to such trading activities;
  2. average monthly closing inventory of such goods is 10% or less of sales pertaining to such trading activities

The notification can be downloaded by clicking –> govt-notifies-old-tolerance-limit-of-1-and-3-under-new-tp-rule

Clarification on Rollback Provisions of Advance Pricing Agreement Scheme

Advance Pricing Agreement provisions were introduced by Finance Act 2012 through insertion of Section 92CC & 92CD in the Income-tax Act, 1961 (‘Act’) and the scheme was notified vide S.O. 2005(E), dated 30.08.2012 by way of insertion of Rule 10F to 10 T and Rule 44GA in the Income Tax Rules, 1962 (‘Rules’)

Roll-back provisions were introduced by insertion of sub-section (9A) in Section 92CC by Finance (No.2) Act, 2014 and the scheme was notified vide S.O. 758 (E) date 14.03.2015 by way of insertion of Rules 10MA and 10RA in the Rules.

APA - Rollback Provisions

In view of various queries raised by the professional, CBDT decided to clarify those issues vide Circular No. 10/2015 (F.No. 500/7/2015-APA-II) by way of question answer form. The clarifications provided are tabulated hereunder:

Sr. No. Question Extracts from Clarification
1. Rule 10MA(2)(ii) – Whether Applicants who have filed their return under sec. 139(4) or 139(5) of the Act would be eligible for roll-back provisions Sec 139(5) – If there is a return which is filed under sec. 139(5) of the Act to revise the original return before the due date specified in Explanation 2 to Sec. 139(1), the applicant would be eligible / entitled for roll-back provisions on this revised return.

Sec 139(4) – Applicant filing belated return under sec. 139(4) are not eligible / entitled for roll-back provisions as a return is not filed before the due date of filing return of income

2 Rule 10MA(2)(i) mandates that the roll-back provisions shall apply in respect of Intl. Transactions that is same as Intl. Transactions to which the agreement applies. Clarification is required for the words ‘Same” and whether the restriction also applies to FAR Analysis The term same Intl. Transaction implies that the transaction in the roll-back years has to be of the same nature and undertaken with the same AE, as proposed to be undertaken for future years.

Restriction with reference to FAR analysis shall operate to ensure that roll-back provisions would apply only if FAR analysis of roll-back years don’t differ materially from the FAR validated in respect of Intl. Transactions to be undertaken for future years.

3 Rule 10MA(2)(iv) – Clarification is required as to whether roll-back provisions has to be requested for all four years or applicant can choose the years out of block of four years The applicant does not have the option to choose the years for which it wants to apply for roll-back. Applicant has to apply for all the four years or not apply at all.

If covered transactions did not exist or there was some dis-qualification in roll-back years, the applicant can apply for rollback provisions for remaining years.

If applicant fails the test of rollback conditions contained in various provisions in a particular year, he shall be denied benefit of roll-back provisions for that year, however, applicant can still apply for rollback for remaining years

4 Rule 10(MA)(3) & Rule 10MA(4) – Clarification required for the phrase “Tribunal has passed an order disposing of such appeal” and on mismatch, if any, between Rule 10MA(3) & 10MA(4) Where tribunal has passed an order disposing the appeal, finality has already reached in that year. However, where tribunal has set aside the order for fresh consideration, roll-back provisions can be given.

Further there is no mismatch between Rule 10MA(3) & 10MA(4)

5 Rule 10MA(3)(iii) – Whether roll-back provisions can be applied if it has the effect of reducing the total income or increasing the loss of the applicant as declared in the return of income. Clarification is required so as to ensure that the returned income is accepted as final income or loss after applying the roll-back provisions The ALP would get modified to the extent that it does not result in reducing the total income or increasing the loss, as the case may be, the returned income. Accordingly, roll-back provisions could be applied


Particulars Amount (rs.)
Returned Income 100
Adjusted Income 120
Roll-back ALP 90
Adjusted ALP 100
6 Rule 10RA(7) In case of failure on the part of the applicant to comply with the provisions of roll-back, whether the entire agreement gets cancelled or only that year in which roll-back fails The entire agreement shall stand cancelled. Roll-back provisions are introduced for the benefit of the applicant and is applicable at its option.
7 If there is a Mutual Agreement Procedure (MAP) application pending for the roll-back year, what would be the stand of the APA authorities? Further, what would be the view of the APA Authorities if MAP has already been concluded for roll-back year?
Situations Solution
Concluded MAP for particular year APA not available. But available for other years, subject to conditions prescribed
MAP application pending Option can be exercised by the applicant either to proceed for MAP or APA for such year.
8 Rule 10MA(1) & Rule 10MA(4): As per Rule 10MA(1), agreement shall provide the manner for determination of ALP & as per Rule 10MA(4) specifies that manner of determination of ALP shall be same as in the APA term. Does that mean that ALP could be different Yes, ALP could be different for different year. However, manner for determination of ALP (including Method, comparability analysis, tested party) would be same
9 Will there be compliance audit for roll-back? Would critical assumptions have to be validated during compliance audit ALP would be agreed after dull examination of facts, including validation of critical assumptions. Hence compliance audit would be necessary to check if the agreed price or methodology has been applied in modified return
10 Whether applicant has the option to withdraw its roll-back application? Can the applicant accepting the APA for the future years? Yes. Applicant may withdraw the application even while maintaining the application for future years. However fees for application of rollback application shall not be refunded upon withdrawal.
11 For already concluded APA, will new APAs be signed for rollback or earlier APAs could be revised APAs already concluded to include rollback provisions as per second proviso to Rule 10MA(5)
12 For already concluded APA, where the modified return has already been filed for first year of the APA term, how will the time-limit for filing modified return for roll-back years be determined? The time to file the modified return for roll-back years will start from the date of signing of the revised APA incorporating the roll back provisions
13 In case of merger of companies, where one or more of those companies are APA applicants, how would the roll back provisions be allowed and to which company or companies it would be allowed The principle to be followed is that the person who makes the APA application would only be entitled to enter into the agreement and be entitled for roll back provision. Other companies who have merged with this person would not be eligible for roll-back provisions
14 In case of demerger of an APA applicant or signatory into two or more companies, who would be eligible for the roll-back provisions The person who makes the APA application would only be entitled to enter into the agreement

The Clarificatory Circular can be downloaded by clicking here –> circular_no_10_2015

Proposed Rules for Computation of ALP for transactions undertaken on or after 01 April 2014

Concept of “Range” and Use of “Multiple Year Data” for computation of arm’s length price (‘ALP’)  are proposed to be introduced in Indian Transfer Pricing Regime for transactions undertaken by the person on or after 01 April 2014 by way of Amendment in Income Tax Rules, 1962. In this regards, Ministry of Finance has published Scheme_ALP_InternationalTran21052015 on www.finmin.nic.in for comments and suggestion of the stakeholders and general public.

Salient Features of the Draft Scheme for Computation of ALP is as under:

A) Adoption of Range Concept:

  • Concept of Range to be applicable in cases where ALP is determined by application of Transaction Net Margin Method (‘TNMM’), Resale Price Method (‘RPM’) or Cost Plus Method (‘CPM’);
  • Minimum 9 entities shall be required to be selected as comparable entities based on Functions, Assets and Risk Analysis (‘FAR Analysis’);
  • 3 years weighted average data 9 or more entities would be considered to construct the set and in certain circumstances such as Start-Up Operations in any of the previous two year or closure of operation in the current year, two years data could be used;
  • For Calculation of Weighted Average, the numerator and denominator of Chosen Profit Level Indicator (‘PLI’) would be aggregated for all the years for every comparable entity and margin would be computed accordingly;
  • Data points lying between the 40th to 60th Percentile shall be of the series shall constitute the arm’s length range; If the transfer price falls outside the range, median of the of the range would be taken as ALP and no range adjustment shall be allowed. Further, there shall not be two different sets for testing and making adjustment

Transfer Pricing

B) Use of Multiple Year Data:

  • Concept of Use of Multiple Year Data to be applicable in cases where ALP is determined by application of Transaction Net Margin Method (‘TNMM’), Resale Price Method (‘RPM’) or Cost Plus Method (‘CPM’);
  • Three years shall comprise of the year in which the International Transaction or Specified Domestic Transaction has been undertaken and two preceding years.
  • In case off non-availability of data for three years i.e. data for current year not available at the time of filing of Transfer Pricing Audit Report in Form 3CEB or a comparable may fail to clear quantitative filter in one of the three years or comparable has commence operations in the last two years or comparable has closed down its business operations in the current year, then use of two years data of the relevant three years shall be allowed.
  • Data for current year can be used by the tax-payer as well as the department at the time of transfer pricing scrutiny

C) Continued used of Arithmetic Mean

  • Where the range concept does not apply, the arithmetic mean concept shall continue to be applied in the same manner as it applied before amendment to Section 92C of the Income Tax Act, 1961 by Finance (No.2) Bill 2014 along with benefit of tolerance range.
  • Further, in cases where multiple year data is to be used, the arithmetic mean of the multiple year data of comparable shall be considered for computation of ALP.





NOTIFICATION NO. 11/2015 [F.NO.142/7/2014-TPL]/SO 350(E), DATED 4-2-2015

In exercise of the powers conferred by sections 92CB and 92D read with section 295 of the Income-tax Act, 1961(43 of 1961), CBDT inserts new rule, RULE 10TH (SAFE HARBOUR RULES FOR SPECIFIED DOMESTIC TRANSACTION)


Eligible Assessee : The ‘eligible assessee’ means a person who has exercised a valid option for application of safe harbour rules in accordance with the provisions of rule 10THC, and is a Government company engaged in the business of generation, transmission or distribution of electricity.

Rule 10THB:

Eligible Specified Domestic Transaction: Eligible SDT means SDT undertaken by eligible assessee and comprises of the following

  1. Supply of electricity by generating company; or
  2. Transmission of Electricity; or
  3. Wheeling of Electricity

Rule 10THC:

(1) Safe Harbour

Where an eligible assessee has entered into eligible SDT in any previous year relevant to an assessment year and option exercised by the said eligible assessee is treated to be validly exercised under Rule 10THD, the transfer price declared by the assessee in respect of such transaction shall be accepted by the tax authorities, if it is in accordance with the circumstances as specified in Rule 10THC (2)

(2) Circumstances referred to in Rule 10THC (1) in respect of eligible SDT shall be determined as tabulated below:

Sr. No.

Eligible SDT



Supply of electricity, transmission of electricity, wheeling of electricity referred to in items (i), (ii) or (iii) of rule THB, as the case may be.

The tariff in respect of supply of electricity, transmission of electricity, wheeling of electricity, as the case may be, is determined by the Appropriate Commission in accordance with the provisions of the Electricity Act, 2003 (36 of 2003).

 (3) No comparability adjustment and allowance under the second proviso to sub-section (2) of section 92C shall be made to the transfer price declared by the eligible assessee and accepted under sub-rule (1)

(4) The provisions of sections 92D and 92E in respect of a specified domestic transaction shall apply irrespective of the fact that the assessee exercises his option for safe harbour in respect of such transaction.

Rule 10THD:

Procedure: Rule 10THD lays down the procedure in which the eligible assessee shall avail the option of safe harbour rule.

CBDT amends rule 10D for maintenance of the documents for eligible assessees entering into eligible SDT referred to in Rule 10TH:

Insertion of Rule 10D(2A) after Rule 10D(2):

“(2A) Nothing contained in sub-rule (1), insofar as it relates to an eligible specified domestic transaction referred to in rule 10 THB, shall apply in a case of an eligible assessee referred to in rule 10 THA and, the said eligible assessee, shall keep and maintain the following information and documents, namely:—

  1. a description of the ownership structure of the assessee enterprise with details of shares or other ownership interest held therein by other enterprises;
  2. a broad description of the business of the assessee and the industry in which the assessee operates, and of the business of the associated enterprises with whom the assessee has transacted;
  3. the nature and terms (including prices) of specified domestic transactions entered into with each associated enterprise and the quantum and the value of each such transaction or class of such transaction;
  4. a record of proceedings if any before the regulatory commission and orders of such commission relating to the specified domestic transaction;
  5. a record of the actual working carried out for determining the transfer price of the specified domestic transaction;
  6. the assumptions, policies and price negotiations, if any, which have critically affected the determination of the transfer price;
  7. any other information, data or document, including information or data relating to the associated enterprise, which may be relevant for determination of the transfer price.;”


NOTIFICATION NO. 11/2015 [F.NO.142/7/2014-TPL]/SO 350(E), DATED 4-2-2015 can be downloaded by clicking here –> SAFE HAROUR RULE FOR SDT NOTIFIED