Recently, the Central Board of Direct Taxes published ‘Notification No. 83/2015′ of 19 October 2015 revising the Income-tax Rules, 1962 in relation to the use of range and multiple year data.

The Notification amends Rule 10B and introduces Rule 10CA under this amendment, which is summarized below:

• The changes to Rule 10B suggest that, where the Resale Price Method, Cost Plus Method or Transactional Net Margin method is used as the most appropriate method for determining the arm’s length price (ALP) of international transactions entered into on or after 1 April 2014, the data to be used for analyzing the comparability of an uncontrolled transaction with an international transaction will be selected on the basis of the: data relating to the current year; or 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.

Furthermore, where the data relating to the current year is subsequently available at the time of determining the ALP during the course of the tax assessment, then such data will be used for such determination even if the data was not available at the time of filing the tax return for the assessment year relating to the current year.

• The Notification also introduces Rule 10CA requiring that the dataset for determining the ALP is to be constructed by placing prices in an ascending order. Where the comparable uncontrolled transaction of an enterprise has been identified based on current year data and the enterprise has conducted similar transactions in either or both of the 2 financial years immediately preceding the current year, the dataset is prepared for those 3 years and the weighted average of the prices is determined. Where the comparable uncontrolled transaction has been identified based on the data relating to the financial year immediately preceding the current year and the enterprise has conducted similar transactions in the financial year immediately preceding the preceded financial year, the dataset is prepared for the immediately preceding 2 financial years and the weighted average of the prices is determined.

Rule 10CA also states that the weighted average of the prices of comparable uncontrolled transactions in more than one financial year is to be computed by aggregating the numerator and denominator of the chosen Profit Level Indicator.

• In respect of the use of a range of prices, Rule 10CA (4) defines the arm’s length range as the 35th percentile to 65th percentile of the dataset organized in an ascending order. However, a minimum of six comparable transactions is required, in the absence of which the ALP will be the arithmetical mean of all the values included in the dataset. Furthermore, the use of the arm’s length range does not apply where the Profit Split Method or Sixth Method is regarded as the most appropriate method for determining the ALP.