The Transfer Pricing Officer has thrown out my working capital adjustment saying there is no prescribed method for it. Is he right that there is no prescribed method, and if he is, what does that do to the claim?
He is right on the first half and wrong on the second. No provision of the Income-tax Rules, 1962 prescribes a formula, a base, a period, a source of interest rates or any other method for computing a working capital adjustment or a risk adjustment. Rules 10A, 10AB, 10B, 10C, 10CA, 10D and 10TA were each read in full on this pass, and s.92F, and none of them does. But the absence of a method is not the absence of a power. Rule 10B(3) reads: "An uncontrolled transaction shall be comparable to an international transaction or a specified domestic transaction if— (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences." The two limbs are joined by "or", and limb (ii) is an express statutory contemplation of the adjustment. Rule 10B(1)(e)(iii) goes further inside the net margin method itself: the net profit margin arising in comparable uncontrolled transactions "is adjusted to take into account the differences, if any, between the international transaction or the specified domestic transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market" — the words are "is adjusted", not "may be adjusted". Rule 10C(2)(e) makes "the extent to which reliable and accurate adjustments can be made to account for differences" a statutory factor in selecting the most appropriate method, and rule 10D(1)(j) and (l) require the assessee to keep a record of "adjustments, if any, which were made to account for differences" and "details of the adjustments, if any, made to transfer prices". So the Rules name the adjustment four times over and never once say how to work it out. The expression "reasonably accurate" is not defined anywhere I could find: not in rule 10A, which is the definitions rule for rules 10A to 10E, and not in s.92F, which is the definitions section for ss.92 to 92E.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2015-10-19, reported as Rule 10B of the Income-tax Rules, 1962, heading "Determination of arm's length price under section 92C", transcribed from incometaxindia.gov.in/w/rule-10b (no "Year:" stamp; "Upload Date: 13/12/2025"); rule 10C, heading "Most appropriate method", on incometaxindia.gov.in/w/rule-10c (Upload Date 13/12/2025, no footnotes); rule 10D, heading "Information and documents to be kept and maintained under section 92D", on incometaxindia.gov.in/w/rule-10d (Upload Date 13/12/2025); rule 10A, heading "Meaning of expressions used in computation of arm's length price", on incometaxindia.gov.in/w/rule-10a-1 (Upload Date 13/12/2025); rule 10AB on incometaxindia.gov.in/w/rule-10ab; rule 10CA on incometaxindia.gov.in/w/rule-10ca; rule 10TA on incometaxindia.gov.in/w/rule-10ta; and s.92F of the Income-tax Act, 1961 on incometaxindia.gov.in/w/section-92f-23 (Year: 2024 (No. 2)); with the departmental transfer pricing pages at incometaxindia.gov.in/transfer-pricing and incometaxindia.gov.in/Pages/international-taxation/transfer-pricing.aspx read and found to say nothing on either adjustment. It bears on section Rule 10B, section Rule 10B(2), section Rule 10B(3), section Rule 10B(4), section Rule 10C(2), section Rule 10CA, section Rule 10D, section Rule 10D(1), section 92C, section 92C(1), section 92C(2), section 92CA, section 92CA(3), section 92CB, section 92D, section 92F of the Income Tax Act 1961, in Assessment & Scrutiny, How Tax Law Is Read and Evidence & Burden of Proof matters.
This is argued in virtually every transfer pricing appeal, and both sides routinely mis-state it. The officer's version — no rule provides for it, therefore no adjustment — is contradicted by rule 10B(3)(ii), rule 10B(1)(e)(iii), rule 10C(2)(e) and rule 10D(1)(j). The assessee's version — the OECD Transfer Pricing Guidelines prescribe the working capital computation, therefore it must be allowed in that form — is worse, because the OECD Guidelines are not Indian law, no rule read on this pass adopts or refers to them, and an argument built on them is an argument built on material with no statutory standing here. What the negative actually does is move the whole contest onto the words "reasonably accurate" in rule 10B(3)(ii) and "reliable and accurate" in rule 10C(2)(e), neither of which is defined. Three consequences follow. First, because there is no prescribed method there is also no prescribed method the officer can insist on: he cannot reject a computation for departing from a formula the Rules do not contain, and if he substitutes his own he is in exactly the same position the assessee is, having to defend it as reasonably accurate on its own workings. Second, because there is no prescribed source for the interest rate that a working capital adjustment turns on, the rate chosen is a matter of evidence and has to be justified on the record — the library states no rate here because no rule states one. Third, the documentation rules bite: rule 10D(1)(j) requires the actual working to be kept, so an adjustment advanced for the first time in appeal without the working behind it is weak for a reason that has nothing to do with whether the power exists. The library already holds the companion entry on where the power comes from, statutory-position-rule-10b-1-e-and-10b-3-comparability-adjustments, and on what happens after comparables are settled, statutory-position-rule-10ca-arms-length-range-thirty-fifth-to-sixty-fifth-percentile-and-the-median; this entry is the page to cite when the argument is specifically that no method is prescribed.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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Rule 10B(3), as printed on the departmental page, reads: "An uncontrolled transaction shall be comparable to an international transaction or a specified domestic transaction if— (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences." Rule 10B(1)(e)(iii), within the transactional net margin method, reads: "the net profit margin referred to in sub-clause (ii) arising in comparable uncontrolled transactions is adjusted to take into account the differences, if any, between the international transaction or the specified domestic transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market". Rule 10C(1) reads: "For the purposes of sub-section (1) of section 92C, the most appropriate method shall be the method which is best suited to the facts and circumstances of each particular international transaction or specified domestic transaction, and which provides the most reliable measure of an arm's length price in relation to the international transaction or the specified domestic transaction, as the case may be." Rule 10C(2) lists six factors to be taken into account in selecting the most appropriate method, of which clause (e) is "the extent to which reliable and accurate adjustments can be made to account for differences, if any, between the international transaction or the specified domestic transaction and the comparable uncontrolled transaction or between the enterprises entering into such transactions". Rule 10D(1)(j) requires the assessee to keep and maintain "a record of the actual working carried out for determining the arm's length price, including details of the comparable data and financial information used in applying the most appropriate method, and adjustments, if any, which were made to account for differences between the international transaction or the specified domestic transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions", and rule 10D(1)(l) requires "details of the adjustments, if any, made to transfer prices to align them with arm's length prices determined under these rules and consequent adjustment made to the total income for tax purposes". Rule 10A, the definitions rule for rules 10A to 10E, defines "associated enterprise", "enterprise", "uncontrolled transaction", "property", "services" and "transaction", and defines nothing bearing on how an adjustment is computed. Section 92F, the definitions section for ss.92 to 92E, defines "accountant", "arm's length price", "enterprise", "permanent establishment", "specified date" and "transaction", and likewise defines nothing bearing on an adjustment. Rule 10AB, the other method, is a single sentence and says nothing about adjustments. Rule 10CA has eight sub-rules and does not use the language of comparability adjustment; its eighth sub-rule defines the thirty-fifth percentile, the sixty-fifth percentile and the median. Rule 10TA, the safe harbour definitions rule, says nothing about either adjustment. The footnotes printed on the rule 10B page are two and only two: "81. Inserted by the IT (Sixteenth Amdt.) Rules, 2015, w.e.f. 19-10-2015." and "82. Substituted for 'such financial year' by the IT (Sixteenth Amdt.) Rules, 2015, w.e.f. 19-10-2015." Neither sub-rule (1)(e) nor sub-rule (3) carries any footnote marker. No provision among rules 10A, 10AB, 10B, 10C, 10CA, 10D and 10TA, or s.92F, prescribes a method, formula, base, period, averaging convention, source of interest rates or rate for computing a working capital adjustment or a risk adjustment, and none of them defines "reasonably accurate" or "reliable and accurate".
Not a judgment. The statutory position is that the Income-tax Rules, 1962 expressly contemplate a comparability adjustment — rule 10B(3)(ii) makes an uncontrolled transaction comparable where reasonably accurate adjustments can be made to eliminate the material effects of differences, rule 10B(1)(e)(iii) requires the comparable net profit margin to be adjusted for differences which could materially affect that margin in the open market, rule 10C(2)(e) makes the extent to which reliable and accurate adjustments can be made a factor in selecting the most appropriate method, and rule 10D(1)(j) and (l) require the working and the details of adjustments made to be kept and maintained — and that no provision of rules 10A, 10AB, 10B, 10C, 10CA, 10D or 10TA, and no provision of s.92F, prescribes any method, formula, base, period, source of interest rates or rate by which a working capital adjustment or a risk adjustment is to be computed, or defines the expression "reasonably accurate". Nothing on the two departmental transfer pricing pages read, and no CBDT circular or instruction located on the departmental site, states a departmental view on either adjustment.
Not a judgment; no judicial reasoning is stated for the section.
An uncontrolled transaction shall be comparable to an international transaction or a specified domestic transaction if— (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences.
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Handle my notice → Ask a CA on WhatsAppHe is right on the first half and wrong on the second. No provision of the Income-tax Rules, 1962 prescribes a formula, a base, a period, a source of interest rates or any other method for computing a working capital adjustment or a risk adjustment. Rules 10A, 10AB, 10B, 10C, 10CA, 10D and 10TA were each read in full on this pass, and s.92F, and none of them does. But the absence of a method is not the absence of a power. Rule 10B(3) reads: "An uncontrolled transaction shall be comparable to an international transaction or a specified domestic transaction if— (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences." The two limbs are joined by "or", and limb (ii) is an express statutory contemplation of the adjustment. Rule 10B(1)(e)(iii) goes further inside the net margin method itself: the net profit margin arising in comparable uncontrolled transactions "is adjusted to take into account the differences, if any, between the international transaction or the specified domestic transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market" — the words are "is adjusted", not "may be adjusted". Rule 10C(2)(e) makes "the extent to which reliable and accurate adjustments can be made to account for differences" a statutory factor in selecting the most appropriate method, and rule 10D(1)(j) and (l) require the assessee to keep a record of "adjustments, if any, which were made to account for differences" and "details of the adjustments, if any, made to transfer prices". So the Rules name the adjustment four times over and never once say how to work it out. The expression "reasonably accurate" is not defined anywhere I could find: not in rule 10A, which is the definitions rule for rules 10A to 10E, and not in s.92F, which is the definitions section for ss.92 to 92E. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section Rule 10B, section Rule 10B(2), section Rule 10B(3), section Rule 10B(4), section Rule 10C(2), section Rule 10CA, section Rule 10D, section Rule 10D(1), section 92C, section 92C(1), section 92C(2), section 92CA, section 92CA(3), section 92CB, section 92D, section 92F of the Income Tax Act 1961. It is reported as Rule 10B of the Income-tax Rules, 1962, heading "Determination of arm's length price under section 92C", transcribed from incometaxindia.gov.in/w/rule-10b (no "Year:" stamp; "Upload Date: 13/12/2025"); rule 10C, heading "Most appropriate method", on incometaxindia.gov.in/w/rule-10c (Upload Date 13/12/2025, no footnotes); rule 10D, heading "Information and documents to be kept and maintained under section 92D", on incometaxindia.gov.in/w/rule-10d (Upload Date 13/12/2025); rule 10A, heading "Meaning of expressions used in computation of arm's length price", on incometaxindia.gov.in/w/rule-10a-1 (Upload Date 13/12/2025); rule 10AB on incometaxindia.gov.in/w/rule-10ab; rule 10CA on incometaxindia.gov.in/w/rule-10ca; rule 10TA on incometaxindia.gov.in/w/rule-10ta; and s.92F of the Income-tax Act, 1961 on incometaxindia.gov.in/w/section-92f-23 (Year: 2024 (No. 2)); with the departmental transfer pricing pages at incometaxindia.gov.in/transfer-pricing and incometaxindia.gov.in/Pages/international-taxation/transfer-pricing.aspx read and found to say nothing on either adjustment. This is argued in virtually every transfer pricing appeal, and both sides routinely mis-state it. The officer's version — no rule provides for it, therefore no adjustment — is contradicted by rule 10B(3)(ii), rule 10B(1)(e)(iii), rule 10C(2)(e) and rule 10D(1)(j). The assessee's version — the OECD Transfer Pricing Guidelines prescribe the working capital computation, therefore it must be allowed in that form — is worse, because the OECD Guidelines are not Indian law, no rule read on this pass adopts or refers to them, and an argument built on them is an argument built on material with no statutory standing here. What the negative actually does is move the whole contest onto the words "reasonably accurate" in rule 10B(3)(ii) and "reliable and accurate" in rule 10C(2)(e), neither of which is defined. Three consequences follow. First, because there is no prescribed method there is also no prescribed method the officer can insist on: he cannot reject a computation for departing from a formula the Rules do not contain, and if he substitutes his own he is in exactly the same position the assessee is, having to defend it as reasonably accurate on its own workings. Second, because there is no prescribed source for the interest rate that a working capital adjustment turns on, the rate chosen is a matter of evidence and has to be justified on the record — the library states no rate here because no rule states one. Third, the documentation rules bite: rule 10D(1)(j) requires the actual working to be kept, so an adjustment advanced for the first time in appeal without the working behind it is weak for a reason that has nothing to do with whether the power exists. The library already holds the companion entry on where the power comes from, statutory-position-rule-10b-1-e-and-10b-3-comparability-adjustments, and on what happens after comparables are settled, statutory-position-rule-10ca-arms-length-range-thirty-fifth-to-sixty-fifth-percentile-and-the-median; this entry is the page to cite when the argument is specifically that no method is prescribed. If it applies to you, the first step is this: Separate the two questions and make the officer answer them separately: whether the power to adjust exists, and whether this particular computation is reasonably accurate. The first is answered by rule 10B(3)(ii) and rule 10B(1)(e)(iii); the second is a question of evidence.
Rule 10B(3), as printed on the departmental page, reads: "An uncontrolled transaction shall be comparable to an international transaction or a specified domestic transaction if— (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences." Rule 10B(1)(e)(iii), within the transactional net margin method, reads: "the net profit margin referred to in sub-clause (ii) arising in comparable uncontrolled transactions is adjusted to take into account the differences, if any, between the international transaction or the specified domestic transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market". Rule 10C(1) reads: "For the purposes of sub-section (1) of section 92C, the most appropriate method shall be the method which is best suited to the facts and circumstances of each particular international transaction or specified domestic transaction, and which provides the most reliable measure of an arm's length price in relation to the international transaction or the specified domestic transaction, as the case may be." Rule 10C(2) lists six factors to be taken into account in selecting the most appropriate method, of which clause (e) is "the extent to which reliable and accurate adjustments can be made to account for differences, if any, between the international transaction or the specified domestic transaction and the comparable uncontrolled transaction or between the enterprises entering into such transactions". Rule 10D(1)(j) requires the assessee to keep and maintain "a record of the actual working carried out for determining the arm's length price, including details of the comparable data and financial information used in applying the most appropriate method, and adjustments, if any, which were made to account for differences between the international transaction or the specified domestic transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions", and rule 10D(1)(l) requires "details of the adjustments, if any, made to transfer prices to align them with arm's length prices determined under these rules and consequent adjustment made to the total income for tax purposes". Rule 10A, the definitions rule for rules 10A to 10E, defines "associated enterprise", "enterprise", "uncontrolled transaction", "property", "services" and "transaction", and defines nothing bearing on how an adjustment is computed. Section 92F, the definitions section for ss.92 to 92E, defines "accountant", "arm's length price", "enterprise", "permanent establishment", "specified date" and "transaction", and likewise defines nothing bearing on an adjustment. Rule 10AB, the other method, is a single sentence and says nothing about adjustments. Rule 10CA has eight sub-rules and does not use the language of comparability adjustment; its eighth sub-rule defines the thirty-fifth percentile, the sixty-fifth percentile and the median. Rule 10TA, the safe harbour definitions rule, says nothing about either adjustment. The footnotes printed on the rule 10B page are two and only two: "81. Inserted by the IT (Sixteenth Amdt.) Rules, 2015, w.e.f. 19-10-2015." and "82. Substituted for 'such financial year' by the IT (Sixteenth Amdt.) Rules, 2015, w.e.f. 19-10-2015." Neither sub-rule (1)(e) nor sub-rule (3) carries any footnote marker. No provision among rules 10A, 10AB, 10B, 10C, 10CA, 10D and 10TA, or s.92F, prescribes a method, formula, base, period, averaging convention, source of interest rates or rate for computing a working capital adjustment or a risk adjustment, and none of them defines "reasonably accurate" or "reliable and accurate". The matter was decided on 2015-10-19 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Not a judgment. The statutory position is that the Income-tax Rules, 1962 expressly contemplate a comparability adjustment — rule 10B(3)(ii) makes an uncontrolled transaction comparable where reasonably accurate adjustments can be made to eliminate the material effects of differences, rule 10B(1)(e)(iii) requires the comparable net profit margin to be adjusted for differences which could materially affect that margin in the open market, rule 10C(2)(e) makes the extent to which reliable and accurate adjustments can be made a factor in selecting the most appropriate method, and rule 10D(1)(j) and (l) require the working and the details of adjustments made to be kept and maintained — and that no provision of rules 10A, 10AB, 10B, 10C, 10CA, 10D or 10TA, and no provision of s.92F, prescribes any method, formula, base, period, source of interest rates or rate by which a working capital adjustment or a risk adjustment is to be computed, or defines the expression "reasonably accurate". Nothing on the two departmental transfer pricing pages read, and no CBDT circular or instruction located on the departmental site, states a departmental view on either adjustment.
Not a judgment; no judicial reasoning is stated for the section. In the words reproduced by the source cited on this page: "An uncontrolled transaction shall be comparable to an international transaction or a specified domestic transaction if— (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences."
It was decided by the CBDT Circulars & Instructions on 2015-10-19 and is reported as Rule 10B of the Income-tax Rules, 1962, heading "Determination of arm's length price under section 92C", transcribed from incometaxindia.gov.in/w/rule-10b (no "Year:" stamp; "Upload Date: 13/12/2025"); rule 10C, heading "Most appropriate method", on incometaxindia.gov.in/w/rule-10c (Upload Date 13/12/2025, no footnotes); rule 10D, heading "Information and documents to be kept and maintained under section 92D", on incometaxindia.gov.in/w/rule-10d (Upload Date 13/12/2025); rule 10A, heading "Meaning of expressions used in computation of arm's length price", on incometaxindia.gov.in/w/rule-10a-1 (Upload Date 13/12/2025); rule 10AB on incometaxindia.gov.in/w/rule-10ab; rule 10CA on incometaxindia.gov.in/w/rule-10ca; rule 10TA on incometaxindia.gov.in/w/rule-10ta; and s.92F of the Income-tax Act, 1961 on incometaxindia.gov.in/w/section-92f-23 (Year: 2024 (No. 2)); with the departmental transfer pricing pages at incometaxindia.gov.in/transfer-pricing and incometaxindia.gov.in/Pages/international-taxation/transfer-pricing.aspx read and found to say nothing on either adjustment. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section Rule 10B, section Rule 10B(2), section Rule 10B(3), section Rule 10B(4), section Rule 10C(2), section Rule 10CA, section Rule 10D, section Rule 10D(1), section 92C, section 92C(1), section 92C(2), section 92CA, section 92CA(3), section 92CB, section 92D, section 92F, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Not a judgment. The statutory position is that the Income-tax Rules, 1962 expressly contemplate a comparability adjustment — rule 10B(3)(ii) makes an uncontrolled transaction comparable where reasonably accurate adjustments can be made to eliminate the material effects of differences, rule 10B(1)(e)(iii) requires the comparable net profit margin to be adjusted for differences which could materially affect that margin in the open market, rule 10C(2)(e) makes the extent to which reliable and accurate adjustments can be made a factor in selecting the most appropriate method, and rule 10D(1)(j) and (l) require the working and the details of adjustments made to be kept and maintained — and that no provision of rules 10A, 10AB, 10B, 10C, 10CA, 10D or 10TA, and no provision of s.92F, prescribes any method, formula, base, period, source of interest rates or rate by which a working capital adjustment or a risk adjustment is to be computed, or defines the expression "reasonably accurate". Nothing on the two departmental transfer pricing pages read, and no CBDT circular or instruction located on the departmental site, states a departmental view on either adjustment. It arises in Assessment & Scrutiny, How Tax Law Is Read and Evidence & Burden of Proof matters, on section Rule 10B, section Rule 10B(2), section Rule 10B(3), section Rule 10B(4), section Rule 10C(2), section Rule 10CA, section Rule 10D, section Rule 10D(1), section 92C, section 92C(1), section 92C(2), section 92CA, section 92CA(3), section 92CB, section 92D, section 92F of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Where the officer says no rule prescribes a method, agree, and say so in terms — no rule does. Then point out that the same silence binds him: there is no prescribed formula for him to apply either, and rule 10B(3) makes the adjustment an express route to comparability. Do not cite the OECD Transfer Pricing Guidelines as though they were law. They are not law in India and none of rules 10A, 10AB, 10B, 10C, 10CA, 10D or 10TA refers to them. If the computation follows that material, say that it follows accepted commercial practice and defend it on reasonable accuracy under rule 10B(3)(ii), not on authority it does not have. File the whole working — the base, the rate, the source of the rate, the period, the averaging convention and the reconciliation — and put it on record before the Transfer Pricing Officer, because rule 10D(1)(j) requires a record of the actual working including adjustments made to account for differences, and rule 10D(1)(l) requires details of the adjustments made. Press the internal inconsistency where the officer accepts the comparable but refuses the adjustment: if the difference is not material, limb (i) of rule 10B(3) is satisfied and the comparable stands unadjusted; if it is material, limb (ii) is the only basis on which that comparable is comparable at all. Take the point at the method-selection stage as well as at the adjustment stage — rule 10C(2)(e) makes the extent to which reliable and accurate adjustments can be made a factor in choosing the most appropriate method, so it cannot be deferred to the end.
Still good law. The text as stated is current so far as I could establish, with the qualification the reader needs about how it is dated. None of the Rules pages relied on carries a "Year:" stamp — the dating convention used on the /w/section-<n>-<k> Act pages is not used on the Rules pages — so the currency of rules 10A, 10AB, 10B, 10C, 10CA, 10D and 10TA rests on the "Upload Date" each page prints, 12 or 13 December 2025, and on the internal consistency of the rule 10B page, which prints the 2015 amendments to sub-rules (4) and (5) with their footnotes. Section 92F was read on a page stamped Year: 2024 (No. 2) and I probed no later suffix, so a later amendment to s.92F cannot be excluded. Sub-rules (1)(e) and (3) of rule 10B carry no footnote at all, so no commencement date is established for either and none is stated; `decided_on` carries 19 October 2015, the only date any of these pages establishes for any part of rule 10B, and it attaches to sub-rules (5) and (4). THE NEGATIVE FINDING IS LIMITED TO WHAT WAS READ: rules 10A, 10AB, 10B, 10C, 10CA, 10D and 10TA in full, and s.92F in full. I did not read every rule in Part II of the Income-tax Rules and make no statement about any provision I did not read. The statement that no CBDT circular or instruction says anything on the point rests on two departmental transfer pricing pages fetched and four domain-restricted searches that returned nothing on it, and is recorded as what those attempts returned rather than as proof that no such circular exists. I carried out no check of judicial treatment of rule 10B(3) on this pass; the tribunals decide the reasonable accuracy of particular adjustments constantly and this entry states no proposition about any of those decisions. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
THIS ENTRY EXISTS TO PROVE A NEGATIVE, SO THE EXTENT OF THE NEGATIVE IS STATED EXACTLY. What was read in full on this pass, each on the departmental site: rule 10A at https://www.incometaxindia.gov.in/w/rule-10a-1 (heading "Meaning of expressions used in computation of arm's length price"; Upload Date 13/12/2025; no "Year:" stamp), rule 10AB at /w/rule-10ab (Upload Date 13/12/2025), rule 10B at /w/rule-10b (Upload Date 13/12/2025), rule 10C at /w/rule-10c (Upload Date 13/12/2025), rule 10CA at /w/rule-10ca (Upload Date 13/12/2025), rule 10D at /w/rule-10d (Upload Date 13/12/2025), rule 10TA at /w/rule-10ta (Upload Date 13/12/2025) and s.92F at /w/section-92f-23 (Year: 2024 (No. 2)). NONE of them prescribes a method, formula, base, period, averaging convention, source of interest rates or rate for computing a working capital adjustment or a risk adjustment. NONE of them defines "reasonably accurate" or "reliable and accurate". NONE of them refers to the OECD Transfer Pricing Guidelines or to any other external source of method. That is the whole of the negative and it does not extend beyond those eight provisions; I did not read every rule in Part II of the Income-tax Rules and make no statement about any provision I did not read. A TRAP ON THE DEPARTMENTAL SITE, FOUND THIS PASS AND WORTH THE READER'S TIME. https://www.incometaxindia.gov.in/w/rule-10a is NOT rule 10A of the Income-tax Rules, 1962. It serves rule 10A of the WEALTH-TAX RULES, 1957, headed "Requisition of books of account, etc.", dealing with authorisation in Form M-3 under s.37B of the Wealth-tax Act. A reader looking for the transfer pricing definitions rule will read four sub-rules about requisitioning books and find no definitions, with nothing on the page telling him he is in the wrong statute. The transfer pricing rule 10A is served at /w/rule-10a-1. This is the same class of trap already recorded in the library's rule 8D entry, where /w/rule-8d serves a registered valuer's rule. WHAT THE RULES DO SAY, recorded because a well-founded negative has to record the positives around it. Rule 10B(3)(ii) permits comparability to be established by reasonably accurate adjustments. Rule 10B(1)(e)(iii) requires the comparable net margin to be adjusted for differences which could materially affect the net profit margin in the open market — the verb is "is adjusted". Rule 10C(1) requires the most appropriate method to be the one "best suited to the facts and circumstances" providing "the most reliable measure of an arm's length price", and rule 10C(2)(e) makes "the extent to which reliable and accurate adjustments can be made to account for differences" one of six factors in selecting it. Rule 10D(1)(j) requires "a record of the actual working carried out for determining the arm's length price, including details of the comparable data and financial information used in applying the most appropriate method, and adjustments, if any, which were made to account for differences between the international transaction or the specified domestic transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions", and rule 10D(1)(l) requires "details of the adjustments, if any, made to transfer prices to align them with arm's length prices determined under these rules". Rule 10CA, on a fetch directed at the question, does not use the language of comparability adjustment at all; it has eight sub-rules and the eighth is the definitions of the thirty-fifth percentile, the sixty-fifth percentile and the median. Rule 10AB, the other method, is a single sentence and says nothing about adjustments. Rule 10TA, the safe harbour definitions rule, defines operating expense, operating revenue, employee cost and the like and says nothing about either adjustment. THE DEPARTMENTAL VIEW: THERE IS NONE THAT I COULD FIND. Two departmental transfer pricing pages were fetched on a demand to quote anything they say about a working capital adjustment or a risk adjustment or about how a comparability adjustment is computed — https://www.incometaxindia.gov.in/transfer-pricing and https://incometaxindia.gov.in/Pages/international-taxation/transfer-pricing.aspx — and both returned nothing on either. Neither page carries a populated "Last Updated" date. Four WebSearches restricted to incometaxindia.gov.in for a CBDT circular or instruction on working capital adjustment, risk adjustment or comparability adjustment returned no circular and no instruction on the point; they returned the circulars index and unrelated circulars. I therefore record that I found NO departmental view, and I do not treat the absence of a search hit as proof that no circular exists — it is what the searches returned. THE OECD POINT, STATED SO IT CANNOT BE MISREAD. Practice in this field draws heavily on the OECD Transfer Pricing Guidelines for the mechanics of a working capital adjustment. That material is NOT Indian law, it is not a rule, it is not a circular, and none of the eight provisions read on this pass adopts it, incorporates it or refers to it. Nothing in this entry is taken from it and no figure, formula or rate from it is stated here. WHAT THIS ENTRY DOES NOT SAY. It does not say that no adjustment is permissible — the opposite is the case, and rule 10B(3)(ii) says so. It does not say that any particular computation is reasonably accurate, which is a question of fact in every case. It does not state any interest rate, because no rule states one and this library does not state figures it has not read. `decided_on` carries 2015-10-19, which is the only date any of these pages establishes for any part of rule 10B — footnotes 81 and 82 on /w/rule-10b, "Inserted by the IT (Sixteenth Amdt.) Rules, 2015, w.e.f. 19-10-2015" and "Substituted for 'such financial year' by the IT (Sixteenth Amdt.) Rules, 2015, w.e.f. 19-10-2015" — and it attaches to sub-rules (5) and (4) respectively. It must NOT be read as the commencement of sub-rule (1)(e) or sub-rule (3), neither of which carries any footnote marker; their commencement is not established here. `bench` and `favours` are inapplicable to a statutory entry. COMPANION ENTRY: the library already holds statutory-position-rule-10b-1-e-and-10b-3-comparability-adjustments, which states where the power to adjust comes from and transcribes rule 10B(1) to (5) in full. This entry does not duplicate it; it is the page for the narrower and more frequently argued proposition that no method is prescribed, and it extends the negative from three rules to eight provisions and to the departmental material. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Not a judgment. The statutory position is that the Income-tax Rules, 1962 expressly contemplate a comparability adjustment — rule 10B(3)(ii) makes an uncontrolled transaction comparable where reasonably accurate adjustments can be made to eliminate the material effects of differences, rule 10B(1)(e)(iii) requires the comparable net profit margin to be adjusted for differences which could materially affect that margin in the open market, rule 10C(2)(e) makes the extent to which reliable and accurate adjustments can be made a factor in selecting the most appropriate method, and rule 10D(1)(j) and (l) require the working and the details of adjustments made to be kept and maintained — and that no provision of rules 10A, 10AB, 10B, 10C, 10CA, 10D or 10TA, and no provision of s.92F, prescribes any method, formula, base, period, source of interest rates or rate by which a working capital adjustment or a risk adjustment is to be computed, or defines the expression "reasonably accurate". Nothing on the two departmental transfer pricing pages read, and no CBDT circular or instruction located on the departmental site, states a departmental view on either adjustment.
TaxSphere, “Statutory position — rule 10B(3): the Income-tax Rules expressly contemplate a comparability adjustment and prescribe NO method for computing one — a proved negative across rules 10A, 10AB, 10B, 10C, 10CA, 10D and 10TA and s.92F, with nothing in any CBDT circular, instruction or departmental transfer pricing page either”, https://taxnotice.vittsphere.com/caselaw/case/statutory-position-no-rule-prescribes-a-method-for-a-working-capital-or-risk-adjustment/ (validity last checked 2026-09-18)
The judgment itself is a government work and may be quoted freely. The summary, the validity note and the reasoning on this page are this library's own writing: quote them with attribution, and please do not present either as the words of the court — this page keeps the two apart and so should a quotation of it.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
The Transfer Pricing Officer has refused our working capital adjustment on the ground that no rule provides for it. Where in the Rules does the right to a working capital or risk adjustment come from, and does anything prescribe how it is computed?
The Transfer Pricing Officer has rejected our margin and adopted the median of his comparables. When is he entitled to go to the median at all, how is the range built, and what happens if he is left with only four or five comparables?
The TPO has taken a three-year weighted average margin for a comparable under Rule 10CA, but the company fails my turnover filter in the two earlier years. Must those years still go into the weighted average?
The TPO wants segment-wise profit and loss accounts for my AE and non-AE business and I cannot produce them. He has levied 2 per cent of the transaction value under s.271G. Can I resist it?
