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 right comes from rule 10B(3)(ii), read with rule 10B(1)(e)(iii); nothing in the Rules prescribes how either adjustment is computed. Rule 10B(3) is in two limbs and the word between them is "or": an uncontrolled transaction is 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." So a comparable is not disqualified by a material difference. It is disqualified only if the difference is material AND no reasonably accurate adjustment can be made for it. That second limb is the statutory basis for the working capital adjustment and the risk adjustment, and an officer who refuses an adjustment must, to be consistent, either say the difference is not material — in which case limb (i) is satisfied and the comparable stands unadjusted — or say the adjustment proposed is not reasonably accurate, which is a question of the assessee's computation and not of the existence of the power. Rule 10B(1)(e) carries the same idea inside the transactional net margin method itself: sub-clause (iii) requires that 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". On the words of sub-clause (iii) the adjustment is mandatory, not discretionary. What the Rules do not do is prescribe a method. Rule 10B, rule 10C and rule 10CA were all read on this pass and none of them prescribes a formula, a base or a rate for computing a working capital adjustment or a risk adjustment.
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 https://www.incometaxindia.gov.in/w/rule-10b (no "Year:" stamp; the page prints "Upload Date: 13/12/2025"), with rule 10C read on https://www.incometaxindia.gov.in/w/rule-10c and rule 10CA on https://www.incometaxindia.gov.in/w/rule-10ca and https://incometaxindia.gov.in/Rules/Income-Tax%20Rules/ITRule10CA.htm for the negative finding that no rule prescribes a method of computing a working capital or risk 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 10CA(2), section Rule 10CA(3), section 92C, section 92C(1), section 92C(2), section 92CA, section 92CA(3), section 92B, section 92BA of the Income Tax Act 1961, in Assessment & Scrutiny, How Tax Law Is Read and Evidence & Burden of Proof matters.
This is argued in every transfer pricing appeal and the library holds nothing on the text it turns on. Three points follow from the words. First, the grammar of rule 10B(3): the two limbs are disjunctive, so an adjustment is an alternative route to comparability and not a concession. A comparable that fails limb (i) survives if it passes limb (ii). Second, rule 10B(1)(e)(iii) says the margin "is adjusted" — the transactional net margin method as the Rules define it includes the adjustment step, and a margin that has not been through that step has not been computed under clause (e) at all. Third, and this cuts both ways, the absence of any prescribed method means the burden of showing that a particular adjustment is reasonably accurate sits with whoever proposes it. There is no formula in the Rules to fall back on, so the computation has to be defended on its own workings: the base used, the rate used, the period, and why the result eliminates the material effect rather than merely reducing it. An assessee who puts up an adjustment without those workings is inviting a refusal on limb (ii), and that refusal is within the rule. Rule 10C(2)(e) reinforces the point from the other direction: in selecting the most appropriate method one of the factors is "the extent to which reliable and accurate adjustments can be made to account for differences", so the capacity to adjust is built into the method selection as well as into the comparability test.
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(1)(e), as printed on the departmental page, reads: "(e) transactional net margin method, by which,— (i) the net profit margin realised by the enterprise from an international transaction or a specified domestic transaction entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base; (ii) the net profit margin realised by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base; (iii) 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; (iv) the net profit margin realised by the enterprise and referred to in sub-clause (i) is established to be the same as the net profit margin referred to in sub-clause (iii); (v) the net profit margin thus established is then taken into account to arrive at an arm's length price in relation to the international transaction or the specified domestic transaction;". Rule 10B(2) provides that for the purposes of sub-rule (1) the comparability of an international transaction or a specified domestic transaction with an uncontrolled transaction shall be judged with reference to "(a) the specific characteristics of the property transferred or services provided in either transaction; (b) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions; (c) the contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions; (d) conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail." 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." Rule 10B(4) reads: "The data to be used in analysing the comparability of an uncontrolled transaction with an international transaction or a specified domestic transaction shall be the data relating to the financial year (hereafter in this rule and in rule 10CA referred to as the 'current year') in which the international transaction or the specified domestic transaction has been entered into: Provided that data relating to a period not being more than two years prior to the current year may also be considered if such data reveals facts which could have an influence on the determination of transfer prices in relation to the transactions being compared: Provided further that the first proviso shall not apply while analysing the comparability of an uncontrolled transaction with an international transaction or a specified domestic transaction, entered into on or after the 1st day of April, 2014." Rule 10B(5), the last sub-rule on the page, reads: "(5) In a case where the most appropriate method for determination of the arm's length price of an international transaction or a specified domestic transaction, entered into on or after the 1st day of April, 2014, is the method specified in clause (b), clause (c) or clause (e) of sub-section (1) of section 92C, then, notwithstanding anything contained in sub-rule (4), the data to be used for analysing the comparability of an uncontrolled transaction with an international transaction or a specified domestic transaction shall be,— (i) the data relating to the current year ; or (ii) the 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 by the assessee, for the assessment year relevant to the current year: Provided that where the data relating to the current year is subsequently available at the time of determination of arm's length price of an international transaction or a specified domestic transaction during the course of any assessment proceeding for the assessment year relevant to the current year, then, such data shall be used for such determination irrespective of the fact that the data was not available at the time of furnishing the return of income of the relevant assessment year." Clauses (i) and (ii) of that sub-rule, and its proviso, are the provisions that the three provisos to rule 10CA(2) refer back to. The page's footnotes read: "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." Rule 10C(2)(e), on the separate departmental page for that rule, lists among the factors for selecting the most appropriate method "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". No provision of rule 10B, rule 10C or rule 10CA prescribes a method, formula, base or rate for computing a working capital adjustment or a risk adjustment.
Not a judgment. The statutory position is that under rule 10B(1)(e)(iii) the net profit margin arising in comparable uncontrolled transactions is to be adjusted to take into account differences between the transactions or between the enterprises which could materially affect the amount of net profit margin in the open market; that under rule 10B(3) an uncontrolled transaction is comparable if either none of the differences is likely to materially affect the price, cost or profit in the open market, OR reasonably accurate adjustments can be made to eliminate the material effects of such differences, the two limbs being disjunctive; that rule 10B(3)(ii) read with rule 10B(1)(e)(iii) is accordingly the statutory basis on which a working capital adjustment or a risk adjustment is claimed; and that neither rule 10B nor rule 10C nor rule 10CA prescribes any method, formula, base or rate by which either adjustment is to be computed.
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 WhatsAppThe right comes from rule 10B(3)(ii), read with rule 10B(1)(e)(iii); nothing in the Rules prescribes how either adjustment is computed. Rule 10B(3) is in two limbs and the word between them is "or": an uncontrolled transaction is 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." So a comparable is not disqualified by a material difference. It is disqualified only if the difference is material AND no reasonably accurate adjustment can be made for it. That second limb is the statutory basis for the working capital adjustment and the risk adjustment, and an officer who refuses an adjustment must, to be consistent, either say the difference is not material — in which case limb (i) is satisfied and the comparable stands unadjusted — or say the adjustment proposed is not reasonably accurate, which is a question of the assessee's computation and not of the existence of the power. Rule 10B(1)(e) carries the same idea inside the transactional net margin method itself: sub-clause (iii) requires that 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". On the words of sub-clause (iii) the adjustment is mandatory, not discretionary. What the Rules do not do is prescribe a method. Rule 10B, rule 10C and rule 10CA were all read on this pass and none of them prescribes a formula, a base or a rate for computing a working capital adjustment or a risk adjustment. 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 10CA(2), section Rule 10CA(3), section 92C, section 92C(1), section 92C(2), section 92CA, section 92CA(3), section 92B, section 92BA 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 https://www.incometaxindia.gov.in/w/rule-10b (no "Year:" stamp; the page prints "Upload Date: 13/12/2025"), with rule 10C read on https://www.incometaxindia.gov.in/w/rule-10c and rule 10CA on https://www.incometaxindia.gov.in/w/rule-10ca and https://incometaxindia.gov.in/Rules/Income-Tax%20Rules/ITRule10CA.htm for the negative finding that no rule prescribes a method of computing a working capital or risk adjustment. This is argued in every transfer pricing appeal and the library holds nothing on the text it turns on. Three points follow from the words. First, the grammar of rule 10B(3): the two limbs are disjunctive, so an adjustment is an alternative route to comparability and not a concession. A comparable that fails limb (i) survives if it passes limb (ii). Second, rule 10B(1)(e)(iii) says the margin "is adjusted" — the transactional net margin method as the Rules define it includes the adjustment step, and a margin that has not been through that step has not been computed under clause (e) at all. Third, and this cuts both ways, the absence of any prescribed method means the burden of showing that a particular adjustment is reasonably accurate sits with whoever proposes it. There is no formula in the Rules to fall back on, so the computation has to be defended on its own workings: the base used, the rate used, the period, and why the result eliminates the material effect rather than merely reducing it. An assessee who puts up an adjustment without those workings is inviting a refusal on limb (ii), and that refusal is within the rule. Rule 10C(2)(e) reinforces the point from the other direction: in selecting the most appropriate method one of the factors is "the extent to which reliable and accurate adjustments can be made to account for differences", so the capacity to adjust is built into the method selection as well as into the comparability test. If it applies to you, the first step is this: Put rule 10B(3) in terms and identify which limb the officer is in. Limb (i) is no material difference; limb (ii) is reasonably accurate adjustments. They are disjunctive and an officer cannot reject a comparable without engaging one of them.
Rule 10B(1)(e), as printed on the departmental page, reads: "(e) transactional net margin method, by which,— (i) the net profit margin realised by the enterprise from an international transaction or a specified domestic transaction entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base; (ii) the net profit margin realised by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base; (iii) 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; (iv) the net profit margin realised by the enterprise and referred to in sub-clause (i) is established to be the same as the net profit margin referred to in sub-clause (iii); (v) the net profit margin thus established is then taken into account to arrive at an arm's length price in relation to the international transaction or the specified domestic transaction;". Rule 10B(2) provides that for the purposes of sub-rule (1) the comparability of an international transaction or a specified domestic transaction with an uncontrolled transaction shall be judged with reference to "(a) the specific characteristics of the property transferred or services provided in either transaction; (b) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions; (c) the contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions; (d) conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail." 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." Rule 10B(4) reads: "The data to be used in analysing the comparability of an uncontrolled transaction with an international transaction or a specified domestic transaction shall be the data relating to the financial year (hereafter in this rule and in rule 10CA referred to as the 'current year') in which the international transaction or the specified domestic transaction has been entered into: Provided that data relating to a period not being more than two years prior to the current year may also be considered if such data reveals facts which could have an influence on the determination of transfer prices in relation to the transactions being compared: Provided further that the first proviso shall not apply while analysing the comparability of an uncontrolled transaction with an international transaction or a specified domestic transaction, entered into on or after the 1st day of April, 2014." Rule 10B(5), the last sub-rule on the page, reads: "(5) In a case where the most appropriate method for determination of the arm's length price of an international transaction or a specified domestic transaction, entered into on or after the 1st day of April, 2014, is the method specified in clause (b), clause (c) or clause (e) of sub-section (1) of section 92C, then, notwithstanding anything contained in sub-rule (4), the data to be used for analysing the comparability of an uncontrolled transaction with an international transaction or a specified domestic transaction shall be,— (i) the data relating to the current year ; or (ii) the 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 by the assessee, for the assessment year relevant to the current year: Provided that where the data relating to the current year is subsequently available at the time of determination of arm's length price of an international transaction or a specified domestic transaction during the course of any assessment proceeding for the assessment year relevant to the current year, then, such data shall be used for such determination irrespective of the fact that the data was not available at the time of furnishing the return of income of the relevant assessment year." Clauses (i) and (ii) of that sub-rule, and its proviso, are the provisions that the three provisos to rule 10CA(2) refer back to. The page's footnotes read: "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." Rule 10C(2)(e), on the separate departmental page for that rule, lists among the factors for selecting the most appropriate method "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". No provision of rule 10B, rule 10C or rule 10CA prescribes a method, formula, base or rate for computing a working capital adjustment or a risk adjustment. 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 under rule 10B(1)(e)(iii) the net profit margin arising in comparable uncontrolled transactions is to be adjusted to take into account differences between the transactions or between the enterprises which could materially affect the amount of net profit margin in the open market; that under rule 10B(3) an uncontrolled transaction is comparable if either none of the differences is likely to materially affect the price, cost or profit in the open market, OR reasonably accurate adjustments can be made to eliminate the material effects of such differences, the two limbs being disjunctive; that rule 10B(3)(ii) read with rule 10B(1)(e)(iii) is accordingly the statutory basis on which a working capital adjustment or a risk adjustment is claimed; and that neither rule 10B nor rule 10C nor rule 10CA prescribes any method, formula, base or rate by which either adjustment is to be computed.
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 https://www.incometaxindia.gov.in/w/rule-10b (no "Year:" stamp; the page prints "Upload Date: 13/12/2025"), with rule 10C read on https://www.incometaxindia.gov.in/w/rule-10c and rule 10CA on https://www.incometaxindia.gov.in/w/rule-10ca and https://incometaxindia.gov.in/Rules/Income-Tax%20Rules/ITRule10CA.htm for the negative finding that no rule prescribes a method of computing a working capital or risk 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 10CA(2), section Rule 10CA(3), section 92C, section 92C(1), section 92C(2), section 92CA, section 92CA(3), section 92B, section 92BA, 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 under rule 10B(1)(e)(iii) the net profit margin arising in comparable uncontrolled transactions is to be adjusted to take into account differences between the transactions or between the enterprises which could materially affect the amount of net profit margin in the open market; that under rule 10B(3) an uncontrolled transaction is comparable if either none of the differences is likely to materially affect the price, cost or profit in the open market, OR reasonably accurate adjustments can be made to eliminate the material effects of such differences, the two limbs being disjunctive; that rule 10B(3)(ii) read with rule 10B(1)(e)(iii) is accordingly the statutory basis on which a working capital adjustment or a risk adjustment is claimed; and that neither rule 10B nor rule 10C nor rule 10CA prescribes any method, formula, base or rate by which either adjustment is to be computed. 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 10CA(2), section Rule 10CA(3), section 92C, section 92C(1), section 92C(2), section 92CA, section 92CA(3), section 92B, section 92BA 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 provides for a working capital or risk adjustment, answer with rule 10B(3)(ii) and rule 10B(1)(e)(iii), which requires the comparable margin to be adjusted for differences which could materially affect the net profit margin in the open market. Do not expect a prescribed formula. Nothing in rule 10B, rule 10C or rule 10CA prescribes how a working capital adjustment or a risk adjustment is to be computed, so file the full workings — base, rate, period and the reconciliation — and argue reasonable accuracy on them. Where the officer accepts the comparable but refuses the adjustment, press the inconsistency: if the difference is not material, limb (i) is satisfied and the comparable stands as it is; if it is material, limb (ii) is the only route by which the comparable survives, and it survives only with the adjustment. Take the method selection point under rule 10C(2)(e) as well: the extent to which reliable and accurate adjustments can be made is a statutory factor in choosing the most appropriate method, so the adjustment question cannot be deferred to the end of the analysis.
Still good law. The text is current so far as I could establish, with two qualifications the reader needs. First, the departmental page for rule 10B carries NO "Year:" stamp — only "Upload Date: 13/12/2025" — so the dating test the brief prescribes for Act pages cannot be applied, and the currency of the text rests on that upload date and on the internal consistency of the page, which prints the 2015 amendments to sub-rule (4) and their footnotes. A second departmental page reached at the Rules-directory address 103120000000007189.htm also served rule 10B and agreed on the five methods, but returned no date stamp and no footnotes. Second, sub-rules (1)(e) and (3) carry no footnote at all, so I could establish no commencement date for them and state none; `decided_on` carries the 2015 date that the page establishes for sub-rule (4) and must not be read as the commencement of sub-rule (1)(e) or sub-rule (3). The statement that no rule prescribes a method of computing a working capital or risk adjustment is a negative finding limited to rule 10B in the whole of sub-rules (1) to (5), rule 10C and rule 10CA, which are the three rules I read in full. I carried out no check of judicial treatment of rule 10B on this pass. 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.
Rule 10B was transcribed from https://www.incometaxindia.gov.in/w/rule-10b. THE PAGE CARRIES NO "Year:" STAMP; it prints "Upload Date: 13/12/2025". As with rule 10CA, the Year stamp convention used on the /w/section-<n>-<k> Act pages is not used on the Rules pages, so this rule cannot be dated by the method the brief prescribes for sections, and I record that rather than infer a date. FOOTNOTES. The page prints exactly 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." Footnote 81 attaches to sub-rule (5) — the sub-rule inserted in 2015, which for a transaction entered into on or after 1 April 2014 and benchmarked under the resale price, cost plus or transactional net margin method requires current year data, or the immediately preceding year's data where the current year's is not available when the return is furnished, with a proviso requiring the current year's data to be used once it becomes available during the assessment proceeding. Footnote 82 attaches to sub-rule (4). Both concern the data used in the comparability analysis and neither touches sub-rule (1)(e) or sub-rule (3). WHAT I COULD NOT ESTABLISH: sub-rule (1)(e) and sub-rule (3) carry NO footnote marker at all on the page, and the page carries no footnote recording the insertion of rule 10B itself, so I could not source the date on which rule 10B or these two sub-rules came into force. `decided_on` therefore carries 2015-10-19, the only date the page establishes for any part of the rule, and it should be read as the date of the sub-rule (4) amendments and NOT as the commencement of sub-rule (1)(e) or sub-rule (3), whose original commencement is not established here. THE NEGATIVE FINDING, stated because the brief asked for it plainly: I read rule 10B at /w/rule-10b across sub-rules (1) to (5), which is the whole of the rule as that page prints it, rule 10C in full at /w/rule-10c, and rule 10CA in full at /w/rule-10ca and at the Rules-directory page ITRule10CA.htm. NONE of them prescribes a method, formula, base or rate for computing a working capital adjustment or a risk adjustment. AN EARLIER PASS ON THIS ENTRY NEITHER TRANSCRIBED NOR MENTIONED SUB-RULE (5); it is now transcribed in the `facts`, and the negative finding is restated as covering sub-rules (1) to (5) so that it is true of the whole rule. Rule 10B(1)(e)(iii) requires the adjustment, rule 10B(3)(ii) permits comparability to be established by it, and rule 10C(2)(e) makes the capacity to make reliable and accurate adjustments a factor in method selection, but the computation is left entirely at large. I did not search the Rules beyond those three and make no statement about any rule I did not read. STALE-PAGE WARNING relevant to this entry: rule 10B(4) as now printed carries a second proviso excluding the use of prior-year data for a transaction entered into on or after 1 April 2014, and that proviso is a 2015 insertion; a reader working from any edition that predates it will take the first proviso at face value. I did not locate an earlier departmental edition of rule 10B to cite as the stale one. 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 under rule 10B(1)(e)(iii) the net profit margin arising in comparable uncontrolled transactions is to be adjusted to take into account differences between the transactions or between the enterprises which could materially affect the amount of net profit margin in the open market; that under rule 10B(3) an uncontrolled transaction is comparable if either none of the differences is likely to materially affect the price, cost or profit in the open market, OR reasonably accurate adjustments can be made to eliminate the material effects of such differences, the two limbs being disjunctive; that rule 10B(3)(ii) read with rule 10B(1)(e)(iii) is accordingly the statutory basis on which a working capital adjustment or a risk adjustment is claimed; and that neither rule 10B nor rule 10C nor rule 10CA prescribes any method, formula, base or rate by which either adjustment is to be computed.
TaxSphere, “Statutory position — rule 10B(1)(e) and rule 10B(3): how the transactional net margin method is applied, and the second limb of rule 10B(3) under which reasonably accurate adjustments to eliminate the material effects of differences are the statutory basis for working capital and risk adjustments”, https://taxnotice.vittsphere.com/caselaw/case/statutory-position-rule-10b-1-e-and-10b-3-comparability-adjustments/ (validity last checked 2026-09-17)
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.
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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 Transfer Pricing Officer's adjustment is within three per cent of our price. Can I still claim the tolerance band under the proviso to s.92C(2), or has that gone?
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 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?
