The Transfer Pricing Officer has built a dataset of eleven comparables and priced my captive unit at the median - what has to happen in the next thirty days, and how much of the adjustment can the exclusions actually remove?
The client is a wholly owned Indian subsidiary of a United States software group, assessed at a circle in Pune, writing application software for the parent alone. For AY 2023-24 its operating cost was Rs 82,00,00,000, billed to the parent at cost plus twelve per cent: revenue Rs 91,84,00,000, margin on cost 12.00 per cent. The accountant's report of 31 October 2023 used the transactional net margin method with the Indian company as tested party. Receivables overdue beyond sixty days stood at Rs 3,10,00,000 all year. The return of 30 November 2023 declared Rs 9,40,00,000. A s.143(2) notice issued on 28 June 2024, the reference went on 22 July 2025, and the s.92CA(3) order is dated 30 January 2026. It builds a dataset of eleven comparables at 9.40, 10.90, 11.60, 13.20, 15.40, 18.30, 21.00, 22.50, 26.30, 31.20 and 58.70 per cent. Under Rule 10CA the thirty-fifth percentile is 13.20 and the sixty-fifth 22.50, so 12.00 per cent falls below the range and the price goes to the median, 18.30 per cent - Rs 97,00,60,000, adjustment Rs 5,16,60,000. Imputed interest on the receivables at 11.05 per cent adds Rs 34,25,500 - Rs 5,50,85,500 in all. The draft order under s.144C(1) is dated 27 February 2026, served 3 March 2026; it takes assessed income to Rs 14,90,85,500 and tax from Rs 2,61,50,800 to Rs 4,34,13,700, the surcharge moving from seven to twelve per cent as income crosses Rs 10,00,00,000. Objections went in on 31 March 2026.
Before reading a comparable, establish which regime prices the transaction. For a transaction undertaken on or after 1 April 2014 benchmarked on the transactional net margin method, the third proviso to s.92C(2) disapplies the arithmetic mean and the tolerance band, and Rule 10CA supplies the arm's length range instead. That single point decides what the exclusions are worth: under the range regime what matters is which comparable sits at the thirty-fifth percentile, not what the mean is. Then diary the thirty days from the date the draft order was served, because the objection window and the nine-month Panel clock run from different dates.
Section 144C(1) requires the Assessing Officer to forward a draft order to an eligible assessee before making any variation prejudicial to it, and s.144C(2) gives the assessee thirty days from receipt to do one of two things - file acceptance with the officer, or file objections with the Dispute Resolution Panel and with the officer. If neither is done, s.144C(3) and s.144C(4) have the officer complete the assessment on the basis of the draft within one month from the end of the month in which the thirty days expire, and the Panel route is gone for good. The library's concept page puts it the same way: the draft order is the gateway to the Panel. Here the draft is dated 27 February 2026 and was served on 3 March 2026, so the window closed on 2 April 2026 and the objections went in on 31 March 2026.
This was the first ground practitioners took and it no longer exists on these dates. Section 92CA(3A) requires the order at least sixty days before the limitation for completing the assessment expires; for AY 2023-24 that date is 31 March 2025, extended by twelve months under s.153(4) because a reference was made, so 31 March 2026. On the old counting, which a High Court and a Tribunal Bench applied, the expiry date was excluded and the order had to be made before the sixtieth day - 29 January 2026 - so an order of 30 January 2026 was a day late. That arithmetic has been reversed by statute. Section 92CA(3AA), inserted with retrospective effect from 1 June 2007 and opening notwithstanding anything contained in any judgment, order or decree of any court, deems the count to be made so that where limitation expires on 31 March of a year that is not a leap year the order may be made up to 30 January. 2026 is not a leap year. The order of 30 January 2026 is in time.
Three limits are worth pleading at the Panel because they decide what the officer may do at all. A High Court has held that the Assessing Officer's satisfaction, even prima facie, that an international transaction exists is a condition precedent to a reference under s.92CA(1), and that where a threshold objection to jurisdiction is raised it must be dealt with. A second has held the jurisdictions distinct - the Transfer Pricing Officer determines the arm's length price of the referred transaction and may find it nil, but whether the expenditure is allowable at all is for the Assessing Officer. A third has held that the officer must price the transaction the associated enterprises actually entered into and not decide whether they should have entered into it, and a fourth that broad-basing the profit denominator to the whole free-on-board value of the associated enterprise's contracts is contrary to the Act and the Rules and finds no mention in either.
Three of the eleven go on stated filters. The listed software company has operating revenue of Rs 45,92,00,00,000 against the tested party's Rs 91,84,00,000, fifty times over, and one High Court has held that turnover is obviously relevant because scale drives bargaining power, risk profile and margins, excluding companies at twenty-three to sixty-five times the tested party; another upheld the exclusion of a giant from a captive software developer's set on size, full entrepreneurial risk, branded products and heavy research spend. The second comparable takes sixty-two per cent of its revenue from product licences and owns branded intangibles, so it fails a seventy-five per cent service-income filter, and a High Court has held that a broad service label covers services of completely different content and value and does not conclude the comparability enquiry under the Rules. The third had a merger in the year, an extraordinary event, and its multiple-year data is unusable.
The third proviso to s.92C(2) provides that where more than one price is determined by the most appropriate method, the arm's length price for a transaction undertaken on or after 1 April 2014 is computed as prescribed, and that the first and second provisos - the arithmetic mean and the tolerance band - shall not apply. Rule 10CA is what is prescribed. A Tribunal Bench has set out its commencement: notified in October 2015, applicable to transactions undertaken on or after 1 April 2014, only where the most appropriate method is the resale price, cost plus or transactional net margin method, with the range beginning at the thirty-fifth percentile and ending at the sixty-fifth, and a price within the range accepted. Where the dataset has six or more entries the range applies and, if the price is outside it, the arm's length price is the median. So the whole exercise is positional: on eleven entries the thirty-fifth percentile is the fourth value, 13.20 per cent, and the tested party's 12.00 per cent sits below it.
Under the range regime an exclusion is worth only what it does to one position. Take out the giant at 31.20 and the product company at 26.30 and nine entries remain: the thirty-fifth percentile is still the fourth value, 13.20, the tested party is still below the range, and the price is the median of the nine, 15.40 per cent - Rs 94,62,80,000, an adjustment of Rs 2,78,80,000 instead of Rs 5,16,60,000. Take out the third, the company with the merger in the year, and eight remain: the thirty-fifth percentile drops to the third value, 11.60, the tested party's 12.00 per cent is inside the range, and the price charged is the arm's length price. The third exclusion is worth the whole remaining adjustment; the first two are worth Rs 2,37,80,000 between them. The Rs 34,25,500 is benchmarked on a rate, so nothing that happens to the dataset touches it: one Tribunal Bench refused to import the ninety-day repatriation window from the secondary adjustment machinery, and another held the safe harbour scheme does not cover interest on receivables at all.
Three separate penalties run alongside a transfer pricing adjustment and they fail for different reasons. On the documentation penalty, a Tribunal Bench deleted a levy of Rs 56,72,162 where the assessee had furnished entity-level margins but could not split associated-enterprise from non-associated-enterprise segments, because the reasonable cause defence applies. On the penalty for not maintaining prescribed documentation, another Bench held the order must identify the information or document prescribed by the documentation section read with the rule that was not maintained, and that a general assertion will not do. On the flat penalty for the accountant's report, a third held it is not automatic: the section says the officer may direct payment, not shall, and the reasonable cause provision forbids it where cause is proved.
Assume the comparables fight ends at the Tribunal, and note how it gets there: an order made by the Assessing Officer in pursuance of the Panel's directions is appealable to the Tribunal under s.253(1)(d), so the first appeal is bypassed altogether. The Supreme Court has held there is no absolute rule that an arm's length price fixed by the Tribunal cannot be examined under the appeal provision to the High Court, and that a determination made in disregard of the Chapter and the Rules is open - so a win below is not the end. In parallel the competent authority route under the treaty is live because the parent is in a treaty country. Tribunal Benches have held that withdrawal following a resolution is allowed with express liberty to revive if it is not implemented, and that where the resolution covers one country's associated enterprises the claim to the same treatment for transactions with associated enterprises elsewhere is arguable and will be restored for examination rather than shut out.
Partial exclusion is the normal outcome and it usually happens at the Tribunal rather than at the Panel. Under the range regime that matters less than it used to: taking out one or two high comparables often leaves the thirty-fifth percentile where it was and the adjustment merely drops to a lower median. The case is won only when an exclusion moves that one position, so order the grounds by what each does to it. At the Tribunal the turnover and product-revenue exclusions go through more often than not, and a working capital adjustment filed as a computation is allowed reasonably often and refused for want of workings very often. Remand for fresh comparability analysis is at least as common as a decision either way and adds two years. The receivables adjustment usually survives.
