81. Determination of arm's length price in certain cases.—

(1) Where in respect of an international transaction or a specified domestic transaction, the application of the most appropriate method referred to in section 165(3)(b) results in determination of more than one price, the arm‘s length price in respect of such transactions shall be computed in accordance with the provisions of this rule.

(2) A dataset shall be constructed by placing the prices referred to in sub-rule (1) in an ascending order and the arm's length price shall be determined on the basis of the dataset so constructed.

(3) For the purposes of sub-rule (2), where the most appropriate method is the resale price method, cost plus method, or transactional net margin method, and where the comparable uncontrolled transaction undertaken by an enterprise, not being the enterprise undertaking such transactions referred to in sub-rule (1), has been identified using data relating to—

(a) the current year, and the said enterprise has undertaken the same or similar comparable uncontrolled transaction, in either or both of the two financial years immediately preceding the current year, then, —

(i) the price in respect of such transaction in such year (or years) shall be determined by applying the most appropriate method in the similar manner as applied in the current year; and

(ii) the weighted average of such prices, as computed under sub-rule (5), shall be included in the dataset under sub-rule (2) instead of price referred to in sub-rule (1);

(b) the financial year immediately preceding the current year (if the data relating to current tax year is not available at the time of furnishing return of income for that year), and the said enterprise has undertaken the same or similar comparable uncontrolled transaction in the financial year immediately preceding the two financial years, then—

(i) the price in respect of such transaction shall be determined by applying the most appropriate method in the similar manner as it was applied in the financial year immediately preceding the current year; and

(ii) the weighted average of such prices, as computed under sub-rule (5), shall be included in the dataset under sub-rule (2) instead of price referred to in sub-rule (1).

(4) Where the use of data relating to the current year, in terms of rule 79(5), establishes that—

(a) the enterprise has not undertaken the same or similar uncontrolled transaction during the current year; or

(b) the uncontrolled transaction undertaken during the current year is not a comparable uncontrolled transaction, then, irrespective of anything else, neither the price nor the weighted average of prices of the comparable uncontrolled transactions shall be included in the dataset.

(5) Where an enterprise has undertaken comparable uncontrolled transactions in more than one financial year, the weighted average of the prices of such transactions for the purposes of sub-rules (2), (3) and (4) shall be computed based on the method used for determination of prices as specified in column B of the following Table and by assigning weights to the factors specified in column C thereof: —

Table

(6) Where the most appropriate method is comparable uncontrolled price method or resale price method or cost plus method or transactional net margin method and the dataset constructed in accordance with sub-rule (2) consists of six or more entries, an arm's length range beginning from the 35th percentile of the dataset and ending on the 65th percentile of the dataset shall be constructed and, if the price at which the international transaction or the specified domestic transaction has actually been undertaken is —

(a) within such arm‘s length range, such price shall be deemed to be the arm's length price;

(b) outside such arm's length range, the median of the dataset shall be used to compute the arm‘s length price.

(7) Where the provisions of sub-rule (6) are not applicable, the arm‘s length price shall be —

(a) the arithmetical mean of all the values included in the dataset; or

(b) the price at which such transaction has actually been undertaken, if the variation between the arm‘s length price so determined and the price at which the international transaction or the specified domestic transaction has actually been undertaken does not exceed such percentage, not exceeding 3% of the latter, as may be notified in this behalf by the Central Government.

(8) For the purposes of this rule, —

(a) ?median? of the dataset, having values arranged in an ascending order, shall be —

(i) the lowest value in the dataset where at least 50% of the values are less than or equal to it; or

(ii) the arithmetic mean of such lowest value and the value immediately succeeding it in the dataset, if the number of all values that are equal to or less that the aforesaid value is a whole number;

(b) (i) ?35th percentile? of a dataset, having values arranged in an ascending order, shall be —

(A) the lowest value in the dataset such that at least 35% of the values included in the dataset are equal to or less than such value; or

(B) the arithmetic mean of such lowest value and the value immediately succeeding it in the dataset, if the number of all values that are equal to or less that the aforesaid value is a whole number; and

(ii) ?65th percentile? of a dataset, having values arranged in an ascending order, shall be —

(A) the lowest value in the dataset such that at least 65% of the values included in the dataset are equal to or less than such value; or

(B) the arithmetic mean of such lowest value and the value immediately succeeding it in the dataset, if the number of all values that are equal to or less that the aforesaid value is a whole number.