Computation of arm’s length price.

1. (1) The arm’s length price in relation to an 1[international transaction or specified domestic transaction] shall be determined by any of the following methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as the Board may prescribe, namely:—
   • (a) comparable uncontrolled price method;
   • (b) resale price method;
   • (c) cost plus method;
   • (d) profit split method;
   • (e) transactional net margin method;
   • (f) such other method as may be prescribed by the Board.
2. (2) The most appropriate method referred to in sub-section (1) shall be applied, for determination of arm’s length price, in the manner as may be prescribed: 2[Provided that where more than one price is determined by the most appropriate method, the arm’s length price shall be taken to be the arithmetical mean of such prices: Provided further that if the variation between the arm’s length price so determined and price at which the 1[international transaction or specified domestic transaction] has actually been undertaken does not exceed 3[such percentage 4[not exceeding three per cent.] of the latter], as may be notified] by the Central Government in the Official Gazette in this behalf, the price at which the 1[international transaction or specified domestic transaction] has actually been undertaken shall be deemed to be the arm’s length price:] 5[Provided also that where more than one price is determined by the most appropriate method, the arm’s length price in relation to an international transaction or specified domestic transaction undertaken on or after the 1st day of April, 2014, shall be computed in such manner as may be prescribed and accordingly the first and second proviso shall not apply.] 6[Explanation.—For the removal of doubts, it is hereby clarified that the provisions of the second proviso shall also be applicable to all assessment or reassessment proceedings pending before an Assessing Officer as on the 1st day of October, 2009.] 7[(2A) Where the first proviso to sub-section (2) as it stood before its amendment by the Finance (No. 2) Act, 2009 (33 of 2009), is applicable in respect of an international transaction for an assessment year and the variation between the arithmetical mean referred to in the said proviso and the price at which such transaction has actually been undertaken exceeds five per cent of the arithmetical mean, then, the assessee shall not be entitled to exercise the option as referred to in the said proviso.] 8[(2B) Nothing contained in sub-section (2A) shall empower the Assessing Officer either to assess or reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154 for any assessment year the proceedings of which have been completed before the 1st day of October, 2009.]
3. (3) Where during the course of any proceeding for the assessment of income, the Assessing Officer is, on the basis of material or information or document in his possession, of the opinion that—
   • (a) the price charged or paid in an 1[internationaltransaction or specified domestic transaction] has not been determined in accordance with sub-sections (1) and (2); or
   • (b) any information and document relating to an 1[internationaltransaction or specified domestic transaction] have not been kept and maintained by the assessee in accordance with the provisions contained in sub-section (1) of section 92D and the rules made in this behalf; or
   • (c) the information or data used in computation of the arm's length price is not reliable or correct; or
   • (d) the assessee has failed to furnish, within the specified time, any information or document which he was required to furnish by a notice issued under sub-section (3) of section 92D, the Assessing Officer may proceed to determine the arm's length price in relation to the said 1[internationaltransaction or specified domestic transaction] in accordance with sub-sections (1) and (2), on the basis of such material or information or document available with him: Provided that an opportunity shall be given by the Assessing Officer by serving a notice calling upon the assessee to show cause, on a date and time to be specified in the notice, why the arm's length price should not be so determined on the basis of material or information or document in the possession of the Assessing Officer.
4. (4) Where an arm’s length price is determined by the Assessing Officer under sub-section (3), the Assessing Officer may compute the total income of the assessee having regard to the arm's length price so determined: Provided that no deduction under section 10A or 2[section 10AA] or section 10B or under Chapter VI-A shall be allowed in respect of the amount of income by which the total income of the assessee is enhanced after computation of income under this sub-section: Provided further that where the total income of an associated enterprise is computed under this sub-section on determination of the arm’s length price paid to another associated enterprise from which tax has been deducted 3[or was deductible] under the provisions of Chapter XVIIB, the income of the other associated enterprise shall not be recomputed by reason of such determination of arm's length price in the case of the first mentioned enterprise. 4[92CA.Reference to Transfer Pricing Officer.—(1) Where any person, being the assessee, has entered into an 1[international transaction or specified domestic] transaction in any previous year, and the Assessing Officer considers it necessary or expedient so to do, he may, with the previous approval of the 5[Principal Commissioner or Commissioner], refer the computation of the arm’s length price in relation to the said 1[international transaction or specified domestic] transaction under section 92C to the Transfer Pricing Officer.
5. (2) Where a reference is made under sub-section (1), the Transfer Pricing Officer shall serve a notice on the assessee requiring him to produce or cause to be produced on a date to be specified therein, any evidence on which the assessee may rely in support of the computation made by him of the arm’s length price in relation to the 1[international transaction or specified domestic] transaction referred to in subsection (1). 6[(2A) Where any other international transaction [other than an international transaction referred under sub-section (1),] comes to the notice of the Transfer Pricing Officer during the course of the proceedings before him, the provisions of this Chapter shall apply as if such other international transaction is an international transaction referred to him under sub-section (1).] 7[(2B) Where in respect of an international transaction, the assessee has not furnished the report under section 92E and such transaction comes to the notice of the Transfer Pricing Officer during the course of the proceeding before him, the provisions of this Chapter shall apply as if such transaction is an international transaction referred to him under sub-section (1).] 1[(2C) Nothing contained in sub-section (2B) shall empower the Assessing Officer either to assess or reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year, proceedings for which have been completed before the 1st day of July, 2012.]
6. (3) On the date specified in the notice under sub-section (2), or as soon thereafter as may be, after hearing such evidence as the assessee may produce, including any information or documents referred to in sub-section (3) of section 92D and after considering such evidence as the Transfer Pricing Officer may require on any specified points and after taking into account all relevant materials which he has gathered, the Transfer Pricing Officer shall, by order in writing, determine the arm's length price in relation to the 2[internationaltransaction or specified domestic] transaction in accordance with sub-section (3) of section 92C and send a copy of his order to the Assessing Officer and to the assessee. 3[(3A) Wherea reference was made under sub-section (1) before the 1st day of June, 2007 but the order under sub-section (3) has not been made by the Transfer Pricing Officer before the said date, or a reference under sub-section (1) is made on or after the 1st day of June, 2007, an order under sub-section (3) may be made at any time before sixty days prior to the date on which the period of limitation referred to in section 153, or as the case may be, in section 153B for making the order of assessment or reassessment or recomputation or fresh assessment, as the case may be, expires:] 4[Provided that in the circumstances referred to in clause (ii) or clause (x) of Explanation 1 to section 153, if the period of limitation available to the Transfer Pricing Officer for making an order is less than sixty days, such remaining period shall be extended to sixty days and the aforesaid period of limitation shall be deemed to have been extended accordingly.] 3[(4) On receipt of the order under sub-section (3), the Assessing Officer shall proceed to compute the total income of the assessee under sub-section (4) of section 92C in conformity with the arm’s length price as so determined by the Transfer Pricing Officer.]
7. (5) With a view to rectifying any mistake apparent from the record, the Transfer Pricing Officer may amend any order passed by him under sub-section (3), and the provisions of section 154 shall, so far as may be, apply accordingly.
8. (6) Where any amendment is made by the Transfer Pricing Officer under sub-section (5), he shall send a copy of his order to the Assessing Officer who shall thereafter proceed to amend the order of assessment in conformity with such order of the Transfer Pricing Officer.
9. (7) The Transfer Pricing Officer may, for the purposes of determining the arm’s length price under this section, exercise all or any of the powers specified in clauses (a) to (d) of sub-section (1) ofsection 131 or sub-section (6) of section 133 5[or section 133A]. Explanation.—For the purposes of this section, “Transfer Pricing Officer” means a Joint Commissioner or Deputy Commissioner or Assistant Commissioner authorised by the Board to perform all or any of the functions of an Assessing Officer specified in section 92C and 92D in respect of any person or class of persons.] 6[92CB.Power of Board to make safe harbour rules.—(1) The determination of arm’s length price under section 92C or section 92CA shall be subject to safe harbour rules.
10. (2) The Board may, for the purposes of sub-section (1), make rules for safe harbour. Explanation.—For the purposes of this section, “safe harbour” means circumstances in which the income-tax authorities shall accept the transfer price declared by the assessee.]

¹ Subs. by Act 23 of 2012, s. 38, for “international transaction” (w.e.f. 1-4-2013).

² Ins. by Act 33 of 2009, s. 41 (w.e.f. 1-10-2009). Earlier substituted by Act 20 of 2002, s. 41, for proviso (w.e.f. 1-4-2002).

³ Subs. by Act 8 of 2011, s. 13, for “five per cent. of the latter” (w.e.f. 1-4-2012).

⁴ Subs. by Act 23 of 2012, s. 37, for “does not exceed such percentage of latter as may be notified” (w.e.f. 1-4-2013)

⁵ Ins. by Act 25 of 2014, s. 32 (w.e.f. 1-4-2015).

⁶ Ins. by Act 23 of 2012, s. 37 (w.r.e.f. 1-10-2009).

⁷ Ins. by s. 37, ibid. (w.r.e.f. 1-4-2002).

⁸ Ins. by Act 23 of 2012, s. 37 (w.e.f. 1-7-2012).

¹ Subs. by Act 23 of 2012, s. 38, for “international transaction” (w.e.f. 1-4-2013).

² Subs. by Act 21 of 2006, s. 21, for “section 10A or section 10M or section 10B” (w.e.f. 1-4-2007).

³ Ins. by Act 20 of 2002, s. 41 (w.e.f. 1-4-2002).

⁴ Ins. by s. 42, ibid. (1-6-2012).

⁵ Subs. by Act 25 of 2014, s. 4, for “Commissioner” (w.e.f. 1-6-2013).

⁶ Ins. by Act 8 of 2011, s. 14 (w.e.f. 1-6-2011).

⁷ Ins. by Act 23 of 2012, s. 39 (w.e.f. 1-6-2002).

¹ Ins. by Act 23 of 2012, s. 39 (w.e.f. 1-7-2012).

² Subs. by s. 38, ibid., for “international transaction” (w.e.f. 1-4-2013).

³ Ins. by Act 22 of 2007, s. 33 (w.e.f. 1-6-2007). 4. Ins. by Act 28 of 2016, s. 47 (w.e.f. 1-6-2016). 5. Ins. by Act 8 of 2011, s. 14 (w.e.f. 1-6-2011).

⁶ Ins. by Act 33 of 2009, s. 41 (w.e.f. 1-4-2009).