Clarifications on Rollback Provisions of Advance Pricing Agreement Scheme
June, 12th 2015
Circular No. 10/2015
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
Foreign Tax and Tax Research Division-I
New Delhi, dated 10th June, 2015
Subject: Clarifications on Rollback Provisions of Advance Pricing Agreement
The Advance Pricing Agreement provisions were introduced in 2012
through insertion of sections 92CC and 92CD in the Income-tax Act, 1961 by the
Finance Act, 2012. Subsequently, the Advance Pricing Agreement Scheme was
notified vide S.O. 2005 (E), dated 30/8/2012, thereby inserting Rules 10F to 10T
and Rule 44GA in the Income-tax Rules, 1962.
2. Rollback provisions in the APA Scheme were introduced through sub-
section (9A) inserted in section 92CC by the Finance (No. 2) Act, 2014 and the
relevant rules, namely, Rules 10MA and 10RA, have been notified recently vide
S.O. 758(E) dated 14th March, 2015 and S.O. 915(E) dated 1st April, 2015.
Subsequent to the notification of the rules, requests for clarification regarding
certain issues have been received in the Central Board of Direct Taxes. In order
to clarify such issues, the Board has decided to adopt a Question and Answer
format and the clarifications are hereby provided as below:
Q.1 Under rule 10 MA(2)(ii) there is a condition that the return of income for the
relevant roll back year has been or is furnished by the applicant before the due
date specified in Explanation 2 to sub-section (1) of section 139 of the Income-
tax Act (hereinafter referred to as the `Act'). It is not clear as to whether
applicants who have filed returns under section 139(4) or 139(5) of the Act
would be eligible for roll back.
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The return of income under section 139(5) of the Act can be filed only when a
return under section 139(1) has already been filed. Therefore, the return of
income filed under section 139(5) of the Act, replaces the original return of
income filed under section 139(1) of the Act. Hence, if there is a return which is
filed under section 139(5) of the Act to revise the original return filed before the
due date specified in Explanation 2 to sub-section (1) of section 139, the
applicant would be entitled for rollback on this revised return of income.
However, rollback provisions will not be available in case of a return of income
filed under section 139(4) because it is a return which is not filed before the due
Q.2 Rule 10MA (2)(i) mandates that the rollback provision shall apply in respect
of an international transaction that is same as the international transaction to
which the agreement (other than the rollback provision) applies. It is not clear
what is the meaning of the word "same". Further, it is not clear whether this
restriction also applies to the Functions, Assets, Risks (FAR) analysis.
The international transaction for which a rollback provision is to be allowed
should be the same as the one proposed to be undertaken in the future years
and in respect of which the agreement has been reached. There cannot be a
situation where rollback is finalised for a transaction which is not covered in the
agreement for future years. The term same international transaction implies that
the transaction in the rollback year has to be of same nature and undertaken
with the same associated enterprise(s), as proposed to be undertaken in the
future years and in respect of which agreement has been reached. In the
context of FAR analysis, the restriction would operate to ensure that rollback
provisions would apply only if the FAR analysis of the rollback year does not differ
materially from the FAR validated for the purpose of reaching an agreement in
respect of international transactions to be undertaken in the future years for
which the agreement applies.
The word "materially" is generally being defined in the Advance Pricing
Agreements being entered into by CBDT. According to this definition, the word
"materially" will be interpreted consistently with its ordinary definition and in a
manner that a material change of facts and circumstances would be
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understood as a change which could reasonably have resulted in an
agreement with significantly different terms and conditions.
Q.3 Rule 10MA (2)(iv) requires that the application for rollback provision, in
respect of an international transaction, has to be made by the applicant for all
the rollback years in which the said international transaction has been
undertaken by the applicant. Clarification is required as to whether rollback has
to be requested for all four years or applicant can choose the years out of the
block of four years.
The applicant does not have the option to choose the years for which it wants
to apply for rollback. The applicant has to either apply for all the four years or
not apply at all. However, if the covered international transaction(s) did not exist
in a rollback year or there is some disqualification in a rollback year, then the
applicant can apply for rollback for less than four years. Accordingly, if the
covered international transaction(s) were not in existence during any of the
rollback years, the applicant can apply for rollback for the remaining years.
Similarly, if in any of the rollback years for the covered international
transaction(s), the applicant fails the test of the rollback conditions contained in
various provisions, then it would be denied the benefit of rollback for that
rollback year. However, for other rollback years, it can still apply for rollback.
Q.4 Rule 10 MA(3) states that the rollback provision shall not be provided in
respect of an international transaction for a rollback year if the determination of
arm's length price of the said international transaction for the said year has
been the subject matter of an appeal before the Appellate Tribunal and the
Appellate Tribunal has passed an order disposing of such appeal at any time
before signing of the agreement. Further, Rule 10 RA(4) provides that if any
appeal filed by the applicant is pending before the Commissioner (Appeals),
Appellate Tribunal or the High Court for a rollback year, on the issue which is
subject matter of the rollback provision for that year, the said appeal to the
extent of the subject covered under the agreement shall be withdrawn by the
There is a need to clarify the phrase "Tribunal has passed an order disposing of
such appeal" and on the mismatch, if any, between Rule 10MA(3) and Rule
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The reason for not allowing rollback for the international transaction for which
Appellate Tribunal has passed an order disposing of an appeal is that the ITAT is
the final fact finding authority and hence, on factual issues, the matter has
already reached finality in that year. However, if the ITAT has not decided the
matter and has only set aside the order for fresh consideration of the matter by
the lower authorities with full discretion at their disposal, the matter shall not be
treated as one having reached finality and hence, benefit of rollback can still
There is no mismatch between Rule 10MA(3) and Rule 10RA(4).
Q.5 Rule 10MA(3)(ii) provides that rollback provision shall not be provided in
respect of an international transaction for a rollback year if the application of
rollback provision has the effect of reducing the total income or increasing the
loss, as the case may be, of the applicant as declared in the return of income of
the said year. It may be clarified whether the rollback provisions in such
situations can be applied in a manner so as to ensure that the returned income
or loss is accepted as the final income or loss after applying the rollback
It is clarified that in case the terms of rollback provisions contain specific
agreement between the Board and the applicant that the agreed
determination of ALP or the agreed manner of determination of ALP is subject to
the condition that the ALP would get modified to the extent that it does not
result in reducing the total income or increasing the total loss, as the case may
be, of the applicant as declared in the return of income of the said year, the
rollback provisions could be applied. For example, if the declared income is Rs.
100, the income as adjusted by the TPO is Rs. 120, and the application of the
rollback provisions results in reducing the income to Rs. 90, then the rollback for
that year would be determined in a manner that the declared income Rs. 100
would be treated as the final income for that year.
Q.6 Rule 10RA(7) states that in case effect cannot be given to the rollback
provision of an agreement in accordance with this rule, for any rollback year to
which it applies, on account of failure on the part of applicant, the agreement
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shall be cancelled. It is to be clarified as to whether the entire agreement is to
be cancelled or only that year for which roll back fails.
The procedure for giving effect to a rollback provision is laid down in Rule 10RA.
Sub-rules (2), (3), (4) and (6) of the Rule specify the actions to be taken by the
applicant in order that effect may be given to the rollback provision. If the
applicant does not carry out such actions for any of the rollback years, the
entire agreement shall be cancelled. This is because the rollback provision has
been introduced for the benefit of the applicant and is applicable at its option.
Accordingly, if the rollback provision cannot be given effect to for any of the
rollback years on account of the applicant not taking the actions specified in
sub-rules (2), (3), (4) or (6), the entire agreement gets vitiated and will have to
Q.7 If there is a Mutual Agreement Procedure (MAP) application already
pending for a rollback year, what would be the stand of the APA authorities?
Further, what would be the view of the APA Authorities if MAP has already been
concluded for a rollback year?
If MAP has been already concluded for any of the international transactions in
any of the rollback year under APA, rollback provisions would not be allowed for
those international transactions for that year but could be allowed for other
years or for other international transactions for that year, subject to fulfilment of
specified conditions in Rules 10MA and 10RA. However, if MAP request is
pending for any of the rollback year under APA, upon the option exercised by
the applicant, either MAP or application for roll back shall be proceeded with
for such year.
Q.8 Rule 10MA(1) provides that the agreement may provide for determining ALP
or manner of determination of ALP. However, Rule 10MA(4) only specifies that
the manner of determination of ALP should be the same as in the APA term.
Does that mean the ALP could be different?
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Yes, the ALP could be different for different years. However, the manner of
determination of ALP (including choice of Method, comparability analysis and
Tested Party) would be same.
Q.9 Will there be compliance audit for roll back? Would critical assumptions
have to be validated during compliance audit?
Since rollback provisions are for past years, ALP for the rollback years would be
agreed after full examination of all the facts, including validation of critical
assumptions. Hence, compliance audit for the rollback years would primarily be
to check if the agreed price or methodology has been applied in the modified
Q.10 Whether applicant has an option to withdraw its rollback application? Can
the applicant accept the rollback results without accepting the APA for the
The applicant has an option to withdraw its roll back application even while
maintaining the APA application for the future years. However, it is not possible
to accept the rollback results without accepting the APA for the future years. It
may also be noted that the fee specified in Rule 10MA(5) shall not be refunded
even where a rollback application is withdrawn.
Q.11 For already concluded APAs, will new APAs be signed for rollback or earlier
APAs could be revised?
The second proviso to Rule 10MA(5) provides for revision of APAs already
concluded to include rollback provisions.
Q.12 For already concluded APAs, where the modified return has already been
filed for the first year of the APA term, how will the time-limit for filing modified
return for rollback years be determined?
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The time to file modified return for rollback years will start from the date of
signing the revised APA incorporating the rollback provisions.
Q.13 In case of merger of companies, where one or more of those companies
are APA applicants, how would the rollback provisions be allowed and to which
company or companies would it be allowed?
The agreement is between the Board and a person. The principle to be followed
in case of merger is that the person (company) who makes the APA application
would only be entitled to enter into the agreement and be entitled for the
rollback provisions in respect of international transactions undertaken by it in
rollback years. Other persons (companies) who have merged with this person
(company) would not be eligible for the rollback provisions.
To illustrate, if A, B and C merge to form C and C is the APA applicant, then the
agreement can only be entered into with C and only C would be eligible for the
rollback provisions. A and B would not be eligible for the rollback provisions. To
illustrate further, if A and B merge to form a new company C and C is the APA
applicant, then nobody would be eligible for rollback provisions.
Q.14 In case of a demerger of an APA applicant or signatory into two or more
companies (persons), who would be eligible for the rollback provisions?
The same principle as mentioned in the previous answer, i.e., the person
(company) who makes an APA application or enters into an APA would only be
entitled for the rollback provisions, would continue to apply. To illustrate, if A has
applied for or entered into an APA and, subsequently, demerges into A and B,
then only A will be eligible for rollback for international transactions covered
under the APA. As B was not in existence in rollback years, availing or grant of
rollback to B does not arise.
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