I.Introduction:

Section 92CC of the Act empowers the CBDT to enter into an Advance Pricing Agreement (APA) with any person for determining the Arm's Length Price (ALP) or specifying the manner in which ALP is to be determined in relation to an international transaction to be entered into by such person. The agreement entered into is valid for a period, not exceeding 5 previous years, as may be mentioned in the agreement. Once the agreement is entered into, the ALP of the international transaction, which is subject matter of the APA, would be determined in accordance with such an APA.
In many countries the APA scheme provides for "roll back" mechanism for dealing with ALP issues relating to transactions entered into during the period prior to APA. Providing of such a mechanism in Indian legislation would lead to reduction in large scale litigations which are currently pending or may arise in future in respect of the transfer pricing matters. Thus, the Finance (No. 2) Act, 2014 amended the Act to provide for roll back mechanism in the APA scheme. The Indian APA scheme provides for roll back of four previous years preceding the first previous years for which the APA applies in respect of the international transaction to be undertaken in future.
Now, the CDBT has announced Income-tax (Third Amendment) Rules, 2015 to prescribe the conditions, procedure and manner for such roll back mechanism.

II. Pre-filing consultation:
Earlier the request for pre-filing consultation was mandatory for every person who proposed to enter into an APA. Now the request for pre-filing consultation has been made optional.
The pre-filing consultation shall, among other things,—
  (i) determine the scope of the agreement;
(ii) identify transfer pricing issues;
(iii) determine the suitability of international transaction for the agreement;
(iv) discuss broad terms of the agreement.

III.Terms of agreement
Now the roll back provisions are included under the terms of APA.

IV. Conditions for applying for APA containing rollback provision:
The APA may provide for determining the ALP or specifying the manner in which ALP shall be determined in relation to international transaction entered into during the rollback year. The APA shall contain roll back provision subject to following conditions:
  (i) the international transaction is same as the international transactionto which the agreement (other than the rollback provision) applies;
(ii) the return of income for the relevant rollback year has been or is furnished by the applicant before the due date of fling return under Section 139(1);
(iii) the report in respect of the international transaction had been furnished in accordance with section 92E;
(iv) the applicability of rollback provision, in respect of an international transaction, has been requested by the applicant for all the rollback years in which the said international transaction has been undertaken by the applicant; and
(v) the applicant has made an application seeking rollback in Form No. 3CEDA in accordance with prescribed Rule (to be discussed later)

V. Prohibition on including rollback provisions:
Rollback provisions shall not be provided in respect of an international transaction for a rollback year, if,-
  (i) the determination of arm's length price of the said international transaction for the said year has been subject matter of an appeal before the Tribunal and it has passed an order disposing of such appeal at any time before signing of the agreement; or
(ii) 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.

VI. Manner of computing ALP:
Where rollback provision specifies the manner in which ALP shall be determined, then such manner shall be the same as has been determined for future years to which agreement applies, in respect of same international transaction.

VII. How to apply for APA containing Rollback provision:
An applicant desirous of entering into an agreement with rollback provision is required to furnishalong with the application, request in Form No. 3 CEDA and proof of payment of an additional fee of five lakh rupees.

VIII. Applicability of rollback provision to existing agreements or agreements for which application is filed:
Applicant can apply for rollback provision even in those cases in which application for entering into agreement has been filed prior to January 1, 2015. In that case the applicant is required to request for rollback provision in Form No. 3CEDA along with proof of payment of requisite fee on or before March 31, 2015 or the date of entering into the agreement, whichever is earlier.
Applicant can apply for rollback provision even in those cases wherein agreement has been entered into prior to January 1, 2015. In that case applicant is required to request for rollback provision in Form No. 3CEDA along with proof of payment of requisite fee on or before March 31, 2015 in order to revise such an agreement.

IX. Procedure for giving effect to rollback provision in APA:
  (i) Filing of modified return: Any person entering into an APA shall necessarily have to furnish a modified return within a period of 3 months from the end of the month in which the said APA was entered into in respect of the return of income already filed to which the APA applies.
Any person who has applied for APA containing roll back provisions is required to furnish the modified return in respect of preceding four years (i.e., rollback years) along with the modified return in respect of first of the previous year for which the agreement has been requested for in the application.
(ii) Withdrawal of pending appeal: If any appeal filed by the applicant is pending before the CIT(A), Tribunal or the High Court for a rollback year, on the issue which is the subject matter of the rollback provision for that year, the applicant is required to withdraw said appeal. The said appeal needs to be withdrawn before furnishing of modified return for the said year. Similarly, where such appeal filed by the AO or the Principal CIT or CITis pending they shall withdraw such an appeal within three months of filing of modified return by the applicant.
(iii) Information about rollback provision: The applicant, the AO or the Principal CIT or the CIT shall inform the Dispute Resolution Panel or the CIT(A) or the Appellate Tribunal or the High Court, as the case may be, about the fact of an agreement containing rollback provision having been entered into along with a copy of the same, as soon as it is practicable to do so.
(iv) Cancellation of Agreement: In case effect cannot be given to the rollback provision, for any rollback year on account of failure of assessee, the agreement shall be cancelled.
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