Rule 111 of the Draft Income-tax Rules, 2026 provides for the rollback of an Advance Pricing Agreement (APA), allowing determination of the arm’s length price (ALP) for international transactions in prior years, known as rollback years. The rollback provision applies only if the international transaction is the same as covered in the agreement, returns of income and prescribed reports for the rollback years were furnished within specified timelines, and the applicant requests rollback for all relevant rollback years in which such transaction was undertaken. The request must be made in Form No. 51 along with an additional fee of ₹5 lakhs. However, rollback is not permitted if the ALP for that year has already been adjudicated by the Appellate Tribunal before signing of the agreement, or if applying rollback would reduce total income or increase the declared loss for that year. Further, where rollback specifies the method of determining ALP, it must be consistent with the method agreed for prospective years under the APA. Thus, Rule 111 enables limited retrospective certainty in transfer pricing while safeguarding revenue interests through defined restrictions.
Extract of Rule No. 111 of Draft Income-tax Rules, 2026
Rule 111
Roll Back of the Agreement.
(1) Subject to the provisions of this rule, the agreement may provide for determining the arm’s length price in relation to an international transaction or specify the manner in which such arm’s length price shall be determined during the rollback year (hereinafter referred to as “rollback provision”).
(2) The rollback provision shall be subject to the following, namely: —
(i) the international transaction is same as the international transaction to 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 within the time specified in section 263(4);
(iii) the report in respect of the international transaction had been furnished within the time specified in clause (ii);
(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 application seeking rollback in Form No. 51 has been made in accordance with sub-rule (5).
(3) Irrespective of anything contained in sub-rule (2), rollback provision 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 Appellate Tribunal and the Appellate Tribunal 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.
(4) Where the rollback provision specifies the manner in which arm’s length price shall be determined in any rollback year then such manner shall be the same as the manner which has been agreed to be provided for determination of arm’s length price of the same international transaction to be undertaken in any tax year to which the agreement applies, not being a rollback year.
(5) The applicant may, if he desires to enter into an agreement with rollback provision, furnish along with the application, the request for the same in Form No. 51 with proof of payment of an additional fee of ₹ 5 lakhs.
