[Opinion] Can an AE Become Its Own Comparable Under Rule 10AB?

Harshavardhana Datar – [2026] 187 taxmann.com 1068 (Article)

1. “Transfer pricing has always searched for comparables. But perhaps the more important question is whether we have been too eager to find one. Can a transaction between two Associated Enterprises become the very benchmark used to test another Associated Enterprise transaction? The question sounds uncomfortable. Yet discomfort is often where legal interpretation begins.”

Introduction – Why Rule 10AB is Misunderstood

2. If there is one provision in the Indian transfer pricing regulations that has generated more assumptions than discussion, it is Rule 10AB in Income Tax Rules 1962 (similar counterpart in Rule 78 in Income Tax Rules 2026). Popularly referred to as the “Other Method”, it is often treated as a residual basket into which almost every transaction that does not comfortably fit within the traditional methods is thrown. Mention Rule 10AB in a professional discussion, and the responses are almost predictable—DCF valuation, merchant banker reports, quotations, bids, offers, valuation reports, or simply “any reasonable method.”

3. Interestingly, very few discussions begin with what should have been the obvious starting point—the text of the Rule itself. Perhaps this is because Rule 10AB appears deceptively simple. Unlike Rule 10B, which prescribes detailed computational mechanisms for the Comparable Uncontrolled Price (CUP) Method, Resale Price Method, Cost Plus Method, Transactional Net Margin Method and other prescribed methods, Rule 10AB adopts broad language. It speaks of “any method” that takes into account the price that has been charged or paid, or would have been charged or paid, for the same or similar uncontrolled transaction. Those five words—”would have been charged or paid”—have, over the years, received extraordinary attention.

4. Unfortunately, what follows those words has not. In many practical situations, discussions stop at the expression “would have been charged or paid,” as though those words alone define the scope of Rule 10AB. Once that happens, the Rule begins to look like an unrestricted valuation provision, capable of accommodating almost any approach that appears commercially reasonable. If an independent valuation is available, Rule 10AB is invoked. If there are no direct comparables, Rule 10AB is invoked. If another transaction involving an Associated Enterprise (AE) appears helpful, Rule 10AB is invoked. Over time, the provision has acquired a reputation for being a flexible alternative to the prescribed methods, sometimes even an escape route when traditional comparables are difficult to locate.

5. This understanding, however, deserves a second look. The objective of this write-up is not to argue that Rule 10AB has no flexibility. It undoubtedly does. Nor is it to suggest that valuation techniques such as Discounted Cash Flow (DCF) or other accepted financial methodologies have no role in determining the Arm’s Length Price (ALP). They certainly do.

Click Here To Read The Full Article