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20 Feb 2017 6:06 PM, Akshata Phatak

Some insights on Range Concept in TraX

Prowess TraX now enables users to generate a profit margin report based on the Range Concept.

Stage 13 of Prowess TraX, ‘Generate profit margins of target company and peers’, has been modified to include a report on profit margins using ‘Range Concept’ that was introduced by Income Tax Notification No. 83/2015. The stage has been renamed to ‘Generate profit / range margins of target companies and peers’ and users can execute any one of the two reports, a range margins report or a profit margins report. Accordingly, final documentation in TraX shall be generated based on the choice of report.

Following points need users’ attention while executing a Range Concept Margins Report in TraX :

  • Available in Vintage ‘31 Jan 2017’ and onwards

    An option to execute a Range Concept Report will be available when the case has a Vintage date from 31 Jan 2017 onwards and the case financial year selected is March 2015 or thereafter.

  • Applicability of Range Concept

    As per the rules specified in the notification, Range Concept is only applicable when the final count of comparables is six or more (excluding the target company). Therefore, an option to execute this report will not show up if the stated condition fails.

  • Rejection of comparables

    Further, the rules specify that for the purpose of calculating weighted average margins, data pertaining to upto two preceding financial years may be used. When such data is not available for one or more comparables for the case financial year as well as the year immediately preceding the case financial year, the said comparable/s will be rejected from the data set. In Prowess TraX, there is a possibilty that the count of comparables obtained after Stage-12, ‘Remove company by name’, is equal to or more than six, however, due to rejection of some companies as stated, the count falls below six and thus Range Concept Report cannot be executed. In such cases, users will be informed about the list of rejected comparables using a dialogue box showing names of all such comparable/s.

  • Annualisation

    In case of comparable/s whose financial data is available for a period of more than 12 months or less than 12 months, amounts of operating revenue, profit etc. are annualised while calculating weighted average margins. Consider the company ‘Bosch Chassis Systems India Ltd’. It has presented accounts for 15 months for the period ended March 2015. In this case, for the purpose of weighted average margin, amounts reported in the said period will be annualised. For example, ‘Sales’ of Rs. 10,722.20 million will be taken as Rs. 8,577.76 million (10,722.20/15*12).