CA Final · Direct Tax Laws & International Taxation · Transfer Pricing
Anaya Tech Ltd.'s arm's length price for a transaction was determined by the TPO under section 166(6) for a tax year. The assessee exercised the prescribed option for the two following consecutive tax years, and the TPO declared the option valid. A reference under section 166(1) for a similar transaction in the first following year was made by the AO before the declaration. What is the effect under section 166?
The reference is treated as if no reference was made for that transaction. Section 166(3) applies whether the reference came before or after the TPO's declaration of validity of the option, so the earlier year's arm's length price governs the similar transaction.
- AThe reference stands, and the TPO makes a fresh determination
- BThe reference is treated as if no reference was made for that transactionCorrect
- CThe reference lapses only if the AO withdraws it
- DThe reference is valid, but the order is limited to the second following year
Explanation
Section 166(3) states that where a reference is made, before or after the TPO's declaration, for a tax year for which the option is declared valid, section 166(1) has effect as if no reference was made. The timing before the declaration does not save the reference. The ALP of the earlier year is applied, and the AO recomputes income under the provisions in section 166(12).
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