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CA Final · Direct Tax Laws & International Taxation · Transfer Pricing

For a tax year, the TPO declared valid Meridian Chemicals Ltd.'s option under section 166(9) for a particular international transaction. Later, the Assessing Officer referred that same transaction for that year to the TPO under section 166(1), the reference being made before the TPO's declaration. What is the effect under section 166(3)?

The reference is treated as if it had never been made for that transaction. Section 166(3) says that where the option is declared valid, a reference made before or after the TPO's declaration has no effect, so the earlier timing of the reference does not save it.

  1. AThe reference stands and the TPO must determine a fresh price
  2. BThe reference is treated as if no reference was made for that transactionCorrect
  3. CThe reference is valid only if the Commissioner re-approves it
  4. DThe declaration of validity becomes void

Explanation

Section 166(3) provides that if a reference is made, before or after the declaration, for a transaction for a tax year in respect of which the option is declared valid under section 166(9), section 166(1) has effect as if no reference was made for that transaction. Hence the timing of the reference is irrelevant and the declaration is not void.

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