Skip to content

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

For the tax year 2026-27, the TPO determined the arm's length price of Bharat Chemicals Ltd's import of raw material from its associated enterprise under section 166(6). Bharat Chemicals exercises a valid option in the prescribed form, manner and time for the next two years. Which statement is correct under section 166?

The TPO must, by written order, declare the option valid within one month from the end of the month in which it is exercised. The price then applies to similar transactions for the two consecutive tax years immediately following, not five years, and the declaring authority is the TPO.

  1. AThe TPO's declaration of validity must be made by order within one month from the end of the month in which the option is exercisedCorrect
  2. BThe arm's length price automatically applies to the next five tax years
  3. CThe option applies only if the Assessing Officer, not the TPO, declares it valid
  4. DThe declaration of validity must be made within sixty days from the date of the option

Explanation

Section 166(9) lets the determined arm's length price apply to similar transactions for the two consecutive tax years immediately following, if the assessee exercises the option as prescribed and the TPO by written order declares it valid within one month from the end of the month of exercise. Five years and the sixty-day period are not in the text, and the declaration is by the TPO.

Did you get it right without looking?

One question tells you little. A timed set on Transfer Pricing shows your real accuracy, how long you take and where you lose marks.

Practise Transfer PricingFree diagnostic mock

More Transfer Pricing questions