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

Kaveri Auto Ltd had its arm's length price for a component supply to its Thai associate determined by the TPO under section 166(6) for tax year 2026-27. The company wants the same ALP to apply to similar transactions in later years. Which of the following is correct?

The determined ALP can extend to the two consecutive tax years immediately following, but only if the assessee exercises the option in the prescribed form, manner and time and the TPO, by written order, declares the option valid. It is not automatic and not for three or five years.

  1. AThe ALP automatically applies to the next five tax years without any option
  2. BThe ALP can apply to the two consecutive tax years immediately following, if the assessee exercises the option in the prescribed manner and the TPO declares it validCorrect
  3. CThe ALP applies to the next two years once the Assessing Officer accepts it, without any TPO order
  4. DThe ALP can apply to the following three tax years if the option is exercised in the prescribed form

Explanation

Section 166(9) lets the ALP determined for a tax year apply to similar transactions for the two consecutive tax years immediately following, if the assessee exercises the option in the prescribed form, manner and period, and the TPO by written order declares it valid. Options A and D give wrong periods; option C omits the TPO's declaration.

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