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

Meridian Textiles Ltd's TPO has declared valid an option exercised by the assessee under section 166(9) for a similar transaction for a particular tax year. A reference for that transaction was also made by the AO under section 166(1) for the same year, before the TPO's declaration. What is the effect?

The reference is treated as if no reference had been made for that transaction. Under section 166(3), where the option is declared valid by the TPO, a reference made before or after the declaration has no effect for the transaction in that tax year.

  1. AThe reference stands and the declaration is ignored
  2. BBoth proceed in parallel and the higher price prevails
  3. CThe reference is treated as if no reference was made for such transactionCorrect
  4. DThe declaration is cancelled automatically

Explanation

Section 166(3) provides that where a reference is made, before or after the TPO's declaration of validity, for a tax year for which the option is declared valid, section 166(1) has effect as if no reference was made for that transaction. Option A is wrong because the declaration prevails.

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