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CA Final · Direct Tax Laws & International Taxation · Profits and Gains of Business or Profession

Sparkle Exports Ltd has a valid safe harbour option for its eligible raw diamond business and, in that business, enters into an international transaction with an associated enterprise. Which statement is correct under Rule 100?

Sections 171 and 172 continue to apply. The safe harbour rule expressly provides that these provisions govern any international transaction or specified domestic transaction entered into by the eligible assessee while carrying on the eligible business, so the option gives no exemption from them.

  1. ATransfer pricing provisions (sections 171 and 172) do not apply because of the safe harbour option
  2. BSections 171 and 172 apply to the international transaction entered into while carrying on the eligible businessCorrect
  3. CSections 171 and 172 apply only to specified domestic transactions, not international transactions
  4. DSections 171 and 172 apply only if profit declared is below the safe harbour percentage

Explanation

Rule 100(4) states that sections 171 and 172 apply to an international transaction or specified domestic transaction entered into by the eligible assessee while carrying on the eligible business. The safe harbour option does not exempt such transactions.

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