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CMA Final · Direct Tax Laws and International Taxation · Transfer Pricing

The TPO determined the arm's length price for a transaction for a tax year and declared valid the assessee's option to apply it to similar transactions of the next two tax years. Which statement follows from section 166 of the Income-tax Act, 2025?

Once the TPO declares the assessee's option valid, no reference can be made for the similar transaction for those years, and any reference made before or after the declaration is treated as if never made. The option covers only two consecutive years and must be exercised.

  1. ANo reference can be made for those similar transactions for those two years, and any reference made is treated as if not madeCorrect
  2. BThe Assessing Officer may still refer those years to the TPO with Commissioner approval
  3. CThe option applies automatically for five years without the assessee exercising it
  4. DThe option can be used even in proceedings under Chapter XVI-B

Explanation

Under section 166(2) and (3), once the TPO declares the option valid, no reference can be made for that transaction for that tax year, and a reference made earlier or later is treated as not made. The option covers two consecutive years and needs exercise by the assessee. Section 166(10) excludes Chapter XVI-B proceedings.

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