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

The TPO determined the arm's length price of a transaction of Sundaram Textiles Ltd for tax year 1 under Section 166(6). The assessee exercised options in the prescribed form, manner and time for the two following years, and the TPO declared the options valid. Which statement is correct under Section 166?

The determined ALP applies to similar transactions for the two consecutive following tax years, and any AO reference for those years is treated as if not made. Section 166(9) and (3) provide this, while section 166(10) excludes Chapter XVI-B proceedings.

  1. AThe ALP applies to similar transactions for tax years 2 and 3, and an AO reference for those years is treated as not madeCorrect
  2. BThe ALP applies to similar transactions for the next five tax years
  3. CThe ALP applies for tax years 2 and 3, and it also governs proceedings under Chapter XVI-B
  4. DThe ALP applies for tax year 2 only, and the TPO may still be referred the transaction for year 3

Explanation

Section 166(9) extends the ALP to similar transactions for the two consecutive following years if options are exercised and declared valid. Section 166(3) treats any reference for those years as not made. Section 166(10) excludes Chapter XVI-B proceedings, so the third option fails.

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