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TMI BlogRole of the Transfer Pricing Officer in Ensuring Arm’s Length Compliance : Clause 166 of the Income Tax Bill, 2025 Vs. Section 92CA of the Income-tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... gime under section 92CA of the Income-tax Act, 1961. Both provisions play a pivotal role in India's transfer pricing regime, aiming to ensure that cross-border and certain domestic transactions between related parties are conducted at market value, thereby preventing profit shifting and base erosion. This commentary systematically examines Clause 166, analyzing its structure, intent, and operational mechanics, followed by a detailed comparative analysis with Section 92CA. The discussion highlights similarities, differences, innovations, and potential implications for taxpayers, tax authorities, and the broader regulatory framework. Objective and Purpose The legislative intent behind both Clause 166 and Section 92CA is to empower tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for ALP determination shall be made for that year. If such a reference is inadvertently made, it is deemed never to have been made. This mechanism aligns with the safe harbor/advance pricing arrangement (APA) concepts, aiming to reduce litigation and provide certainty. 2. Notice and Hearing Process (Sub-section 4) Upon reference, the TPO must serve a notice to the assessee, requiring the production of evidence supporting the taxpayer's ALP determination. This procedural safeguard ensures due process and is consistent with principles of natural justice. The language closely tracks Section 92CA(2). 3. Discovery of Additional Transactions (Sub-section 5) Clause 166(5) empowers the TPO to apply the same scrutiny to any international ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the application of a determined ALP to similar transactions for the next two consecutive tax years, subject to prescribed conditions and validation by the TPO. This mirrors the new sub-section (3B) in Section 92CA (inserted by Finance Act, 2025), reinforcing the policy objective of reducing repetitive disputes and providing certainty. However, the Bill clarifies that this does not apply to proceedings under Chapter XVI-B, which deals with special assessment procedures. Sub-section (12) mandates that, upon a valid option, the TPO must examine and determine ALP for similar transactions in the two subsequent years, and the AO must recompute total income accordingly. This is a procedural enhancement, ensuring a seamless extension of certain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CA Explanation. Practical Implications For Taxpayers * Certainty and Reduced Litigation: The option to have ALP determinations apply for three years (the year determined plus two subsequent years) offers predictability, reducing the compliance burden and the risk of repetitive disputes. * Procedural Safeguards: The requirement of notice and opportunity to be heard ensures fairness. Taxpayers must maintain robust documentation and be prepared for scrutiny of all related-party transactions, including those not reported. * Compliance Obligations: The expanded reach of the TPO to unreported transactions increases the importance of accurate and comprehensive transfer pricing documentation. For Tax Authorities * Administrative Efficien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ize transactions not originally referred or reported. Covered by sub-sections (2A) and (2B). Bill consolidates and clarifies these powers. Determination of ALP TPO determines ALP per prescribed methods; order sent to AO and assessee. Same process under sub-section (3). No change; ensures consistency. Timelines Order must be made at least 60 days before AO's limitation period expires; extension possible. Similar timeline and extension provisions under sub-section (3A). References updated assessment sections in the Bill. Multi-Year Application Taxpayer can opt for ALP to apply for two subsequent years; subject to conditions and TPO validation. Newly introduced as sub-section (3B) (post-Finance Act, 2025). Major ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olling forward ALP determinations is a significant advancement, reducing compliance costs and administrative burden for both taxpayers and the revenue. * Procedural Clarity: The Bill streamlines language and clarifies the sequence of actions, especially regarding the interaction between references, options, and subsequent years' assessments. * Updated Powers and References: The investigative powers and assessment timelines are referenced to the new section numbers, reflecting a reorganization of the procedural code in the 2025 Bill. Potential Issues and Ambiguities * Interpretation of "Similar Transactions": The criteria for what constitutes a "similar" transaction for multi-year application may require further clarification, pos ..... X X X X Extracts X X X X X X X X Extracts X X X X
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