My Assessing Officer has sent my transfer pricing case to a Transfer Pricing Officer. Can I stop the reference, and if the TPO fixes a price, is my Assessing Officer obliged to accept it?
Yes, he is obliged to accept it. Section 92CA(4) — in the form the Finance Act 2007 gave it with effect from 1 June 2007, and as printed on the departmental edition of the section stamped Year 2026 — says that on receipt of the Transfer Pricing Officer's order the Assessing Officer "shall proceed to compute the total income of the assessee under sub-section (4) of section 92C in conformity with the arm's length price as so determined by the Transfer Pricing Officer", so he has no discretion on the price. The reference itself is his decision, not yours: under s.92CA(1) he may make it where he considers it necessary or expedient and has the previous approval of the Principal Commissioner or Commissioner, and the Act gives you no right to be heard before he does. CBDT Instruction No. 3/2016 of 10 March 2016 does give you one in the cases it lists, and the Delhi and Bombay High Courts have held a hearing is required where you dispute that Chapter X applies at all. What follows the order is the draft order under s.144C, on clocks of its own.
Section 92CA(1), on the departmental edition stamped Year 2026, lets the Assessing Officer refer the computation of the arm's length price to a Transfer Pricing Officer where you have entered into an international transaction or a specified domestic transaction in any previous year, where he "considers it necessary or expedient so to do", and where he has "the previous approval of the Principal Commissioner or Commissioner". Two conditions, then, and the second is a real one: the approval must come before the reference, not after it. The Transfer Pricing Officer is not a separate authority invented for the purpose. The Explanation to the section defines him as a Joint, Deputy or Assistant Commissioner authorised by the Board to perform the functions of an Assessing Officer specified in sections 92C and 92D. An older departmental edition of the section, stamped Year 2005, read differently in two ways worth knowing if you are on an old year: it spoke only of an international transaction, and it required the previous approval only of the Commissioner.
In practice the decision to refer is not taken case by case on the Assessing Officer's instinct. It is governed by CBDT Instruction No. 3/2016, F.No. 500/9/2015-APA-II, dated 10 March 2016, which superseded Instruction No. 15/2015 of 16 October 2015. Its paragraph 3.2 says cases picked up for scrutiny on transfer pricing risk parameters have to go to the Transfer Pricing Officer after the jurisdictional Principal Commissioner's or Commissioner's approval. Paragraph 3.3 says a case picked up on other, non-transfer-pricing parameters goes to him only in three situations: you did not file the accountant's report under section 92E or did not disclose the transaction in it; an earlier transfer pricing adjustment of Rs 10 crore or more has been upheld or is pending in appeal; or a search or survey has thrown up transfer pricing issues. Paragraph 3.5 covers the case where an earlier adjustment was set aside by the Tribunal, the High Court or the Supreme Court. Note what the Rs 10 crore figure is and is not: it is the size of an earlier adjustment, not a threshold on the value of your transactions. I found no instruction superseding Instruction No. 3/2016 and no current figure for the value of international transactions above which a reference must be made.
The Act does not say you must be heard before the reference is made. The Instruction, which binds the department, partly supplies the gap: paragraph 3.4 requires the Assessing Officer, before seeking approval, to record his satisfaction that there is an income or a potential of an income arising or being affected on determination of the arm's length price, to give you an opportunity of being heard in the three situations listed in paragraph 3.3, and, where you object that Chapter X applies at all, to consider the objection and pass a speaking order. The courts had got there first. In Indorama Synthetics the Delhi High Court held on 25 July 2016 that the Assessing Officer's satisfaction, even prima facie, that there is an international transaction is a precondition to the reference, that a hearing is implicit in the procedure, and it quashed references made without one. The Bombay High Court had taken the same view in Vodafone India Services; the Gujarat High Court in Veer Gems, decided 19 October 2011, had not — it found nothing in Chapter X requiring the Assessing Officer to hear the assessee and consider his objections before making the reference. Because the Instruction now directs the hearing, the split matters less than it did.
Once the reference is made, the Transfer Pricing Officer serves a notice under s.92CA(2) asking you to produce your evidence for the price you have used. Under s.92CA(3) he hears that evidence, including the documents called for under s.92D(3), takes into account the material he has gathered himself, and determines the arm's length price by order in writing in accordance with s.92C(3). He sends a copy of the order to the Assessing Officer and to you. Getting that copy is your warning that a draft assessment order is coming. He is not confined to your papers: s.92CA(7) gives him the powers in clauses (a) to (d) of s.131(1), in s.133(6) and in s.133A, so he can summon, call for information and survey. If he has made a mistake apparent from the record he can rectify his own order under s.92CA(5), and the Assessing Officer then amends the assessment to match under s.92CA(6).
His order is on a clock. Section 92CA(3A) says the order may be made "at any time before sixty days prior to the date on which the period of limitation referred to in section 153, or as the case may be, in section 153B" for the assessment expires. Its proviso matters whenever time has been excluded: "Provided that in the circumstances referred to in clause (ii) or clause (x) of Explanation 1 to section 153, if the period of limitation available to the Transfer Pricing Officer for making an order is less than sixty days, such remaining period shall be extended to sixty days and the aforesaid period of limitation shall be deemed to have been extended accordingly." So where a stay or a reference has stopped the assessment clock, the Transfer Pricing Officer gets a full sixty days back, and a count that ignores the proviso will give you the wrong date. In Pfizer Healthcare the Madras High Court held on 7 September 2020 that the sixty days run backwards from the section 153 date excluding that date, that the requirement is mandatory and not directory, that limitation goes to jurisdiction, and that an order a single day late is bad; a Division Bench of the same Court confirmed that on 31 March 2022 in the Revenue's writ appeals, in DCIT v Saint Gobain India. The arithmetic has since been taken away from the courts. Section 92CA(3AA), inserted by section 4 of the Finance Act 2026 (Act No. 4 of 2026, assented to on 30 March 2026) and deemed inserted with effect from 1 June 2007, opens "Notwithstanding anything contained in any judgment, order or decree of any court" and fixes the count: where limitation expires on 31 March of a year that is not a leap year the order may be made up to 30 January of that year; where it expires on 31 March of a leap year, up to 31 January; where it expires on 31 December, up to 1 November. Read that last limb against Pfizer's own facts. The section 153 date there was 31 December 2019, the Transfer Pricing Officer's orders were passed on 1 November 2019, and the Court held they ought to have been passed on 31 October 2019 or any date before that, and quashed them. Clause (c) of sub-section (3AA) now expressly permits an order up to 1 November, with retrospective effect from 1 June 2007. It validates the very orders Pfizer struck down. The same is true at each of the other two dates: on the judicial count a 31 March expiry in a non-leap year put the last safe date at 29 January and in a leap year at 30 January, and the sub-section gives 30 and 31 January. Sub-section (3AA) is one day more generous than Pfizer's method at every expiry date it covers, so if you work the sixty days by the judgment you will be a day out, and the day you are out is the day the department will have used. What sub-section (3AA) does not say is that a genuinely late order is good, so Pfizer's holding that the time limit goes to jurisdiction stands; what it takes away is the day-counting argument built on it.
Then comes the part that decides everything. Section 92CA(4) reads: "On receipt of the order under sub-section (3), the Assessing Officer shall proceed to compute the total income of the assessee under sub-section (4) of section 92C in conformity with the arm's length price as so determined by the Transfer Pricing Officer." The Assessing Officer has no view of his own to take on the price. It is often said that "may" became "shall" here. That is not what happened, and getting it wrong sends you to the wrong provision. "Shall" was in s.92CA(4) from the start. What the Finance Act 2007 did, with effect from 1 June 2007, was substitute the whole of sub-section (4); before that substitution it required the Assessing Officer to compute the total income "having regard to the arm's length price determined under sub-section (3) by the Transfer Pricing Officer". "Having regard to" became "in conformity with". The departmental edition stamped Year 2005 prints the old wording; the editions stamped Year 2009 and Year 2014 print the new one with a footnote crediting the Finance Act 2007 with effect from 1 June 2007 and setting out the words it replaced. The "may" people are thinking of is in s.92C(4), which says that where the Assessing Officer himself determines an arm's length price under s.92C(3) he "may compute the total income of the assessee having regard to the arm's length price so determined". Section 92CA(4) is what overrides that permissive language when the price has come from a Transfer Pricing Officer. What s.92CA(4) binds the Assessing Officer to is the price, and only the price. In Cushman and Wakefield the Delhi High Court held on 23 May 2014 that the two jurisdictions are distinct: the Transfer Pricing Officer determines the arm's length price of the referred transaction, and may find it to be nil, but whether the expenditure is deductible at all under the ordinary provisions remains the Assessing Officer's question. So an argument that a service was never rendered, or that a payment fails section 37(1), is not lost because the Transfer Pricing Officer priced the transaction. Take it to the Assessing Officer and to the Dispute Resolution Panel, not to the Transfer Pricing Officer. One further consequence of the computation being made under s.92C(4) is easy to miss: the first proviso to that sub-section denies any deduction under section 10A, 10AA or 10B or under Chapter VI-A on the amount by which your total income is enhanced. The adjustment is not neutralised by your exemption.
Because the variation arises as a consequence of an order of the Transfer Pricing Officer under s.92CA(3), s.144C(15)(b)(i) makes you an "eligible assessee" whoever you are, resident or not. Limb (ii) separately covers "any non-resident not being a company, or any foreign company", substituted by Act No. 12 of 2020 with effect from 1 April 2020; the departmental edition stamped Year 2019 shows the earlier limb (ii) read only "any foreign company". A proviso inserted by Act No. 15 of 2024 with effect from 1 September 2024 takes block-assessment cases under s.158BA(1) and s.158BD out of the definition. Being an eligible assessee means the Assessing Officer must, under s.144C(1), forward a draft order before he makes any variation prejudicial to you. You then have thirty days from receipt of the draft to file acceptance with the Assessing Officer or objections with both the Dispute Resolution Panel and the Assessing Officer. Miss the thirty days and the Panel is gone: s.144C(4) requires the final order within one month from the end of the month in which the acceptance is received or the thirty days expire. Skipping the draft order altogether is not a curable slip. Vijay Television, Turner International and JCB India all treat it as a jurisdictional failure, and JCB India holds it applies in the second round after a remand as well. The Finance Act 2026 has also inserted s.144C(4A), (4B), (13A) and (13B) with retrospective effect from 1 April 2009 and 1 October 2009, each opening "Notwithstanding anything contained in any judgment, order or decree of any court", to provide that once the draft order is forwarded within the section 153 or 153B time, the remaining steps run on the section 144C clocks. That is the subject of its own page.
You can attack the reference, but pick the door. There is no appeal against a Transfer Pricing Officer's order as such: s.253(1)(d) gives an appeal to the Tribunal against the Assessing Officer's order passed in pursuance of the Panel's directions, and s.246A against the assessment order, and the Transfer Pricing Officer's order is challenged inside those appeals. The Panel is a limited forum for this purpose, because s.144C(8) lets it confirm, reduce or enhance the variation but not set aside the assessment or remit. Where the complaint is that the Assessing Officer had no jurisdiction to refer at all, the High Courts have taken it in writ under Article 226 of the Constitution: Indorama Synthetics quashed references made without recorded satisfaction and without a hearing, and in Shell India Markets the Bombay High Court set aside an adjustment on the issue of equity to a non-resident parent because a capital account transaction gives rise to no income and Chapter X is machinery for computing income, not a charge. The reference can also fall in appeal on its own foundation: in Texport Overseas the Karnataka High Court held on 12 December 2019, for assessment years 2013-14 and 2014-15, that because clause (i) of s.92BA was omitted by the Finance Act 2017 without a saving clause the omitted clause must be treated as never having been enacted, so the reference built on it and the adjustment made under it were invalid even for the earlier year. Do not expect that to go unopposed: the department's position is that the omission operates only prospectively and leaves an earlier year's reference standing, and first appellate authorities have decided on that footing. And in SAP Labs the Supreme Court held on 19 April 2023 that there is no absolute rule that an arm's length price determined by the Tribunal is beyond examination under section 260A.
Two sub-sections let the Transfer Pricing Officer go beyond what he was sent, and the lettering has moved, so check the year. On the departmental edition stamped Year 2014, sub-section (2A) is credited to the Finance Act 2011 with effect from 1 June 2011, sub-section (2B) to the Finance Act 2012 with retrospective effect from 1 June 2002, and sub-section (2C) to the Finance Act 2012 with effect from 1 July 2012. Sub-section (2A) lets him take up a transaction other than one referred to him that comes to his notice during the proceedings; sub-section (2B) lets him take up a transaction in respect of which you have not furnished the report under section 92E; sub-section (2C) shuts the door on old years, providing that nothing in (2B) empowers the Assessing Officer "either to assess or reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year, proceedings for which have been completed before the 1st day of July, 2012". Until recently both (2A) and (2B) spoke only of international transactions, and in Times Global Broadcasting the Bombay High Court held on 15 March 2019 that a specified domestic transaction not referred to the Transfer Pricing Officer could not be picked up under them, quashing an adjustment of Rs 57.54 crore the Transfer Pricing Officer had made of his own motion. Act No. 15 of 2024 substituted the wording with effect from 1 April 2025 so that both now cover a specified domestic transaction. For a year before that the Bombay High Court's reading still governs.
One recent change works in your favour. Sub-sections (3B) and (4A), inserted by the Finance Act 2025 (Act No. 7 of 2025) with effect from 1 April 2026, let you exercise an option, in the prescribed form and within the prescribed period, for an arm's length price determined for one previous year to apply to similar transactions for the two consecutive previous years immediately following. The Transfer Pricing Officer must declare the option valid or not by order in writing within one month from the end of the month in which it is exercised. If he declares it valid, he determines the arm's length price for the similar transaction for those two following years and the Assessing Officer recomputes the total income under s.155(21). Two provisos added to s.92CA(1) by the same Act close the loop: no reference is to be made for a transaction and year covered by a valid option, and a reference made before or after the declaration has effect as if it were not made. The option does not run in Chapter XIV-B block assessment proceedings, and s.92CA(11) lets the Board issue guidelines to remove difficulties, but only before two years from 1 April 2026 have expired.
The reference is the moment your transfer pricing exposure stops being a matter of opinion between you and your Assessing Officer. After it, the price is fixed by an officer who does not assess you, whose order you cannot appeal against directly, and whom your Assessing Officer is not permitted to disagree with. Everything you would have said to the Assessing Officer about the price has to be said to the Transfer Pricing Officer, on his notice, within his proceedings, and on the record. Material produced for the first time before the Dispute Resolution Panel is material the Transfer Pricing Officer never saw.
The two places the department most often goes wrong are also the two places the process is most easily undone: a reference made without the Principal Commissioner's or Commissioner's previous approval and without recorded satisfaction, and an order made outside the s.92CA(3A) window. Both go to jurisdiction, not to merits, and neither is answered by showing that the adjustment was correct.
Has the Supreme Court settled whether the s.144C nine-month DRP process runs over and above the s.153 limitation?
We outsource back-office work to our Indian subsidiary. Does that give us a permanent establishment in India?
My file has been moved to another city under section 127. The order says only that it was for facility of investigation, and nobody has given me the reasons. Is that enough?
The order under section 148A(d) rejects everything I said and the section 148 notice has followed. Can I take it straight to the High Court?
Can I go straight to the High Court against an income-tax order instead of filing the statutory appeal?
Is payment of admitted tax under s.249(4) a condition that must be satisfied again when the appeal goes on to the Tribunal?
Your appeal is late. How strictly will 'sufficient cause' be read?
Our Indian affiliate is paid at arm's length. Can more profit still be attributed to a PE?
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