By S&S Co. Advocates & Solicitors · Published 21 September 2026 · Informational content, not legal advice: see our disclaimer
Where Transfer Pricing Disputes Originate
Transfer pricing adjustments typically originate with a reference by the Assessing Officer to a Transfer Pricing Officer (TPO) under Section 92CA of the Income Tax Act, where the TPO examines whether international transactions, or specified domestic transactions, between associated enterprises were conducted at arm's length. A TPO order proposing an adjustment feeds into a draft assessment order, which the taxpayer can contest before finalisation.
The Dispute Resolution Panel Route
An eligible taxpayer who objects to a draft assessment order incorporating a TPO adjustment can file objections before the Dispute Resolution Panel (DRP) within the prescribed period, instead of waiting for a final order to appeal. The DRP, a collegium of senior officers, can confirm, reduce or enhance the proposed adjustment, and its directions are binding on the Assessing Officer, after which a final order is passed. From there, further appeal lies to the Income Tax Appellate Tribunal and, on substantial questions of law, to the High Court.
Why Transfer Pricing Litigation Tends to Recur
Because a taxpayer's related-party transactions, inter-company services, royalty payments, contract manufacturing pricing, and similar arrangements, typically continue year after year, an adjustment made for one assessment year often recurs in materially the same form for subsequent years unless the taxpayer's transfer pricing policy or documentation changes. This makes transfer pricing one of the more litigation-intensive areas of direct tax practice, with the same core dispute sometimes contested across several years and forums in parallel.
The Advance Pricing Agreement Alternative
An Advance Pricing Agreement (APA), entered into under Sections 92CC and 92CD of the Income Tax Act with the Central Board of Direct Taxes, allows a taxpayer to agree in advance on the pricing methodology to be applied to specified international transactions for a defined future period (and, through a rollback mechanism, for certain past years as well). Once concluded, the APA binds both the taxpayer and the tax authorities for its term, removing the underlying transactions from year-on-year transfer pricing scrutiny and litigation risk for that period.
Choosing Between the Two Tracks
A business already embroiled in a recurring transfer pricing dispute, with a stable and continuing category of related-party transactions, may find that pursuing an APA, often alongside continuing to litigate open past years through the DRP/Tribunal route, offers more durable certainty going forward than repeated year-on-year litigation, though an APA application itself takes time to negotiate and does not resolve already-open assessment years on its own.
Frequently Asked Questions
What is the difference between contesting a TPO order before the DRP versus a regular appeal?
The DRP route allows a taxpayer to object to a draft order before it becomes final, with the DRP's binding directions incorporated into the final assessment order itself, whereas a regular appeal challenges an order that has already been finalised: the DRP route is generally faster for eligible taxpayers since it avoids a full first-appeal cycle.
Does an Advance Pricing Agreement cover past assessment years?
An APA is primarily forward-looking for a defined future period, but the rollback provision allows its methodology to also be applied to a limited number of preceding years, subject to conditions, effectively resolving those years' transfer pricing position for the covered transactions.
How long does an APA typically take to conclude?
APA negotiations with the CBDT can take a substantial period, often extending over one to several years depending on the complexity of the transactions and whether a bilateral agreement involving a treaty partner's tax authority is being sought, so businesses should treat it as a medium-to-long-term certainty measure rather than an immediate dispute resolution tool.
References & Further Reading
This article references the following statutory provisions. Readers should always verify current rules, fees and timelines against the applicable statute and rules as amended, since these are revised from time to time.
- Income Tax Act, 1961: Sections 92CA, 92CC and 92CD.
- Income Tax Rules, 1962: Rules 10, 10MA and related APA rules.