Section 99 of ITA, 1961 : Section 99: Treatment Of Connected Person And Accommodating Party

Explanation using Example

Imagine a company, XYZ Pvt Ltd, which has a subsidiary company, ABC Pvt Ltd. Both companies are controlled by the same group of individuals, making them connected persons. XYZ Pvt Ltd sells goods to ABC Pvt Ltd at a price significantly lower than the market rate, resulting in reduced profits for XYZ and correspondingly lower taxable income.

Under Section 99 of the Income-tax Act, 1961, for the purposes of tax assessment, the tax authorities may treat XYZ Pvt Ltd and ABC Pvt Ltd as one and the same person because they are connected persons. This means the authorities can disregard the transaction price and instead apply the market rate to determine the appropriate tax liability, thereby countering the tax benefit arising from the underpricing of goods between the connected entities.