Rule 116: APA cancellation and reasoned orders
Rule 116 sets out cancellation of an APA for the stated compliance failures and linked procedural grounds. It requires a hearing and reasoned written orders, and separately addresses an agreement declared void from the outset for fraud or misrepresentation.
Official notified Income-tax Rules, 2026Need advice on Rule 116?
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Rule 116 - Cancellation of an agreement
(1) An agreement shall be cancelled by the Board for any of the following reasons: (a) the compliance audit referred to in rule 114 has resulted in the finding of failure on the part of the assessee to comply with the terms of the agreement; or (b) the assessee has failed to file the annual compliance report in time; or (c) the annual compliance report furnished by the assessee contains material errors; or (d) the agreement is to be cancelled under rule 115(4) or rule 117(7).
(2) The Board shall give a reasonable opportunity of being heard to the assessee, before proceeding to cancel an application.
(3) The competent authority of India shall communicate with the competent authority of the other country or countries and provide reason for the proposed cancellation of the agreement in case of bilateral or multilateral agreement.
(4) The order of cancellation of the agreement shall be in writing and shall provide reasons for cancellation and for non-acceptance of submission of the assessee, if any.
(5) The order of cancellation shall also specify the effective date of cancellation of the agreement, where applicable.
(6) The order under section 168(7), declaring the agreement as void ab initio, on account of fraud or misrepresentation of facts, shall be in writing and shall provide reason for such declaration and for non-acceptance of submission of the assessee, if any.
(7) The order of cancellation shall be intimated to the Assessing Officer and the Transfer Pricing Officer, having jurisdiction over the assessee.
Rule breakdown
Know the listed cancellation grounds
The grounds include a compliance-audit finding of failure to meet terms, late annual compliance reporting, material errors in that report, and cancellation under the specified revision or rollback provisions.
Monitor report deadlines and data quality as well as the substantive price calculation. A material reporting failure can matter independently of the margin.
The assessee must receive a hearing
The rule provides a reasonable opportunity of being heard before cancellation. Prepare the agreement, reports, filings and factual explanation relevant to the alleged failure.
Use the hearing to address the specified grounds with the filing record, computations and other relevant evidence.
A written order must explain the decision
The cancellation order states reasons for cancellation and non-acceptance of the assessee’s submissions, if any. It also specifies the effective cancellation date where applicable.
Check the date and reasons before assessing the impact on individual years and pending proceedings.
Bilateral and multilateral communication
India’s competent authority communicates with the other country’s or countries’ competent authority and gives the reason for proposed cancellation. The cancellation order is intimated to the jurisdictional AO and TPO.
Maintain the complete correspondence trail so the domestic and cross-border position is understood.
Fraud or misrepresentation is separately addressed
An order under section 168(7) declaring the agreement void ab initio for fraud or misrepresentation must also be written and reasoned, including reasons for rejecting submissions where relevant.
Do not treat ordinary cancellation from a stated effective date as automatically identical to a declaration that the agreement was void from the outset.
Key takeaways
Reporting compliance matters
Late or materially erroneous annual reports are listed grounds.
Reasoned written decision
Reasons and applicable effective date must be examined.
Voidness is distinct
Fraud or misrepresentation has the separately stated order requirement.
Practical checklist
- Track annual-report deadlines and accuracy.
- Prepare evidence for the hearing.
- Review the written reasons and effective date.
Avoid
- Do not assume only a wrong price can trigger cancellation.
- Do not conflate cancellation with the separate fraud-based voidness order.
FAQs
Can late annual compliance reporting be a cancellation ground?
Yes. It is expressly listed in sub-rule (1)(b).
Must the cancellation order explain rejected submissions?
It must give reasons for non-acceptance of the assessee’s submissions, if any.
Is every cancellation automatically voidness from the outset?
The rule separately addresses the section 168(7) fraud or misrepresentation declaration of voidness ab initio.
Glossary
- Void ab initio
- Void from the outset, as addressed for the specified section 168(7) declaration.