There will not be any problem per se but you need to do certain compliance relating companies Act.
Your transactions between your company and proprietorship firm needs to be at arm's length.
I am a director in a manufacturing co. and selling goods to co where i am propritor. so any problem in future can come from it dept?. is it ok. as i am doing this for marketing purpose.
I like to continue this practice if there seems no problem in future from IT department to both companies and their directors (3 in total) & proprietor of other co who is a one of the directors in original manufacturing firm. pl explain in detail if possible as it is or some way out or not possible only.
There will not be any problem per se but you need to do certain compliance relating companies Act.
Your transactions between your company and proprietorship firm needs to be at arm's length.
Hi.. there seems no problem with the IT department in this. The value at which the goods are sold must not be questionable. Also, other directors in the company must not object such transactions.
How much is the amount involved in such transactions annually?
Dear Sir,
These kinds of transactions are called related party transactions. The company should properly disclose all such transactions in its annual accounts and such transactions should be made at price as made to unrelated parties. The proprietorship firm should also disclose all the above transactions in its annual accounts. Proper accounting should be done of such transactions and the tax should have been paid in all such transactions. Keep all the invoices intact for future reference if required by the income tax department.
Thanks
all directors know about it. what to know accoring to companies act. whats it to be on arms length?
Hi,
I don't see any issues from the IT department. However, you need to ensure that the goods are being sold at appropriate fair market values to the proprietorship firm so that there is no hint of tax evasion etc.
Hope the company in which you are a director is aware of this arrangement and have approved this. Usually there is a conflict of interest and such transactions are discouraged.
Hope that clarifies.
Regards,
Nikhil.
Dear Sir,
Arms length means no suppression or over invoicing to get the benefit from such transactions. Companies Act needs proper disclosure only. Such transactions should be placed before board meetings and get the approval of the chairman and all directors.
Thanks
Arm's length price according to companies Act means a transaction between two related parties that is conducted as if they were unrelated, so that there is no conflict of interest.
As per companies Act, you must have consent of all directors and pass a resolution for the the transactions with related parties.
Being on arm's length means that commercial terms and conditions of the transaction should not be different than the Transaction entered into between two unrelated parties.
For all these Transaction, you need to take approval of board etc.
Hi,
Rules related to Domestic Transfer Pricing shall be applicable to you.
In case AO finds that the transactions were not carried on Arm's Length basis, he may get into details and may even reverse or disallow any such expenditure.
You have to take care of pricing.
Since reporting shall be done u/s 40A(2), any time AO may specific details as TP transactions are more prune for scrutiny by the department.
Regards,
It perfectly fine to carry such transactions.we call it related party transaction.it need to be done at fair market price.
Proper disclosure in books of accounts to be done.And also boards approval is also required to carry such transactions.
Hello,
There should be no problem if the transaction takes place at arms length.
The department may raise a query if the price is exorbitantly high or low.
Disclose the transaction in your company's financial/ notes.