I am a partner in a firm. We are two partners and import stuff from China. All the sales are made to a firm in which my partner is a partner. In other words he is a partner with me which does the purchasing and the purchases are sold to another firm, in which he is also a partner. I am not a partner in the other firm. What are the income tax implications? Keeping in mind arms length transactions and related party transactions. Thank you.
It will just be mentioned in the purchasing party tax audit report as 40A(2)(b) needs to report purchase transaction.
Also there can be an issue if majority of sale is with related party and they might check if same price is charged with non related party.
As such there is no pre requisite in law.
Hope you find the information helpful if you do please rate it 5 and provide your valuable feedback for my improvement.
Thank you
Hi,
Domestic transfer pricing provisions has been removed from the income tax act if any of the transacting entity is not availing any profit linked deduction such as 80IA/ IB etc.
Thus, if both the firms are in India and none of the firm is availing profit linked deduction arm's length provisions (transfer pricing provisions) does not apply.
However, another provision mentioned u/s 40A(2) can be applied by the tax officer to the firm who is buying those goods. The provisions is as follows:
(2)(a) Where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in clause (b) of this sub-section, and the Assessing Officer is of opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction.
We can discuss this over a call in detail to discuss the way to comply with the above provision
Hello,
The transaction would be covered as between related parties as per Sec. 40A(2)(b).
The party buying the goods could be under scanner for any excessive/unreasonable price for the purchase of the goods under Sec. 40A(2).
I hope this answer satisfies your requirements.
Regards,
CA Hunny Badlani
Hello sir
related party transaction covered under sec 40A(2)(b) of income tax act 1961
According to the section mentioned above u need to make sure that the transaction are done at arms length price that means at a sale price at which u would have sold the goods to unrelated party
so pls make sure of the sale price u charged to the party
Thank you
Dear Sir,
Hope you are doing well !!
It is advisable to take a phone consultation for detailed discussion.
