3CD&gtaccounting standard 18 &gt Where to report in tax audit case?

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naresh (Querist)
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13 October 2025 we are tax auditors only.
assesee is a partnership firm, having exports to its related party (son of partner).
however, it does not fall in transfer pricing (as no common shareholding).
my question--> no need to show in 3cd right? do we have to show in notes to accounts accounting standard 18?
my view--> ALTHOUGH icds is not in related parties, general accounting principles mandates reporting sales to related parties ( as 18 ) (but am i right)?

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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13 October 2025 Correct.
When a partnership firm exports to the son of a partner, the transaction generally does not fall under transfer pricing regulations unless there is a qualifying "associated enterprise" relationship as defined by Indian tax law, which often requires common shareholding or direct/indirect control that exceeds statutory thresholds. Since there is no such control or shareholding, transfer pricing documentation (such as Form 3CEB) is not triggered and no reporting is necessary in that context.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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13 October 2025 For Indian tax audits, Form 3CD Clause 23 requires reporting only when payments are made to persons specified in section 40A(2)(b) of the Income Tax Act, which includes "relatives" such as the son of a partner. However, this clause typically pertains to payments (i.e., expenses), not sales or export income. Therefore, export sales to a relative like the son of a partner do not fall under Clause 23 reporting requirements in Form 3CD.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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13 October 2025 Accounting Standard 18 requires disclosure of related party transactions in the notes to accounts. "Relatives" of key management personnel (including partners in a partnership firm) are considered related parties under AS 18. Any transaction, including sales or exports, with such related parties must be disclosed in the financial statement notes, even if such disclosure is not required for tax audit purposes (Form 3CD).

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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13 October 2025 No need to report sales to the son of a partner in Form 3CD (Clause 23) as it only covers payments/expenses, not sales.

Must disclose such sales in the notes to accounts as per AS 18 because the son of a partner is a "related party" as per the standard.

ICDS does not require such disclosure, but AS 18 mandates it in the financial statements.

Your view is correct: while ICDS is silent, general accounting principles through AS 18 mandate disclosure of sales to related parties like the son of a partner in the notes to accounts.

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