17 May 2023
Company A and company B are under the same management. Company A owns a plot, the market value of which is about 2.50 Cr. Company A allows company B to construct a showroom on plot of A. Company B gives proposed map as per its own requirements, which is submitted to development authority by Company A. Map approval charges and development charges are paid by Company A to the Development Authority. The cost of construction of showroom is borne by B. No rent is charged by A from B for giving possession and allowing use of plot by Company B. Period of allowing use of plot is likely to be quite long. There is no written agreement between two Companies.
Any transaction between two companies under the same management should be made at arms length price, whereas in the instant case there is no consideration.
On these facts of the case, my questions are:
1. Is there violation of any Act!? 2. Should the Auditor report such transaction in his Audit report, if no reference of this transaction is made in the Notes on Accounts? 3. How and in what manner the Auditor should report in his Audit Report?
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