This is a query regarding a newly incorporated company. The said company was registered in mid of previous year but it didn't commence the business till end of the year. During the year it recd the following sums from its holding co. (outside India):
a) Advance against services to be rendered in FY 2014-15
b) Share application money (shares alloted in FY 2014-15)
Whether Transfer provisions shall apply of these transactions? If yes, which is the most appropriate method for calculation of ALP.
24 November 2014
a) No. It will NOT be hit by 92B. b) at what value did you allot the shares? Face value or the Discounted Cash flow of future profits?
24 November 2014
a) Advance wont get HIT as it is NOT deriving any benefit/profit/income b)Here TPO may ask for DCF valuation of the share based on future cash flow.
24 November 2014
Any interest free loan is also not deriving benefit / profit/ income , bit still it needs to be reported under clause 16..
And under clause 16, it is mentioned that any kind of advance to shown here..
And suppose we want to show it in TP report, which one is more appropriate consideration for services or lending or borrowing including advance??
In case of shares, if by selecting other method, we write that it is newly incorporated company and shareholdera are first sibscribers to the capital so the issue is made at par value, would that still require valuation report?
24 November 2014
01. Reporting is a sparate exercise. The auditor might be of the opinion that a partuclar transaction be reported in the Audit REPORT. 02. And who told you that interest free loan does NOT derive benefit? In fact the very fact that interest is NOT payable is a benefit. 03. If it is ADVANCE for services to be rendered in 2014-15, then it is to be shown as such. 04. TPO may demand the DCF valuation. It is a judgemental call.
25 November 2014
Sir, If a co. has entered into international transactions as well as Specified Domestic Transactions but value of specified domestic transactions is less than INR 5 crores, then, is it required to show Specified domestic transactions also in the Form 3CEB??
26 November 2014
Sir, in case of share application money recd (no allotment made in current year), where do we need to report the transaction (under clause 16 or 19)?
26 November 2014
Also, if we have entered into a specified domestic transaction for purchase of raw material and that party has credit balance at year end, then in that case reporting is required only for purchase transaction or closing balances also needs to be reported under residual clause?
26 November 2014
01. any agreement for the mutual benefits may be reported under clause 17.
02.Reporting is required for transaction. No need to report closing balance. It is coming under the list of creditors in financials. (The terms of payment may be reported...say "as and when" or 90 days or as the case may be.
CAclubindia
