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Cost sharing arrangement

Arjun (CA) (31 Points)

16 September 2021

There are 4 seperate Hydropower Company with almost same promoters. The project location is also nearby. They are constructing the transmission line which will be used by all the companies. But, all the costs incurred are billed to one company and it should be shared among all the entities. Can this be booked as expense among sharing entities and claimed as expense in tax. Will there be disallowance in taxation since the invoices for costs are billed to single entity only?

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yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 16 September 2021

Section 32A(i)- for the purposes of business of generation or distribution of electricity or any other form of power ;

Now allocate the costs based on the length, and everyone can claim on this. Raise a sales invoice to other three companies for the amounts and I think this cant be a problem when a manufacturer can sell scrap at his discretion. Check out with your auditor.

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 16 September 2021

*** apportion costs based on relevant criteria :)

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 16 September 2021

I was still thinking about your issue and how about if you

make disclosures of related party transactions? This way you won’t need sales invoice.

so, if you want to apportion the costs, let them pay not your account,

then follow the disclosures that you paid for it, and you received it back from them.

Arjun (CA) (31 Points)
Replied 17 September 2021

IF SALES INVOICE IS TO BE RAISED , THERE MAY BE IMPLICATION OF GST, TDS. ITS ACTUALLY NOT SALE, BUT IS ONLY COST SHARING ARRANGEMENT

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yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 17 September 2021

Yes your correct. Since I sort out many issues daily, I get tired by nightfall and sometime could err. Sorry. It takes sometime for me to understand the situation like my first answer, gst is not applicable. Now you can try related party transaction if a relationship exists or try AS 1 para 14/18 and other synonymous paras which explain that disclosures are encouraged for situations which are out of the book. Have a nice weekend.

https://mca.gov.in/Ministry/pdf/AS1_16012018.pdf