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Substantial interest w.r.t domestic transfer pricing

Hitesh (CA) (459 Points)

28 October 2014

Dear Experts & Friends,

Greetings of the day!!!

Hihglighting the point for consideration, require assistance on the following issue:

FACTS OF THE CASE

A Company already holding 18% shares as on 31-03-2013 has increased its shareholding to 21% as at 31-03-2014 by purchasing 3% say for instanace in January 2014.

Both the Companies are Domestic Companies.

Transaction for each month amounts to s.Rs.2.5 crore p.m.

ISSUE:

1) Transactions for what time period are required to be reported

(a) Full Previous year April '13 to March '14

(b) For the period Jan '14 to March '14.

Views with some specific reference and interpretations most appreciated.

Regards,

Hitesh

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3 Replies

Bharat chandan (student) (158 Points)
Replied 28 October 2014

Hi Hitesh,

You need to consider transactions during the year. As section 92BA specifically states that transaction during the previous year exceeds 5 crore. Hence for the purpose of report and for the purpose of limit you need to consider whole year. Also it should be noted that if a person is holding more then 20% (substaintial interest) at any point of time will become related party for the purpose of Domestic TP.

Hence as per my view you need to disclose transaction for whole year.

Click Thanks user if you like my comment.

Thanks & Regards,

Bharat Chandan

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Hitesh (CA) (459 Points)
Replied 29 October 2014

Hello Bharat,

Thanks for the response.

I do consider the language adopted in drafting Sec.92BA.

Say for instance, the Investment by shareholder increases to 21%just before 31-03-2014 i.e. close of the FY.

In such type of situation its little difficult to agree to interpret that transaction for full year shall be covered instead of transactions w.e.f. the date from when the substantial interes arose.

Regards,

Hitesh

Bharat chandan (student) (158 Points)
Replied 29 October 2014

Hi Hitesh,

I agree it may not sound logical. but even if you see Diclosure under AS 18 we disclose transaction during the year even if the party is related is holding shares for single day. In my view the same logic will apply here and we need to disclose transaction for whole year.

Kindly reply if you have any other view.