Question

Please discuss the rules relating to losses incurred due to a sale by one related party to another?

Answer 1

Simple rules we can consider while handling related party's transactions.

1. The Losses on related party transactions can not be netted against the gains on related party transactions. They are to be treated saperetely. losses on sales to Family Members are not allowed as deduction.

2. If the transactions are not on "Arms Length Price", they can be suspecious.

3. Transaction with friends can also be suspecious if they are not recorded at "Arms Length Price" according to the law or authorities.