ABC Ltd., an Indian company engaged in producing electrical equipment, during the financial year 2024-25, paid interest of 95 lakhs to James Inc. (a…

Section 94B provides that where the debt is issued by a lender which is not associated but an associated enterprise either provides an implicit or explicit guarantee to such lender or deposits a corresponding and matching amount of funds with the lender, such debt shall be deemed to have been issued by an associated enterprise. In this case, the debt issued by Jorge Plc. is 5crores and the deposit made by the associated enterprise; James Inc. with Jorge Plc. is 2crores. Since the deposit is not of a matching amount, ABC Ltd. contends that provisions of section 94B will not be attracted in respect of interest payable by it to Jorge Plc. The tax auditor is of the opinion that interest on 2 crores amounting to 20 lakhs will have to be considered for the purpose of section 94B. Accordingly, the interest payable/paid by ABC Ltd. to non-resident associated enterprises during the year would be 115lakhs and hence, the provisions of section 94B would be attracted, since the same exceeds the threshold of 1crore. This appears to be the legislative intent, since otherwise it is possible to escape the application of this provision even by depositing a marginally lower amount than the loan taken. Clause 30B(a) of Form 3CD requires the tax auditor to state whether the assessee has incurred expenditure during the previous year by way of interest or of similar nature exceeding 1crore as referred to in section 94B (1) . As per the Guidance Note on Tax Audit, the tax auditor may have a difference of opinion with regard to the particulars furnished by the assessee. These differences are to be reported in para 3 of Form No. 3CA or para 5 of Form 3CB. If there is any difference in the opinion of the tax auditor and that of the assessee in respect of any information furnished in Form No. 3CD by the assessee, the tax auditor may consider stating both the viewpoints and also the relevant information related to matter in order to enable the tax authority to take a decision in the matter. Therefore, the tax auditor has to report the difference of opinion appropriately as an observation in para 3 of Form No. 3CA or para 5 of Form No. 3CB as the case may be. Accordingly, in this case, the tax auditor may state both the viewpoints in Clause 30B as well as report the difference of opinion appropriately as an observation in Form 3CA to enable the tax authority to take a decision in the matter.