29 December 2014

ICAI ON C&AG REPORT

ICAI ON C&AG REPORT                                         Attention has been drawn to certain issues raised on the certification work done by the members of the profession in the report of Comptroller and Auditor General of India (C&AG) entitled ‘Appreciation of Third Party (Chartered Accountant) Reporting in Assessment proceedings’ (Report No. 32 of 2014).

The issues raised in said report were deliberated in the recent meeting of the Council held from 23rd to 25th December, 2014. The Council was of the view that:

1.  Issues raised in the report be studied for initiating a structured and meaningful dialogue with the office of C&AG.

2.  Necessary steps be initiated against the erring members wherever any act of professional misconduct is observed.

3.  Refer details of all such members to the Disciplinary Directorate, who are said to have done Tax Audit, under section 44AB of the Income Tax Act, 1961, more than the limit prescribed by the Institute.

4.  Develop an IT based system in coordination with the authorities concerned especially to obtain the report of total numbers of Tax Audit done by each member to find out the details of the members not adhering to the Institute’s guidelines.

5.  Call for such information, as required, from the members invoking authority under the relevant provisions of the Chartered Accountants Act, 1949 and Regulations/ Rules framed thereunder.

6.  Keep the communication channels updated especially with the stakeholders so as to protect the interest of the profession.

7.  Create a Special Cell with proper staff to deal with these matters in an urgent manner.

V. Sagar
Acting Secretary
The Institute of Chartered Accountants of India
27th December, 2014

28 December 2014

5-minute test is suggested to filter out risky companies:

n5-minute test is suggested to filter out risky companies:

Auditor’s Opinion: Read the Auditor’s Opinion in the 10-K to make sure that it is a “going concern” and that the financial statements “present fairly, in all material respects, … in conformity with accounting principles generally accepted…”.

Lawsuits: Read footnotes for legal proceedings that can seriously harm the company. Stay away if you don’t understand the full impact of a lawsuit.

Unusual losses: Check how often the company reported unusual losses (e.g. bad debt, inventory write-downs, severance payments to laid-off workers, etc.) in the last several years.

Earnings restatements: Almost every major financial disaster was preceded by an earnings restatement. Make sure the company has not restated in the last several years.

Intangibles assets ratio: [(Goodwill + other intangibles) / Total assets] should be < 20%. Intangibles can be impaired and quickly disappear from the balance sheet. In credit crunch times, intangibles are hard to sell. Large intangibles are also a sign of management overpaying for acquisitions.

Debt-to-equity ratio: [(Sum of all interest-bearing debt including working capital lines of credit, short-term debt, long-term debt, and capital leases) / Shareholders’ equity] should be <= 75%.

Revenue growth: Look for revenue growth of >= 30% over the last 5 years (cumulative, not annual figure). Best revenue growth comes from increase in units sold, followed by price increases.

Stock-based compensation ratio: [Stock-based compensation / accrual profits] <= 15%. This measures how much of the profit goes to employees rather than shareholders.

Short ratio: [Number of shares short / Float] <= 15%. If more than 15%, understand why and determine if that is justified.

24 December 2014

BANK AUDIT 2015

The following procedure will be followed for appointment statutory branch auditors (SBAs) in public sector banks (PSBs):

(i) The list of eligible auditors/audit firms will be prepared by the Institute of Chartered Accountants of India (ICAI) as per the norms prescribed by RBI.( LIST prepared and ready to shoot to RBI)

(ii) The above list will be subjected to scrutiny by RBI for identifying the continuing and rested firms and excluding audit firms against whom adverse remarks/disciplinary proceedings are pending or who have been denied audit.

(iii) RBI will, thereafter, forward the final list of all eligible auditors/audit firms to PSBs for selection.

(iv) The PSBs will select the required number of branch auditors/audit firms. Banks will be required to clearly advise the audit firms selected for consideration of appointment that each audit firm can take up audit assignment (branch audit) in one PSB only. The audit firm should give their consent in writing for consideration of appointment in the bank concerned for the particular year and the subsequent continuing years.( the firms whose four year term has not completed shall be on the panel of sam bank.no fresh consent shall be require)

(v) The consent given by an audit firm will be treated as irrevocable and request, if any, from audit firms for changing the bank, after giving its consent to the bank concerned will not be entertained.( some of the banks takes consent from auditor and dont carry their names to list.auditors ignore the other bank offer being consent given .Attention is required for such exercise)

(vi) After the selection of branch auditors, PSBs will be required to recommend the names of both continuing and selected branch auditors to RBI for seeking its prior approval before their actual appointment, as per statutory requirement.

3. SBAs will have a maximum tenure of four years. The appointment of SBAs will be made on an annual basis, subject to their fulfilling the eligibility norms prescribed by RBI from time to time and also subject to their suitability.

4. The number of eligible auditors / audit firms is more than the number of branches to be audited at the following 33 centres (viz. Mumbai, Kolhapur, Pune, Solapur, Thane, Kolkata, Chennai, Coimbatore, Delhi/ New Delhi, Ajmer, Bikaner, Jaipur, Kota, Udaipur, Ahmedabad, Vadodara, Surat, Hyderabad, Chandigarh, Raipur, Faridabad, Gurgaon, Panchkula, Panipat, Sonipat, Bangalore, Ernakulam, Indore, Nagpur, Ludhiana, Jodhpur, Bhilwara, and Ghaziabad). In such centres, the auditors/ audit firms will be put to a period of compulsory rest for two years after completion of four years of continuous branch audit. In other centres, where the number of eligible auditors / audit firms is less than the number of branches to be audited, the branch auditors on completion of four years of continuous branch audit will be subjected to the policy of rotation.(as per policy the other places are out of rotation but the same is being misused)

5. While allotting branches, banks are required to select auditors/audit firms which are in close proximity to their offices/branches. Banks are also required to have a suitable mix of various categories of auditors / audit firms while selecting the branch auditors keeping in view the size of the branches to be audited.( Though banks have nothing to do with the cooling of firms other than 33 places but the same is being implemented from last four years as CAs are in surplus .Though this year PDC has prescribed a list with gap)

6. As regards statutory branch audit to be carried out by SCAs, banks will allot the top 20 branches(to be selected strictly in order of the level of outstanding advances) in such a manner as to cover a minimum of 15% of total gross advances of the bank by SCAs.

23 December 2014

CAG pulls up chartered accountants for incorrect income tax information

CAG pulls up chartered accountants for incorrect income tax information

 Coming down heavily on chartered accountants hired by the income tax department, a CAG report on Friday said their failure to submit correct tax information resulted in levying of lower taxes by as much as Rs 2,813.11 crore in 367 cases surveyed.

"We found cases where the CAs failed to report full and correct information in 367 cases leading to short levy of taxes of Rs 2,813.11 crore and where the Assessment Officers failed to utilise the information available in 102 reports or certificates submitted to them leading to short levy of taxes of Rs 1,310.05 crore," said the report of the official auditor.

"We also found in another 616 cases where CAs committed mistakes viz in allowance of exemption or deductions, charging of tax on book profit under Section 115JB, adoption of arm's length price and reporting on cash payments exceeding Rs 20,000 per day," it said.

The performance audit covered assessments completed during the period from financial years 2010-11 to 2012-13 and up to the date of audit.

In case of major audit observations, it said assessment records of previous assessment years (AYs) were also linked wherever found necessary.

"We found that 18.87 per cent of CAs (12,435 CAs) for 2013-14 issued more tax audit reports than prescribed by ICAI. We also got cases where CAs did not mention their membership numbers," it said.

Income tax department did not refer any case for professional negligence to ICAI for taking action against erring CAs, it said.

The report also said that CAs failed to give correct information relating to allowance of depreciation in 66 cases involving short levy of tax of Rs 457.79 crore

Tax auditors did not report correct information regarding brought forward loss or depreciation resulting in irregular brought forward loss or depreciation allowance in 46 cases involving short levy of tax of Rs 557.79 crore, it said.

"We have also commented on lacunae in the existing (tax) forms which need modification in order to capture full information of the affairs of assessees so that taxes are applied correctly," it said.

The CAs are regarded as facilitators for the Income Tax Department in administering the provisions of the The Income Tax Act, 1961 correctly.

The tax audit reports (TARs) or certificates issued by them serve as a valuable reference guide to the Assessing Officers (AOs) while making assessments.

 

CAG Report Exposes Shocking Carelessness And Blunders By CAs

The Comproller & Auditor General of India (CAG) has issued a report No. 32 of 2014 setting out the results of the performance audit of “Appreciation of Third Party (Chartered Accountant) Certification in Assessment Proceedings of the Department of Revenue”.

The report makes for shocking reading because it exposes the utterly careless manner in which the Chartered Accountants have conducted audits and issued certificates in blatant disregard of all basic norms.

According to the CAG’s report, there has been short levy of taxes to the extent of Rs 2,813.11 crore in the 367 cases which were surveyed, as a result of wrong audit reports issued by CAs.

The report also points out that there are 616 cases where CAs have committed mistakes in allowance of exemption or deductions, charging of tax on book profit under Section 115JB, adoption of arm’s length price and reporting on cash payments exceeding Rs 20,000 per day.

The CAG report gives several illustrations of such carelessness and also provides the names and membership numbers of the CAs who have conducted the audit.

The report also laments that no action u/s 288 of the Act has been taken by the department against the erring CAs.

It may be recalled that the ITAT has recently in Vijay V Meghani vs. DCIT (ITAT Mumbai) passed severe strictures against the CA profession for alleged falling standards. The Tribunal has also advised the ICAI to take action against erring members and to tackle the issue on a war footing.

In response to the criticism advanced by the ITAT, the ICAI had issued a ste [truncated by WhatsApp]

18 December 2014

GST Bill: 10 Facts

Cabinet Clears Amendment to GST Bill: 10 Facts

The Cabinet on Wednesday cleared the Constitutional Amendment Bill on Goods and Services Tax or GST, paving the way for tabling of the new legislation in the current session of Parliament.

Here's your 10-point cheat sheet on this big story:

1) The revised Bill takes into account the deal reached between the Centre and states on contentious issues like including petroleum, alcohol and tobacco in GST. These items account for a major portion of states' tax revenues.

2) At present, petroleum products will be not be included in the GST but will remain within the central act and will be brought in at a later stage through the GST councils. Alcohol will be exempt from GST and states would have the freedom to decide their own levy. Service tax will be subsumed within GST.

3) In case of losses in the states' exchequer, the Centre will give 100 per cent compensation for the first three years, 75 per cent compensation for the fourth year and 50 per cent compensation for the fifth year.

4) The government wants to introduce the Bill in the ongoing winter session that concludes on December 23.

5) The government on Monday decided to keep petroleum out of the proposed GST in return for states agreeing to entry tax being subsumed in the new indirect tax regime proposed from April 2016.

6) The GST Bill needs to be cleared by at least half of the states, besides Parliament, before its implementation.

7) The launch of GST has been delayed by nearly seven years, as states were concerned about revenue losses on introduction of the new tax regime.

8) The GST will cut down the large number of taxes imposed by the central government and states and will lead to the creation of a unified market, which would facilitate seamless movement of goods across states and reduce the transaction cost of businesses

9) The GST Constitutional Amendment Bill, which was introduced in the Lok Sabha in 2011, has lapsed and the Modi government will be required to come up with a fresh bill.

10) If successful, economists say the implementation of GST could add 2 percentage points to GDP growth.

(With PTI inputs)

15 December 2014

CBEC Circular on Service Tax Audit

CIRCULAR NO 181/7/2014-ST, Dated: December 10, 2014


Audit of the Service Tax assessees by the officers of Service Tax and Central Excise Commissionerates.

Section 94 of the Finance Act, 1994 deals with rule making powers of the Central Government in relation to service tax. Sub-section (2) of section 94, dealing with specific purposes for which rules can be made, was amended with effect from 06.08.2014, vide Section 114(J) of the Finance Act, 2014, and a new clause (k) was added to sub-section (2) of section 94, which is reproduced below –

"(k) imposition, on persons liable to pay service tax, for the proper levy and collection of tax, of duty of furnishing information, keeping records and the manner in which such records shall be verified."

2. In exercise of the rule making powers under clause (k) of sub-section (2) of section 94 of the Finance Act, 1994, the Central Government has inserted a new rule 5(A)(2) in the Service Tax Rules, 1994 vide notification no. 23/2014-Service Tax dated 5 th December, 2014. This rule, interalia, provides for scrutiny of records by the audit party deputed by the Commissioner. Such scrutiny essentially constitutes audit by the audit party consisting of departmental officers.

3. Verification of records mandated by the statute is necessary to check the correctness of assessment and payment of tax by the assessee in the present era of self-assessment. It may be noted that the expression "verified" used in section 94(2)(k) of the said Act is of wide import and would include within its scope, audit by the departmental officers, as the procedure prescribed for audit is essentially a procedure for verification mandated in the statute.

4. It may also be noted that the Hon'ble High Court of Delhi in the judgment dated 04.08.2014 in the case of M/s  Travelite  (India) (2014) TaxCorp(ST) 19175 (HC-DELHI) had quashed rule 5A(2) of the Service Tax Rules, 1994 on the ground that the powers to conduct audit envisaged in the rule did not have appropriate statutory backing. This judgment can now be distinguished as a clear statutory backing for the rule now exists in section 94(2)(k) of the said Act.

5. Departmental officers are directed to audit the Service Tax assessees as provided in the departmental instructions in this regard. Difficulty, if any, in implementing the circular may be brought to the notice of the Board. Hindi version will follow.

F. No. 137/46/2014-Service Tax

03 December 2014

Companies (Amendment) Bill, 2014 

The Union Cabinet, chaired by the Prime Minister Shri Narendra Modi, today approved the introduction of the Companies (Amendment) Bill, 2014 in Parliament to make certain amendments in the Companies Act, 2013. 

The Companies Act, 2013 (Act) was notified on 29.8.2013. Out of 470 sections in the Act, 283 sections and 22 sets of Rules corresponding to such sections have so far been brought into force. In order to address some issues raised by stakeholders such as Chartered Accountants and professionals, following amendments in the Act have been proposed: 

1. Omitting requirement for minimum paid up share capital, and consequential changes. (For ease of doing business) 

2. Making common seal optional, and consequential changes for authorization for execution of documents. (For ease of doing business) 

3. Prescribing specific punishment for deposits accepted under the new Act. This was left out in the Act inadvertently. (To remove an omission) 

4. Prohibiting public inspection of Board resolutions filed in the Registry. (To meet corporate demand) 

5. Including provision for writing off past losses/depreciation before declaring dividend for the year. This was missed in the Act but included in the Rules. 

6. Rectifying the requirement of transferring equity shares for which unclaimed/unpaid dividend has been transferred to the IEPF even though subsequent dividend(s) has been claimed. (To meet corporate demand) 

7. Enabling provisions to prescribe thresholds beyond which fraud shall be reported to the Central Government (below the threshold, it will be reported to the Audit Committee). Disclosures for the latter category also to be made in the Board’s Report. (Demand of auditors) 

8. Exemption u/s 185 (Loans to Directors) provided for loans to wholly owned subsidiaries and guarantees/securities on loans taken from banks by subsidiaries. (This was provided under the Rules but being included in the Act as a matter of abundant caution). 

9. Empowering Audit Committee to give omnibus approvals for related party transactions on annual basis. (Align with SEBI policy and increase ease of doing business) 

10. Replacing ‘special resolution’ with ‘ordinary resolution’ for approval of related party transactions by non-related shareholders. (Meet problems faced by large stakeholders who are related parties) 

11. Exempt related party transactions.  holding companies and wholly owned subsidiaries from the requirement of approval of non-related shareholders. (corporate demand) 

12. Bail restrictions to apply only for offence relating to fraud u/s 447. (Though earlier provision is mitigated, concession is made to Law Ministry &  Winding Up cases to be heard by 2-member Bench instead of a 3-member Bench. (Removal of an inadvertent error) 

14. Special Courts to try only offences carrying imprisonment of two years or more. (To let magistrate try minor violations).      

http://pib.nic.in/newsite/PrintRelease.aspx?relid=112434

26 November 2014

RBI on ECB-FD


RBI allows ECB borrowers to park ECB proceeds in fixed deposits for 6 months pending their utilization

November 24, 2014

EXTERNAL COMMERCIAL BORROWINGS (ECB) POLICY - PARKING OF ECB PROCEEDS

A.P. (DIR Series 2014-15) Circular No. 39, DATED 21-11-2014

Attention of Authorized Dealer Category - I (AD Category- I) banks is invited to A.P. (DIR Series) Circular No. 52 dated November 23, 2011 relating to parking of proceeds of External Commercial Borrowings (ECB).

2. At present, eligible ECB borrowers are required to bring ECB proceeds, meant for Rupee expenditure in India for permitted end uses, such as, local sourcing of capital goods, on-lending to Self-Help Groups or for micro credit, payment for spectrum allocation, etc., immediately for credit to their Rupee accounts with AD Category - I banks in India.

3. With a view to providing greater flexibility to the ECB borrowers in structuring draw down of ECB proceeds and utilisation of the same for permitted end uses, it has been decided to permit AD Category -I banks to allow eligible ECB borrowers to park ECB proceeds (both under the automatic and approval routes) in term deposits with AD Category- I banks in India for a maximum period of six months pending utilisation for permitted end uses. The facility will be with the following conditions:

i.

 

The applicable guidelines on eligible borrower, recognised lender, average maturity period, all-in-cost, permitted end uses, etc. should be complied with.

ii.

 

No charge in any form should be created on such term deposits i.e. to say that the term deposits should be kept unencumbered during their currency.

iii.

 

Such term deposits should be exclusively in the name of the borrower.

iv.

 

Such term deposits can be liquidated as and when required.

4. The amended ECB policy will come into force with immediate effect and is subject to review. All other aspects of ECB policy would remain unchanged.

5. AD Category banks may bring the contents of this circular to the notice of their constituents and customers.

6. The directions contained in this circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any, required under any other law.

 

23 November 2014

CA institute officials under lens

CA institute officials under lens
Debasish Konar,Nov 22, 2014, 12.00AM IST
KOLKATA: Enforcement directorate is going to summon some senior officials of the Institute of Chartered Accountants of India (ICAI) as the institute had failed to initiate action against the chartered accountants (CAs) involved in chit fund scams. The accused CAs had vouched false audit reports.

When the SFIO (Serious Fraud Investigation Office) had been analyzing the audit reports of the Ponzi firms, the fabricated reports made by these CAs had led them nowhere.

ED, while probing the Saradha scam, found that the CAs had given false statements while making the audit reports. The agency found that a number of these CAs were directly involved in the scam. Not only the CAs involved with Saradha, but CAs involved with other chit funds were also found submitting false reports.

ED's special director Yogesh Gupta, who is himself a CA, wrote to the ethical committee of the institute complain about these unethical CAs. Some CAs had told ED that they were removed from the Ponzi firms when they refused to sign bogus audit reports.

The ethical committee was asked to initiate action against the CAs and already about 40 CAs have been identified for such unethical practices. According to ED officials, 10 of them were in gross misconduct, being part of the nexus.

An ED official said, "About 15 other CAs had been grossly negligent as they did not verify the audit reports properly and simply signed them. Another 15 CAs were found to be negligent and failed to perform their duty according to professional rules."

ICAI is yet to take action against these CAs. The institute informed ED that there was no proper process to cancel the practicing certificate.

Forwarded as received

22 November 2014

GST Highlights

Highlights of New Proposed Goods & Service Tax (GST) 

1. The basic principal governing behind GST is to have single Taxation System for Goods and Services 
across the country. Currently Indian economy has various taxes on Goods and services such as VAT, 
Service Tax, Excise, Entertainment Tax, Luxury Tax Etc. now in the new Proposal of GST; we will be 
having only two taxes on all goods and Services as follows: 
a. State Level GST(SGST) 
b. Central Level GST (CGST) 
2. In case of Central GST, following Taxes will be subsumed with CGST which are at presently levied 
separately on goods and services by Central government: 
a. Central Excise Duty 
b. Additional Excise Duty 
c. The Excise Duty levied under Medicinal and toiletries preparation Act 
d. Service Tax 
e. Additional Custom Duty (CVD) 
f. Special Additional Duty 
g. Surcharge 
h. Education Cess and Secondary and Higher Secondary education Cess 
3. In case of State GST, following taxes will be subsumed with SGST; which are priestly levied on goods 
and services by State Governments : 
a. VAT/ Sales Tax 
b. Entertainment Tax (unless it is levied by local bodies) 
c. Luxury Tax 
d. Tax on lottery 
e. State Cess and Surcharge to the extend related to supply of goods and services. 
4. The basic principal for subsuming of taxes in GST is provided as follows: 
a. Those taxes which commences with import / manufacture /production of goods or provision 
of services at one end and the consumption of goods and services o other end. 
b. The taxes, levies and fees which are not related to supply of goods & services should not be 
subsumed under GST. 
5. Taxes on items containing alcohol and petroleum product are kept out of GST. They will continue to 
be taxed as per existing practices. 
6. Tax on Tobacco products will be subject to GST. But government can levy the extra Excise duty over 
and above GST. 
7. The Small Taxpayer: The small taxpayers whose gross annual turnover is less than 1.5 Crore are 
exempted from CGST and SGST. 
8. Input Tax Credit (ITC): Taxes Paid against CGST allowed as ITC against CGST. Taxes paid against SGST 
allowed as ITC against SGST.  
9. Cross utilization of ITC between the Central GST and State GST would not be allowed. Exception: Inter 
State Supply of goods and services. 
10. PAN based identification number will be allowed to each taxpayer to have integration of GST with 
Direct Tax. 
11. IGST Model and ITC: 
a. Center would levy IGST levy ( CGST + SGST) 
b. The ITC will be allowed in this transaction will be SGST, IGST, CGST as applicable. 
c. Appropriate provision will be provided for consignment or Stock transfer. 
12. GST Rate Structure: 
a. Two Rate Structure 
b. A lower rate for necessary items and goods of basic importance 
c. Standard rate for goods in General 
d. Special Rate 
13. Exports are fully exempted with Zero rates.

Forwarded as received...

20 November 2014

Circular on Re-Credit of Cenvat


GOVERNMENT OF INDIA
MINISTRY OF FINANCE
DEPARTMENT OF REVENUE
CENTRAL BOARD OF EXCISE AND CUSTOMS

CIRCULAR NO 990/14/2014-CX-8, Dated: November 19, 2014

To,

Principal Chief Commissioners/Chief Commissioners of Central Excise (All)
Principal Chief Commissioners/Chief Commissioners of Central Excise of Central Excise & Customs (All)
Director General, Directorate General of Central Excise Intelligence
Principal Commissioners/Commissioners of Central Excise (All)
Principal Commissioners/Commissioners of Central Excise & customs (All)
Web-master, CBEC

Madam/Sir,

Sub: Clarification regarding availment of CENVAT credit after six months-reg.

Attention is invited to the Notification of the Government of India in the Ministry of Finance, Department of Revenue No. 21/2014-CE (NT) dated 11.07.2014, vide which, inter alia, amendment was made in Rule 4(1) and 4(7) of CENVAT Credit Rules, 2004 (CCR, 2004) to prescribe that manufacturer or output service provider shall not take CENVAT credit after six months of the date of issue of any of the documents specified in sub-rule (1) of Rule 9.

2. Concerns have been expressed by trade that in view of above changes, the re-credit taken in following three situations may be hit by the time limit of six months prescribed:

i. 3rd proviso to Rule 4(7) of CCR, 2004 prescribes that if the payment of value of input service and service tax payable is not made within three months of date of invoice, bill or challan, then the CENVAT Credit availed is required to be paid back by the manufacturer or service provider. Subsequently, when such payment of value of input service and service tax is made, the amount so paid back can be re-credited.

ii. According to Rule 3(5B) of CCR, 2004, if the value of any input or capital goods before being put to use on which CENVAT Credit has been taken, is written off or such provisions made in Books of Account, the manufacturer or service provider is required to pay an amount equal to credit so taken. However, when the inputs or capital goods are subsequently used, the amount so paid can be re-credited in the account.

iii. Rule 4(5)(a) of CCR, 2004 prescribes that in case inputs sent to job worker are not received back within 180 days, the manufacturer or service provider is required to pay an amount equal to credit taken on such inputs in the first instance. However, when the inputs are subsequently received back from job worker, the amount so paid can be re-

credited in the account.

3. The matter has been examined. The purpose of the amendment made by Notification No. 21/2014-CE (NT) dated 11.07.2014 is to ensure that after the issue of a document under sub-rule (1) of Rule 9, credit is taken for the first time within six months of the issue of the document. Once this condition is met, the limitation has no further application. It is, therefore, clarified that in each of the three situations described above pertaining to Rule 4(7), Rule 3(5B) or Rule 4(5) (a) of CCR, 2004, the limitation of six months would apply when the credit is taken for the first time on an eligible document. It would not apply for taking re-credit of amount reversed, after meeting the conditions prescribed in these rules

4. Difficulties faced, if any, in implementation of this Circular may be brought to the notice of the Board. Hindi version follows.

F. No. 267/72/2013-CX.8 (Pt)

 

Shankar Prasad Sarma

OSD, CX.8

19 November 2014

TP Case of Shell


HC decides TP issue of undervaluation of shares in favour of shell; follows ratio of Vodafone's case

November 19, 2014

 

On November 18, 2014 the Bombay High Court held in favour of Shell India on the issue of applicability of Transfer Pricing provisions in case of issue of shares. In this regard, the High relied upon decision in the case of Vodafone India Services (P.) Ltd. v. Union of India [2014] 50 taxmann.com 300 (Bombay). It held that Transfer Pricing provisions would not be applicable on alleged undervaluation of shares issued to foreign parent company, as there was no income arising there from. The High Court deleted the Transfer Pricing adjustment and the consequential interest in respect of alleged undervaluation of shares issued by Shell India.

Previously, the Bombay High Court on October 10, 2014 in the case of Vodafone India Services (Supra)held that issue of shares by assessee to its non-resident AE at a price below the fair market value would not give rise to any income from an admitted international transaction and, thus, Indian Transfer Pricing provisions would not be applicable on it.

BMR Legal acted as the briefing counsel on the tax litigation and transfer pricing issues for Shell. Mr. Percy Pardiwala, Senior Advocate, argued on behalf of Shell with the assistance from the BMR's Legal team.

Mukesh Butani, Managing Partner, BMR Legal stated as under:

 a)  "The Shell India case decided by the Bombay HC is a significant development. It follows the earlier judgment of Vodafone insofar as principles are concerned - the principle being that issuance of shares by an Indian company to its foreign parent is not eligible to transfer pricing provisions as there is no income arising therefrom.

 b)  The High Court held today that the legal principle laid down by the Bombay HC applies in the Shell case and rejected the Department's argument that the facts of Shell case were distinguishable from Vodafone's case.

 c)  The said decision is a welcome relief not just for Shell but for all MNC's who have faced the adjustment on share issuance. It is significant to note that the court did not hesitate on exercising its extraordinary power to issue a writ where alternate appeal remedy was available - in this situation as the court felt that the tax department clearly exceeded its jurisdiction to bring to tax a capital transaction."

Gokul Chaudhri, Leader, Direct Tax, BMR & Associates LLP stated as under:

"The Bombay High Court has decisively held that no transfer pricing or tax implications can arise on issue of shares by a subsidiary to its overseas shareholders. Upholding the writ petition of Shell India the court brought to a close the controversy that arose in January 2013 and has since worried investors. This decision follows earlier decision of the court in similar circumstances for Vodafone India. Investors should welcome this bold intervention and clear thinking of the court. Hopefully one of the tax thorns that troubled investors has been removed. Acceptance of this decision by the Government would be helpful to bring closure."

16 November 2014

Section 80C- Bank term Deposit Limit increased to Rs. 1.50 Lakh

Section 80C- Bank term Deposit Limit increased to Rs. 1.50 Lakh

 

NOTIFICATION NO.  63/2014, Dated: November 13, 2014.

S.O. 2906(E). In exercise of the powers conferred by clause (xxi) of sub-section (2) of section 80C of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby makes the following amendments to the the Bank Term Deposit Scheme, 2006, namely:-

1. (1) This scheme may be called the Bank Term Deposit (Amendment) Scheme, 2014. (2) It shall come into force on the date of its publication in the Official Gazette.

2. In the Bank Term Deposit Scheme, 2006, in para 3, in clause (1), for the words "one lakh rupees" , the words "one hundred and fifty thousand rupees" shall be substituted.

[F.No.142/09/2014-TPL]

(Raman Chopra)
Director (TPL-II)

Note: The principal Scheme was published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (ii),vide number S.O. 1220(E) dated the 28th July, 2006 and subsequently amended by notification number S.O. 2127(E), dated 13th December 2007

15 November 2014

Bank branch audit panel

Draft Bank Branch Auditors’ Panel for the year 2014-15 has been hosted at http://www.meficai.org/DraftBankBranchAuditorsPanel_2014_15.html. 

14 November 2014

Company Law Settlement Scheme (CLSS) further extended

Ministry has, on consideration of 2014) upto31st December. 2014.
Ci requests received from various stakeholders, has decided to extend the Company Law Settlement Scheme (CLSS rcular NO 44/2014 DAted 14.11.2014 

13 November 2014

FD in Court- NO TDS

No TDS liability of bank under sec. 194A on interest accrued on FD made by litigant on directions of Court

November 13, 2014[2014] 51 taxmann.com 253 (Delhi)

IT: Where litigant deposit FD with the bank on directions of Court, he ceased to have any control or proprietary right over those funds. Although FD was drawn in the name of the Registrar General, he was neither the recipient of the amount credited to that account nor the interest accruing thereon. There was no assessee to whom interest income from the FD could be ascribed, thus, bank was not liable to deduct tax under section 194A on interest accrued on such FD.

Facts:

(a)   The petitioner ('UCO Bank') accepted a Fixed Deposit ('FD') made by litigant as per directives of the Court. The bank did not deduct tax on accrued interest on such FD as it was in name of Register General of Court as custodian and the actual beneficiaries were not known, as the matter was sub-judice.
(b)   Thus, the issue that arose for consideration of the High Court was:

  • Whether the bank would be liable to deduct tax under section 194A on interest accrued on such FD where the assessee was not ascertainable and the person in whose name the interest was credited was also not a person liable to pay tax under the income-tax Act ('the Act')?

The High Court held in favour of assessee as under:

(1)   The words "credit of such income to the account of the payee" occurring in section 194A of the Act necessarily imply that deduction of tax bears nexus with the income of an assessee. In absence of an assessee, the machinery provisions for deduction of tax to his credit were ineffective. The expression "payee" under section 194A of the Act would mean the recipient of income whose account was maintained by the person paying interest.
(2)   In the instant case, although FD was made in the name of the Registrar General, the account represented funds which were in custody of the Court and the Registrar General was neither the recipient of the amount credited to that account nor the interest accruing thereon. Thus, the Registrar General could not be considered as payee for the purpose of section 194A of the Act.
(3)   There was no assessee to whom interest income from the FD could be ascribed; no person could file return claiming the interest payable by bank as income. The machinery provisions of recovering tax by deduction of tax at source would not be applicable in absence of an ascertainable assessee.
(4)   The litigant who was asked to deposit the money in the court ceased to have any control or proprietary right over those funds. The amount deposited vested in the Court and the depositor ceased to exercise any dominion over those funds. It was also not necessary that the litigant who deposited the money would be the ultimate recipient of income. The person to whom funds would be granted was to be determined by orders passed subsequently. Thus, petitioner-bank was not required to deduct tax under section 194A on interest accrued on FD made by the litigant.

12 November 2014

POA- Capital Gains


CAPITAL GAINS
In favour of: Assessee

Capital gains on sale of property cannot be assessed in the hands of power of attorney holder, when no consideration was paid to the actual owner at the time of execution of the power of attorney and the assessee had acted merely as an agent, since there was no transfer to or enabling enjoyment of property in favour of agent in any manner so as to attract Section 2(47)(vi).

High Court Of Madras
Commissioner Of Income Tax Vs C. Sugumaran : (2014) 90 CCH 0173 ChenHC
Decided On: Nov 03, 2014

 


NBFC-Revised Regulatory Framework


RBI tightens norms for NBFCs

In a bid to bring non-banking financial company (NBFC) norms in line with those of banks, the Reserve Bank of India (RBI)  unleashed tighter rules for NBFCs. According to the new guidelines, NBFCs will require higher minimum capital, have less time to declare bad loans, and a board-approved fit and proper criteria for director appointments.The new norms, which will be implemented in a phased manner, are made applicable for NBFCs that manage funds worth Rs 500 crore and for those that accept public deposits. The central bank will also start granting fresh NBFC licences.

10 November 2014

3 CB CD utility

FYI - CBDT on 06-11-2014 released Revised Form 3CA-3CD & Form 3CB-3CD filing utility along with updated Schema. Revised Utility is is now available for e-Filing.

Download Revised Utility updated on 06th November for Tax Audit Report for AY 2014-15.

09 November 2014

CBDT to I-T officers: make proper tax assessments

The Central Board of Direct Taxes (CBDT) has directed supervisory officers to play a more proactive role in ensuring that high-pitched assessments without proper basis are not made by the Income-Tax Department.
Also, such officers should ensure that lengthy questionnaires or summons without due application of mind are avoided, CBDT said in a circular to its field officers.
This instruction is seen as yet another effort on part of the CBDT in moving towards a non-adversarial tax regime.
Though less than one per cent of returns filed are selected for scrutiny, this area of work has often drawn adversarial comments.
Supervisory officers have now been directed to ensure inspections and reviews are undertaken in accordance with guidelines issued. This must be done to enable capacity building within the department and accountability of the officers.
The CBDT has highlighted that enquiries arising in limited scrutiny cases selected on the basis of AIR/CIB/26AS information will ordinarily be restricted to that information.
Senior officers have been directed to ensure that appeals are filed only on the merits thereof and not merely on the tax effect involved.
It has also been decided that in multi-CCIT Charges, reference before High Court would be taken by two CCITs.
The CBDT circular also lays emphasis on cleanliness in office, punctuality, timeliness in appointment and avoiding unnecessary adjournments.
All supervisory authorities have been directed to enable an effective grievance redressal system in their jurisdictions.

CBDT to create non-adversarial tax regime
The Central Board of Direct Taxes (CBDT) has directed supervisory officers to play a more proactive role in ensuring that high-pitched assessments without proper basis are not made by the income tax department.
Also, such officers should ensure that lengthy questionnaires or summons without due application of mind are avoided, CBDT said in a circular to its field officers.
This instruction is seen as yet another effort on part of the CBDT in moving towards a non-adversarial tax regime.
Though less than 1 per cent of the returns filed are selected for scrutiny, this area of work has often drawn adversarial comments.
Supervisory officers have now been directed to ensure inspections and reviews are undertaken in accordance with guidelines issued. This must be done to enable capacity building within the department and accountability of the officers.
Senior officers have been directed to ensure that appeals are filed only on the merits thereof and not merely on the tax-effect involved. All supervisory authorities have also been directed to enable an effective grievance redressal system in their jurisdictions.
The CBDT circular also lays emphasis on cleanliness in office, punctuality, timeliness in appointment and avoiding unnecessary adjournments.
  
Kerala High Court on Service tax on Restaurants

Division Bench of Kerala HC upholds Single Judge order, service tax levy on serving food & beverages in AC restaurant, hotel, inn, guest house, club or camp-site u/s 65(105)(zzzzv) & (zzzzw) of Finance Act unconstitutional; Post 46th Constitutional amendment, supply of food & other articles for human consumption in restaurants a 'deemed sale' under Art 366(29-A) and no service involved therein; Said activity enumerated in Entry 54 of List II of Seventh Schedule and States alone have legislative competence to impose tax on whole consideration received; Further, relies on SC decision in Godfrey Philips India Ltd to hold that hotels, inn, clubs, guest-house enumerated in Entry 62 of List II, taxable as 'luxuries' by State legislature; Rejects Revenue's reliance on SC ruling in Tamil Nadu Kalyana Mandapan Assn. to contend that Art. 366(29-A)(f) only permits State to impose tax on supply of food & drink, conceptually, supply of services not included within definition of "sale and purchase of goods"; Said judgment deals with mandap-keeper's liability to service tax, cannot be equated with supply of food & beverages by a restaurant; Vide introduction of Art. 366(29-A), characteristics of restaurant transaction have changed for the purpose of imposition & levy of tax, hence European Court's ruling in Faaborg-Gelting Linien A/S vs. Finanzamt Flensburg cannot be relied upon; Differs from Bombay HC ratio in Indian Hotels and Restaurant Association & Anr., since whole consideration for supply of food (including service part of transaction) is exigible to State tax by virtue of constitutional definition, Union cannot characterise the same transaction as 'service' for levy of service tax  : Kerala HC

CPE requirement for 2014-2016

CPE HOURS REQUIREMENTS FOR THE BLOCK PERIOD OF 3 YEARS (1-1-2014 TO 31-12-2016) TO BE COMPLIED WITH BY DIFFERENT CATEGORIES OF MEMBERS

A. All the members (aged less than 60 years) who are holding Certificate of Practice (except all those members who are residing abroad) are required to: 
a) Complete at least 90 CPE credit hours in a rolling period of three-years. 
b) Complete minimum 20 CPE credit hours of structured learning in each calendar year. 
C) Out of the 90 CPE Credit Hours as mentioned above, 30 CPE credit hours can be completed either through Structured or Unstructured learning (as per Member’s choice). 
 
B. All the members (aged less than 60 years) who are not holding Certificate of Practice and all the members who are residing abroad (whether holding Certificate of Practice or not) are required to: 
(a) Complete at least 45 CPE credit hours either structured or unstructured learning (as per Member’s choice) in rolling period of three-years 
b) Complete minimum 10 CPE credit hours of either structured or unstructured learning (as per member’s choice) in each calendar year. 
 
 C. All the members (aged 60 years & above) who are holding Certificate of Practice, are required to: 
a) Complete at least an aggregate of 70 CPE credit hours of either Structured or Unstructured Learning (as per member’s choice) in a rolling period of three years 
b) Complete minimum of 10 CPE credit hours being an aggregate of either Structured or Unstructured Learning in the first calendar year i.e. 2014. 
c) Complete minimum of 20 CPE credit hours being an aggregate of either Structured or Unstructured Learning (as per member’s choice) in the second and third calendar years i.e. 2015 & 2016 

04 November 2014

Non Submission of C Form-Interest

Interest chargeable from 'Return Date' on Form "C" non-production, not 'Assessment' under CST Act

 

HC quashes Tribunal order, interest chargeable from the date of furnishing monthly returns in case of default in furnishing 'C' Form declarations claiming concessional rate under Central Sales Tax (CST) Act; Tribunal misread SC judgement in J. K. Synthetics wherein liability to pay tax and interest thereon was held to arise only after adjudication and not earlier to it; In instant case, assessee aware of liability on inter-state sale, hence tax paid pursuant to assessment order ought have been paid alongwith return, as prescribed under CST Act; Having failed to do so, State deprived of revenue and hence, interest payable from the date when assessee became liable to pay tax to compensate the delay; Rejects assessee's contention that no interest payable absent provision in CST Act, Sec 9(2B) r/w Sec 36 & 37 of Karnataka VAT Act makes it very clear that power conferred to levy interest flows from statutory provision  : Karnataka HC

04/11/2014

The ruling was delivered by Justice N. Kumar and Justice B. Manohar.

Ms. S. Sujatha appeared on behalf of the Revenue, while assessees were represented by Ms. H. Vani, Mr. T. Surya Narayana and Mr. T. Rajaram. 


[TS-499-HC-2014(KAR)-VAT]

02 November 2014

Interest U/s 234 A Stayed


Madras High Court Stays Clause 7 of CBDT Order dated 26-09-2014 regarding Extension of ITR Due Date AY 2014-15 with Levy of Interest u/s 234A

 

 

Earlier on 26-09-2014 CBDT, following the direction of the Gujarat High Court had extended the due date for Income Tax Returns (ITR) filing from 30th September, 2014 to 30th November, 2014 for assessee covered under tax audit us 44AB of Income Tax Act, 1961.

However, the clause 7 of CBDT order dated 26-09-2014 provided that assessee shall have to pay interest under section 234A for the period of the extension granted.

Clause 7 of CBDT Order is reproduced hereunder:

7. There shall be no extension of the "due date" for the purposes of Explanation 1 to section 234A (Interest for defaults in furnishing return) of the Act and the assessees shall remain liable for payment of interest as per the provisions of section 234A of the Act.

Now, it is reported that the Madras High Court has granted a stay on the operation of the clause 7 of the said order of CBDT and has issued a direction to Income Tax to accept returns without interest.

The full details of the order are awaited.

30 October 2014

CBDT on Non filers


The Joint Director of Income-tax Systems has issued a letter dated 29.10.2014 stating that 5,09,898 taxpayers who had submitted an e-return in the earlier AYs with returned income of Rs. 10 lakhs and more have not filed a return for AY 2014-15. It has been stated that as a measure of revenue augmentation, a notice must be sent to the non-filers to furnish their returns for AY 2014-15.

26 October 2014

Amendment to seventh Schedule (CSR)

Amendment to seventh Schedule (CSR):
to add sanitation and 'Swachh Bharat Mission' MCA today vide its notification dated 24th October, 2014 amended Seventh Schedule to include
'sanitation', 'Swachh Bharat Mission', 'cleaning of water and
Ganga' as a part of CSR activity.

24 October 2014

ST3 Return Due Date Extended to 14th Nov,2014

Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise & Customs

New Delhi, the 24th October, 2014

ORDER NO 02/2014-SERVICE TAX

In exercise of the powers conferred by sub-rule (4) of rule 7 of the Service Tax Rules, 1994, the Central Board of Excise & Customs hereby extends the date of submission of the Form ST-3 for the period from 1st April 2014 to 30th September 2014, from 25th October, 2014 to 14th November, 2014.

In exercise of the powers conferred by sub-rule (4) of rule 7 of the Service Tax Rules, 1994, the Central Board of Excise & Customs hereby extends the date of submission of the Form ST-3 for the period from 1st April 2014 to 30th September 2014, from 25th October, 2014 to 14th November, 2014.

The circumstances of a special nature, which have given rise to this extension of time, are as follows:

"Natural calamities in certain parts of the country."

F.No.137/99/2011-Service Tax

Himani Bhayana
Under Secretary (Service Tax)
Central Board of Excise and Customs

22 October 2014

e Form ADT-1


New e-Form ADT-1
New features/ Options of e-form ADT-1 introduced by Ministry of Corporate Affairs
·         Provide whether company is falling  under any class of Companies as per Section 139(2).
·         Whether Joint Auditors have been appointed - Provide Whether joint auditors have been appointed. If yes is selected then provide the value for Number of auditor(s) appointed shall be greater than 1.
·         Period of account for which appointed - Please mention the "From" and "To" date for the period for which auditor is appointed.
·         Number of financial year(s) to which appointment relates - Please provide the Number of financial year(s) to which appointment relates.
·         Whether the appointment of auditor is within the limits of twenty companies as specified in sub section 3(g) of section 141 - Please provide Whether the appointment of auditor is within the limits of twenty companies.
·         Specify the tenure of previous appointment(s) of the auditor or auditor's firm or its member in the same company in which audit was conducted or is functioning (excluding previous years having break of five or more years as specified in Rule 6) - Please provide the tenure of previous appointment(s) of the auditor or auditor's firm or its member in the same company in which audit was conducted or is functioning in number of financial year(s). Please provide details as Person appointed as auditor, financial start date and financial end date of his tenure
·         Manadatory Attachmetns:
Ø  Copy of the intimation sent by company
Ø  Copy of written consent given by auditor;
Ø  Copy of resolution passed by the company;
NOTE:
v  The e-Form will be auto approved (STP).
v  Now it's mandatory for the companies to attach the above mentioned documents with e-form ADT-1.
v  Its mandatory to mention Number of financial year(s) to which appointment relate.

21 October 2014

IndianCAs: Wish you a very Happy Diwali!!

 



| Ashwin Nagar | FCA and SAP-Finance & Consolidations |+919833015352
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