the views€¦ · single operating demat account so that indian financial sector consumers can...

VOL. 17 AUGUST, 2014 NO. 2

HOUSE JOURNAL OF VIEWS EXCHANGEWWW.VIEWS-EXCHANGE.ORG

The Views Co Existence or No Existence

VIEWS - August 20142

Edit

ori

al Dear friends,

thAs we step into the 68 year of our Independence, we need to reminisce, what we have achieved and what still needs to be done. True independence is an environment where all people and specially women have a choice in education and a right to profession of their choice. A stable Government, a strong leader, a conducive business environment and a honest business administration is needed to revive the economy which of late was seen to be faltering under the burden of indecisiveness, nepotism and corruption.

The Indian electorate has done their job and a lot was expected from the first budget of the new government. The Budget has given a mix feeling – there has been just a push towards revival of growth and economic development but the mess we are in currently requires more than small measures. However given the fact that our Finance Minister got only 45 days, we need to show more patience.

The increase of basic exemption , the grant of pass through status to income from REITS are good measures that need to be applauded but the Finance Minister succumbed to temptation of revenue when he increased the DDT. The FM is right when he states that DD Tax is tax on behalf of the shareholders, then why the disallowance u/s 14 A. The FM is right when he intends to remove the tax arbitrage by proposing higher tax on units of debt mutual funds but certainly he should not have taxed them retrospectively.

However, the Finance Minister has highlighted the importance of the Indian Capital markets in the growth of the economy and thereby proposed introduction of uniform KYC norms and inter-usability of the KYC records across the entire financial sector and to introduce one single operating demat account so that Indian financial sector consumers can access and transact all financial assets through this one account.

These measures shall certain go a long way in streamlining the economy. But, the various regulatory bodies have to submit data in various formats which defeats the whole purpose of ease of business. People have to furnish the financial data’s to the various Income tax Authorities, the Reserve Bank of India, the Registrar of Companies, sometimes the Financial Institutions, the Stock Exchanges and so on and so forth. This makes me wonder if we could have single filing for all the regulatory requirements.

The process of filing is cumbersome and most of the information is common and overlapping and instead of helping the business, it is hampering the growth. Proper efforts should be made by all concerned to streamline the process of filing and a single format should be made available wherein the various authorities can access the information as desired by them.

But at the end we must keep in mind:

Jai Hind

Best wishesCA Seema Choraria CA Kushal [email protected] [email protected]

True individual freedom cannot exist without economic security and independence. People who are hungry and out of a job are the stuff of which dictatorships are made.

Franklin D. Roosevelt

DOING WHAT YOU LIKE IS FREEDOM…..LIKING WHAT YOU DO IS HAPPINESS…..

The View Exchange Editorial Board do not accept any responsibility for the views expressed in this journal, though every effort has been made to avoid any error or omission in the Journal. Readers are requested to act upon professional advice before taking any decision on the basis of comments here in.

CONTENTS

Editor: CA Seema Choraria Jt.Editor: CA Kushal Bhuwania

Editor - Seema Choraria

Jt Editor - Kushal Bhuwania

MEMBERS :

K.M. Tapuriah

K.K. Chhapparia

Mohit Bhuteria

Sumit Binani

Jyoti Mondal

Priyanka Salarpuria

Pranav Kedia

Rohit Surana

EDITORIAL BOARD

website : www.views-exchange.org

T H E V I E W S

Reporting Value Creation

NBFC-New Regulations

5INV_Clarifications

Impac t of Finance Bill:

-On Search and survey

And Securities - Derivatives

-Cenvat Credit Mechanism

Judicial Pronouncements

House Page

Snapshots

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I am aware the present atmosphere is of uncertainties. However, I believe that uncertainties bring opportunities. I would like members of the Views to seize the opportunity to serve their client and make every effort to equip members to excel in this world of uncertainties. We should make ourselves strong enough to take responsibility for the actions and choices. A person should muster enough confidence to believe in himself and his potential when everyone else gives up. Broadening of vision will help us “observe” what others can only “see” and when we can see the invisible, we can do the impossible. Thus, incessant reading, learning and updating one’s knowledge are the key to success.

thArun Jaitley read out his annual Union Budget on 10 July, 2014, a constructive road map the NDA government lays out to bring the “Acchhe Din” it has promised the nation. The Union Budget marks a new era of growth and development in India also called as “The Monsoon Budget”. The Budget is quite progressive and will spur investment-led sustainable and inclusive growth. The changes made looks promising and if effectively implemented shall make India closer to the goal of achieving a “developed nation”. Few amendments made in Finance Bill leaves an impression that the bureaucracy has not changed. However, we need to give an allowance that the new government was only two months old.

Entire August and September month is full of activities for a professional. We are extremely busy in filing returns and completing Tax Audits within the due date. We need to prioritize and simultaneously, update ourselves with the amendments in the Tax Audit format (Form 3CD). The changes introduced calls for a change in audit methodology adopted and updating our office for an effective audit.

In the month of July, we had successfully conducted various programme/ seminars. “Group thThink”- Analysis of new Companies Act, 2013 (5 July) wherein case studies were developed and

deliberated by the Group members for a more thorough and practical understanding of the Act. A seminar on “Union Budget 2014” was held jointly with the Central Kolkata Chartered Accountants

thStudy Circle on 11 July, 2014 at Vidya Mandir. It was a full house seminar with more than 900 delegates attending. We gratefully acknowledge the whole hearted support of the Central Kolkata Chartered Accountants Study Circle. Lastly, a Seminar on “NBFCs- Auditors Responsibilities and Importance under Companies Act,2013 and e-filing of IT Returns for AY 2014-15” was also held where Mr. Prasant Seth, DGM,DNBS, RBI was present to grace the occasion. He reminded us of the auditor’s responsibilities towards NBFCs and their importance in current scenario.

Before I conclude let us bow to our great nation and extend our enthusiasm and festive spirit to the Independence Day which is approaching.

Happy Independence Day to all of you!

Best Regards,CA Vivek [email protected]

“If you can keep your head when all about youAre losing theirs and blaming it on you,”

– By Rudyard Kipling

T H E V I E W S

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REPORTING VALUE CREATION

The reporting framework of an enterprise has to be mission and vision. It also reflects the pyramid of strategic aligned to the strategic management structure in an management where there is an operational base on which enterprise. Though there are many barriers for comes the tactical ways and then the strategic mantle. managing strategy correctly and also critics for the The reporting framework of an enterprise is also very Balanced Score Card; f indings show that much aligned to this pyramid like structure and is a great manufacturing plants that have strategically linked enabler for strategic management, though there are many their corporate goals or objectives to their barriers for managing strategy correctly. Obstructions performance measurement systems, via the arise in measuring strategy when, actions are not linked to scorecard, have performed better than those that do vision, key performance indicators and objectives are not not. matching their, feedback turns out to be less meaningful Dynamic people always have a mission to achieve and resource allocation is not strategic. Strategy is a term and vision for the development of its highest widely used in warfare and it refers to the steps taken to objectives. In his mission he may come across counter the influence of the enemy and win the frontiers. certain growth engines that may help him and also Business strategy is no longer limited to collection of certain roadblocks which he has to negotiate. As the competitor information as it has evolved to match the old saying goes “The problem is you and the solution management accounting systems with an organization’s is you” therefore, much importance needs to be given strategic position. Informed decision making helps the to the individual’s decisions so that he may reap enterprise in its value creation. It gets reflected in maximum benefit in his endeavours. In our life we performance management and reporting framework as also need to work on so many things, prioritize on shown below :something important and finally give shape to our

CA Kanchan Mukherjee Strategy Consultant with IBM

[email protected]

VIEWS - August 20144 website : www.views-exchange.org

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It is of great importance to define the business them, which may in turn have other lower-level attributes, process streams in the organisation like sales, etc so that value based measure gets implemented and purchase, operations, finance, human resources, practiced. It links to the business process and the marketing and even leadership, which forms the decisions that are specific to a situation and how the value bedrock. At the same time it is necessary to bring to creation can be maximised in that context. There is a need light that all transactions are governed in an orderly to identify the determining factors for the enterprise to manner even if the enterprise is a colossal and it is develop the value driver tree. The specifics flow from decentralised. Detailed process maps even help to generic pointers. Generally, increasing shareholder’s feed and accelerate blueprint deliverables in value is first node in the value tree. Though top line is implementation of ERP. There are some sub important for any enterprise, revenue growth in consumer processes which are unique in their requirements like product and consumer durable is always a topic of revenue assurance which covers plan to produce, discussion where companies must execute with speed order to cash, procure to pay and finance. While and agility to regain market leadership, unlike say in coal defining any process map and responsibility-authority or oil extraction and energy production, aerospace or even matrix (RACI matrix) swim lane is used to cover all banking industry. Actually, consumer products and the relevant components and decisions. Similarly in consumer durables industry brings on board a different treasury functions and research functions all decision breed of sellers and no other industry does a monthly boxes are linked to the next stage appropriately. closing as they do.Talent management requires interlocks with Revenue growth is related to market share, features about functional heads, unit heads, leaders, middle level the product, distribution channels and market growth management and external inputs also. based on value-growth duration. Market share depends

upon price, promotions and advertising. Price flows from Value creationvalue for the product, channel margins built on cost and Value creation results from measure builders built in discounts and incentives used to boost sales. Promotion the value driver tree. Value driver tree is a framework plays an important role based on consumption pattern and built with measures and metrics, used in multiple seasonality, as sales peak on that count. Existing products criteria decision analysis in which objectives are ring in more sales based on order size and availability arranged hierarchically such that top-level objectives backed with visibility, the life cycle of the product also may have other objectives or desired attributes within



decides the replacement sought by the consumer. loyal market by product and service differentiation. New product’s success depends on the brand value, Barriers to entry for new entrants comes from global brand innovative content and time taken to develop the leverage, economies of scale used by multinational

companies but, at the same time l o c a l p r e f e r e n c e s p l a y a significant role in customers decision. If the tie up in integrated operations with the large scale vendor eases import exports; supplier switching costs helps to boost supplier power in the initial v a l u e g r o w t h d u r a t i o n . Cong lomera tes have jo in t ventures, mergers & acquisitions and tie ups to leverage on these elements of rivalry.

Depending on the maintenance and utilisation of the prevailing asset base, selecting the proper capital expenditure budget for expansion to bring in operational profit improvement either based on outright purchase, or from lease and financing options is another value driver for the enterprise.

same. Proper product mix supplements the customer Weighted average cost of capital is a cause of concern in mix to surge revenue so the sales force has to be developing economies where borrowing costs are steep. If rewarded for showing such competency. Of course equity market is favourable for an enterprise it is a big bringing in new customers and providing customer boon in its race for survival. To nurture the market satisfaction is a key element for sales growth and it premium it is pertinent to understand the beta for the helps tremendously if additional effort is put to build specific sector and sub sectors in the industry. Effective up new distributors and service centers with some working capital management eases the growth in business additional investments at the beginning. and it relies heavily on credit policy and collections, The competitive advantage period, is the amount of payment methods, purchase volumes and application of time in years that a company can generate excess six sigma. Even tax rate on operations and financial returns on its capital over its cost of capital. This structure including transfer pricing hardships can make or comes only after the break even is achieved. When a break a business model. consumer durable company earns excess returns on Finally comes the cash margin generated from sales. This its capital, it will most certainly attract rivals over time. becomes positive if cost of goods sold matches with the Also in information technology and robotics sectors, revenue and all the other costs like selling and distribution, rivals will also duplicate their approaches, thereby marketing and general & administrative heads are reducing the market share of the former by stealing properly allocated to the product in product costing so that customers even by earning less return on their there are no hidden expenses and cash margins are capital. To achieve a reasonable or durable above the benchmark levels set in the industry. If this can advantage, companies must essentially block the be set up accurately, the growth rate will definitely help in force of competition. This requires companies to do profit maximisation and value creation. Free cash flow is more than just react quickly to competitive responses like ventilator in difficult situations and it is a result of many – they must literally build their business to defend variables after operating profit is derived as discussed and protect their economic profits. above.Managing government red tapes, getting institutional Performance measuressupport, reducing employee attrition and talent

Many of the conventional financial statistics and management are important factors for the organic parameters have become redundant or inadequate to take growth of the enterprise. The two value drivers stock of the whole spectrum of modern corporate marked in competitive advantage period are lower activities. The situation demands more comprehensively cost to bill the customers in an oligopoly or measured indicators; with equal importance and coverage competitive market and also to create a niche and

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to all the limbs of performance along with proper industry. Performance measures must be tailored to the mechanism for integration of all such areas to specific strategy of each company. produce a more balanced and focused result. Balanced Score Card is a performance appraisal and Different companies, having different strategies, will reporting system that strikes a balance between financial target different customers with different kinds of and non-financial measures, links performance to rewards products and services. In the automobile industry, and gives explicit recognition to the diversity of BMW and Volkswagen stress on engineering and organisational goals. The prime objective of Balanced handling, Jaguar on luxury detailing, Volvo on safety Score Card is to provide a platform for translating a firm’s and Toyota on reliability. For these differences on strategic objectives into a coherent set of performance priority, a one-size-fits-all approach to performance measures. Balanced Score Card is “a set of measures measurement will not work even within this one


that gives top managers a fast but comprehensive also the initiative taken to address the issues arising there view of the business. The balanced score card from. Strategies can be influenced by objectives from all includes financial measures that tell the results of the perspectives in the organization. Although profitability actions already taken. It complements the financial is a financial ratio, the Balanced Scorecard takes into measures with operational measures on customer consideration that the outcome of this indicator is satisfaction, internal processes and the organisation’s influenced by other areas. The product quality and the innovation and improvement activities.” [Robert S. shopping experience of customers can directly influence Kaplan and David P. Norton]. Some of the measures the profitability as measured by the financial indicator. in Balanced Score Card can be like this: Staff competencies and communication systems inside

the organization also contribute to this indicator. If The indicators or the measures should display the incidents of operational hazard or driving hazard become objective for including this item, whether there is any critically important in automobile industry Leyland, Volvo upward or downward trend in the targets or the or Toyota will try to ensure meeting this key performance benchmarks, the actuals against that and whether indicator before things go out of hand. Each objective will there is an upward or downward trend there in and


T H E V I E W S


have measures linked to it with a target to reach. balance across the various measures, and how the tool Actuals could now indicate where the organization is can be used for process improvement which is most succeeding and where actions are needed to reach suited to the work environment in bigger enterprises.the profitability figures set out to achieve. Initiatives In enterprise resource planning tool, first, the value driver can be launched to assist in the attainment of the tree is used to illustrate influences of different value objectives set by planning. drivers across all geographic regions, segments and sub Though critics have termed Balanced Score Card as segments by selecting the requisite parameters. In the ‘flavour of the season’ and questioned its cost addition, it can analyze which value driver influences effectiveness; findings show that manufacturing which other value driver(s), as well as which value driver plants that have strategically linked their corporate is influenced by which value drivers. With ‘Use Tree’ and goals or object ives to their performance ‘Cause Tree’, it can choose the type of relation the user measurement systems, via the scorecard, have wants to represent with respect to the selected root node. performed better than those that do not. Correct use The enterprise can link every measure or Key of the tool requires a proper understanding of the Performance Indicator in the Balanced Scorecard to a process and unless, someone in the organization has value driver tree and the component module. With the experience with it, this may involve the use of an function “Scorecard Analysis”, two or more scorecards outside consultant to help with the process. Strategy with its sub scorecards for geographic regions, segments planners and users of the balance score card both and sub segments and can be compared to each other, need to have knowledge how the scorecard works. using ‘Alarm Colours’ across a time period of up to 25 For maximum effectiveness, the entire organization periods. Similarly, also it is possible to link graphic frames should understand the theory behind the use of the in the Management Cockpit to a value driver tree where a balanced scorecard, the importance of achieving double-click will call up the details of a value driver.

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9website : www.views-exchange.org

Over the years NBFC sector has become a crucial part lThe resort for banks and financial institutions of the financial services sector. With the growing under section 36 of CA 2013 against such persons importance as financial intermediaries the regulatory who have fraudulently induced them to invest in the side has also been evolving very dynamically for company – The CA, 2013 has given a new power to the NBFCs with a number of new categories like NBFC- banks and financial institutions under section 36 Factors, NBFC-IDFs, NBFC-MFIs etc. being whereby they can proceed against the promoters and introduced during the last few years. directors of the borrowing entity for fraudulently

inducing them to invest.As per the Hand Book of Statistics on Indian Economy, 12012-13 , the sector grew at the rate of 22 per cent lExemptions have been granted to the non-banking

during the period March 2006 and March 2013, financial companies under section 185 and 186 with compounded annually. The NBFCs’ assets accounts respect to loans to directors and loans and investments for 12.5 per cent of the Gross Domestic Product by a company respectively.(GDP).Between March 2007 and March 2013 the

lThe NBFCs have been allowed to raise funds by sector reported a credit growth at the rate of 24.3 per

way of filing shelf prospectus –As per the provisions cent compounded annually. of Section 31(1) of the CA, 2013, certain class or

Blast of reforms classes of companies, as may be prescribed by the Securities Exchange Board of India(SEBI), may raise In FY 2013-14 and 2014-15 (till date), the sector saw a funds through issuance of securities over a period of up blast of regulatory reforms, with all the financial to one year, by filing a shelf prospectus with the regulators coming out with something or the other Registrar at the time of first issuance of the securities. which were of great interest to the NBFCs. Among the

st 2Thereafter, on 31 January, 2014, SEBI came out with a number of regulatory changes brought in the Reserve notification amending the SEBI (Issue and Listing Debt Bank of India (RBI), elaborate guidelines and norms on Securities) Regulations, 2008 to state, amongst others, corporate restructuring for the NBFCs created a lot of that a NBFC which satisfies the following criteria shall buzz. In addition, the enactment of the Companies Act, be eligible to raise funds by filing shelf prospectus:2013 (CA 2013),which replaced the 60-year old

Companies Act, 1956, also had many things in store for §Net worth of Rs. 500 crore, as per the NBFCs;we have listed down some of them below: audited balance sheet of the previous year.

lNBFCs now included in the definition of §Consistent track record of distributable Financial Institution – In the erstwhile Act, there profit for the last three years.was no specific definition for financial institutions

§Securities to be issued under the shelf but Section 4A listed down a number of financial

prospectus should have been assigned a institutions which could be considered as public

rating not less than “AA” rating or its financial institutions, of which all NBFCs were not

equivalent by a credit rating agency a part. In CA, 2013, “financial institutions” have

registered with SEBI.been defined in Section 2(39) and includes any

§No regulatory action is pending against the financial institution defined or notified under the company, its promoters or directors before Reserve Bank of India Act, 1934. the SEBI, RBI or NHB.

As per the provisions of section 45I(c) read with §There is no default on the part of the issuer section 45I(f) of the Reserve Bank of India Act,

with regards to the repayment of deposits or 1934, any company which is carrying on the interest thereon, redemption of debentures business of a financial institution is a non banking or preference shares or payment of financial company. Thus, all NBFCs are financial dividend to any shareholder, or repayment institutions and are covered by the definition of of any term loan or interest payable thereon financial institution under the CA, 2013.to any public financial institution or banking

NEW SET OF REGULATIONS TO GOVERN THE NBFC SECTOR

Abhirup [email protected]


T H E V I E W S


company, in the last three financial lFramework for revitalising distressed assets – years. TheRBI came out with a framework for revitalising

st 8distressed assets on 21 March, 2014 whereby it lThe NBFCs have been kept out of the ambit of listed down certain measures which the NBFCs are the deposit rules.to take for early detection of the stress in the

lThe DRR requirements under the old Act have account. The highlights of the framework has been been retained in the new Act as well. mentioned below:

Regulatory Changes by RBI §The assets are to be classified in three Apart from the above, there were several other categories of “Special Mention Accounts” – regulatory changes brought in by the RBI, we have SMA-0, SMA-1 and SMA-2, before the listed them down below: asset ultimately becomes non performing.

lRBI requires NBFCs to retrospectively §The NBFC-SIs and NBFC- Factors are to register the all types of mortgages with report to Central Repository of Information CERSAI –InitiallytheNBFCswere required on Large Credits (CRILC) about the only to register the assignment of receivables borrowers having aggregate fund and non-

3transactions. On November 12, 2013 , RBI fund exposure of more than Rs. 500 crores came out with a notification and made it and those classified under SMA-2 mandatory for NBFCs to register the details of category.all such equitable mortgages created on their

§NBFCs are permitted to sell their NPAs to favour on or after March 31, 2011 with CERSAI other banks/FIs/NBFCs (excluding (Central Registry of Securitization Asset SCs/RCs) without any initial holding period. Reconstruction and the Security Interests in However, the NPAs should be held by the India).Thereafter, the same was again purchasing bank/FI/NBFC in its books at modified vide RBI’s notification on March 21, least for a period of 12 months before it is

42014 , brought all types of mortgages under the s o l d t o o t h e r b a n k s / f i n a n c i a l preview of NBFCs. This means that NBFCs will institutions/NBFCs (excluding SCs/RCs).now be required to register all types of

lRevised Guidelines on Restructuring – Earlier mortgages with CERSAI.the NBFCs were not allowed to participate in the lNBFCs’ holding in Insurance sector - RBI restructurings by lenders through the CDR cell, but vide its notification dated November 28,

rd 9post RBI’s notification on 23 January, 2014 , the 52013 announced that NBFCs may hold more

NBFCs have full access to the restructuring facility. than 50% in insurance businesses. RBI has In the notification, RBI has elaborately dealt with decided that in cases where IRDA (Insurance asset classification, provisioning and income Regulatory and Development Authority) recognition norms on the restructured assets.issues calls for capital infusion into the

lSuspension on issuance of CoR to NBFCs - On insurance JV Company, the RBI may, on a recommendations of Nachiket Mor Committee, RBI case to case basis, consider need-based

10vide a press release on April 01, 2014 made a relaxation of the 50% group limit. Such temporary suspension for issuing Certificate of relaxation in the limit will be subject to Registration (COR) for conducting business of compliance with all regulatory conditions NBFCs. However, this suspension is not applicable specified in the relevant RBI circular dated

6 for NBFC CIC-SI, NBFC- MFI, NBFC – IFC and February 10, 2004 and such other conditions NBFC-IDF.as may be necessary in the specific case.

lThe RBI also came up with the Non-Banking lModifications in pricing credit for MFIs - 7 Financial Companies (Approval of Acquisition RBI vide its notification on February 07, 2014

modified the provisions relating to the “Pricing or Transfer of Control) Directions, 2014 – The th 11of Credit” for MFIsThe revised permissible RBI on 26 May, 2014 came out with the

interest rates for the NBFC-MFIs is lower of the abovementioned directions whereby it directed all following: the NBFCs to take prior permission of the RBI to

carry out the following:§Cost of funds plus margin or;§Any takeover or acquisition of control of an §Average base rate of the five largest

NBFC, whether by acquisition of shares or commercia l banks by assets otherwise;multiplied by 2.75

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§ more structured. Overall it has been a mixture of thumbs ups NBFC with another entity or any and thumbs downs. On one hand, RBI’s move to suspend merger/amalgamation of an entity with the issuance of CoR and putting restrictions on transfer of an NBFC that would give the acquirer / controls has been criticised, on the other hand, with the new another entity control of the NBFC; norms for restructuring RBI has gained positive comments.

The changes brought in by the CA, 2013 also has more §Any merger/amalgamation of an positives than negatives for the industry. So we have NBFC with another entity or any enough of law making, all we need now, to make these merger/amalgamation of an entity with count, is proper implementation.an NBFC which would result in

acquisition/transfer of shareholding in excess of 10 percent of the paid up (Footnotes)capital of the NBFC; and 1 http://rbidocs.rbi.org.in/rdocs/Publications/PDFs/FHB160913FLS.pdf

§Approaching the Court or Tribunal 2 http://www.sebi.gov.in/cms/sebi_data/attachdocs/1391166797224.pdfunder Section 391-394 of the

3 http://www.rbi.org.in/scripts/BS_NBFCNotificationView.aspx?Id=8571Companies Act, 1956 or Section 230-4 http://www.rbi.org.in/scripts/BS_NBFCNotificationView.aspx?Id=8782233 of Companies Act, 2013 seeking 5order for mergers or amalgamations http://www.rbi.org.in/scripts/BS_NBFCNotificationView.aspx?Id=85966with other companies or NBFCs. http://rbidocs.rbi.org.in/rdocs/notification/PDFs/51301.pdf7Conclusion http://www.rbi.org.in/scripts/BS_NBFCNotificationView.aspx?Id=87348The significance of the industry is very evident from the http://www.rbi.org.in/scripts/BS_NBFCNotificationView.aspx?Id=87829amount of law making that has been done, especially http://rbidocs.rbi.org.in/rdocs/notification/PDFs/NB193230114FL.pdf

by the RBI, in the last year, to make the sector more and 10 http://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=30917

Any merger/amalgamation of an


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FORM 5-INV : CLARIFICATIONS

CA Nitesh [email protected]

When is a Company required to file form 5 INV? PROCEDURE TO FILE FORM 5INV

As per Rule 3 of Investor Education and Protection 1) Call a board meeting within 90 days of AGM to

Fund (Uploading of information regarding unpaid & identify unclaimed amount as on date of AGM

unclaimed amount lying with companies) Rules 2012, 2) Hold Board meeting & identify unclaimed amount

every company (including Non-banking Financial as on date of AGM,

companies and Residuary Non-Banking Companies) 3) Authorize a director to file Form 5INV, only if there is shall, within a period of 90-days after the holding of

unclaimed amount as on AGM date. Annual General Meeting or the date on which it should

have been held as per the provisions of section 166 of 4) File Form INV5 within 90 days of AGMthe Act and every year thereafter till completion of

NOTE: Resolution by circulation is allowed.seven years period, identify “the unclaimed

STEPS TO FILE STATEMENT OF INVESTOR-WISE amounts” as referred in sub-section (2) of section UNCLAIMED & UNPAID AMOUNTS205C or in Act, separately furnish and upload on its

website and also on the Ministry’s website or any other • Ins ta l l the Pre- requ is i te So f tware ’s f rom website as may be specified by the Government a www.iepf.gov.in statement or information through e Form 5 INV’

• Download Form 5 INV.separately for each year’ containing following

information, namely: • Fill the form according to the instructions given in its

instruction kita) The names and last known addresses of the

persons entitled to receive the sum; • Upload the filled form on the MCA portal as usual

b) The nature of amount; • After uploading, an acknowledgement slip will be

generated containing the user id & password, which will c) The amount to which each person is entitled;be used to upload excel template.

d) The names and last known addresses of the • You are required to provide the investor wise details of persons entitled to receive the sum;

unclaimed and unpaid amount in an excel filee) The nature of amount;

• Download the excel template from the IEPF Portalf) The amount to which each person is entitled;

• Fill in the excel template with investor-wise detail. Refer As per circular 17/2012 dated 23 July, 2012, the the read Me instruction provided in the excel templatecutoff date for filling information in Form 5 INV is “date

• Upload the excel file with investor-wise details of of AGM”. Form 5INV is to be filled for each year from unclaimed and unpaid amountsFinancial Year 2010-11 onwards.

• After all the details are uploaded, confirm upload of CONDITIONS FOR FILLING FORM 5 INV:unclaimed and unpaid amount details.

1) There must be unclaimed amount lying

PRIVATE LTD COMPANIES/CLOSELY HELD (amount for which there is no claimant) with

the company. COMPANIES GENERALLY DO NOT HAVE UNCLAIMED

AMOUNT: 2) Such amount must exist as on the AGM date

i.e. at the end of AGM date. In case of closely held companies, there is no unclaimed

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amount lying with them generally. There is an identified been taken, may be considered as “due date” under

Companies Act, 1956. claimant for each item of money lying with them.

Hence, such companies are not required to file such DISPUTE MAY BE A REASON FOR NON ALLOTMEMT:

form, even though application money is lying with them Dispute arises among directors/family after receipt of share

from 20 years. In such case, such companies are application money may be a reason for non allotment of required to transfer such amount to investor education shares or belated allotment under the Companies Act ,

& protection fund, which have been discussed later. If 1956.

such companies have unclaimed amount as on AGM CONDITIONS FOR TRANSFER TO IEPFdate, such companies are required to file Form 5 INV.

1) Application money must be due for refund.Example, dividend warrant dispatched, not deposited &

2) 7 years must be expired from due dateno claim has been received till date.

3) Application money must remain unclaimed after When is a Company required to credit amount to

expiry of 7 years from due date. Investor Education & Protection Fund?

Example 1 : A company received share application money As per clause (b) of sub sec 2 of Sec 205C, the

in Jan 2011, which is lying in the share application account application moneys received by companies for

stas on 31 March,2013 & non compliance notice is received allotment of any securities and “due” for refund shall

from ROC. be credited to Investor protection & Education fund;

Case (a): Such money had already been refunded before Provided that no such amounts referred as above shall

the date of AGM orform part of the Fund unless such amounts have

Case (b): Share had been allotted before the end of remained unclaimed and unpaid for a period of seven financial year. However, Return of allotment had not been years from the date they became due for payment. filed.

In short, Share Application money shall be Case (c): Company with mutual consent transferred transferred to such fund after expiry of 7 years investment to shareholder in lieu of application money after from the date it becomes “due” only when such

st31 March,2013, but before the date of AGM.amount remains unclaimed & unpaid .Hence, in

case when such amount is claimed by the Case (d): Company with mutual consent converted share stclaimant, such amount is not required to be application money to Loan after 31 March ,2013, but before

transferred even if 7 years has been expired. the date of AGM.

When does share application money becomes Suggestions: “due” for payment under the Companies Act,

Case (a): Reply to ROC stating the fact that as money had 1956?

been refunded before the date of AGM, the company had The companies Act, 2013, prescribes that share identified the unclaimed amounts as “NIL” & hence such application money shall be refunded with 15 days from form had not been submitted. the expiry of 60 days from the date of receipts of

Case (b):application money. However, there is no such

restriction under the companies Act, 1956. Should we · File Return of Allotment now &

assume that there is a blanket allowance & company · Submit a reply to ROC stating the fact that as shares

can keep share application money without any limit of had been allotted before 90 days from the date of refund. I am of the firm view that if any share application AGM, company had identified, the unclaimed money is received, company should in its board amounts as NIL & hence such form had not been meeting either reject or accept application (within next submitted. 2-3 board meetings).To be on safer side, date of Board

meeting on which decision to refund application has Case (c): Reply to ROC stating the fact that the company


T H E V I E W S


sthad identified the unclaimed amounts as “NIL” & hence application account as on 31 March 2014. Company with

mutual consent converted share application money to Loan such form had not been submitted.stafter 31 March, 2014. Can company do so?

Case (d): Reply to ROC stating the fact that the

Suggestions: No , The company cannot adjust share company had identified the unclaimed amounts as application amount and it has to refund it to the applicant “NIL” & hence such form had not been submitted.

stw.e.f 1 April,2014 . As per Explanation (b) to clause (vii) of Example 2 : A company received share application the definition of deposit under Companies (acceptance of money in January 2011, which is lying in the share deposit) Rules, 2014 , any adjustment of share application

stapplication account as on 31 March 2013 and non money shall not be treated as refund. As per sec 42(6), a compliance notice is received from ROC. Such money company making an offer or invitation under this section had either already been refunded or share had been shall allot its securities within sixty days from the date of

stallotted before 1 April 2014. Return of allotment had receipt of the application money for such securities and if the not been filed till date. However, there is no unclaimed company is not able to allot the securities within that period, amount lying with company. it shall repay the application money to the subscribers within

fifteen days from the date of completion of sixty days and if Suggestions:

the company fails to repay the application money within the a) File Return of Allotment, if shares had been

aforesaid period, it shall be liable to repay that money with allotted. As allotment has been made under

interest at the rate of twelve per cent. per annum from the Companies Act, 1956, MGT 14 is not required

expiry of the sixtieth day: monies received on application to be filed.

under this section shall be kept in a separate bank account in

b) Reply to ROC stating the fact that the company a scheduled bank and shall not be utilised for any purpose had identified the unclaimed amounts as “NIL” other than—and hence such form had not been submitted.

(a) for adjustment against allotment of securities; orAlso state the fact that the amount had been

(b) for the repayment of monies where the company is allotted and return of allotment had been filled.

unable to allot securities. Example 3: A company received share application

money in January 2014, which is lying in the share

VIEWS - August 2014

T H E V I E W S


Finance Bill 2014 – Impact on 'search and survey provisions' and

'securities and derivatives' transactions

CA. [email protected]

1. LOSSES IN SPECULATION BUSINESS or shares is settled otherwise than by actual

delivery.1.1 The existing provisions of section 73 of the Act

provide that losses incurred in respect of a ØThe proviso to that section provides speculation business cannot be set off or exceptions to certain transactions, which carried forward and set off except against the are not to be treated as speculative. As per profits of any other speculation business. the proviso, all transaction in F&O Segment Explanation to section 73 provides that in case of certain stock exchanges are treated as of a company deriving its income mainly under non-speculative, though as per the present the head “Profits and gains of business or capital market norms, transactions in F&O profession” (other than a company whose Segment cannot have actual delivery and by principal business is business of banking or their very nature are speculative.granting of loans and advances), and where

ØExplanation to Section 73 creates a deeming any part of its business consists of purchase or fiction whereby, actual delivery transactions sale of shares, such business shall be deemed

in shares by companies (barring exceptions to be speculation business for the purpose of

as provided in the section) are treated as this section. Sub-section (5) of section 43

defines the term speculative transaction as a deemed speculation. transaction in which a contract for purchase or

ØThus, on one hand, actual delivery sale of any commodity, including stocks and transactions in shares by certain companies shares, is settled otherwise than by way of are treated as speculative, while on the other actual delivery. However, the proviso to the hand, a non-de l ivery t ransact ion said section exempts, inter alia, transaction in (derivatives-F&O) are treated as non-respect of trading in derivatives on a speculative, though both types of recognised stock exchange from its ambit.transactions may have been carried on from

1.2 It is proposed to amend the aforesaid the same computer and same exchange. Explanation so as to provide that the provision This has been causing undue hardships to of the Explanation shall also not be applicable many corporate, especially share brokers to a company the principal business of which is engaged in self trading. the business of trading in shares.

ØThe proposed amendment is intended to 1.3 This amendment will take effect from

reduce the hardship by excluding assessment year 2015-16 and subsequent

companies, whose principal business is assessment years.

trading of shares, outside the ambit of this

deeming provision. Comments :

ØIn my opinion, the proposed amendment in ØAt present, Section 43(5), of Income-tax

Act defines “speculative transaction”. the present form will open wide litigations.

Ordinarily, speculative transaction The term ‘principal business’ has been means a transaction in which contract subject matter of debate. In the case of CIT for sale or purchase of any commodity

vs. Kanoria Investments Pvt. Ltd. [232 ITR 7],


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it was held that fund deployment test is applicable. In my view and with respectful

disagreement with the Court’s view, if that is an important criteria to determine so, then the exception provided in s.43(5)(d) principal business. In the case of Haldia would merely be theoretical as far as Investments Ltd. [85 ITD 212 (Kolkata)], companies are concerned. However, this

income criteria was held to be an issue has not been touched in the present

important criteria to determine principle Finance Bill.

business. In DCIT Vs. Venkateshwar

2. SPECULATIVE TRANSACTION IN RESPECT Inv. & Finance (P) Ltd. [(2004) 92 TTJ OF COMMODITY DERIVATIVES1129 (Cal)], it was held that loss in share

dealings in one particular year cannot 2.1 The existing provisions contained in clause (5) of be a criteria to determine principal section 43 define the term speculative transaction.

The proviso to the said clause (5) excludes certain business and the principal business category of transactions as speculative will depend on several factors including transactions. Finance Act, 2013 made a provision past history, objects in memorandum of for levy of commodities transaction tax on

association, deployment of funds, commodity derivatives in respect of commodities

break up of income earned, nature of other than agricultural commodities. As a activities etc. consequence to the levy of commodities transaction

tax, clause (e) was inserted in the proviso to clause ØConsequent to above amendment,

(5) of section 43 of the Act to provide that eligible landmark Calcutta High Court decision

transaction in respect of trading in commodity in Arvind Investments Limited will not

derivatives carried out in a recognised association be applicable from AY 2015-16 shall not be considered as speculative transaction.

Ø The better course of amendment could 2.2 Accordingly, it is proposed to amend clause (e) of have been to remove Explanation to the proviso to the said clause (5) so as to provide Section 73 and insert the exception in that eligible transaction in respect of trading in Sect ion 43 (5 ) i t se l f , whereby commodity derivatives carried out in a recognised transactions in trading in securities in association and chargeable to commodities recognized stock exchange could have transaction tax under Chapter VII of the Finance been kept outside the purview of Act, 2013 shall not be considered to be a Deemed Speculation loss. It is worth speculative transaction.discussing here that Explanation to

2.3 This amendment is proposed to take effect Section 73 was inserted based on retrospectively from assessment year 2014-15 and Wanchoo Committee Report, to curb subsequent assessment years.

the devises used by certain corporate

houses whereby they used to sell Comments :shares of group companies to offset

ØA retrospective amendment effective from their other income. But with screen AY 2004-05.based trading in place and delivery

through Demat system, the purpose of ØIn the Explanatory Memorandum to the introduction of Explanation to Section present Finance Bill, it has been mentioned 73 has been negated in course of time. that Vide Circular No. 3 dated 24-01-2014

explaining the provisions of the Finance Act, ØRecently Delhi High Court in DLF 2013, it was clarified that the eligible Commercial Private Limited passed an transaction shall include only those order that even in case of derivatives, if transactions in commodity derivatives the underlying asset is share, which are liable to commodities transaction Explanation to section 73 would be tax.

VIEWS - August 2014

T H E V I E W S


Ø as recognized association on 25.01.2006.

There has been judicial precedents in the above was not in accordance with the context of section 43(5)(d) that even amendment brought in by Finance Act transactions for the intervening period 2013. Infact in the Finance Act, 2013, would be treated as non speculative. In my 43(5)(e) was inserted to provide that opinion, the principal laid down by judiciary

eligible transaction in respect of trading in section 43(5)(d) should be applied in

in commodity derivatives carried out in s.43(5)(e) and all transactions on which CTT

recognised associations was to be has been paid should be treated as non treated as non-speculative. There was speculative.no mention that only those transactions

3. POWER OF SURVEYon which CTT has been paid are to be

treated as non- speculative. 3.1 It is proposed to amend section 133A of the Act to

provide that an income-tax authority under section ØThis retrospective amendment may 133A of the Act shall not retain in his custody any

have far reaching implications, as most such books of account or other documents for a of the traders in commodity derivatives period exceeding fifteen days (exclusive of may have already paid taxes in holidays) (instead of ten days earlier) without Financial Year 2013-14 on the basis of obtaining the approval of the Principal Chief what was provided in the Act. Commissioner or Principal Director General or

Chief Commissioner or Director General or ØAnother debatable issue continues.

Principal Commissioner or Principal Director or Commodities Transaction Tax (CTT)

Commissioner or Director therefore, as the case Rules was notified on 19.06.2013 with

may be.effect from 1.7.2013, implying that CTT

3.2 Further, it is also proposed to amend section 133A became applicable on specified to insert sub-section (2A) to provide that an income-transactions in commodities exchange tax authority may for the purpose of verifying that tax with effect from 1.7.2013. However, in has been deducted or collected at source in order that transactions in commodities accordance with the provisions of Chapter XVII-B or in a particular exchange are not to be Chapter XVII-BB, as the case may be, enter any treated as speculative, such exchange office, or a place where business or profession is should be approved exchange. In order carried on, within the limits of the area assigned to to be treated as approved exchange, him, or any such place in respect of which he is such exchanges were required to apply authorised for the purposes of this section by such to CBDT. To my knowledge, the income-tax authority who is assigned the area exchange started getting approvals within which such place is situated where books of from November 2013 onwards. Thus, account or documents are kept. The income-tax

though CTT were charged from authority may for this purpose enter an office, or a

1.7.2013, however, approval u/s 43(5)(e) place where business or profession is carried on

came say in November 2013. Now, what after sunrise and before sunset. Further, such

will happen to transactions on which income-tax authority may require the deductor or

CTT has been paid but the Exchange the collector or any other person who may at the

was notified? Whether for such interim time and place of survey be attending to such

period, the transactions are to be work,—

treated as speculative. This issue may (i) to afford him the necessary facility to inspect be prone to litigations. However, it is

such books of account or other documents as he worth mentioning here that similar may require and which may be available at such problem arose when 43(5)(d) was place, andintroduced. Though the sub-section

was inserted with effect from 1.4.2005, (ii) to furnish such information as he may require in however, BSE and NSE were approved

In my opinion, however, the Circular as


T H E V I E W S


relation to such matter. satisfied that any money, bullion, jewellery or other

valuable article or thing or books of account or 3.3 It is also proposed to provide that an income- documents seized or requisitioned belongs or

tax authority may place marks of identification belong to any person, other than the person referred on the books of account or other documents to in section 153A, then such books of account or inspected by him and take extracts and copies documents or assets seized or requisitioned shall thereof. He may also record the statement of be handed over to the Assessing Officer having any person which may be useful for, or relevant jurisdiction over such other person and that to, any proceeding under the Act. However, Assessing Officer shall proceed against each such while acting under sub-section (2A) he shall other person and issue such other person notice not impound and retain in his custody any and assess or reassess income of such other books of account or documents inspected by person in accordance with the provisions of section him or make an inventory of any cash, stock or 153A if he is satisfied that the books of account other valuables. or documents or assets seized or requisitioned

have a bearing on the determination of the total st3.4 These amendments will take effect from 1

income of such other person for the relevant October, 2014.

assessment year or years referred to in sub-

section (1) of section 153A .Comments :

st4.2 The amendment will take effect from 1 October, Ø2014.seems to have been increased. However,

going by the fine prints, in fact, the power of CommentsTDS officer under survey has decreased.

ØThis is a welcome proposal. As per the present Now, they don’t have the power under provisions, once some books of accounts or clause 3(ia) i.e., impounding of books or documents or assets belonging to say X is 3(ii) i.e., making inventory of cash or other seized from the custody of say Y, who was valuable article or thing. In other words, covered under search operations, then the they have limited power to make marks of Assessing Officer of Y hands over such books identification on the books of accounts or of accounts, documents or assets belonging to other documents, inspected by them or X to the assessing officer of X. Then the make or caused to be made, extracts or assessing officer of X has to issue notice u/s copies thereof and record the statement of 153A for six years, even if such documents or

any person.assets may not have a bearing on income of

4. ASSESSMENT OF INCOME OF A PERSON various years. Now the assessing officer of X

OTHER THAN THE PERSON WHO HAS may not issue notices u/s 153A if he is satisfied

BEEN SEARCHED that such books of accounts, or documents or

assets are already covered in the regular returns 4.1 It is proposed to amend section 153C of the Act

of X. to provide that where the Assessing Officer is

On the face of it, the powers under survey

VIEWS - August 2014

T H E V I E W S


CHANGES IN CENVAT CREDIT MECHANISM-BUDGET 2014- IMPACT

CA Ankit Kanodia, B.COM (H), ACA, CSEmail: [email protected]

The new Government in its maiden Union Budget 2014, section 4 of the Central Excise Act, 1944 which related to has proposed certain dramatic changes in the Cenvat valuation of goods on transaction value basis. It had been Credit Mechanism as contained in the Cenvat Credit a matter of litigation as to whether the same definition Rules, 2004 (CCR in short). Though much has not been could be imported for valuation under MRP based deliberated on GST front, still the changes proposed in the scheme (section 4A) or for valuation on the basis of tariff CCR has surely made mixed responses from the industry. value(section 3(2)). In this article we analyze some of the key changes in the ImpactCCR and its impact. The above amendment would bring end to certain Stipulation of time period for availment of Cenvat litigation as to availment of Cenvat credit for goods valued Credit other than under section 4. The Karnataka High Court

had held ABB Limited [2011 (23) STR 97 (Kar)] that in Notification 21/2014-CE (NT) dated 11/07/2014 has cases where the rate of duty is specific or ad valorem on proposed an amendment in CCR whereby a time the value determined under Section 4A or Section 3(2), period of six months has been stipulated for the the place of removal would be the factory gate. Thus, the availment of cenvat on inputs and input services department was denying the cenvat credit of outward from the date of invoice, bill, challan or as the case freight from factory to depot/customer place in case of may be. The above amendment would be Free on Road contracts. However, with the definition now applicable from 01/09/2014. This would have an being imbedded in CCR itself, the place of removal for impact on every manufacturer and service provider cenvat purpose would be determined accordingly and as the amendment stipulates a definite time period thus avoid unnecessary denial of credit.for taking credits other than those of capital goods.

The earlier CCR never contained such provisions Clarification as to Input Service Distributorwhereby the availment of credit was curtailed to a Circular No. 178/4/2014-ST dt. July 10, 2014 has been issued period fixed under law. by CBEC, which clarifies the manner and methodology for Impact- distribution of CENVAT credit by an Input Service Distributor

(ISD) to its manufacturing units or units providing output Every manufacturer as well as service provider services. This Circular by way of illustration has clarified doubts would have to now scan his cenvat records for past raised by the trade and explained that credit is to be distributed years and conduct a cenvat audit in order to be sure amongst all eligible units based on the turnover, so long as such that he doesn’t misses out on any eligible credit for credit pertains to more than one unit.which he had paid the amount. Industries under

EPC contracts would face trouble to set up the same LTU cannot transfer CENVAT credit from one as they work on the phenomenon of running bills manufacturing unit to anotherand the final bill is settled only once the work is CENVAT credit taken on or before July 10, 2014 can be completed. However the period of six months transferred from one manufacturing unit to another by Large seems to be too small a period as in one of the latest Taxpayer Units (LTUs). The amendment restricts transfer of ruling of the Hon’ble MUMBAI CESTAT in the case credit by and between manufacturing units and does not place of Shayona Pulp Conversion Mills [TS-241- any restriction with respect to premises engaged in rendition of Tribunal-2014-EXC] it had opined that a reasonable service. The amendment shall take effect on July 11, 2014. This period for taking cenvat would be one year. amendment would be a great set back to the industries opting However the law has introduced a period of six for LTU as one of the key features of the LTU scheme was credit months from the date of invoice. With this fungibility.amendment litigation is also bound to increase as

Conclusion-the departmental officers would now go for cenvat On the whole, though there has been certain clarity as to credit time period checking instead of verifying the allowance of cenvat credit by removing certain road blocks but eligibility of the same. introduction of unreasonable restrictions in terms of time limit Definition of Place of Removal in CCRfor CENVAT credit availment and disallowance of inter-unit

The above notification also introduces for the first credit transfer for an LTU would go a long way in analyzing the time the definition of Place of Removal in the CCR. impact of changes proposed by the Modi Government. Issues This would help industries manufacturing cement, such as overhauling of definition of input service has been un soap, aerated waters, pan masala etc. The addressed. Thus, overall changes in Cenvat credit has brought definition of place of removal was only contained mixed response from the trade and industry.

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also amended the provisions of section 40(a)(ia) of the Act Siddhartha Jalan Vs ACIT (ITAT KOLKATA)

which now states that if an assessee makes payment in pronounced on 5TH AUGUST, 2014violation to section 40(a)(ia) of the Act to a resident payee

No addition of cash credits u/s. 68 where PAN and without deduction of tax and is not deemed to be an

confirmations of the loan creditors furnished. assessee in default under section 201(1) on account of

Following the decision of the Hon’ble Jurisdictional payment of taxes by the payee, then for the purpose of High Court in the case of Dataware Pvt Ltd in G.A. No. allowing deduction of such sum it should be deemed that the 2856 of 2011 dated 21.09.2011, wherein the Hon’ble assessee has deducted and paid the tax on such sum before Jurisdictional High Court has held that “After getting the date of furnishing of return of income by the resident PAN number and getting the information that the payee.creditor is assessed under the Act, the Assessing

Shambhala Charitable Trust Vs ITO (ITAT KOLKATA) Officer should enquire from the Assessing Officer of

THpronounced on 5 AUGUST, 2014the creditor as to the genuineness of the transaction

and whether such transaction has been accepted by Be it a construction of temple which is a religious

the Assessing Officer of the creditor but instead of activity or construction of institute for higher Buddhist

adopting such course, the Assessing Officer himself learning which is for the object of general public utility, could not enter into the return of the creditor and brand both qualifies for exemption under section 11 of the Act.the same as unworthy of credence”, it was held that

Relying on the judgement of Gujarat High Court in the case where the loan confirmations were filed with PAN of the

of CIT (Addl.) Vs. A. A. Bibijiwala Trust (1975) 100 ITR 516 loan creditors, the amounts could not be added as cash

(Guj), wherein it was held that trust property would be credit u/s 68.

exempt only if the objects of the trust are of charitable or Gurjant Singh Vs ACIT (ITAT KOLKATA) religious purpose. Where the trust is partly religious and

TH partly charitable, so long as no part of the income or corpus pronounced on 5 AUGUST, 2014

can be utilised for a purpose which is not either charitable or No s. 40(a)(ia) disallowance for failure to deduct

religious there is no doubt that the exemption u/s. 11 of the TDS on payment if payee has offered amount to tax.

Act will be available to the assessee trust. Reliance was also Second Proviso to s. 40(a)(ia) inserted by Finance

placed on the decision of Hon’ble Bombay High Court in the Act 2013 w.e.f. 1.4.2013 should be treated as

case of CIT Vs. Rajneesh Foundation (2006) 280 ITR curative and to have retrospective effect from

553(Bom) and it was held that admittedly in the present case 1.4.2005

the objects clause the activities of the trust are for the Relying upon the decision of Special Bench of the advancement of objects like the teachings of Buddha to Tribunal in the case of Bharti Auto Products vs. CIT spread and for that purpose the assessee has claimed reported in 37 taxmann.com 37 and the decision of application of income towards construction of study and ITAT Agra Bench in the case of Rajeev Kumar Agarwal research centre for higher Buddhist study associated with vs Addl.CIT in ITA NO.337/Agra/2013 dated preaching, spreading and disseminating the ideas, ideals 29.05.2014, it was held that the AO before making the and the teachings of Lord Buddha including construction of disallowance u/s 40(a)(ia) of the Act should verify if the Buddhist temple where assessee trust is performing payments recipients have filed their returns and paid religious functions and it is established for charitable their respective taxes. If the AO finds the same, then purposes. The present trust was for the higher Buddhist the benefit of the provisions of the amended section of study and research centre to propagate the Buddha thought Section 40(a)(ia) by the Finance Act 2012 should apply. and philosophy which would admittedly be an object of In this regard, it was held that Finance Act 2012 has general public utility and entitled to claim exemption u/s 11.

RECENT UNREPORTED JUDGEMENTS

CA Sunil [email protected]


T H E V I E W S

DCIT V Senbo Engineering (ITAT KOLKATA) respect of order u/s 263, appeal filed against order u/s 263 becomes infructuous.pronounced on 25th JULY, 2014

It was held that where consequential order has already been Matter set aside to the desk of CIT(A) as no notice passed in respect of the order passed under section 263 and was given to the AO for hearing.also as it was noticed that the appeal has been filed by the

It was held that where assessment order clearly shows assessee against the said consequential assessment order that the Assessing Officer has not been given the notice and the issue was only in relation to the computation of the of hearing, not serving the notice to the AO has violated average value of investment, the income from which does the provision of sub-sections (1) and (2) of section 250 not form any part of the total income, the appeal filed by the of the IT Act and thus denied the natural justice to the assessee against the order passed under section 263 Revenue so that the Revenue could have placed its became infructuous and consequently the same was case before the ld. CIT(A). It was held that the order dismissed. passed by the ld. CIT(A) is in violation of principles of

Karan Poddar Vs ITO (ITAT KOLKATA) pronounced on natural justice therefore set aside to the file of the ld. TH11 JULY, 2014CIT(A) with the direction to give the AO proper and

sufficient opportunity of being heard and to decide the Whenever sec 50 C is being invoked, the AO shall refer issue afresh in accordance with law. the matter to the DVO even if no prayer is made before

the AO.DCIT V Ashok Kumar Jain (ITAT KOLKATA) pronounced on 22nd JULY, 2014 It was held that the decision of the Hon’ble High Court of

Calcutta (Special Jurisdiction-Income Tax) in GA No.3686 of Mere disclosure in the course of search without 2013 ITAT No.221 of 2013 in the case of Sunil Kumar identification of specific concealment will not call Agarwal Vs. CIT vide order dated 13th March, 2014 has for penalty u/s 271(1)(c).expounded that whenever section 50C is being invoked, the

It was held that where assessment order clearly shows AO shall refer the item involved for valuation to the valuation that the Assessing Officer has not mentioned anything officer. The High Court has held that “The legislature has about the seized material or as to how and on what taken care to provide adequate machinery to give a fair basis and on which documents the undisclosed income treatment to the citizen/taxpayer. There is no reason why the has been computed and the income admittedly as machinery provided by the legislature should not be used disclosed on estimation by the assessee in his return and the benefit thereof should be refused. Even in a case has been accepted, penalty is not leviable u/s where no such prayer is made by the learned271(1)(c). It was further held that a perusal of the letter

advocate representing the assessee, who may not have of the assessee dated 28.07.2005 shows that the been properly instructed in law, the assessing officer, assessee has offered the amount of Rs.1,00,00,000/- discharging a quasi judicial function, has the bounden duty for the six years starting from 01.04.1999 was clearly to to act fairly and to give a fair treatment by giving him an buy peace of mind and to avoid protracted litigation and option to follow the course provided by law. For the aforesaid the letter had been filed to show token of the reasons, the order under challenge is set aside. The matter assessee’s bonafide intention. The AO has accepted is remanded to the assessing officer. He shall refer the the letter and the assessee‘s return having been matter to the departmental valuation officer in accordance accepted without any murmur clearly the explanation with law. After such valuation is made, the assessment shall provided by the assessee has been accepted and the be made de novo in accordance with law.”assessee would be entitled to cancellation of penalty in

so far as the Assessing Officer has not been able to CIT Vs Vector Shipping Services (SUPREME COURT) identify any specific concealment of income in the pronounced on 2ND JULY, 2014hands of the assessee. The assessee has given a

Dept’s SLP against High Court’s verdict that s. 40(a)(ia) simple estimated disclosure of additional income, disallowance applies only to amounts “payable” as of unsupported by any computation, calculation or 31st March and not to amounts already “paid” during corroborating evidences and the ld. Assessing Officer the year dismissed has only accepted the same without any further

verification or recording of any adverse find following In CIT vs. Vector Shipping Services (P) Ltd 357 ITR 642, the decision of the Hon’ble Supreme Court in the case the Allahabad High Court held that disallowance u/s of Sudarshan Silks & Sarees reported in 300 ITR 205 , 40(a)(ia) applies only to amounts “payable” as of 31st March penalty was cancelled. and not to amounts already “paid” during the year. The

majority judgement in Merilyn Shipping 136 ITD 23 (SB) Jet Age Securities Vs ACIT (ITAT KOLKATA) TH was approved. The department filed a Special Leave pronounced on 18 JULY, 2014

Petition (SLP) in the Supreme Court. The said SLP has been Where consequential order has been passed in dismissed by the Supreme Court in limine.

VIEWS - August 2014 21website : www.views-exchange.org

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HOUSE PAGE

Crosswords : 02

3. Cost full disclosure, and matching are three of the basic accounting ____________.

4. The FASB is respossible for developing new accounting __________ whic will become part of GAAP.

6. The large companies must use the ________ basis of accounting, rather than the cash basis of accounting.

1. A corporations own stock that it repurchased but didnot retire is _______ stock

2. The income statement is also referred to as the statement of __________.

5. The word form entry on the left side of an account.

Across

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Solution Crosswords : 01

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NEW MEMBERS :

Name of Members : CA Kamlesh Kr Agarwal

CA Gajendra Bansal

Name of Company : Himadri Chemicals & Industries Ltd.

Type of Membership : Corporate Members

Proposed By : CA Vivek Newatia


T H E V I E W S

CA Day Celebrations jointly with all other Study Circles of EIRC

at the EIRC premises on 1st July, 2014

Team Views at the CA Day Celebrations

CA CS Sarda, Past President Views Exchange donating blood at the event

CA Vivek Newatia, President Views Exchange, welcoming the esteemed panelists and the delegates

GROUP THINK ON COMPANIES ACT 2013 ON 5TH of July,2014 at BCCI

Group Discussion Panelists (L-R): CS Mamta Binani, CS Nidhi Bothra, CA Mohit Bhuteria

A view of house full of participants

T H E V I E W S

Seminar on UNION BUDGET 2014 jointly with Central Kolkata

CA Study Circle of EIRC on 11th of July, 2014 at Vidya Mandir

CA Vivek Newatia welcoming and introducing the esteemed speakers

CA Anup Sanghai from CKCASC presents memento to Advocate Puneet Agarwal from Delhi

A snapshot of the houseful auditorium

Adv Puneet Agarwal addressing the delegates CA D.B.Desai giving his offers Adv N.K.Poddar giving his views on the recent changes in the Direct Tax

SEMINAR ON NBFCs- Auditors Responsibilty and E-filing of IT Returns for A.Y 14-15 on 25th of July,2014 at MCC

CA Vinay Choudhary introducing the speakers Mr.Prashant Kr.Seth,DGM, RBI and CS Manoj Banthia

Cross-Section of the delegates attending the seminarCA P.D.Rungta,

Vice Chairman, EIRC and the guest speaker

giving his offers

the views€¦ · single operating demat account so that indian financial sector consumers can...

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