volume 07/14-15 institute of chartered accountants of...

Volume 07/14-15 Institute of Chartered Accountants of IndiaNavi Mumbai Branch of WIRCNewsletter, September 2014

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News letter September 2014Volume 07/2014-15

Dear Professional Colleagues,

September, being the audit month, is the busiest month in the calendar ofall the chartered accountants, whether in practice or in industry. Lot ofchanges have been done in Tax Audit Report in Form 3CD and more andmore responsibility is cast upon us as independent professionals. Due tochanges in Form 3CD and increased reporting requirements, our Instituterepresented before the CBDT for extension of time. CBDT partiallyagreed upon the suggestion by extending the due date for furnishing ofTax Audit Report by 3th November, 2014. As the due date of filing of re-turn is not extended, there are lot of confusions among the professionalsabout the date of filing of filing of return and date of filing of filing of AuditReport. The matter was before the Delhi High Court and better sense hasprevailed.The Branch had organized a seminar on New Tax Audit Report in August,which was addressed by CA Satish Shanbhag, Past Chairman of Branch.The seminar saw overwhelming response from members and students.We are also glad to inform members that for the first time, Navi MumbaiBranch organized “Orientation Programme” and “Campus Interviews” on2nd and 3rd September, 2014 for newly qualified CAs. The Orientation Pro-gramme was inaugurated by CA Tarun Ghia, Central Council Memberand Chairman of Committee for Members in Industry (CMII). Eminent per-sonalities and professionals guided newly qualified CAs and aspiring CAsabout industry and its expectations. We are happy to note large atten-dance from members and students for these programs. During CampusInterview, 5 newly qualified CAs are recruited by Deloitte. I sincerely

Managing CommitteeChairmanCA. Sameer L. Gavli 9821161072

Vice-ChairmanCA. Shrikant Limaye 9819455561

SecretaryCAMinaxi Rachchh 9820898183

TreasurerCA. Ananthram Rao 9320433833

MembersCA. Sreekumar Nair 9892290909CA. J.D.Tandel 9820192895CA. Santosh Sharma 9323582884CA. Nawanit Jaipuriyar 9920062526

Co-opted MembersCA. Sanjay Nikam 9820446329CA. Suresh Ameria 9821368836CA. Manoj Pandey 9322804994Issue Compiled ByCA Abhilash Tewari

Inside this issue:

Expatriate Tax Planning - Cost Considerations…………...3 RBI measures to simplify opening bank account……....6 Period for appeal filing…....8 Road Transport—Challenges and impetus for economic

growth …………………………………9

Due dates chart…………………………………….11 Recent Judgments………………………………….............12 Humor Section………………13 Photo Gallery.…..……………………………………14

The Institute of Chartered AccountantsThe Institute of Chartered AccountantsThe Institute of Chartered Accountantsof Indiaof Indiaof India

Navi Mumbai Branch of WIRCNavi Mumbai Branch of WIRCNavi Mumbai Branch of WIRCNewsletterNewsletterNewsletter


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thank, WICASA Chairman CA Shrikant and entire Team WICASA for the efforts taken for organizingthe Orientation Programme in short notice. Needless to say, team WICASA, would arrange more andmore of such programmes for the benefit of students community served by our branch.The Branch also co-hosted members’ conference with CMII at Hotel Ramada, Mahape, Navi Mumbai.The meeting was outcome of initiative taken by CMII to connect with members in industry. The confer-ence was attended by many professionals in Industry and the interaction with members also revealedtheir willingness to join hands with branch for its activities.This is one of the most holy months in the Indian calendar. By the time you receive this Newsletter wewould be preparing for the upcoming Navratri and Dussehra festivals. I extend my wishes for thesefestivals to all Members, Students and their families.With best regards,CA Sameer GavliChairman, Navi Mumbai Branch.

With Warm Regards

CA Sameer Gavli,CHAIRMAN,NAVI MUMBAI BRANCH OF WIRC OF ICAI.

Members are requested to make theirpayment of annual membership fees for the

year 14-15 Rs.2500

——-Appeal——-


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Important Cost Considerations

In continuance of earlier Article on the subject, this Articlehighlights certain important tax and associated costs relatedto international assignment of employees, whether in in-bound or outbound context. An understanding of these costsand global practices surrounding them are indispensable fora robust international assignment structure. Especially fromthe employer’s perspective, these factors need to be exam-ined in great details.

Optimizing Income Tax Cost

Planning overseas deputation is an important considerationfor the employer and employee. While there are severalcommercial and business factors relating to the deputation,one of the important decisions relates to the tax cost applica-ble in the overseas country (host country). Normally, an em-ployee will look upon the employer company to bear the taxcost in the overseas country. This practice is commonly re-ferred to as tax equalization.

Tax equalization would mean that the employee is tax equal-ized in the overseas country and is not put in a worse-offsituation as compared to his situation in the home country.

Tax equalization generally operates with the employer com-pany withholding relevant hypothetical tax (hypo tax) from

employee’s salaries inthe home country and the employercompany bearing the tax liability in the overseas country(host country).To illustrate, consider the case of an em-ployee deputed to an overseas location from India; the taxequalization in such employee’s case could work as under:

In the above illustration, the employer will retain hypo taxof Rs. 30 in India from the remuneration paid to the em-ployee. The hypo tax retained in India is generally theamount of income tax that employee would have paid inIndia on the same remuneration income. The employer com-pany will pay tax of Rs. 40 in overseas country but will beardifferential tax of only Rs. 10, after considering the hypo taxretained from employee’s income.

If structured appropriately, the tax equalization program-could result in a win -win situation for both – the employer

Particulars Amount

Remuneration of employee A 100

Tax liability in India (assumed 30%) B 30

Tax liability in overseas country (assumed C 40

Differential taxes to be borne by employer D 10

Expatriate Tax Planning

- By CA Vadana Shah


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as well as the employee since the employee suffers thesame tax cost – before and after deputation and the com-pany bears only the differential tax liability.

At this juncture, it is pertinent to note that the tax borne bythe employer company is a benefit given to the employeeand the same wouldbe considered as taxable perquisite inthe hands of employee.The income will be required to begrossed up in accordance with the provisions of section195A read with section 192(1A) of Indian Income Tax Act,1961 (Act).

Social Security Contributions

Similar to income tax, various countrieshavetheir own so-cial security contributions rules.

An Indian employee deputed overseas may have to con-tinue to contribute to social security funds in India as wellas make contribution to social security scheme overseas.Similarly, there could be burden on even the employer formandatory contributions to be made in India as well as tosocial security schemes overseas.

For instance, in the US, both - employer and employee arerequired to contribute to social security and Medicare fed-eral programs that provide benefits for retirees, the dis-abled and children of deceased workers. Likewise, an em-ployee deputed to the UK is required to register for Na-tional Insurance number and is obliged to make payment ofNational Insurance Contributions (NIC) in the UK on thesame basis as other people living and working in the UK.

The social security contribution to be made overseas is anadditional cost for the company in as much as the contribu-tions continue in India as well.

Accordingly, the employer needs to be aware of the socialsecurity cost while determining cost of international as-signment.

It is pertinent to note that India has signed bilateral socialsecurity agreements with various countries to protect theinterest of expatriate workers and the employer companieson a reciprocal basis. These agreements help workers by:

Providing for exemption from social security contribu-tion in case of short-term contracts

Exportability of pension in case of relocation to thehome country or any third country

Totalisation of the contribution periods

India’s social security agreements currently in force in-clude agreements with the following countries:

Denmark

Luxembourg

Netherlands

Belgium

French Republic

Germany

Hungary

Korea

Swiss Confideration

Furthermore, negotiations are on with several other coun-tries such as Austria, Cyprus, Finland, Italy, Greece, etc.for finalization of social security agreements.

Social Security Agreements provide exemption from socialsecurity contributions and help in minimizing internationalassignment cost for the employer. Accordingly, one needsto carefully examine the implication with respect to socialsecurity obligation since it may result in additional burdenfor the employer.

Salary Structuring

Another aspect relating to deputation pertains to efficientsalary structuring. In a vast majority of instances, it is pos-sible to minimize the overall assignment cost by appropri-


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ately structuring the remuneration of employee andthereby lowering the income tax cost. Subject to businessand commercial considerations, there could be salarystructuring opportunities, depending upon precise facts ofeach case.

Withholding tax obligations on Employer Company

Generally, every country would require the employercompany towithhold taxes from employee’s remunerationand pay it to the Government treasury.

In the Indian context, the law requires every employer toundertake withholding tax compliances in India – be itmay a foreign company or Indian company. Infact, theIndian company can be considered as economic employerand may be required to comply with Indian withholdingtax formalities even if the remuneration is paid abroad byforeign company. Here, it is pertinent to note the decisionof the HonourableSupreme Court in the case of EliLilly.In the concerned case, the Indian company had ob-tained expatriate employees from foreign company butthe employees continued to be the employees of foreigncompany and received salary abroad. The issue arosewhether the Indian company which was not the payer ofremuneration was required to withhold taxes under sec-tion 192 of the Act. The Supreme Court held that salarypaid by foreign company was for services rendered in In-dia and therefore, the assesseecompany (Indian company)was liable to undertake withholding tax compliances inIndia. The Supreme Court even directed payment of inter-est from the date of default till the date of payment oftaxes either by employer or employee.

The above decision clearly brings out an implication onall employer companies to undertake withholding taxcompliances in India.Having said that, one needs to checkthe exemption available the Act and under DependentPersonal Service (DPS Article) under the treaty to con-clude on the taxability of employee and the consequentwithholding tax obligation of the employer.

Similarly, in the context of outbound deputation, subjectto treaty exemption, one needs to examine the domestictax laws of the overseas country and comply with thewithholding tax provisions of the foreign country. For

instance, Russia, UK, etc. provide for Pay as You Earn(PAYE) compliances to be undertaken on monthly basis.In the absence of payment of taxes within prescribedtimelines, there could be interest and other consequences,thereby resulting in increased cost of compliance for theemployer.

Concluding Remarks

Appropriate structuring of the employee’s deputation andsalary structuring based on careful consideration of theabove factors can assist the corporate group in efficienttax planning and structuring of international assignmentand can go a long way in minimizing international costburden for the employer and employee.

CA Vandana Shah is a member of the institute. She can be

reached at [email protected]


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In light of the Prime Ministers call from the Red forton the 67th Independence day to ensure bankingaccess to all the people across country the RBI hasissued a note for simplification of account openingprocess and KYC norms thereof to help the common manopen the bank account and get the benefit of Rs 1 lakh in-surance plan announced by the Government of India

Measures taken for simplification:

1. Single document for proof of identity and proof ofaddress

There is now no requirement of submitting two separatedocuments for proof of identity and proof of address. If theofficially valid document submitted for opening a bank ac-count has both, identity and address of the person, there isno need for submitting any other documentary proof.

Officially valid documents (OVDs) for KYC purpose in-clude: Passport, driving licence, voters’ ID card, PAN card,Aadhaar letter issued by UIDAI and Job Card issued byNREGA signed by a State Government official.

To further ease the process, the information containing per-sonal details like name, address, age, gender, etc., and pho-tographs made available from UIDAI as a result of e-KYCprocess can also be treated as an ‘Officially Valid Docu-ment’.

2. No separate proof of address is required for currentaddress

Since migrant workers, transferred employees, etc.,often face difficulties while submitting a proof ofcurrent address for opening a bank account, suchcustomers can submit only one proof of address

(either current or permanent) while opening a bank accountor while undergoing periodic updation. If the current ad-dress is different from the address mentioned on the proofof address submitted by the customer, a simple declarationby her/him about her/his current address would be suffi-cient.

3. No separate KYC documentation is required whiletransferring accounts from one branch to another of thesame bank

Once KYC is done by one branch of the bank, it is valid fortransfer of the account to any other branch of the samebank. The customer would be allowed to transfer her/hisaccount from one branch to another branch without restric-tions and on the basis of declaration of his/her local addressfor communication.

4. Small Accounts

Those persons who do not have any of the ‘officially validdocuments’ can open ‘small accounts’ with banks. A ‘smallaccount’ can be opened on the basis of a self-attested pho-tograph and putting her/his signature or thumb print in thepresence of an official of the bank. Such accounts havelimitations regarding the aggregate credits (not more thanRupees one lakh in a year), aggregate withdrawals (notmore than Rupees ten thousand in a month) and balance inthe accounts (not more than Rupees fifty thousand at anypoint in time). These small accounts would be valid nor-mally for a period of twelve months. Thereafter, such ac-

To simplify opening Bank Accounts

RBI Measures

- By CA Neha Mhatre


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5. (OVDs) for low risk customers

If a person does not have any of the ‘officially valid documents’ mentioned above, but if is categorised as ‘low risk’ by thebanks, then she/he can open a bank account by submitting any one of the following documents:

(a) identity card with applicant's photograph issued by Central/State Government Departments, Statutory/Regulatory Au-thorities, Public Sector Undertakings, Scheduled Commercial Banks, and Public Financial Institutions;

(b) letter issued by a gazetted officer, with a duly attested photograph of the person.

6. Periodic updation of KYC

Time intervals for periodic updation of KYC for existing low/medium and high risk customers have been increased from5/2 years to 10/8/2 years, respectively.

7. Other relaxations

a. KYC verification of all the members of Self Help Groups (SHGs) is not required while opening the savings bank ac-count of the SHG and KYC verification of only the officials of the SHGs would suffice. No separate KYC verification isneeded at the time of credit linking the SHG.

b. Foreign students have been allowed a time of one month for furnishing the proof of local address.

c. In case a customer categorised as low risk is unable to submit the KYC documents due to genuine reasons, she/he maysubmit the documents to the bank within a period of six months from the date of opening account.

CA Neha Mhatre is a member of the institute. She can be reached at [email protected]


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counts would be allowed to continue for a further period of twelve more months, if the account holder provides a documentshowing that she/he has applied for any of the officially valid document, within twelve months of opening the small ac-count.

5. Relaxation regarding officially valid documents

Period of Filing Appeal

- By Vighnesh Palkar

Section 85(3A) of The Finance Act, 1994 states that Anappeal shall be presented within two months from the dateof receipt of the decision or order of such adjudicating au-thority, made on and after the Finance Bill, 2012 receivesthe assent of the President, relating to service tax, interestor penalty.

Provided that the Commissioner of Central Excise(Appeals) may, if he is satisfied that the appellant was pre-vented by sufficient cause from presenting the appealwithin the aforesaid period of two months, allow it to bepresented within a further period of one month.

The above section clearly gives time of three months, in-cluding condonable period, for filing of appeal beforeHon’ble CCE (Appeals). The time of three months is to betaken from date of receipt of order by the assessee. Thecalculation of period of three months is with respect toBritish Calendar months and not days.

In a recent decision of Hon’ble CESTAT Mumbai in caseof The Ahmednagar Merchants Co-op Bank Ltd v/s Com-missioner of Central Excise & Customs, Aurangabad, theappellant filed an appeal before the lower appellant author-ity on 17.02.2014 for order received on 18.11.2013. Thelower appellant authority dismissed the appeal since theappeal was filed after expiry of 91 days from receipt oforder, thereby confirming the demand with interest andpenalties. The party being aggrieved preferred an appealbefore the Hon’ble CESTAT Mumbai.

Hon’ble CESTAT Mumbai observed the following:-

Time limit for filing an appeal u/s 85(3A) of The Finance

Act, 1994 is two months; extension of one month maybe given by CCE (Appeals).

Order received by appellant on 18.11.2013, two monthsperiod expires on 18.01.2014, grace period expires on18.02.2014.

Appeal filed on 17.02.2014.

The General Clause Act defines the month as a British Cal-endar and not in terms of days.

Hence the appeal was filed within condonable period.

With the above observations the matter was remanded backto appellant authority to consider on merits.

CA Vighnesh Palkar is a member of the institute. She

can be reached at [email protected]


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India is one of world’s largest emerging economies of the current decade and the focus of the world economy is onhow the Indian economy will perform in the coming years. The BRICS nations are providing a stimulus to the worldeconomy.

The transport and logistics sector is a pivotal fundament that is important for the development of a country. Since the1990s, the transportation infrastructure of India has undergone a significant change. While in the 90s, the demand fortransport grew at an annual rate of 10%, in the last decade the demand in the transport and logistics industry grewalong with the accelerating Indian GDP. This growth increased the demand for practically all transport services.

The annual cost spends for Logistics services are estimated at 14% of the GDP as the share of the total value ofgoods. Normally, in emerging economies, these costs are about 6%-8% of the GDP. With this figure, Indian logisticscosts are estimated to be the highest in the world. Therefore it is necessary to manage this sector more professionallyin order to reduce operational costs, improve customer services and satisfaction levels and to become more competi-tive in global markets.

Additionally, higher income and government liberalisation measures led to a rapid growth in the number of automo-biles, two- and three-wheelers, private and public buses and urban rail networks, as well as an increased demand forleisure-related travel. Despite the growth of the population of India and its economy in general the transport and lo-gistics sector faces accompanying challenges with its infrastructure, environment pollution, increasing traffic density,policies and other inefficiencies in the system.

Another fact is that transport and logistics services in India, consume a large portion of energy, especially petroleumproducts. This share increases even more in India with the growth of economy and population Urbanization and fastindustrialization also increase this consumption because of higher demand in freight and passenger transport. The In-dian urban population grows at an average rate of 3% a year and has increased significantly in the last 50 years from62 million in 1951 to 1.25 billion currently.

For a country, particularly of India’s size, an efficient road network is mandatory for national integration, for socio-economic development and to sustain Indian economic growth. Therefore, in the last few decades the transport sectortransformed increasingly from rail-dominated to road-dominated. Although transport services by rail also exist in themetropolises, they play no major role in Indian passenger mobility. Thus the roadways already hold an estimatedshare of 80% of the demand on land transport. Furthermore, the demand in passenger transport by road, recorded animmense growth since the 1980s as it increased at a rate of 8% per year. This points to the growing presence and vari-

lobal Warming

Road Transport Challenges & Impectus for Economic Growth

- By CA Abhilash Tewari


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ety of transport vehicles.

At the beginning of the 90s the road length in India was about 2,041,000 km which grew at an annualrate of approximately 3% in the following ten years. Compared to this growth rate, the number of trans-port vehicles grew at approximately 15% annually, indicating an increase in road usage, compared withthe growth of road length which developed proportionately low. Besides, national highways which ac-counted for about 40% of the road traffic, formed only a marginal, 1-2% of the total road length. Addi-tional capacities were hardly added, indicating a growth rate of merely half a percent in the NationalHighways during the nineties. Due to the high growth in number of vehicles and vehicle miles travelledand the slow growth in infrastructure, the capacities were almost saturated and caused the need for largeinvestments in the Indian infrastructure.

The Government of India already planned some improvements to change this situation for the better with aid ofpublic and also private sector funding. Revenues from the road sector are token from different sources, fuel taxes,vehicles taxes and direct taxes on freight and passengers. In addition, road tolls and annual fees are taken. Withthese public earnings expenditures for improvements in the

road network are funded. Furthermore, the beginning of the liberalisation process leads to changes in the infrastruc-ture sector, which is more and more opened up for private investmentand foreign direct investment (FDI)

An abstract of the schemes initiated of the NHAI in the National Highway Development Program (NHDP) is givenin table below

Source: N.N. (2006a). Indian Highways. Emerging opportunities for Profitable Partnerships. p. 8f

Additionally, an extra expedited road development program for the Regions in northeast (NHDP-Northeast) with7,639 km road length is included whereof merely 40% are national highways. The objective of this program is toconnect the north-eastern states and therewith accelerate the development in this less privileged region Anotherimportant objective of the NHDP is the Port Connectivity Project involving the improvement of national highwayconnections to the 10 major ports: Chennai, Haldia, Jawaharlal Nehru Port, Kandla, Kochi, Mangalore, Mormugao,Paradip, Tuticorin, and Visakhapatnam. Furthermore, the implementation of the road connectivity objective to theports helps to decongest and therewith to facilitate growing port areas and their work.

Challenges in transport by Road can be broadly classified into

Natural

Industrial/ Economic

Natural Industrial/Economic

Energy

Transport sector consumes a huge amount of en-ergy and that to majorly in form of petroleum prod-ucts which adds to the fiscal deficit of the nation.

Industry Fragmentation & Labour Policy

Dominance of unorganized operators in the organ-ized road transport sector adds as a hurdle to theoverall expansion and growth of the sector. Alsoabsence of a labour policy for the sector acts as a

Pollution

Transport sector adds to ecological imbalance firstby emissions and later by deforestation for road

Bureaucracy & Infrastructure

Lack of infrastructure for training and profession-alization of sector accompanied by red tapism fur-


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Potentials in Developing the Road Sector

The development of road sector has enormous potential not only for the sector but also for the economy as a whole. The improve-ment in road networks and the expansion of same will not only generate employment but will also add a support to growth of infra-structure in the areas where the expansion takes place. A good road network will boost the bus transportation and act as a relief to theover burdened rail network. The growth of this segment in the passenger movement will generate employment across the nationwould help the growing economy.

Apart from bus transport the improvement of the road transport will act as a catalyst for the automobile sector thereby increasing theGDP contribution of the manufacturing sector. The growth is already evident from the launch of new models of 2 and 4 wheelers ona regular basis. The world automobile sector has also recognized India as a market and has resulted in launch of premium brands andmodels in India. The sector is also seeing India as a major manufacturing hub. With current level of growth it is estimated that by2020, India is likely to overtake Thailand in global auto-export market share, the report estimates. Currently, auto exports from Thai-land at $24 billion are double that of India's $12 billion.

In the growth of the sector and road network caution needs to be taken by the Government that no section of the society looses onaccount of this expansion. The motto of ‘Sabka Sath Sabka Vikas’ should be kept in mind while implementing the schemes andexpansionary policies.

CA Abhilash Tewari is a member of the institute. He can be reached at [email protected]

Due Dates Chart

Month TDSPayment

TDS Re-turns

AdvanceTax

Payment

IncomeTax

Return

ServiceTax

Payment

ServiceTax

Return

ESICPay-ment

PFPay-ment

VATPay-ment

April 30 - - - - 25 21 15 21/30

May 7 15 - - 5 - 21 15 21

June 7 - 15 - 5 - 21 15 21

July 7 15 - 31 5 - 21 15 21

August 7 - - - 5 - 21 15 21

September 7 - 15 30 5 - 21 15 21

October 7 15 - - 5 25 21 15 21/30

November 7 - - 30* 5 - 21 15 21

December 7 - 15 - 5 - 21 15 21

January 7 15 - - 5 - 21 15 21

February 7 - - - 5 - 21 15 21

March 7 - 15/31 - 5/31 - 21 15 21


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Some recent judgements under Income Tax Act,1961

M/s Shree Builders vs. UOI (Madhya Pradesh High Court) August 18th, 2014

S. 234E: High Court grants ad-interim stay against operation of notices levying fee for failure to file TDS state-mentIssue notice to the respondents on interim relief. Additionally issue notice to Attorney General of India as the validity ofthe Central enactment is put in issue.By way of ad interim relief, we direct the respondents not to take coercive action against the petitioner with regard tothe subject matter referred to in the impugned Annexures P/2 to P/5. We are inclined to grant this order ex parte keepingin mind the orders passed by other High Courts (High Court of Kerala, High Court of Karnataka, High Court of Rajast-han, Bombay High Court and High Court of Orissa).Sumit Devendra Rajani vs. ACIT (Gujarat High Court) August 13th, 2014Upon issue of Form 16A TDS certificate, TDS credit has to be given to the payee even if there is Form 26AS mis-match or deductor is at fault for non-deposit of TDS with Govt.U/s 204, the liability to deduct TDS is on the employer / payer. U/s 205, when tax is deductible at source, the assesseeshall not be called upon to pay tax himself to the extent to which tax has been deducted from that income. This meansthat the assessee / deductee is entitled to credit of such amount of TDS. Even if the deductor, after deducting the TDS,does not deposit the sum with the department, the department has to recover the said amount from the deductor and can-not deny credit to the deductee (Om Prakas Gattani 242 ITR 638 (Gau) & Yashpal Sahni 293 ITR 539 (Bom) fol-lowed)Ace Multi Axes Systems Ltd vs. DCIT (Karnataka High Court) August 11th, 2014S. 80-IB: If the undertaking satisfies the conditions for eligibility in the initial year, it must get deduction for 10years & non-compliance in a subsequent year is irrelevantThere is no indication in s. 80-IB that the conditions stipulated therein has to be fulfilled by the assessee in all the 10years. When once the benefit of 10 years, commencing from the initial year, is granted, if the undertaking satisfy allthese conditions initially, the undertaking is entitled to the benefit of 10 consecutive years. The argument that, in thecourse of 10 years, if the growth of the industry is fast and it acquires machinery and the total value of the machineryexceeds Rs.1 crore, it ceases to have the said benefit, do not follow from any of the provisions. It is true that there is noexpress provision indicating either way, what would be the position if the small scale industry ceases to be a small scaleindustry during the said period of 10 years. Because of that ambiguity, a need for interpretation arises. If we keep inmind the object of the Legislature providing for these incentives and when a period of 10 years is prescribed, that is theperiod, probably, which is required for any industry to stabilize itself. During that period the industry not only manufac-tures products, it generates employment and it adds to the wealth of the country. Merely because an industry stabilizesearly, makes profits, makes future investment in the said business, and it goes out of the definition of the small scaleindustry, the benefit u/s 80IB cannot be denied. If such a literal interpretation is placed on the said provion, it would runcounter to the very object of granting incentives. It would kill the industry. Therefore keeping in mind the object with

Recent JudgmentsSource – www.itatonline.org


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which these provisions are enacted, keeping in mind the industrial growth which is required to be achieved, if two inter-pretations are possible, the courts have to lean in favour of extending the benefit of deduction to an assessee who hasavailed the opportunity given to him under law and has grown in his business. Therefore we are of the view, if a smallscale industry, in the course of 10 years, stabilizes early, makes further investments in the business and it results in it’sgoing outside the purview of the definition of a small scale industry, that should not come in the way of its claimingbenefit u/s 80IB for 10 consecutive years, from the initial assessment yearACIT vs. Iqbal M. Chagala (ITAT Mumbai) August 16th, 2014S. 14A & Rule 8D cannot be applied in a mechanical manner. Disallowance cannot exceed expenditure claimed asa deductionIn AY 2009-10, the assessee was assessed to income of Rs. 12.62 crore. The assessee had investments of Rs. 32.71 crore.The investment transactions were managed by investment advisers and the assessee paid portfolio management services(PMS) fees which were debited to his capital account. The demat expenses and security transaction tax (STT) was alsodebited to the capital account. The assessee claimed that the expenses relating to salary, telephone and other administra-tive expenses were incurred by him for his professional income and not for earning tax-free income. However, the AOrejected the claim and made a disallowance of Rs. 16.35 lakhs, being 0.5% of the average investments under Rule 8D(2)(iii). The CIT(A) deleted the disallowance on the ground that it was without establishing any nexus.On appeal by the department to the Tribunal HELD, dismissing the appeal:The assessee had debited direct expenses on account of dematerialization and STT in the capital account and not in theProfit and loss account. The AO had presumed that the assessee had must have incurred some expenditure under theheads salary, telephone and other administrative charges for earning the exempt income. It is further found that the totalexpenditure claimed by the assessee for the year is about 13 lakhs and the AO had made a disallowance of about Rs.16lakhs. He has just adopted the formula of estimating expenditure on the basis of investments. But, the justification forcalculating the disallowance is missing. The assessee had not claimed any expenditure in its P&L account and so theonus was on the AO to prove that out of the expenditure incurred under various heads were related to earning of exemptincome. Not only this he had to give the basis of such calculation. In any manner disallowance of Rs.16.35 lakhs asagainst the total expenditure of Rs.13 lakhs claimed by the assessee in P&L account is not justified. Rule 8D cannot andshould not be applied in a mechanical way. Facts of the case have to be analyzed before invoking them. Consequentlythe disallowance is deleted (Justice Sam P. Bharucha 53 SOT 192 (Mum) referred).

Humor Section

A CA and a Space Engineer go on a camping trip, set up their tent, and fell asleep.

Some hours later, the CA wakes his Engineer friend and says, “Look up at the sky and tell me what you see?”The Engineer replies, “I see millions of stars.”The CA asks, “What does that tell you?”The Space Engineer ponders for a minute…. “Astronomically speaking, it tells me that there are millions of galaxies and poten-tially billions of planets""Astrologically, it tells me that Saturn is in Leo"" Timewise, it appears to be approximately a quarter past three"."Theologically, it’s evident the Lord is all-powerful and we are small and insignificant"."Meteorologically, it seems we will have a beautiful day tomorrow".Engineer asked to CA, "What does it tell you?"The CA sat silent for a moment, then speaks…. “Practically. ...Someone has stolen our tent, while we were sleeping”.


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PHOTO GALLERY

CA Satish Shanbha, Past Chairman of Branch, addressing

members and students during the seminar on New Tax Audit

Report

CA Robin Banerjee, MD Caprihans India Limited Ltd, felici-

tated by CA Shrikant Limaye, Vice Chairman of the Branch

during Orientation programme.

CA Tarun Ghia, Central Council Member and Chairman of

Committee for Members’ in Industry, addressing newly

qualified CAs during inaugural session of Orientation Pro-

gramme organized on 2nd September,2014

CA Sonadi Roopochand, Ex Director and CEO of JSW Ce-

ments Ltd, felicitated by CA Anathram Rao, Treasurer of the

Branch during Orientation programme.


15

PHOTO GALLERY

DISCLAIMER :

The views and opinion expressed or implied in the Newsletter are those of the authors / con-tributors and do not necessarily reflect those of Navi Mumbai Branch. Unsolicited matters are

sent at the owner's risk and the publisher accepts no liability for loss or damage. Material in thispublication may not be reproduced, whether in part or in whole, without the consent of Navi

Mumbai Branch. Members are requested to kindly send material of professional interest so thatthe same may be published in the newsletter subject to availability of space & editorial editing.

Members and students attending the lecture on New Tax Audit Reportby CA Satish Shanbhag


16

Membership Form

Name of the member ..........................................................................................................

Membership Number ..........................................................................................................

Professional Address ...........................................................................................................

……………………………………………………………………………………………………..

Mobile Number ...........................................................................................................

Office Telephone No. ...........................................................................................................

Mail ID (1) ...........................................................................................................

Mail ID (2) ...........................................................................................................

Residential Address ...........................................................................................................

..........................................................................................................

Topic of Interest ...........................................................................................................

..........................................................................................................

Annual Fees Rs.2,500 for CPE Study Circle Meetings

To,

Navi Mumbai Branch of WIRC of ICAIAddress: Rainbow apartments, F-2/C-3, Near Vijaya Bank, Sector 10, Vashi, Navi Mumbai-400703

Phone: Mr. Bhagwat 9323671721, Mr. Manoj 9773153877

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volume 07/14-15 institute of chartered accountants of...

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