Society of Auditors
Chennai For Private Circulation Only
August-September 2015 • Vol 9 Issue 8-9
Inside this Issue... •
From the Edit Pad
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A council member ‘speaks’ his mind!
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AADHAAR, SMARTPHONES, DIGI-WALLETS – Mindboggling future!5
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Indirect Tax Snippets
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Society Study cum Spiritual Tour to Kumbakonam
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Killer provisions in Companies Act" mentioning about Sec. 185 & 188 of the Companies Act
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Judicial Forums’ Dressing Down the Revenue Authorities!
11
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Recent Judicial Decisions Reported
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AUDITOR
Editorial Board
A periodical from Society of Auditors, Chennai Society of Auditors “Platinum Chambers”, 33, TNHB Complex, 4, Luz Church Road, Mylapore, Chennai - 600 004. Phone : 044-2498 6979 E-mail : society.auditor@gmail.com editor@societyofauditors.in Website URL: www.societyofauditors.in
CA P S Prabhakar, Editor Adv B Ramana Kumar CA R Sivakumar, President, Ex-officio Member CA Karthik A Bhatt
FROM THE EDIT PAD Let me begin by apologizing for the seeming truancy of the AUDITOR. There are quite a few reasons but let me play it politically safe by simply blaming it on the professional pressures of the tax-filing season. We have the once-in-3 years carnival coming up at ICAI in less than two months. There are good things and there are bad things about these elections. The good things are that (a) the limit on number of terms imposed by the CA Act – even after its palpable misuse due to a convenient misinterpretation, is finally ensuring the longtimers take their well-earned rest from the ICAI pressures (good for them and better for ICAI) and (b) the advent of social media in the election scenario is making people more aware on issues and the contestants. The bad things are that (a) those who did nothing to correct the misgovernance of this institution are coming back with their begging bowls for votes – some even aspiring to get promoted and (b) those who have claimed to have done great – just because they have written books or taught students (believe me, nothing for free) and those who have ‘parental push’ or ‘past-presidents backing’ are hoping to get in to Councils to ‘further’ their interests. In the past years, a lot has been written about the misgovernance of this institution and it is indeed sad that not only the earlier wrong doings have NOT been attempted to be corrected but more appallingly, such wrong doers have been relentlessly defended at members’ and students’ cost. In Nagpur land scam issue, in the Writ Petition in the Madras High Court, in spite of clear observations of the Hon’ble Judge in his written Order that “all is not well” with ICAI and that “the records reveal certain disturbing features in the functioning of ICAI”, the Institute instead of voluntarily subjecting itself to a fair probe by an independent body like CVC, went whole hog to defend the two Past Presidents of ICAI, by hiring expensive lawyers and spending crores of your and my money. They
P.S. Prabhakar are also trying every trick in the book to delay the judicial process in the hope of frustrating the petitioner (a brave loner, of course). Some of us have been crying hoarse on this. Not just us, there have been some conscientious central council members who have raised piercing questions in the Council meetings. Of course, there are several Council members who have taken unclear, ambiguous and seemingly neutral (a.k.a spineless) stands also. If one goes through the audio transcripts of the Council proceedings of the Central Council meeting that was held at Kollam in Dec, 2014, it is evident who took what stand in the Nagpur scam issue. On a Matter of General Interest (the only method by which members can bring items for discussions) that was raised by Mr Tarun Ghia, a member from Western Region who questioned the continuous legal protection given to those who stand accused in the Nagpur scandal at enormous cost, his pointed and sharp questions were unable to be answered. Only 5 other Council members were courageous enough to join him in such strident criticism and they were M/s Pankaj Jain, Rajkumar Adukia, Sanjiv Chaudhry, G. Sekar and Mukesh Singh Kushwah. Each of them made stinging observations for which the President had no answers. There were other members like M/s Shyam Lal Agarwal, Sanjeev Maheswari, Babu Abraham Kallivayalil, Sumantra Guha, Sanjay Agarwal, Jay Chhaira, Dhinal Shah, Naveen Gupta, Vijay Kumar Gupta who took the stand that the matter should be buried once and for all. In fact, Mr Babu Abraham went to the extent of almost calling such discussions on Matters of General Interest a waste of time. Talking with courage and conviction in Council meetings in itself is praiseworthy as in ICAI, only sycophancy is appreciated and rewarded with good Committee Chairmanship and foreign trips. (continued on next page)
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AUDITOR • August-September 2015
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Blindly supporting the incumbent President is the easy option and we need to credit at least one member from the South for that! CCMs like M/s Murali, C S Nanda and Santhanakrishnan were also evidently interested in the burial but were careful enough to talk in a manner that could be understood either way. (Going through the verbatim, one is greatly amused to see that a few have simply made meandering meaningless rhetorics and a few others have ‘praised’ such speeches as ‘eloquent’, ‘flowery’ etc.!) In the last issue of AUDITOR, I extensively wrote about the non-conducting of the AGM of SIRC for three straight years now. In my view, those who held the Chairmanship in those three years are eminently guilty of shirking their responsibility to the members. All the three are aspiring to become Central Council members. Not only them. Those RC members who have filed their nominations for Central Council and those who have filed nominations for yet another term in the Regional Council are collectively guilty for the non-conduct of the AGM for three years. Surely, even with a little knowledge of law and English, they would know that the High Court gag never prevented them from holding AGM after duly complying with Regulations and NEVER stayed AGM on a permanent basis. Some of the RC members may say that they pleaded in the RC meetings but were not heeded etc. Pray, what prevented them to inform the members that their voices were not heard? (In any case, many of them keep interacting with members on matters of professional interest and letting us know what we can easily know from Mr Google anyway!). Why did they not openly say that the Chairman of the day was unwilling to discharge his statutory responsibility? Why did they not advise the Chairman of the day that he wasopening himself and the RC as a whole for Contempt of Court proceedings? Why was that every Chairman more loyal to some of the CCMs and past presidents who were still ‘directing’ him than to the general
AUDITOR • August-September 2015
members? Why was that none of the three Chairmen was even having the basic knowledge that the SIRC was a legal entity by itself that need not take instructions from the central office and that he was the Chief Executive of the RC? Without conducting the mandatory AGM, these ‘respectable’ people go ahead in conducting Regional Conferences in mega scale by enticing members with Manapparai Murukku, Kovipatti Kadalaimittai, Kumbakonam coffee etc. besides ‘gala entertainment’ and ‘nice gifts’. And the prize for the most ridiculous decision however went to the 66 Kms banner that was ‘showcased’ and ‘displayed’ in a playground in a style that would put a ‘dhobhikana’ to shame! Each conference is a benchmark to be beaten by the next Chairman for the number of delegates. What kind of an irrelevant vanity? (Of course, even on that the latest RC failed miserably!) Well, what are we going to do when such members come to seek our support to get elected again? If we are going to give our votes to such people, aren’t we demeaning ourselves? If we have some semblance of self respect, will we give our votes to them? If they cannot discharge their responsibility towards the members even in respect of statutory obligations cast on them, what on the earth they are going to do by becoming our elected representatives again? I blame even those CCMs from the Southern Region who failed in their duty to wise-counsel the SIRC in the matter of conducting of AGM and never even raised this issue in the Central Council meetings. It is time for us to ponder seriously. An institution is misgoverned not just by those who do bad things while being at the helm of affairs but more by the passive members who don’t question them or who don’t do the silent act of punishing them when they seek our support in elections. So long, P.S. Prabhakar
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A council member ‘speaks’ his mind! MrTarun Ghia, the Central Council member from Mumbai is perhaps a lone crusader (though he gets support from Mr G. Sekar and Mr Mukesh Kushwah) who relentlessly asks inconvenient but bold questions in the Council meetings as well speaks his mind, without fear or favour, in his mails. Excerpts from one such mail is given below: 1. If the democratic fibre of the ICAI is to be reinforced, it is absolutely necessary that the members should know the stands of the Council Members on various important issues. For this preferably the Council Proceedings should be webcast with passwords to the members. Alternatively, the audio recordings of the Council Proceedings should be made available to the members of the ICAI. 2. Since the true and verbatim Council Proceedings are not informed to the members, therefore, it is possible for a Council Member to make various claims before the members and such claims can be contrary to his stand on the issue in the Council. In the Council he might have opposed a particular issue, might have remained silent or might have taken a vague stand, but in public he can claim totally different.
3. In fact, what is observed is that a CCM who does not take up right stands, is very efficient in making good claims before the members. 4. A l l t h i s i s h a p p e n i n g b e c a u s e t h e members are not allowed the true and complete information by the ICAI. 5. I t i s a l s o n e c e s s a r y t o i n f o r m t h e members that the views of (some of) the Council Members are different on many vital issues. Therefore, all claims that the Council acts as one are true in some matters but false in many matters. Such things are told to the members to mislead them that everything is positive in the Council.. 6. If one looks at the agenda of the CCMs and their stands in the Council Pr o c e e d i n g s , m a n y t h i n g s w i l l b e contradictory. This happens because council proceedings are kept secret. Manifestos are prepared for making assurances and not for implementing the same.
With Regards, Ghia Tarun Jamnadas
READERS / MEMBERS OF SOA ARE WELCOME to contribute articles of topical importance for consideration of publication in AUDITOR. The articles, which have to be original, may be opinionated, critical and analytical. In fact, the intention should be to share knowledge laced with opinions that could open up discussions and debates within the fraternity on subjects of professional significance.
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AUDITOR • August-September 2015
AADHAAR, SMARTPHONES, DIGI-WALLETS – Mindboggling future! Recently, Mr. Nandan Nilkeni, a founder team member of Infosys and generator of the concept of Aadhar made one presentation of the impact this Aadhar linked cell phone will create and revolutionize the market in general and finance market in particular in India / world is a worth watching clip. (Go to youtube a n d s e a r c h f o r N a n d a n N i l a k e n i a t Ti E Leapfrog).The presentation of those 30 minutes will make you spell bound and speechless. How the technology is going to change the way we live in this world forever. Major highlights of the presentation are as under. 1. There will be a massive disruption in financial services on back of technology revolution. 2. The telecom revolution has changed the desktop based environment to mobile interned based environment. 3. “WhatsApp movement” is the concept to understand this revolution because today 30 billion messages in a day are passed through WhatsApp in the world surpassing the SMS by large margin. This WhatsApp movement like revolution is going to take place in the world of finance making the concept of traditional banking and lending to go away. 4. We are moving from cash based society to cashless and digital society very very fast. Today India has more 900 million mobile users (More than 90 crores) which is a record in itself. The Aadhar when linked with the mobile set with IRIS authentication on will change the world we live in. 5. Today electronic clearing service NEFT-RTGS and IMPS (Immediate Payment System) have overtaken traditional payment system. With these 900 million mobile users, a mega trend is underway, which we are unable to apprehend. To put it in simple words, every mobile user will be an ATM. 6. W h e n I R I S a u t h e n t i c a t i o n ( B i o m e t r i c authentication linked with Aadhar server) will be on, the 900 million mobile users will be able to have online kyc, online authentication, online payment and online receipt on the basis of Unified Payment Interface (UPI). Smart phone will replace all
AUDITOR • August-September 2015
type of debit and credit cards and Paytm like system will be fully operational. Physical cash to digital cash and digital cash to physical cash convertibility will be a game changer. Digital wallet and digital locker will revolutionize the security system. Enabling pear to pear payment system will do away many intermediaries and will be re-imagining the infrastructure we have at present. 7. I M P S w i l l o c c u p y o n e - t h i r d o f a l l remittances and will overtake debit / credit cards in a matter of a couple of years. 8. E-commerce is set to grow 4X in just 5 years. With already 40% of the e-commerce transactions from Smartphones, the giant leap to the digital commerce is seen to be believed. 9. The whole process will lead to explosion of innovation, death of many businesses and birth of new ventures and business. India will become data scare to data rich country in five years in both, on consumer and business side. Credit process and credit appraisal will become obsolete and online loan payment will become possible. Think of 900 million people coming on one platform and remain connected!!! Almost all functions of the bank, government and taxation department will be done by Aadhar linked phones. This is even more important in the sense that IRIS authentication on cell phone is available only in India, no one has this system in the world!!! 10. Already the LPG subsidy transfers to bank accounts number about a billion transactions per annum, with total amount up to S2.5 billion. This will touch $50 billion in the next 5 years. 11. The IRIS authentication on cell phone is practically started and will become a mass reality soon. So prepare yourself to live in the digitalized India with absolute t r a n s p a r e n c y, n o p a p e r w o r k , n o bureaucratic intervention, no tax terrorism and much much more. 12. He ended his presentation with “Let the games begin”.
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Indirect Tax Snippets VAT/ CST Key amendments proposed under the Tamil Nadu Value Added Tax Second and Third Amendment Bill 2015: • Input Tax Credit (“ITC”) can be availed on the following conditions: — Buyer making the payment of VAT liability to the Vendor; — V e n d o r p a y i n g t h e VAT t o t h e Government; and — Delivery of goods to the purchaser. • Zero rating benefit available for sale only for goods supplied to the SEZ unit only for the purpose of use in manufacture, trading, production, processing, assembling, and packaging or for use as packing material or packing accessories • Advance Inward Way Bill Provisions are introduced for certain sensitive goods (to be notified) for inward transportation of goods from outside Tamil Nadu. • Dealers cannot opt for Composition scheme in case goods are purchased or received from outside the State for use in a works contract within the State. • Every person liable to deduct such tax on payment for execution of works contract shall obtain Tax Deductor Identification Number including individuals (‘TDIN’). • Penalty imposed at 300% of tax for (i) assessment of escaped turnover and (ii) wrong availment of ITC The above amendments shall come into force from the date notified by the Government. Affixation of official rubber stamp in the cover letter or delivery notes received from taxpayers- Certain instructions
CA. Debasis Nayak and CA. Satish Sarda The Commercial Tax Department of Tamil Nadu vide the impugned Circular has instructed the officials in the assessment circles to affix official rubber stamp in the copy of the documents received from the taxpayer or in the letter copy/ delivery note b ook . Fa i lu re or re fu sa l to a ffi x th e acknowledgment for the letters/ documents received will be viewed as devolution of duty. Circular No 4/2015 in VI/39400/2014 issued by the Commercial Tax Department. Maize is exempted under TNVAT Act, end user or the type of the taxpayer irrelevant for claiming exemption Taxpayer was selling maize by claiming exemption under Entry No.19 of Part-B of the IV Schedule to TNVAT Act. However, the Revenue Authorities denied the exemption on the ground that taxpayer was selling maize to a customer who was using it as a maize waste for poultry feeding. HC held thatneither TNVAT Act nor circulars envisage that the eligibility of a product for exemption is dependent upon its usage. The exemption provided is a product based exemption and not user based exemption or an assessee based exemption. Accordingly, taxpayer would be entitled for claiming NIL rate of VAT on maize sold to the customers. SSS Traders v CTO [2015-TIOL-2341-HCMAD-VAT] ITC cannot be revoked to buyers on grounds of non-payment of tax by the selling dealers ITC cannot be denied to the buyer on the ground that seller failed to disclose the transaction made with the taxpayer in their monthly returns and not paid the tax due to the Government. The taxpayer has admittedly paid the tax to the selling dealer (continued on next page)
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at the time of purchase and thus taxpayer cannot be made liable for the failure on the part of the seller to report the same to the RA. ABL Traders v The Commercial Tax Officer [2015-VIL-440-MAD] VAT would not be leviable on any software arising in the course of ERP Implementation In the process of ERP implementation there is no transfer of any goods involved. A c c o r d i n g l y, t h e r e i s n o m a r k e t a b l e commodity is in existence so that right in goods is transferred and thus VAT is not leviable. Further, even if any software comes into existence, the title in software vests with the client and not with the taxpayer. The said deliverable material does not constitute commercially available software. The said goods are required to make the ERP functional to meet the requirements of the client and therefore entire consideration shall be subjected to service tax. The State of Karnataka v IBM India Pvt Ltd [2015-TIOL-2298-HC-KAR-VAT] Service tax ‘Lease rent equalisation’ is neither consideration nor gross amount charged Lease rent equalization is only an entry made in the balance sheet. The amount shown in the balance sheet is not an ‘income’ for the purpose of computing tax under the Income Tax. It is also not a ‘payment’ actually received or receivable, and therefore neither ‘consideration’ nor the ‘gross amount charged’ in terms of Section 67 of the Finance Act, 1994. Hence, service tax is not payable on the amount of lease rent equalization shown in the balance sheet. Reliance Infratel Limited vs CCE [2015TIOL-2160-CESTAT-MUM]
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Commissioner (Appeals) and Tribunal cannot condone delay beyond the stipulated period The Tribunal followed the decision of the Supreme Court in the case of Singh Enterprises wherein it was categorically held that Commissioner (Appeals) and the Tribunal has no power to condone the delay beyond the stipulated period. Industrias Del Recambio Private Limited vs CST [2015-TIOL-2026-CESTAT-MAD] CBEC clarifies that abatement to GTA services would also be available to ancillary services provided by GTA Many time the person providing ‘transportation of goods by road’ services also provides various ancillary services in addition to the transportation services. The value of such ancillary services are normally included in the invoice issued by the Goods Transport Agency (“GTA”) and not by any other person. CBEC clarifies that, such services would form part of GTA service and therefore, the abatement presently available to GTA service, would be available on it Circular no. 1006/13/2015-CX dated September 21, 2015 CBEC clarifies on the binding nature of Circulars If any circular/instruction issued by the CBEC is contrary to any judgement of the Supreme Court, the Supreme Court judgement should be followed(as held in the case of Ratan Melting & Wire Industries). If any circular/instruction issued by the CBEC is contrary to any judgement of the High Court and the CBEC has decided not to file an appeal on merit against such judgement, the High court judgement should be followed. Circular no 1006/13/2015-CX dated September 21, 2015
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Society Study cum Spiritual Tour to Kumbakonam
P. Anand & B.K. Moorthy
A dream came true: It was a fun filled (not lacking in technical content too) trip to Yercaud last year. This year it was to the temple town Kumbakonam. Dreamt about for quite some time, the study-cum-spiritual tour by the Society of Auditors finally happened between 1st & 3rd Aug, 2015. Every aspect of the programme from the conceptualization of the seminar for two days, arranging of the temple darshans, auditorium, food, travel, stay etc. were all well-arranged and chartered under the supervision of B.K. Moorthy, K. Ramadurai, P. Anand, V. Swaminathan and S. Somasundaram with the support from the Office Bearers of Kumbakonam Branch of SIRC of ICAI, in particular, Chairman, CA. A. Guhaneswaran. The Chennai based delegates started in a luxury bus and a van to Kumbakonam on the night of 31st July amidst the cool breeze followed by heavy rains that continued till we crossed Chennai. The day dawned at Kumbakonam on 1st August. Most of the delegates visited the Mahamaham Tank and Sri Kasi Viswanathar temple, the origin for Mahamaham celebrated once in twelve years, before having a sumptuous breakfast. It was business next. We shall have to gratefully acknowledge the role of the Vice Chancellor and Dean of
SASTRA UNIVERSITY, who was kind enough to sponsor the Seminar by letting us use their Auditorium named after Rt. Hon. Srinivasa Sastri in “Sri Ramanujan Centre” (dedicated by Sri A.P.J. Abdul Kalam) with bonus elements such as excellent ambience, sumptuous Lunch etc. The first day of the S e m i n a r, w h i c h w a s o r g a n i z e d b y t h e Kumbakonam Branch of SIRC, began with customary invocation and a Memorial Lecture in honour of Late Sri S. Venkatraman, Chartered Accountant and the first Chairman o f t h e B r a n c h . Pr e s i d e d b y S r i G . Narayanaswamy, Past President of the Society, the Chairman of City Union Bank Limited, Sri S. Balasubramanian, delivered the Memorial Lecture, where he dealt elaborately on the role of a Professional and the qualities he should possess. There were four technical sessions as below: (a) Recent amendments to Company Law affecting the Private Companies by CA Sripriya Kumar (b) Issues in Service Tax by CA. P. Rajendra Kumar (c) Credentials of evidence before the Tax Authority by CA. T. Raghunathan and (d) Income Computation and Disclosure Standards by CA. P. Anand. Every presentation was lucid and there was active participation from the floor as well. As planned, the delegates with the family members had Darshan in few temples (continued on next page)
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around Kumbakonam in the evening. The day ended with a delightful dinner. The second day started with early morning visits to the temples in Kumbakonam as well as shopping escapades for the accompanying family members who were buying for steel utensils and brassware, for which the Town is famous. CA. N.S. Srinivasan and CA. R.G. Rajan, presented in their eloquent style, on issues in the Assessment of Charitable Trusts and Documentation in Audits. The half-a-day Seminar ended after thanking everyone who worked for this Seminar and tour and after sponsored lunch from SASTRA University, the delegates, with their family members assembled again for temple Darshan of selected shrines. Photo-ops and selfies marked the rest of the day with fun and joy.
AUDITOR • August-September 2015
On the third day, we left Kumbakonam, early in the morning and first visit was to the Cauvery River, which was brimming ahead of the famous “Aadi Perukku�. The delegates were afforded the opportunity to have Darshan at two more important shrines, Vaitheeswaran Koil and Chaidambaram where all of them made soulful prayers for good health and wealth. Darshan and Lunch at Chidambaram were arranged by the Treasurer of the Branch CA. B. Natarajan. He also took us around the huge temple complex and explained the historical events and the four temple towers, built by four different Kings. With satisfaction and happiness, all the delegates returned to Chennai. Many of us felt many more members from the Society could have joined this pleasure-cumeducation tour that could have made the tour livelier and more enjoyable. It was heart fulfilling nonetheless. 9
Killer provisions in Companies Act" mentioning about Sec. 185 & 188 of the Companies Act If economic activity and growth are analogous to a wheel, then provisions of section 185 and 188 of the Companies Act, 2013 are surely analogous to disc brakes!!! Efficiency of production requires efficient choice and free movement of resources. Ideally, economic models assume complete mobility of resources and perfect competition throughout the world, both of which are far away from real world scenario. The new law has been framed with all the good intentions. But if the mechanism is not efficient, right things can have wrong consequences. Re s o u r c e s i n c l u d e t a n g i b l e , i n t a n g i b l e , moveable, immovable and monetary resources. While section 188 takes care of the tangible, intangible, moveable and immovable resource movement, section 185 and 186 takes care of the monetary counterpart. Section 188 has been a regulatory scare crow since its inception. The coverage of section 188 extends to sale, purchase and supply of goods and materials, property of any kind, lease transactions, services, appointment of agents, underwriting contracts and appointment to office or place of profit. The coverage of section 185 extends to loans, guarantees and securities. It restricts loans, guarantees and securities to a director(s) as well as entities falling within certain radius of the director(s) like directors of lending company, holding company, relative or partner of director of such lending or holding company, any firm where the director or his relative is partner, any private company where such director is a director or member, body corporate where such director singly or jointly with other director(s) hold 25% or more voting power or the Board of which is accustomed to act in accordance with the Director or the lending company. While section 185 is a restrictive section, section 186 is an enabling section. Companies can lend, provide guarantee or security subject to the limits of and in compliance with section 186. Section 185 has a choking effect on the movement of intra-group funds. The exemption notification allows conditional exemption to 10
CA. Abhishek Seth
private companies on the basis of share capital having no corporate investment, borrowing being less than lower of Rs. 50 Cr. or twice the paid up capital and clean r e p a y m e n t r e c o r d . H o w e v e r, t h r e e simultaneous conditions render the exemption look good on paper only. The exemptions granted to private companies by MCA Notification dated June 5, 2015 takes contacts of private companies with its holding, associate, subsidiary and with fellow subsidiaries out of the purview of section 188. Additionally, the said exemption permits participation of interested directors in Board proceedings subject to disclosure of their interest. Further, related parties can vote in general meetings too! Third proviso to Section 188(1) states that the sub-section shall not apply to transactions which are in the ordinary course of business as well as on arm’s length basis. While ordinary course of business may be interpreted to mean transactions that the company undertakes on regular and frequent basis, what is to be considered “arm’s length” has been left untouched which creates confusion and apprehensions of future trouble. Consider the case of two defence manufacturers jointly acquiring a steel plant for captive consumption. If steel was to be bought from the market the input cost would be much higher for both. Now every time there is transfer of steel from the steel unit to the defence production unit, elaborate RPT rituals need to be undertaken. The only way out would be to get a wholly owned subsidiary which is permitted but may not be economically feasible or efficient. There was a stark similarity between Indian politics and RPT provisions: Majority of minority. A significant change has come as the amendment to section 188 replacing “special resolution” by “ordinary resolution”. Courtesy: Taxguru (and with permission from the author)
AUDITOR • August-September 2015
Judicial Forums’ Dressing Down the Revenue Authorities! In the past couple of months only, there have been a spate of judicial pronouncements wherein the Revenue authorities – be it the tax officials or the CBDT or the Revenue Dept officials…… AUDITOR deems it a privilege to bring to you some of the verbatim observations, for your reading pleasure. The emphasis have been happily supplied by the Editor. ACIT vs. R.P.G. Credit & Capital Ltd (ITAT Delhi) (i) We are pained to address the serious damage done by this deliberate, mischievous and selective reference to facts by such responsible persons which grievously damages the public faith and belief in the honest fair play of the tax administration. The conscious and selective reference to facts demonstrates that at the very stage of filing of the appeal its fate and conclusion was known for which specific purpose the facts were attempted to be obfuscated. The filing of present appeal with complete knowledge of its fate b y t h e Re v e n u e o n l y r e f l e c t s t h e mischievous adamancy to attempt to mislead the Tribunal and waste the time of the Court and the officers concerned. The present appeal as a part of a search cannot be a case of non-application of mind where the grounds presumably proposed by the AO have been approved carelessly. To our minds the present appeal is a prime example of meritless litigation for reasons best known to the few departmental officers having powers of directing authorization for filing appeals. This over confidence of the concerned Departmental officers in filing an appeal completely devoid of merit prima facie shows that these officers endowed with the onerous task of handling Department’s actions in litigation matters have willfully and deliberately failed to exercise their powers mindfully as required of them as per law and thereby abused government machinery
to initiate a litigation which entails financial costs and tarnishes the image of the Department and also strains the government resources. (ii) This obduracy and adamancy of the concerned officers in filing a meritless appeal only because officially they are entitled/empowered to do so, strikes a blow to the blind faith reposed in them by the tax administration in always acting fairly as evident from the orders passed in the Remand proceedings and the order of the CIT(A) in the present appeals. However only because of the conduct of few Departmental officers who appear to be unconcerned or rather mock the sincere efforts made by CBDT with impunity unmindful of the consequences to the system by their sense of entitlement the reputation of the tax administration suffers, this needs to be addressed at the earliest. The entitlement of always believed to be acting in good faith cannot be abused by irresponsibly setting in motion the entire justice delivery system where admittedly there was no grievance to the AO. The Assessing Officer including all the officers in the tax administration are functionaries of “the State” exist for “the State” and perform the functions of “the State”. For this specific purpose they are entrusted with vast powers to discharge “the State functions”. In the discharge of their onerous duties and responsibilities these officers are armed with wide and sweeping powers. (iii) The officers who have authorized the filing of the appeals and have filed the appeals have made a travesty of justice. Mocking at the system by filing the appeals and highlighting the apathy of the Department by issuing specific instructions from time to time that necessary due diligence and caution is not being exercised while (continued on next page)
AUDITOR • August-September 2015
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granting authorization for filing appeals and to pursue litigation only in deserving cases. Filing of an appeal by an Assessing Officer is a right which is vested by the statue in the “State” herein the tax department i.e. the Assessing Officer as and when he is aggrieved by the order of the First Appellate Authority can file an appeal before the ITAT. However, where as i n th e p re se n t c a se , a d m i tte d l y th e Assessing Officer, consciously and carefully after due and proper enquiry carried out by issuance of notices u/s 133(6) to the concerned persons/parties and considering the material comes to the conclusion that he is satisfied by the claim of the assessee on verification, then in such a situation the filing of the present appeals cannot be justified and can only be termed as a f a r c e . We a r e a w a r e t h a t t h e t a x administration has put in place robust checks and balances to ensure that the filing of appeals is not done carelessly and as per the procedures set in place the grounds to be raised by the Assessing Officer have to be duly approved by a Senior Commissioner of Income Tax. The evidence that the said exercise in the facts of the present case has been done is on record. The said exercise in the facts of the present appeals has been reduced to a mere ritual cannot be ignored. ………. we desist from awarding costs considering the statement of the Ld. CIT DR that due care shall be taken in future. It is our earnest hope and endeavour that having invited the attention of the Chairman, CBDT to this grave assault on the trust and reputation of fair play enjoyed by the tax administration the malaise is immediately addressed. We have taken cognizance of the fact that the present cases are group of appeals in a search case, however where the issue is given up by the AO in the remand proceedings in such an eventuality the mischievous manner of filing the appeals needs careful attention as the Revenue in the appeals before the ITAT
cannot be allowed to waste the time of all concerned where the issue for all intents and purposes has been given up by him. All Gujarat Federation Of Tax Consultants vs. CBDT (Gujarat High Court) While it is true that the powers under section 119 of the Act are discretionary in nature and it is for the Board to exercise such powers as and when it deems fit. However, it is equally true that merely because such powers are discretionary, the Board cannot decline to exercise such powers even when the conditions for exercise of such powers are shown to exist. The power under section 119 of the Act is a beneficial power given to Board for proper administration of fiscal law so that undue hardship may not be caused to the assessee and the fiscal laws may be correctly applied. In the case at hand, as is evident from the facts noted hereinabove, in the normal course, assessees who are subject to audit as well as other categories of assessees referred to hereinabove, can file their returns of income from 1st April to 30th September of the year in question. In view of the provisions of rule 12 of the rules, whereby, the assessees who are subject to tax audit, as well as the assessees referred to hereinabove, are required to file the tax returns electronically, that is, online. However, for filing the tax returns, appropriate utility is required to be made available by the respondents to the assessees. Therefore, till such utility is provided by the respondents, it is not possible for the assessees to file their returns of income. Therefore, there is a duty cast upon the respondents to ensure that necessary utility for e-filing of the income tax returns is made available to various categories of assessees at the beginning of the assessment year so that the assessees can plan their tax matters accordingly. However, as noted hereinabove, the utilities for e-filing of returns have been made available only with effect from 7th August, 2015, thereby curtailing the time available for filing the income tax returns to a great extent. According to the petitioners, such curtailment of time causes immense (continued on next page)
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AUDITOR • August-September 2015
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hardship and prejudice to the petitioners and other assessees belonging to the above categories, whereas the respondent Board, on the other hand, has taken an adamant stand not to extend the time for e-filing of the returns despite the fact that the entire situation has arisen on account of default on the part of the Department and not the assessees. The Chamber Of Tax Consultants vs. UOI (Bombay High Court) – II (i) The present situation has arisen only in view of the delay on the part of CBDTin discharging its obligations of making available the ITR Form Nos. 3,4,5,6, and 7 in due time. Thus, the need to extend the due date. One more feature which was emphasized was that in case of ITR Forms 1,2,2A and 4S being non-audit cases, necessary forms were notified only on 22nd June, 2015 instead of 1st April, 2015 i.e. a delay of 83 days. The normal date of filing of return in such cases would be 31st July, 2015. However, the CBDT extended the same to 7th September, 2015 by an order dated 2nd September, 2015 under Section 119 of the Act. This on the ground that the delay in notifying the forms would cause great hardship to the tax payers.We are unable to appreciate how a delay of 83 days in making the ITR Form Nos.1,2, 2A and 4S in case of non-audit will cause great prejudice and delay of 120 days in making ITR Form Nos.3,4,5,6 and 7 does not cause any prejudice. The Gujarat High Court noted that the Scheme of the Act indicates that ordinarily a period of 180 days is available to the assessee to file income tax return in case of Efiling of return of income in Form Nos.3, 4, 5, 6, and 7. Any curtailment of this period on account of non-availability of the necessary utility for filing a return online, does certainly cause prejudice to the assessee wholly on account of the delay on the part of the CBDT to notify the ITR Forms.
(ii) Taking into account the fact that the decision of the Gujarat High Court and Punjab and Haryana High Court have been accepted by the CBDT issuing orders under Section 119 of the Act but very unfairly in case of an all India Statute restricting its benefit to only two States and one Union Territory. This itself warrants an extension of due date to the same date as is available for the assessees in Gujarat, Punjab and Haryana to avoid any discrimination to the assessees elsewhere. CIT vs. Proctor and Gamble Home Products Ltd (Bombay High Court) (i) It needs to be pointed out that we have n o t i c e d t h a t t h e Re v e n u e h a s b e e n preferring appeals from the orders of the Tribunal even where the issue stands concluded by the orders of this High Court. These appeals are filed by the Revenue in a very causal manner without indicating the basis of the challenge i.e. some distinction in facts from the order of the High Court or that the order of the jurisdictional High Court is a subject matter of challenge before the Apex Court. In the absence of the above explanation, it follows that there are times when even though the decision of the jurisdictional High Court has been accepted by the Revenue and yet the Revenue chooses to file an appeal on the same issue before this Court. Rule of law implies certainty of law and the State filing appeals on settled issues arbitrarily and/or without any application of mind. This filing of appeal without due application of mind leads to attempting to unsettle settled position without reasons. This casual manner of filing appeals subjects an assessee to unnecessary expenditure and at times anxiety. Even the Revenue incurs substantial expenses in pursuing unwarranted cases, which are a sheer waste of public money. The least that the Revenue should do is to examine whether or not the decision of the jurisdictional High Court being relied upon (continued on next page)
AUDITOR • August-September 2015
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by the Tribunal, is subject matter of challenge before the Apex Court or is otherwise distinguishable and the same must be indicated in the appeal memo. (ii) In the above view, we were contemplating to impose costs on the Revenue. However, we noticed that on earlier occasion when costs were imposed on the Revenue, it seemed to matter little to the Officers, for after all the amount came out of the general pool of tax paid by the tax payers. In the circumstances, we are now putting the Officers of the Revenue to notice, that in all cases including where appeals are filed, the Offices instructing the Counsel would review whether the appeal should at all be pressed in view of the Revenue having accepted the jurisdictional High Court’s order on an identical issue and take necessary instructions from the Commissioner of Income Tax to withdraw and/or not press the appeal. Alternatively, in case a conscious decision is taken to press the appeal, then an averment to the effect that either the case is distinguishable or an appeal has been preferred from the decision of this Court to the Apex Court if not averred in the appeal memo, then a further affidavit in support be filed indicating the reasons. In the absence of the above, we will be compelled to impose heavy/exemplary costs to be personally paid by the jurisdictional – Commissioner of Income Tax under whose jurisdiction, the appeal is being filed and pressed in spite of the issue being settled by this Court and the same having been accepted by the Revenue. CIT vs. Trend Electronics (Bombay High Court) (i) It is axiomatic that power to reopen a completed assessment under the Act is an exceptional power and whenever revenue seeks to exercise such power, they must
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strictly comply with the prerequisite conditions viz. Reopening of reasons to indicate that the Assessing Officer had reason to believe that income chargeable to tax has escaped assessment which would warrant the reopening of an assessment. (ii) These recorded reasons as laid down by the Apex Court must be furnished to the assessee when sought for so as to enable the assessee to object to the same before the Assessing Officer. Thus in the absence of reasons being furnished, when sought for would make an order passed on reassessment bad in law. The recording of reasons (which has been done in this case) and furnishing of the same has to be strictly complied with as it is a jurisdictional issue. This requirement is very salutary as it not only ensures reopening notices are not lightly issued. Besides in case the same have been issued on some misunderstanding/ misconception, the assessee is given an opportunity to point out that the reasons to believe as recorded in the reasons do not warrant reopening before the reassessment proceedings are commenced. The Assessing Officer disposes of these objections and if satisfied with the objections, then the impugned reopening notice under Section 148 of the Act is dropped/withdrawn otherwise it is proceeded with further. In issues such as this, i.e. where jurisdictional issue is involved the same must be strictly complied with by the authority concerned and no question of knowledge being attributed on the basis of implication can arise. We also do not appreciate the stand of the revenue, that the respondent-assessee had asked for reasons recorded only once and therefore seeking to justify non-furnishing of reasons. We expect the state to act more responsibly.
AUDITOR • August-September 2015
Recent Judicial Decisions Reported
P.M. Veeramani, FCA
Statute: Income Tax Act – Sec.2(15) – Chamber of Commerce Decision in favour of: Assessee Title: Indian Chamber of Commerce vs ITO Citation: 37 ITR Trib 688 Bench: ITAT Kolkatta Assessee was carrying on the object of promotion and development of trade and commerce and not involved in any activity in the nature of business to attract section 28(iii) of the Act. The basic principle underlying the definition of charitable purpose remained unaltered even after the amendment to section 2(15), though restrictive first proviso was inserted therein. Association’s primary activity was advancement of general public utility and it would remain charitable even if an incidental activity for achieving the main purpose was profitable in nature. Association is not hit by proviso to section 2(15). Statute: Income Tax Act – Sec.10 A – Manner of set off Title: G Jewelcraft Ltd vs ITO Citation: 36 ITR Trib 521
Decision in favour of: Assessee / Revenue Bench: ITAT Mumbai
In the computation of income, unabsorbed depreciation is to be deducted before allowing deduction under section 10A. But unabsorbed business loss is to be deducted only from profit available after allowing deduction under section 10A. Statute: Income Tax Act – Sec.12AA – Bankers Club not charitable Title: State Forum of Bankers Club (Kerala) vs ITO Citation: 38 ITR Trib 83
Decision in favour of: Revenue
Bench: ITAT Cochin
Assessee organizing lectures and seminars to benefit banking employees only and not to public at large. Rendering service to banking business is not a charitable activity or a charitable purpose and hence assessee not entitled to registration. Statute: Income Tax Act – Sec.22, 24(a) Rent for Mobile Antenna Title: Manpreet Singh vs ITO Citation: 114 DTR Trib 237; 38 ITR Trib 55
Decision in favour of: Assessee
Bench: ITAT Delhi
Rent received for installation of mobile antenna on the terrace of building owned by assessee was rent for space provided for installation of antenna and not for the antenna and therefore, the rent is taxable as income from house property and not as income from other sources and accordingly, deduction under 24(a) @30% of also admissible. Statute: Income Tax Act – Sec.45 – Exchange value in case of JDA Title: CIT vs Ved Prakash Rakhra Citation: 370 ITR 762
Decision in favour of: Assessee
Bench: Karnataka HC
Exchange value specified in joint development agreement could be taken as basis for computation of the construction in joint development and not the cost incurred by developer. The consideration specified in the document represents the market value on the date of entering into agreement. Therefore such value should be considered for working out sale consideration for purpose of section 45. Statute: Income Tax Act – Sec.50 – Notional depreciation Title: KLN AGortechs Private LTd vs ITO Citation: 65 SOT 283
Decision in favour of: Assessee Bench: ITAT Bangalore
Where the assets of assessee were seized by bank as a result of default in repayment of loan, assessee being not in possession of assets, it could not be said that seized asets were kept in a state of readiness for use, and therefore, while computing capital gains on subsequent sale of those assets by the bank directly, AO was not justified in deducting notional depreciation in terms of explanation 5 to section 32. Statute: Income Tax Act – Sec.54 F – Eligible even if construction incomplete Title: Pradeep Kumar Chowdhry vs DCIT Citation: 115 DTR Trib 208
Decision in favour of : Assessee
Bench: ITAT Hyderabad
Assessee having entered into agreement with builder for purchase of flat and paid certain amount from time to time is entitled to exemption in respect of payments made during the three year period from date of sale, even though the construction was not completed within the three year period.
Society of Auditors Chennai
wishes its readers
A Happy Diwali !