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2EIRC Newsletter | May 2012 Volume 38 | Issue No. 4


Chairman Writes �

CA. Prasun Kr. BhattacharyyaChairman, EIRC

May 2012 respectively, must have proved to be very useful to themembers. Additionally, the full day programme on Corporate Lawscovering “Revised Schedule-VI, LLP & XBRL” on 12th May 2012 wasplanned conforming to the demand from members. The presence of Mr.Debashish Bandopadhyay, Registrar of Companies, West Bengaland his take on the recent initiatives taken by the MCA (Ministry ofCorporate Affairs) coupled with deliberations by CA Debashis Mitra,Past Chairman, EIRC, Ms. Mamta Binani, Past Chairperson, EasternRegion of ICSI and CA Binod Kothari made for a real value additionSaturday.Personally I was very satisfied to have organised the full day Seminaron ‘WB-VAT, Entry Tax & Mock Board Proceedings’ on 19th May2011. Leaving aside the turnout it had resulted in, the presence of Mr.KYS Manhas, Hon’ble President, West Bengal Commercial Taxes,Appellate and Revisional Board (WBCT-ARB), Mr. Anil KumarSarkar, Administrative Member, WBCT-ARB, two Joint Commissionerof Sales Tax, viz. Ms. Lovely Mukherjee and Mr. A Purakayastha actingas the Departmental representatives, two Chartered Accountants actingas the Authorised representative (besides the undersigned) really turnedthe mock proceedings into a real battle in the afternoon while Mr. KhalidAizaz Anwar Joint Commissioner of Sales Tax and CA Rip Das ensureda lively morning with the recent changes in VAT law and impact of theintroduction of Entry Tax and unanswered questions on the same. Effortsare always on to present before you quality speakers and I urge uponall the members to make all our programmes a big success by interactingin large numbers.It was a nice musical and rejuvenating evening to spend with all mycolleagues’ along with their friends and families on 18th May 2012 whilecelebrating ‘Rabindra Nazrul Sandhya’ at EIRC Premises. I thank allthose who participated with their families.Before I sign off, I must take this opportunity to inform you that theDiamond Jubilee year of EIRC which had begun last year will come toan end. We recall the beginning of the Diamond Jubilee of EIRC on1st July 2011, wherein apart from having a gala musical evening wehad felicitated all our past leaders from this Eastern Region. We alsoplan to hold the same in a grand manner while fructifying our dream inbringing all our members and students closer. To celebrate the curtaincall in a befitting manner, on 16th June 2012, a programme has beenscheduled at EZCC, Salt Lake from 3 pm to 9pm. The basic contentof the programme has been given elsewhere in this newsletter. Irequest all my fellow members alongwith their families and friendsto participate in this unique event and I am sure with yourparticipation the closing ceremony will be an occasion toremember..With best wishes and warm regards.

My dear professional colleagues,It was indeed a memorable day for EIRCon 9th May 2012 – in the presence of theHon’ble President and Vice President ofour Institute, the Managing Committeemembers of 8 Branches of our regioncame together at Hotel HindustanInternational, Kolkata with the members

of the EIRC for the Orientation Programme. Sharing of thoughts flowedacross on all matters relating to professional opportunities, infrastructure,administration, career counselling for students aspiring to become CAs,student related activities, coaching classes and all such related matters.The programme acted as a stimulant for its content, presentation,ambience and atmosphere and I am sure it would percolate into fruitfulaction in the form of improvement in the functioning of the branches andalso the Regional Council, thereby serving the members and studentsin various spheres of activities in a yet better effective manner inorganising programmes of excellence across the region.On the same day in the evening, at our own Institute premises, thestudents and later the members from our Region felicitated CA. JaydeepN Shah, Hon’ble President and CA Subodh Kr. Agrawal, Hon’ble VicePresident. I am personally thankful to all the members for theirenthusiasm and presence. We were also fortunate to have thehonourable presence of two of the past Presidents of ICAI from ourEastern Region, CA A.C Chakrabortti and CA Salil Kr. Gupta besidesmany past Chairmen, past Central Council and Regional CouncilMembers amongst the gathering.It was a delight to listen to the Past Presidents. Apart from theprofessional field they kindled the spark within us and made us awareof our social responsibility in being a Chartered Accountant particularlywhen we have millions of our countrymen who are in dire need of financialassistance including families of deceased of our own professionalbrethren and those suffering from serious ailments in our fraternity.Incidentally, the Chartered Accountant Benevolent Fund (CABF) offersan excellent opportunity to do that in an organised and systematicmanner. I call upon all of you to join this benevolent initiative and makeCABF integral part of your socio-professional obligation.It was also very motivating to listen to CA. Jaydeep N Shah and CASubodh Kr. Agrawal. Both of them dwelt on the objectives and goals ofthe Institute for the future. I am confident that Vision 2012 and Vision2030, in the broader perspective enunciated by the Hon’ble President,will take the profession to greater heights of glory. I am looking forwardto scale greater heights of success and prosperity for my fellow membersin the years to come as we transcend new horizons with time. I take thisopportunity to again specially congratulate both CA. Jaydeep N Shahthe Hon’ble President and CA Subodh Kr. Agrawal, Hon’ble VicePresident for taking the responsibility to lead the fraternity.Coming to the recent CPE programmes organised by the RegionalCouncil I am sure the Programme on ‘Transfer Pricing GAAR &International Tax’, ‘NBFC Audit organised on 3rd May 2012 and 10th


NEXT FIVE WEEKS . . . . .Day and Date Programme Speakers Coordinator Venue Duration CPE Delegate

Hours FFFFFees èes èes èes èes `

Friday 1st Impact on Direct & Indirect CA R.K.Vyas CA Sushil Kumar R.Singhi Hall, 5.15 to 3 150June, 2012 Taxes on Real Estate Issues CA Arun Agarwal Goyal EIRC Premises 8.30 pmTuesday 5th Insurance - The Entire CA Mohitosh CA Ranjeet Kr R.Singhi Hall, 5.15 to 3 150June, 2012 Gamut Choudhury Agarwal EIRC Premises 8.30 pm

CA Nirmal BajajCA Rakesh Agarwal

Thursday 7th Motivational Programme CA Naresh Agarwal CA Subhash Ch R.Singhi Hall, 5.15 to 3 150June 2012 Attract Unlimited Saraf EIRC Premises 8.30 pm

AbundanceMonday 11th Revised Schedule VI CA Ankita Agarwal CA Pramod R.Singhi Hall, 5.15 to 3 150June, 2012 Dayal Rungta EIRC Premises 8.30 pmThursday 14th SA 700 (Revised), CA D.P. Chakravarti CA Krishanu R.Singhi Hall, 5.15 to 3 150June, 2012 SA 705 & SA706 Bhattacharyya EIRC Premises 8.30 pmWednesday Service Tax Eminent Speakers CA Sushil Kumar R.Singhi Hall, 5.15 to 3 15020th June, 2012 Goyal EIRC Premises 8.30 pmWednesday Carbon Credit CA Anirban Datta CA Ranjeet Kr R.Singhi Hall, 5.15 to 3 15027th June, 2012 CS Nidhi Bothra Agarwal EIRC Premises 8.30 pmSaturday 30th Full Day Seminar on CA Sanjay EIRC R.Singhi Hall, 10.00am 6 600June, 2012 Direct Tax Bhattacharyya * EIRC Premises to 5.30pm

CA Barun GhoshCA Amresh Jain

Wednesday FEMA & Foreign Eminent Speakers CA Subhash Ch R.Singhi Hall, 5.15 to 3 1504th July, 2012 Contribution Saraf EIRC Premises 8.30 pm

Date Event VenueSunday 1st July, 2012 Flag Hoisting on the occasion of CA Day at 10.00 am EIRC Premises

SIGNIFICANT EVENT

Date Event CPE HoursFriday, 24th August, 2012 & 37th Regional Conference – EIRC 12Saturday, 25th August, 2012 Science City, (Main Auditorium) Kolkata

BLOCK YOUR DATES


Forthcoming Programme

Closing CeremonyDiamond Jubilee Year - EIRC

Saturday, 16th June 2012

EZCC AuditoriumSalt Lake, Kolkata

3 pm to 9 pm

* confirmation awaited

Programme IncludesDebate on Students’ Role in Nation Building

��Felicitation of Members who attained 60 yrs. of membership��Cultural Programme by Shri Saheb Chatterjee & other Eminent Artistes

EIRC welcomes all members & students, their families & friends to attend.


The EIRC Newsletter seeks to

enhance the proficiency and

competitive advantage of its

readers by providing articles

from amongst its Members and

other professionals. However

the views expressed are the

personal view of the author

and not that of the EIRC. Many

contemporary and relevant

issues have been covered in

this edition of the newsletter.

The Institute of CharteredAccountants of India

7, Anandilal Poddar Sarani(Russell Street), Kolkata - 700 071

Phone : (033) 3021 1140/1141Fax : (033) 2227 2317/3021 1146

Website : www.eircicai.org

Branches� Asansol � Bhubaneswar� Cuttack � Durgapur� Guwahati � Rourkela� Sambalpur � Siligurie e e e e Newsletter can be downloaded from the EIRC website : www.eircicai.org

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EIRC of ICAI

� Chairman Writes 3

� Forthcoming Programme for Members 4

EICASA

�� Chairman, EICASA Writes 6

� Student Forthcoming Programmes 6

News

� Branch News 7

� Library News 8

� Obituary 16

� Study Circle News 20

Announcement

� Work Disposal Position 7

� Elocution Contest for CA Students 12

� National Convention for CA Students 13

� Quiz Contest for CA Students 14

Articles

� Recent Judgements of Income Tax Appellate Tribunals 10-12

� Concurrent Audit of Banks - Key implications

under Basel norms and risk based framework 15-16

� Credit Risks 18-20


EICASA

CA Ranjeet Kumar AgarwalChairman,EICASA & Vice-Chairman,EIRC

9830140211/ [email protected]

Dear Students,First of all,wish you all the best to the Studentswho has appeared in IPCC and FinalExamination just concluded on 17th ofMay,2012.I also wish best of luck to all CPTaspirants for June18,2012 Examination.Last months the following activities tookplace:1. On 27th April,2012 a full day seminar onHow to Pass CA Exams for CPT Students was

organised wherein CA Anurag Singhal and CA Abdul Rahimmotivated the 88 odd Students.

2. On 11th of May,2011 a seminar on Revised Schedule VI wasorganised wherein CA Debashish Mitra spoke amongst 86students.

3. On 24th of May,2012,a seminar on Audit Questionnaire-A Guideto Conduct Audit was organised wherein CA Divya Mohta spoketo 30 Students.

4. 5 batches for IT Training started where 360 Students enrolled.5. 5 batches of GMCS started wherein 261 students enrolled.6. Two Career Counselling programmed were conducted by

EICASA.One at Agrasen Balika Vidyalaya,Liluah on 4th May,2012where 375 Students participated and another at TerapanthProfessional Forum,9A Paddapukur Lane,Kolkata-20 where morethan 200 students participated.

7. Total16598 Students appeared in just concluded May,2012Examination from Kolkata and Howrah alone.

In the coming month we have planned the following activities forthe Students:1. On 27th of May,2012 Sport Competition has been planned at Silver

Spring Club where 150 students has already registered.2. Two seminar has been planned the details are given just below

this write up.3. On 1st July,2012 an elocution and quiz contest will be held at

EIRC,the details are given elsewhere in this newsletter.4. On 14th and 15th July,National Convention has been planned the

details are also given elsewhere in this newsletter.5. Special Placement Programme of SMEs & SMPs will be organized

at Kolkata on 13th June,2012.More over the Online Registration Process for ITT/GMCS/Orientation has already started at eircicai.org Students are requestedto take advantage of this facility.The Board of Studies has also madee-diary compulsory from 1st July,2012 wherein every registeredarticle students has to update the diary online every fortnightly.Moreover I would like to request all the CA aspirants to not to just setyour Career Goals but your Life Goals.What you want in your life!Just set this goal.You will find that once you have set yourdestination,the life will become very easy for you.Wishing you all the best for your future endeavors.

Day and Date Programme Speakers Coordinator Venue Duration DelegateFees `̀̀̀̀

Thursday,7th Important Aspects in Statutory Audit (Incl. CA Sudersan Mukherjee, EICASA R Singhi Hall 02.30 pm 50/-June,2012 CARO, Rev Sch VI, Applicable Accounting Partner Mookherjee, EIRC Premises to 4.30

Standard) Biswas & PathakWednesday, Important Aspects CA Shivani Shah EICASA R Singhi Hall 02.30 pm 50/-27th June,2012 in Service Tax EIRC Premises to 4.30

FORTHCOMING PROGRAMME FOR STUDENTS

CA Ranjeet Agarwal & CA Debashish Mitra on 11th May,2012 at RevisedSchedule VI Seminar.

CA Divya Mohta addressing on AuditQuestionaire-Practical Aspects on 24th May,2012at R Singhi Hall

CA Ranjeet Agarwal and CA Anurag Singhal and CA Abdul Rahim (not in picture) onHow to Pass CA Examination on 27th April,2012.

CA Amit Bachhawat with EICASA Team on 29th March on Full Day Seminar for Student at RSinghi Hall.

CA Ranjeet Agarwal addressing.Sitting L to R : Anmol Karnani,Eicasa Member,CA SubhashSaraf,Secretary,EIRC,CA Manish Dhandharia,Ankit Bidasaria,Vice-Chairman,EICASA on Full day Seminar on29th March,2012.


BRANCH PROGRAMMES IN RETROSPECT-EIRCGuwahati Branch

CPE PROGRAM ON “Direct Tax” on 28th April 2012

Rourkela BranchFelicitation and CPE Programme on Revised Schedule VI

ARTICLES SECTION

The position of action taken on various matters relating tomembers and students of EIRC as on 23/05/2012

PARTICULARS DATE

Industrial training Registration 30/04/2012Re-registration 28/04/2012Termination 28/04/2012Completion 16/04/2012Permission to Study 08/05/2012Supplementary Registration 08/05/2012Change of Address 22/05/2012

MEMBERS SECTION

The position of action taken on various matters relating tomembers and students of EIRC as on 24/05/2012

PARTICULARS DATE

Proprietary/Partnership Firm Registration 15/05/2012Constitution / Reconstitution 09/05/2012Grant of Certificate of Practice 16/05/2012Fellow Admission 16/05/2012Change of Address 14/05/2012New Enrollment 13/04/2012Restoration 13/04/2012

The position of disposal of various matters relating tomembers and students of EIRC as on 25/05/2012.

BOARD OF STUDIES SECTION

CPT Registration 23/05/2012IPCC Registration 23/05/2012Final Registration 23/05/2012

By Hand By PostIssuance of StudyMaterials – CPT Up to date 21/05/2012Issuance of StudyMaterials – IPCC Up to date 17/05/2012Issuance of StudyMaterials – Final Up to date 16/05/2012GMCS Certificate issuance Up to dateOrientation ProgrammeCertificate issuance Up to dateITT Certificate issuance Up to dateChange of Name / Address Up to date

WORK DISPOSAL POSITION

CA Subodh Kr Agrawal, Vice President, ICAI addresses the gathering. Also seen L to R :CA Sailesh Agarwal, Secretary, CA Sanjay Gupta, Speaker, CA Rakesh Kr. Jain, Chairman& CA R. K. Khemani, Vice Chairman

L to R : Mr. R K Gupta, CCIT, Guwahati, CA K P Sarda, CA Sunil Sharma, Speaker, CANaveen Garg, Branch Chairman Mr. R S Joshi, President, FINEAR, CA SanjayBhattacharya, Speaker, CA Vikash Jain, Hony. Branch Secretary


No.13-CA(EXAM)/ISA/J/2012: - In pursuance of Rule 7 ofSchedule ‘F’ to Regulation 204 of the Chartered AccountantsRegulations, 1988 (as amended vide Notification No. 1-CA(7)/59/2001 dated 28th September 2001), the Council ofthe Institute of Chartered Accountants of India is pleased tonotify that the Information Systems Audit (ISA) CourseAssessment Test will be held on 23rd June 2012 (Saturday)from 10.30 AM to 2.30 PM at the following cities providedthat sufficient number of candidates offer themselves toappear from each city as detailed below.

TO BE PUBLISHED IN PART III SECTION 4 OFTHE GAZETTE OF INDIA

NOTIFICATION

1 AGRA2 AHMEDABAD3 AKOLA4 AMRITSAR5 AURANGABAD6 BANGALORE7 BAREILLY8 BHOPAL9 BHUBANESWAR10 CHANDIGARH11 CHENNAI12 COIMBATORE13 DELHI / NEW DELHI14 DEHRADUN15 FARIDABAD16 GOA17 GUWAHATI18 GWALIOR19 HYDERABAD20 INDORE21 JABALPUR22 JAIPUR23 JALANDHAR

The Council reserves the right to withdraw any centre at anystage without assigning any reason. The above Test is openonly to eligible Members of the Institute who are alreadyregistered with the Institute for the said course. The feespayable for the above Assessment Test is Rs. 1000/-.Applications for admission to the Assessment Test is requiredto be made in the prescribed form which may be obtainedfrom the Additional Secretary (Exams), The Institute ofChartered Accountants of India, ICAI Bhawan, IndraprasthaMarg, New Delhi – 110 002 on payment of Rs.100/- perapplication form. The forms are also available in theRegional and Branch Offices of the Institute and can beobtained upon cash payment on or from 14th May, 2012.Alternatively, the format of application form can bedownloaded from the website of the Institute viz.www.icai.org and the cost of the application form of Rs.100/- can be added to the Assessment Test fee of Rs.1000/- and the Demand Draft for Rs. 1100/- has to besent. The last date for receipt of duly filled in applicationforms is 1st June, 2012.Payment of fees for the Assessment Test should be madeonly by Demand Draft. The Demand Draft may be of anyScheduled Bank and should be drawn in favour of “TheSecretary, The Institute of Chartered Accountants of India,payable at New Delhi” only. Application together with theprescribed fee be sent so as to reach the Additional Secretary(Exams) at New Delhi on or before 1st June, 2012.The application together with the prescribed fee should besent by Speed Post/Registered Post to the AdditionalSecretary (Exams.), New Delhi. The applications receivedafter 1st June, 2012 will not be entertained under anycircumstances.

(G. SOMASEKHAR)ADDITIONAL SECRETARY (EXAMS.)

24 JAMSHEDPUR25 JODHPUR26 KANPUR27 KOLHAPUR28 KOLKATA29 LUCKNOW30 LUDHIANA31 MUMBAI32 NAGPUR33 NASIK34 PATNA35 PUNE36 RAIPUR37 RAJKOT38 RANCHI39 SILIGURI40 SURAT41 TRICHUR42 VADODRA43 VAPI44 VARANASI45 VISAKHAPATNAM

Sl. Name of Sl. Name ofNo. the Cities No. the Cities

NEW ADDITION TO THE EIRC LIBRARYGoods and service tax reports – a weekly journal dedicatedto Customs, Excise and Service tax cases. The journal ishighlighting Supreme Court Judgement, High courtjudgements and Customs, Excise and service tax AppellateTribunal Orders.Apart from the new addition all other useful journals areavailable in the EIRC Library, such as: -1. Sales Tax advises –20122. Chartered Accountant Practice Journal –2012.3. Current tax reporter –20124. Income Tax Reports –2012

LIBRARY NEWS

5. Company Cases – 20126. Vat and Services Tax Cases –20127. Service tax today -2012-05-258. Economist9. Journal Of AccountancyEIRC Library has an Institutional membership of AmericanCentre Library. Members are requested to use the Resourcesof that Library. Cards for the same is available to theLibrarian,EIRC.For any further information,suggestion,requisition of booksplease mail [email protected] , swati.banerjee@ icai.in orcall 033 30211103/05.


XBRL, or eXtensible Business Reporting Language, wasconceived 14 years ago in the United States and wassupported by the AICPA.The technology quickly leapfrogged the oceans and foundapplications in Europe and Asia. Today, XBRL is truly a globalphenomenon and is poised to permeate the financialreporting supply chain in India as well.The Ministry of Corporate Affairs (MCA), Government of Indiamandated filing of Balance Sheet and Profit and Loss Accountin an eXtensible Business Reporting Language (XBRL) modevia the General Circular No. 09/2011 dated 31st March 2011for a certain category of C&I companies.Coverage in Phase I included,All companies listed in India and their Indian subsidiariesAll companies having a paid up capital of Rs. 5 Crore andaboveAll companies having a turnover of Rs 100 Crore and above However, insurance companies, power companies and NonBanking Financial Companies (NBFCs) are exempted fromXBRL filing, till further orders.Uses of XBRLXBRL provides a way to improve the timeliness, accuracyand accessibility of business information. It is an internationalWeb-friendly standard for the tagging of business informationin machine-readable formats. Some have likened tagging to“bar-coding” the information. XBRL is an open standard andis free of license fees. It can facilitate business reporting inmultiple languages and under different accounting standardssuch as INDIAN GAAP (Generally Accepted AccountingPrinciples) and IFRS (International Financial ReportingStandards).XBRL is already being used by banks to submit certainregulatory reports to RBI, through an XBRL-enabled datacollection system (ORFS).The main value proposition for companies is that XBRL canstreamline internal reporting, assist with migration of data tonew systems and integrate data across platforms and spokenlanguages. There are compelling value propositions for CAsand auditors who will leverage XBRL for benchmarkingcorporate performance and enhancing continuous auditenvironments.How XBRL Is Going GlobalThe XBRL International consortium has grown to over 550companies and organizations around the world.In the spirit of the mantra “think globally, act locally,” XBRL isan international standard that is mainly implemented at locallevels through jurisdictional organizations such as XBRL-India.Any summary of how XBRL is currently being implementedaround the world is destined to be outdated as soon as thelist is published. The following are examples of how XBRL isgoing global:US, China, Singapore, South Korea, Israel and Japan havemandated public financial disclosures to be submitted in

XBRL.Companies and financial institutions in the Netherlands cannow use XBRL-tagged data to report their financial data todozens of Dutch authorities resulting in significantadministrative savings.The government of Australia has embarked on a multimilliondollar project that is projected to save Australian businessesnearly $1 billion in reporting costs by leveraging XBRL.The XBRL Spain jurisdiction is supporting the expansion ofXBRL throughout Ibero-American countries.The GlobalReporting Initiative is testing an XBRL-based mechanismfor reporting economic, environmental and socialperformance indicators.The motivation for using XBRL is grounded in the convictionthat the time is ripe for major improvements to the waybusiness information is communicated in our interactive age.In a public forum, A noted US regulator commented,“Technology has revolutionized almost every aspect of ourlives — the way we communicate with one another, the waywe listen to music and even the way we play games. Andyet, with one of the most important things we do in life —prepare for the future financially — what do we do? We arestill, today, relying on the open-cry pit system of the 1700sand the printed page of the Gutenberg press of the 15thcentury.

XBRL: Revolutionizing Financial ReportingSuman Bhutoria

Senior Consultant, PwC-Consulting

The XBRL Planet -Interactive data initiatives are acceleratingat a faster pace. The XBRLPlanet.org Website now tracksprojects all over the world.ConclusionXBRL brings financial reporting into the 21st century. TheMCA and RBI have given the financial community a greatboost with its investment in XBRL-based interactivetechnologies.Organizations such as XBRL-India, under the supervisionof ICAI, MCA and many others are actively promoting thewidespread use of XBRL and encouraging direct participationand input from financial community members.


M/s. Merilyn Shipping & Transports vs. ACIT (ITATVisakhapatnam Special Bench) order dated 29/03/2012.S. 40(a)(ia) TDS Disallowance applies only to amounts“payable” as at 31st March and not to amounts already“paid” during the yearThe assessee incurred brokerage expenses of Rs.38.75lakhs and commission of Rs.2.43 lakhs without deductingTDS. Of this only Rs. 1.78 lakhs was payable and the restwas paid. The AO disallowed the entire expenditure u/s40(a)(ia). Before the CIT (A), it was argued that disallowanceu/s 40(a)(ia) could be made only of the amount “payable”and not of that which had already been “paid” though it wasrejected. On appeal to the Tribunal, the matter was referredto the Special Bench. HELD by the Special Bench:Per the majority (S. V. Mehrotra, AM, dissenting):When s. 40(a)(ia) was proposed to be inserted by the FinanceBill 2004, it applied to any “amount credited or paid”.However, when enacted by the Finance Act 2004, it appliedonly to “amount payable”. The words “credited/ paid” and“payable” have different connotations and the latter refers toan amount which is unpaid. The change in languagebetween the Bill and the Act is conscious and with apurpose. The legislative intent is clear that only theoutstanding amount or the provision for expense (andnot the amount already paid) is liable for disallowance ifTDS is not deducted. Also, s. 40(a)(ia) creates a legal fictionby virtue of which even genuine and admissible expensescan be disallowed for want of TDS. A legal fiction has to belimited to the area for which it is created. Consequently, s.40(a)(ia) can apply only to expenditure which is“payable” as of 31st March and does not apply toexpenditure which has been already paid during the year.Per S. V. Mehrotra, AM:The object of s. 40(a)(ia) is to ensure that the TDS provisionsare scrupulously implemented without any default. If a narrowinterpretation is assigned to the term ‘payable’, the objectwith which s. 40(a)(ia) was inserted would be frustrated. TheLegislature could have never intended that only amountspayable at the end of the year should be disallowed butnot the amounts paid during the year. The reason thewords “credited” or “paid” were dropped was because theycame within the ambit of the term “payable” and would havebeen superfluous. As s. 40(a) is applicable irrespective ofthe method of accounting followed by an assessee, the term‘payable’ covered the entire accrued liability. Also s. 40(a)(ia)is to be interpreted harmoniously with the TDSprovisions as its operation depends solely on the provisionscontained under Chapter XVII-B & it provides for one of theconsequences of non-deduction of tax. In the backdrop ofthe TDS provisions, the term “payable” means the amount“payable” “on which tax was deductible at source underChapter XVII-B”. Consequently, s. 40(a)(ia) applies to all

expenditure which is actually paid and which is payableas at the end of the year.All Cargo Global Logistics Ltd vs. DCIT (ITAT MumbaiSpecial Bench) PRONOUNCED ON 21/5/12.Entire law on what is “Additional Ground” & power ofTribunal to admit it reviewedThe assessee filed an appeal before the Tribunal in which itraised the ground (in Form 36) that u/s 153A, the AO wasnot entitled to make additions which were not based onincriminating material found during the search. This groundwas not raised before the AO or the CIT (A). Before theSpecial Bench, the department argued that as the groundwas not raised before the lower authorities, it was anadditional ground and could not be entertained. HELD bythe Special Bench:(i) The assessee’s argument that as the ground was takenin the memorandum of appeal, it was not an “additionalground” for which leave was required from the Tribunal isnot acceptable because s. 253(1) permits an assessee“aggrieved” to file an appeal. A person can be “aggrieved”only if a ground had been raised and it is decided againsthim. S. 253(1) bars a ground which was not raised andnot decided by the CIT(A) because there can be nogrievance in respect of a matter which is not raised at all(Pokhraj Hirachand 49 ITR 293 (Bom) followed);(ii) On the question whether such a ground can be raised forthe first time before the Tribunal, the subject matter of anappeal consist of three elements (a) the grounds taken inthe memorandum of appeal, (b) the grounds for which leaveis allowed by the Tribunal and (c) grounds taken by therespondent for supporting the order of the CIT(A). TheTribunal is not confined only to issues arising out of theappeal before the CIT(A) but has the discretion to allow anew ground to be raised. If a pure question of law arisesfor which facts are on record of the authorities below,the question should be allowed to be raised if it isnecessary to assess the correct tax liability. Thesubmission that the ground could not be raised earlier asthe assessee did not have the services of an advocate at itscommand is reasonable and bona-fide (NTPC 229 ITR 383(SC) followed).ACIT vs. SIL Investment Ltd (ITAT Delhi) PRONOUNCEDON 04/05/2012.S. 14A: Onus is on AO to show expenditure is incurredto earn tax-free incomeFor AY 2006-07, the assessee earned dividend of Rs. 17lakhs and LTCG of Rs. 12 crores. The assessee claimedthat it had incurred no expense to earn the tax-free incomeand so no s. 14A disallowance was permissible. However,the AO disallowed Rs. 2 crores under Rule 8D towardsinterest and admin expenditure. The CIT (A) accepted thatno interest was incurred and deleted that disallowance. Healso reduced the admin expenditure disallowance. On appeal

RECENT JUDGEMENTS OF INCOME TAX APPELLATE TRIBUNALSBy CA Sunil Surana, FCA, DISA(I.C.A.I)


to the Tribunal, HELD:(i) The contention of the Revenue that some expenditure,directly or indirectly, is always incurred for earning tax-freeincome cannot be accepted. The burden is on the AO toestablish the nexus of the expenditure incurred with theearning of exempt income before making any disallowanceu/s 14A (Hero Cycles 323 ITR 518 (P&H), Jindal Photofollowed)(ii) As regards interest, the AO has to show the nexusbetween the borrowed funds and the tax free investments. Ifthat is not done, disallowance of interest is not permissible(K. Raheja Corporation (Bom) followed)(iii) As regards admin expenses, s. 14A disallowance cannotbe made on an ad-hoc basis. It is the department’sresponsibility to bring material on record to show thatexpenditure was incurred for earning the exempt income.If this is not done, disallowance is not permissible (WimcoSeedlings followed)Same view held in Auchtel Products Ltd vs. ACIT (ITATMumbai) pronounced on 30/04/2012.DCIT vs. Mastek Limited (ITAT Ahmedabad)PRONOUNCED ON 11/05/2012.Foreign income-tax is deductible u/s 37(1). Bar in s.40(a)(ii) does not apply to foreign taxesThe assessee paid Rs.42.57 lakhs in Belgium as income-tax and claimed that as deduction u/s 37(1). The AO rejectedthe claim by relying on s, 40(a)(ii) which provides that anysum paid on account of tax levied on profits or gains ofbusiness shall not be allowable as a deduction, though theCIT (A) allowed the claim on the ground that the bar in s.40(a)(ii) did not apply to foreign taxes. On appeal by thedepartment, HELD dismissing the appeal:The term “tax” is defined in s. 2(43) to mean income-taxchargeable under the provisions of this Act. S. 37(1) allowsa deduction of all taxes and rates. Taxes levied in foreigncountries whether on profits or gains or otherwise aredeductible u/s 37(1) not hit by s. 40(a)(ii). It is also notapplication of income. The same view has been taken byITAT Mumbai in South East Asia Shipping Co & Tata SonsLtd and the department’s Reference Applications u/s 256(1)& 256(2) were rejected and the issue has reached finality.Note: Tata Sons was followed without noticing that in TataSons itself (43 SOT 27) for a later year a contrary view wastaken after full discussion. Also see KEC International 63ITD 278 (Mum) where the earlier Tata Sons was not followed.However, if foreign TDS is deducted, only the net isassessable as per Ambalal Kilachand 210 ITR 844 (Bom)& Yawar Rashid 218 ITR 699 (MP)Aspi Ginwala vs. ACIT (ITAT Ahmedabad) PRONOUNCEDON 30/03/2012.S. 54EC limit of Rs. 50L does not apply to the transactionbut financial year. Delay in investing within 6 M owingto non-availability of bonds to be excusedThe assessee sold property on 22.10.2007 and computedlong-term capital gains. The s. 54EC investment was required

to be made within 6 months i.e. on or before 21.04.2008.The assessee invested Rs. 50 lakhs in REC bonds on31.12.2007 (FY 2007-08, within the 6 M time limit) and Rs.50 lakhs in NHAI bonds on 26.5.2008 (FY 2008-08, beyondthe 6 M time limit) and claimed a deduction of Rs. 1 crore.The assessee claimed that no eligible scheme was availablefor subscription from 1.4.2008 to 28.5.2008 and that heapplied in the NHAI bonds as soon as it opened and that hewas prevented by sufficient cause from investing within thetime period of 6 months. The AO & CIT (A) rejected the claimfor exemption of Rs. 50 lakhs in respect of the NHAI bondson the ground that (i) it exceeded the monetary limit of Rs.50 lakhs prescribed in s. 54EC and (ii) it was made beyondthe time limit of 6 months. On appeal to the Tribunal, HELDallowing the appeal:(i) The Proviso to s. 54EC provides that the investment madein a long term specified asset by an assessee “during anyfinancial year” should not exceed Rs. 50 lakhs. It is clearthat if the assessee transfers his capital asset after 30thSeptember of the financial year he gets an opportunityto make an investment of Rs.50 lakhs each in twodifferent financial years and is able to claim exemptionupto Rs.1 crore u/s 54EC. The language of the proviso isclear and unambiguous and so the assessee is entitled toget exemption upto Rs.1 crore in this case;(ii) Though the time limit of 6 months for making theinvestment u/s 54EC expired on 21.4.2008, no bonds wereavailable for subscription between 1.4.2008 to 28.5.2008.The investment was made as soon as the subscriptionopened on 26.5.2008. The assessee was accordinglyprevented by sufficient cause which was beyond hiscontrol in making investment in these Bonds within thetime prescribed. Exemption should be granted in caseswhere there is a delay in making investment due to non-availability of the bonds (Ram Agarwal 81 ITD 163 (Mum)followed). The same view is taken in Chanchal Kumar Sircar50 SOT 289 (Kol) & Mahesh Nemichandra Ganeshwade vs.ITO (ITAT Pune) PRONOUNCED ON 29/03/2012.But see Jyotindra H. Shodhan vs. ITO 87 ITD 312 Ahd)(SB)Contra view has been taken in ACIT vs. Raj Kumar Jain &Sons (HUF) (ITAT Jaipur).Rajamahendri Shipping & Oil Field Services Ltd vs. ACIT(ITAT Vizag) pronounced on 13.4.2012S. 40(a)(ia): Non-jurisdictional High Court prevails overSpecial BenchFor AY 2005-06, the AO disallowed Rs. 47.26 lakhs u/s40(a)(ia) on the ground that the TDS had not been paid intime. The assessee claimed that the amendment to s.40(a)(ia) by the Finance Act 2010 w.e.f. 1.4.2010 to providethat no disallowance could be made if the TDS was paid onor before the due date specified in s. 139(1) was retrospectivein nature as held in CIT vs. Virgin Creations and that thecontrary ruling of the Special Bench in Bharti Shipyard Ltdvs. DCIT 132 ITD 53 (Mum) could not be followed. HELD bythe Tribunal:In Virgin Creations the Calcutta High Court has passed a


reasoned order and held that the amendment to s. 40(a)(ia)is retrospective in nature. The binding nature of the decisionof the Special Bench when a lone decision of non-jurisdictional High Court is available on the very same issuewas examined in the Third Member decision in Kanel Oil &Export Ltd 121 ITD 596 where it was held that where thereis only a judgement of the non-jurisdictional High Courtprevails over an order of the Special Bench even thoughit is from the jurisdictional Bench (of the Tribunal). As theCalcutta High Court’s decision is the lone one on the issuewhether s. 40(a)(ia) is retrospective, it has to be followed inpreference to the decision of the Special Bench of theTribunal in Bharti Shipyard Ltd. Consequently, amounts inrespect of which TDS is paid on or before the due date offiling the ROI is eligible for deductionSame view was held in Piyush C. Mehta vs. ACIT (ITATMumbai) pronounced on 11/4/12. & M/s. Alpha ProjectsSociety P. Ltd vs. DCIT (ITAT Ahmedabad) pronounced on23/3/12. & ACIT vs. Shri M.K. Gurumurthy (ITAT Bangalore)pronounced on 10/5/12.Narendra Gehlaut vs. JCIT (ITAT Delhi) pronounced on30/04/2012.Despite borrowing, gains on shares assessable as STCG& not business profits

The assessee earned gains from shares of which Rs. 7.61crores was out of delivery-based transactions and offeredas STCG while Rs. 4.26 crores was out of futures & optionsand offered as business profits. The AO & CIT (A) assessedthe STCG as business profits on the ground that (a) therewas no LTCG, (b) there was no dividends, (c) there werehundreds of transactions during the year, (d) the asseseehad borrowed interest-bearing funds for purchase of shares& (e) the average holding period was 41 days. On appeal bythe assessee, HELD allowing the appeal:In the books, the delivery based transactions were accountedas investment and a distinction from the non-deliverytransactions is maintained. The transactions were with alimited number of companies (8) and the average number oftransactions in one month were 8. The CBDT Circular permitsthe assessee to deal in the shares of one scrip and treatsome as trading and some as a capital investment. Thefact that the assessee borrowed funds for investing inshares cannot constitute a factor as in none of the case lawsor CBDT circular it has been held that borrowings will not beallowed in investment transactions. Investment in capitalassets can also be carried out by use of borrowed funds.There is no bar notified by the law, judicial pronouncementor CBDT Circular.

The Elocution Contest for the C.A. Students will be held onSunday, 1st July 2012 at 11 AM at the Institute’s Premises(R.Singhi Hall), 7, Anandilal Poddar Sarani (Russell Street),Kolkata – 700071. The topics will be notified later on.Students are advised to see the Notice Board and EIRCWebsite ( www.eircicai.org ) in this regard.Students registered with the Institute, for ProfessionalCompetence Course, Integrated Professional CompetenceCourse and Final Course are eligible to participate in thecontest. However, a person who has qualified in the finalexamination and completed articles/audit training is noteligible to participate. The contestants may be permittedto express their views for a maximum period of 10 minutesdepending on the number of participants on any of theselected subjects. The medium of competition will be English.However, if any participant wants to speak in Hindi, the optionwill be available. Four winners will be selected from Kolkata(which will be treated as a Branch of Eastern Region) for theRegional Elocution Contest to be held at EIRC premises on15th August, 2012.Students willing to participate should contact EIRC office on

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIAEASTERN INDIA REGIONAL COUNCIL

ANNOUNCEMENTELOCUTION CONTEST FOR C.A. STUDENTS ON 1ST JULY 2012

or before 20th June, 2012 & to apply in writing. There can bescreening round to be conducted before 1st July, 2012.The Panel of Judges will be selected from amongst eminentpersonalities. Winners will be selected on the basis of thefollowing criteria:Sl.No. Criteria Maximum Marks1. Lucidity of language. 102. Style of Delivery. 103. Capacity to engage the attention

of the audience. 104. Precision of expression. 105. Depth of coverage of the subject

matter including reference to latestdevelopments in the concerned area. 50

6. Adherence to time limit. 10Prizes and Certificates are awarded to the winners of theRegional Level and the Final Level Elocution Contest.

(CA Ranjeet Kumar Agarwal)Date: 24.05.2012 Chairman, EICASA


NATIONAL CONVENTION FOR CA STUDENTS AT KOLKATA

Panel Discussion : “ Perceive – Believe – Achieve” (by Rank Holders) (12.30 – 1.30 PM)Lunch : 1.30 PM - 2.30 PM

Motivational Talk : “Rise And Shine “by Akash Gautam (Chandigarh) - ( 2.30 PM – 4.30 PM )Valedictory Session followed by Distribution of Certificates – 4.30 PM onwards

.Technical Session 4 :Corporate Law And Information Technology:11.15 AM – 12.30 PMTopics :1) Comparative Analysis Of Company , firm & LLP2) Cyber Forensics

Technical Session 3 :Auditing And Auditors’ Role : 10 – 11.15 AMTopics :1) Role of Auditors in Governance, Risk And Compliance(SA 300,315, 330).2) Auditors’ Responsibility in the era of Corporate Fraud

Cultural Programme by students followed by DinnerDAY 2 :Sunday , 15/07/2012

Special Session 2 :Interaction with Chairman,BOS(3PM – 4 PM).

Technical Session 2 : Taxation .: 4 PM – 5.15 PMTopics :1) Tax Audit u/s 44 AB including Presumptive Tax Audits.2) Excise, Service Tax & Customs : Recent judicial

pronouncements .

Special Session 1-Role Of Students in Nation Building :12.45 pm-2 pm

Technical Session 1 –Financial Accounting & Reporting:11.30 am – 12.45 pmTopics : 1) Ind-AS : Issues in Implementation .

2) Revised Schedule VI : Salient Features.

Hosted by: EIRC & EICASA OF THE ICAIDay 1 : Saturday, 14/07/2012Registration : 9 AM –10 AM

SATURDAY, JULY 14th , & SUNDAY, JULY 15th, 2012Venue : CALCUTTA UNIVERSITY – CENTENARY HALL

CALCUTTA UNIVERSITY CAMPUS, COLLEGE STREET, KOLKATA- 700 073Theme : CHALLENGING TIMES, LEADING THE WAY

BOARD OF STUDIES - THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA

Inaugural Session : 10 AM – 11.30 AMCA Jaydeep Narendra Shah, President, ICAI

CA Subodh Kumar Agrawal, Vice President, ICAICA Nilesh S. Vikamsey, Chairman, Board of Studies, ICAI

LUNCH - 2 PM – 3 PM

� Registration fee: Rs.500 per student can be paid at EIRC office during office hours on working days.� Fees for outstation delegates is Delegate fee plus Rs.200 per day for accommodation.� Outstation delegates are requested to confirm their participation latest by 20th June, 2012 for accommodation arrangement.� Students are invited to contribute papers for the four technical sessions. Two papers on each topic will be selected. Selected paper writers will be exempted

from payment of registration fee. All selected paper-writers of the National Convention will be reimbursed to and fro AC 2 tier railway fare by the shortest routein trains / Express on production of necessary proof (both ways ticket) and also be paid an allowance of Rs.1,500/- per day (upto 3 days) to meet expenses(deducting expenses for stay on actual basis ). Students interested to submit a paper can do so by sending soft copies (MS – Word format in 2003 version,12points typing ,not exceeding 10 pages) to [email protected] & [email protected], clearly mentioning registration number, course of study, complete postaladdress for communication, phone no. (landline & mobile), e-mail id and a scanned passport size photograph within June 20, 2012. One studentcannot submit more than one paper.

� Students joining the programme would get their delegate certificate at the end of the Convention.� Contact :Chairman, EIRC, ICAI, 7, Anandilal Poddar Sarani (Russell Street) , Kolkata,700 071, Phone: 033-30211121- to 23 , Fax; 033- 2227 2317,Ankit Bidasaria, Vice Chairman, EICASA (9051054351) E-mail: [email protected] , [email protected] , [email protected] Website: www.icai.org / www.eircicai.org


The Quiz Contest for C.A. Students ( eligibility as perElocution Competition ) will be held on Sunday, 1st July 2012at 1.30 PM at the Institute’s Premises (R.Singhi Hall), 7,Anandilal Poddar Sarani, Kolkata-700071. The details aregiven below:1. There will be Eight rounds of Quiz covering the following

areas ::a. Accountingb. Auditingc. Corporate Lawsd. Taxation – Direct and Indirecte. Costing/Management Accounting / Financial

Managementf. Information Technologyg. Economicsh. General AwarenessAdditionally, there will be a rapid fire round

2. Medium of Quiz would be English. However, if anyparticipant wants to speak in Hindi, the same will beallowed.

3. There can be a maximum of 5 teams each teamconsisting of two students. If there are more participants,the 5 teams have to be selected by a process ofelimination.

4. Three questions will be asked in each round to eachteam. The students will be given 60 seconds foranswering by turns.

5. In each round, the questions will be addressed by turnsto each group. For example, Q.No.1 will be addressedto Team A. If Team A answers the question correctly,then Q.No.2 will be addressed to Team B. If Team Adoes not answer Q. No. 1 correctly, the question will passon to Team B. A question will pass once and there willbe no subsequent passing. As usual, the Q. No. 2 willbe addressed to Team B, the Q. No.3 will be addressedto Team C and so on.

6. At the end, there shall be a Rapid Fire Round in whichfive questions will be addressed to each team. Eachteam will be given one minute to answer all the fivequestions instantaneously. Students may choose not toanswer a question. There will be no passing in RapidFire Round.

7. Each question shall carry 5 points credit. 2 points creditshall be awarded for questions which have been passed.

8. Appropriate Computer Software may be used to manage

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIAEASTERN INDIA REGIONAL COUNCIL

ANNOUNCEMENTQUIZ CONTEST FOR C.A. STUDENTS ON 1ST JULY 2012

quiz, record time and performance of each team. Manualsystems may also be used wherein the Quiz Master mayuse stop clock for the purpose of recording time.

9. Each Branch and the Regional Head-quarter shall selectthe best team to participate in the Regional Level Contestto be held at EIRC, Kolkata on 1st August, 2012.

10. The Quiz Contest will be conducted by a Quiz Master.

11. Prizes and Certificates are awarded to the winners ofthe Regional Level and the Final Level Quiz Contest.

12. Teams willing to participate must applying writing by 20th

June,2012 with EIRC office. There can be screeninground before 1st July,2012.

(CA Ranjeet Kumar Agarwal)Date: 24.05.2012 Chairman, EICASA


Bank Concurrent Audit is a kind of internal audit where theauditor’s responsibility is to review and correct the internalcontrol system in the assigned bank branch. The auditor alsohas a critical role in transaction review and safeguards thecontrol consciousness in the branch. The focus is on ‘on-spot’ rectification, corrective action , real-time reporting andemphasis on material transactions.Audit Scope, planning and ProgramThe scope of concurrent audit or audit universe may coverthe following illustrative aspects :� Cash and Clearing� Advances� Deposits� Foreign exchange� Investments & Treasury� Housekeeping� Statutory compliances – ( TDS, Service Tax, RBI returns)� ATM, sms , net & phone banking� Safe Deposit Lockers / Vaults� Govt Business , DP� IT aspects - CBS environment ( logical, physical,

environmental, access controls)� AML, STRSome specific review areas in concurrent audit covers :1. Physical inspection of stock under hypothecation,

godown, assets, stock statements review, lien on hypoassets, Charge registered in ROC , unusual trend,diversion etc

2. Operations within Policy & DOP - Exception reporting,Documentation

3. KYC norms4. End use of credit, borrower’s business viability5. Revenue leakage, ML, STR, frauds- Eg in dormant a/cs

, NPA, FNPA, asset quality – detect6. High Value transactions & materiality7. IT – Hardware , Software , Perimeter, passwords, UPS,

user id, log, BCP, Access Logical Environmental controls,checksum

8. Flash report – HO Inspection / CVOCompliance of ICAI Auditing Standards and SIAThe ICAI has pronounced 17 Standards on Internal Audit (SIA) and several Standards on Review and otherengagements ( SRE, SRS, SAE) . Compliance of theserelevant Standards in the concurrent audit process will addvalue to the overall practicality and quality of the audit report.Risk Base Internal Audit FrameworkRisk Based Internal Audit (RBIA) is a new technique for theBank’s audit which is conducted based on Risk assessmentof various Business and Control Risk of the branch/ business

Concurrent Audit of Banks – Key implications under Baselnorms and risk based framework

CA Arijit Chakraborty

Unit. RBI advised the Banks to adopt RBIA which will facilitiesimplementation of Risk Based Supervision of the Banks.It is a basically a system based audit where the audit plan isprepared with reference to the Risk Profile of the branch andaudit resource are directed towards high risk areas. The RBIexpects to leverage the findings of the RBIA for the purposeof Risk Based Supervision. Coverage Presently RBIA will beconducted at all branches concurrently with existingInspection process except specialized branches like recoverybranch, treasury branch, Currency chest, Service branch,etc.Risk Assessment ProcessThe risk assessment of underlying Business and Control riskat the branches constitute central aspect of RBIA which willinclude:(a) Identification of Inherent Business Risks in various

activities undertaken by the branches.(b) Assessment of effectiveness of the control systems

(control risk) for monitoring the inherent risks of thebusiness activities in the branch.

(c) Making an assessment of level & direction of various risksareas as also assess the level & direction of overallBusiness & control risk.

(d) Drawing up of the risk matrix taking into account bothfactors viz. Risk of Branch

Business Risk assessment at Bank level cover 8 risk areas– (a) Capital (b) Credit risk (c) Market risk other than liquidity(d) Earnings (e) Liquidity Risk (f) Business strategy &environment risk (g) Operational risk and (h) Group risk.Control Risk arises out of inadequacy the system absenceof controls or possibility of failure / breakdown in the existingcontrol process. Control Risk assessment cover four riskareas – (a) Internal control risk (b) Organisation risk (c)Management Risk and (d) Compliance risk.Basel Accord – RBI Mandate ( May 2nd, 2012)Basel 3 norms and the way forward for Indian Banks havebeen notified by RBI on May 2nd, 2012 . Basel 3 normsaddress the issue of liquidity and capital adequacy of banksto prevent crisis situations like what happened in 2008. Thenorms mandate a 3 Pillar approach as under :Pillar 1 – Standardized approach– Higher risk weights for certain credit, Operational criteria

for using external ratings prescribed– CCF for all eligible liquidity facilities made uniform at

50%, irrespective of maturity (earlier 20% CCF formaturity less than one year), Capital based on normalVaR and stressed VaR

Pillar 2 - risk control guidance– firm wide governance and risk management;, capturing


risk of off balance sheet exposures, managing riskconcentrations; managing reputation risk and liquidityrisk;

– improving valuation practices; and implementing soundstress testing practices

Pillar 3– appropriate additional disclosures completing

enhancements in Pillars 1 and 2In the language of Basel Committee, “The Framework setsout higher and better-quality capital, better risk coverage,the introduction of a leverage ratio as a backstop to the risk-based requirement, measures to promote the build up ofcapital that can be drawn down in periods of stress, and theintroduction of two global liquidity standards.”RBI ‘s Basel 3 Guidelines have the following objectives:1. Improving/enhancing risk coverage on account of

counterparty credit risk2. Supplementing risk based capital requirement - LCR3. Addressing systemic risk and interconnectedness4. Reducing pro-cyclicality and introducing countercyclical

capital buffers (0-2.5%)Timeline for compliance by Indian Banks ( except RRB) –2013 to 2018Focus areas – Tier 1 Capital : Minimum equity set at – 4.5% of Risk Weighted Assets (RWA) - CCB – 2.5 % of RWA - CPB - 0 to 2.5 % of RWAOver the next few years, the Tier- 1 Capital will be increasedina calibrated manner as set out in the RBI norms. Banksalso have to maintain Liquidity Coverage Ratio (LCR) –wef - January 1, 2015, eensuring enough liquid assets tosurvive an acute stress scenario lasting for 30 days. Thenorms also set out maintenance of Net Stable Funding Ratio(NSFR)- wef January 1, 2018 to promote medium to longterm structural funding of assets and activitiesICAI Initiatives – Certificate Course on Bank ConcurrentAudit ( May 2012)ICAI has duly addressed the needs to intensify professionalpreparation in this major service area with the followinginitiatives :– Concurrent Audit in Banks published by CPE committee

in the year 2005– Manual on Concurrent Audit published by IASB in the

year 2008 and updated in 2011-12– Launch of Certificate Course on Concurrent Audit

in May 2012 ( New Delhi)Concurrent audit of banks has been adding substantial valueto banking sector. Moreover to our Members, Concurrentaudit, Revenue Audit, Stock & Debtors audit, Credit audit,DP audit, IS & Migration audits etc will continue to be amajor service area in the coming years. The major ongoingchallenges will include risk based Real-Time audit techniquesin CBS platform, review of compliance with Basel 3 normsby the bank and AML issues. It is a joint exercise with RBI,HO of Banks, Inspection and Vigilance teams and ICAI is inthe process of discussion with the nodal agencies to ensurethat Concurrent audit of banks becomes a viable exercisefor Members from the point of technical and financial valueaddition leading to superior quality of deliverables fromChartered Accountants.

OBITUARY(Members left for heavenly abode. We pray to the Almighty ‘may their souls rest in peace’.)

CA Debiprasad Debgupta(M. No. - 051502)Left us on 9th February,2012

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Contact Persons : � Mr. S. Abbas - 9830326165� Mr. A.Dutta - 9331212314� Ms. Swati Sharma - 9830022251

CA Sujay Gangopadhyay(M. No. - 059569)Left us on 7th May, 2012


Introduction to RiskRisk is inherent part of Bank’s business. Effective Risk Managementis critical to any Bank for achieving financial soundness. In view ofthis, aligning Risk Management to Bank’s organizational structureand business strategy has become integral in banking business.Over a period of time, banks have taken various initiatives forstrengthening risk management practices. Bank has an integratedapproach for management of risk and in tune with this, formulatedpolicy documents taking into account the business requirements /best international practices or as per the guidelines of the regulatoryauthorities. These policies address the different risk classes viz.,Credit Risk, Market Risk and Liquidity Risk.The concept of risk and risk management are core of financialenterprise. The importance of appropriate and effective riskmanagement are always stressed by regulators. Financial risk in abanking organization is possibility that the outcome of an action orevent could bring up adverse impacts. Such outcomes could eitherresult in a direct loss of earnings / capital or may result in impositionof constraints on bank’s ability to meet its business objectives. Suchconstraints pose a risk as these could hinder a bank’s ability toconduct its ongoing business or to take benefit of opportunities toenhance its business.Risk assessment, however, is a continuous process and the stresstests need to be conducted taking into account the macroeconomiclinkages as also the second round and contagion risks. The ReserveBank intends to formalize this process by setting up an inter-disciplinary Financial Stability Unit to monitor and address Systemicvulnerabilities.Expected Losses and Unexpected LossesRegardless of the sophistication of the measures, banks oftendistinguish between expected and unexpected losses. Expectedlosses are those that the bank knows with reasonable certainty willoccur (e.g., the expected default rate of corporate loan portfolio orcredit card portfolio) and are typically reserved for in some manner.Unexpected losses are those associated with unforeseen events(e.g. losses experienced by banks in the aftermath of nuclear tests,Losses due to a sudden down turn in economy or falling interestrates). Banks rely on their capital as a buffer to absorb such losses.Risks are usually defined by the adverse impact on profitability ofseveral distinct sources of uncertainty. While the types and degreeof risks an organization may be exposed to depend upon a numberof factors such as its size, complexity business activities, volumeetc, it is believed that generally the banks face Credit, Market,Liquidity, Operational, Compliance / legal / regulatory and reputationrisks. Before overarching these risk categories, given below aresome basics about risk Management and some guiding principlesto manage risks in banking organization.Risk ManagementRisk Management is a discipline at the core of every financialinstitution and encompasses all the activities that affect its riskprofile. It involves identification, measurement, monitoring andcontrolling risks to ensure thata) The individuals who take or manage risks clearly understand

it.b) The organization’s Risk exposure is within the limits established

by Board of Directors.

CREDIT RISKSImportance and criticalities in Banking

CA. Anirban Dattac) Risk taking Decisions are in line with the business strategy

and objectives set by BOD.d) The expected payoffs compensate for the risks takene) Risk taking decisions are explicit and clear.f) Sufficient capital as a buffer is available to take riskThe acceptance and management of financial risk is inherent tothe business of banking and banks’ roles as financial intermediaries.Risk management as commonly perceived does not meanminimizing risk; rather the goal of risk management is to optimizerisk-reward trade -off. Notwithstanding the fact that banks are inthe business of taking risk, it should be recognized that an institutionneed not engage in business in a manner that unnecessarilyimposes risk upon it: nor it should absorb risk that can be transferredto other participants. Rather it should accept those risks that areuniquely part of the array of bank’s services.Balancing Risk and RewardBusiness grows mainly by taking risk. Greater the risk, higher theprofit and hence the business unit must strike a trade off betweenthe two. The essential functions of risk management are to identify,measure and more importantly monitor the profile of the bank. WhileNon-Performing Assets are the legacy of the past in the present,Risk Management system is the pro-active action in the presentfor the future. Managing risk is nothing but managing the changebefore the risk manages. While new avenues for the bank hasopened up they have brought with them new risks as well, whichthe banks will have to handle and overcome.Expanding business arenas, deregulation and globalization offinancial activities emergence of new financial products andincreased level of competition has necessitated a need for aneffective and structured risk management in financial institutions.A bank’s abil ity to measure, monitor, and steer riskscomprehensively is becoming a decisive parameter for its strategicpositioning. The risk management framework and sophisticationof the process, and internal controls, used to manage risks, dependson the nature, size and complexity of institutions activities.Nevertheless, there are some basic principles that apply to allfinancial institutions irrespective of their size and complexity ofbusiness and are reflective of the strength of an individual bank’srisk management practices.What is Credit Risk?Credit risk arises from the potential that an obligator is eitherunwilling to perform on an obligation or its ability to perform suchobligation is impaired resulting in economic loss to the bank.In a bank’s portfolio, losses stem from outright default due to inabilityor unwillingness of a customer or counter party to meetcommitments in relation to lending, trading, settlement and otherfinancial transactions. Alternatively losses may result from reductionin portfolio value due to actual or perceived deterioration in creditquality. Credit risk emanates from a bank’s dealing with individuals,corporate, financial institutions or a sovereign. For most banks,loans are the largest and most obvious source of credit risk;however, credit risk could stem from activities both on and offbalance sheet.Credit risk can be further sub-categorized on the basis of reasonsof default. For instance the default could be due to country in whichthere is exposure or problems in settlement of a transaction. Credit


risk not necessarily occurs in isolation. The same source thatendangers credit risk for the institution may also expose it to otherrisk. For instance a bad portfolio may attract liquidity problem.Primarily Credit risk consists of two components, viz Quantity ofrisk, which is nothing but the outstanding loan balance as on thedate of default and the quality of risk, viz, the severity of loss definedby both Probability of Default as reduced by the recoveries thatcould be made in the event of default. Thus credit risk is a combinedoutcome of Default Risk and Exposure Risk. The elements of CreditRisk is Portfolio risk comprising Concentration Risk as well asIntrinsic Risk and Transaction Risk comprising migration/downgradation risk as well as Default Risk. At the transaction level, creditratings are useful measures of evaluating credit risk that is prevalentacross the entire organization where treasury and credit functionsare handled. Portfolio analysis help in identifying concentration ofcredit risk, default/migration statistics, recovery data, etc.Managing Credit RisksIt is the overall responsibility of bank’s Board to approve bank’scredit risk strategy and significant policies relating to credit riskand its management which should be based on the bank’s overallbusiness strategy. To keep it current, the overall strategy has to bereviewed by the board, preferably annually. The responsibilities ofthe Board with regard to credit risk management shall, inter alia,include:a) Delineate bank’s overall risk tolerance in relation to credit riskb) Ensure that bank’s overall credit risk exposure is maintained

at prudent levels and consistent with the available capitalc) Ensure that top management as well as individuals responsible

for credit risk management possess sound expertise andknowledge to accomplish the risk management function

d) Ensure that the bank implements sound fundamental principlesthat facilitate the identification, measurement, monitoring andcontrol of credit risk.

e) Ensure that appropriate plans and procedures for credit riskmanagement are in place.

The very first purpose of bank’s credit strategy is to determine therisk appetite of the bank. Once it is determined the bank coulddevelop a plan to optimize return while keeping credit risk withinpredetermined limits. The bank’s credit risk strategy thus shouldspell outa) The institution’s plan to grant credit based on various client

segments and products, economic sectors, geographicallocation, currency and maturity

b) Target market within each lending segment, preferred level ofdiversification/concentration

c) Pricing strategy.It is essential that banks give due consideration to their target marketwhile devising credit risk strategy. The credit procedures shouldaim to obtain an indepth understanding of the bank’s clients, theircredentials & their businesses in order to fully know their customers.The strategy should provide continuity in approach and take intoaccount cyclic aspect of country’s economy and the resulting shiftsin composition and quality of overall credit portfolio. While thestrategy would be reviewed periodically and amended, as deemednecessary, it should be viable in long term and through variouseconomic cycles.The senior management of the bank should develop and establishcredit policies and credit administration procedures as a part ofoverall credit risk management framework and get those approvedfrom board. Such policies and procedures shall provide guidanceto the staff on various types of lending including corporate, SME,

consumer, agriculture, etc. At minimum the policy should includea) Detailed and formalized credit evaluation/ appraisal process.b) Credit approval authority at various hierarchy levels including

authority for approving exceptions.c) Risk identification, measurement, monitoring and controld) Risk acceptance criteriae) Credit origination and credit administration and loan

documentation proceduresf) Roles and responsibilities of units/staff involved in origination

and management of credit.g) Guidelines on management of problem loans.Risk MonitoringIn order to be effective, these policies must be clear andcommunicated down the line. Further any significant deviation/exception to these policies must be communicated to the topmanagement/board and corrective measures should be taken. Itis the responsibility of senior management to ensure effectiveimplementation of these policies. Each bank, depending upon itssize, should constitute a Credit Risk Management Committee(CRMC), ideally comprising of head of credit risk managementdepartment, credit department and treasury. This committeereporting to bank’s risk management committee should beempowered to oversee credit risk taking activities and overall creditrisk management function. The CRMC should be mainly responsiblefor:a) The implementation of the credit risk policy / strategy approved

by the Board.b) Monitor credit risk on a bank-wide basis and ensure compliance

with limits approved by the Board.c) Recommend to the Board, for its approval, clear policies on

standards for presentation of credit proposals, financialcovenants, rating standards and benchmarks.

d) Decide delegation of credit approving powers, prudential limitson large credit exposures, standards for loan collateral, portfoliomanagement, loan review mechanism, risk concentrations, riskmonitoring and evaluation, pricing of loans, provisioning,regulatory/legal compliance, etc.

Further, to maintain credit discipline and to enunciate credit riskmanagement and control process there should be a separatefunction independent of loan origination function. Credit policyformulation, credit limit setting, monitoring of credit exceptions /exposures and review /monitoring of documentation are functionsthat should be performed independently of the loan originationfunction. For small banks where it might not be feasible to establishsuchstructural hierarchy, there should be adequate compensatingmeasures to maintain credit discipline introduce adequate checksand balances and standards to address potential conflicts ofinterest. Ideally, the banks should institute a Credit RiskManagement Department (CRMD). Typical functions of CRMDinclude:a) To follow a holistic approach in management of risks inherent

in banks portfolio and ensure the risks remain within theboundaries established by the Board or Credit RiskManagement Committee.

b) The department also ensures that business lines comply withrisk parameters and prudential limits established by the Boardor CRMC.

c) Establish systems and procedures relating to risk identification,Management Information System, monitoring of loan /


investment portfolio quality and early warning. The departmentwould work out remedial measure when deficiencies/problemsare identified.

d) The Department should undertake portfolio evaluations andconduct comprehensive studies on the environment to testthe resilience of the loan portfolio.

Notwithstanding the need for a separate or independent oversight,the front office or loan origination function should be cognizant ofcredit risk, and maintain high level of credit discipline and standardsin pursuit of business opportunities.Credit OriginationBanks must operate within a sound and well-defined criteria fornew credits as well as the expansion of existing credits. Creditsshould be extended within the target markets and lending strategyof the institution. Before allowing a credit facility, the bank mustmake an assessment of risk profile of the customer/transaction.This may includea) Credit assessment of the borrower’s industry, and macro

economic factors.b) The purpose of credit and source of repayment.c) The track record / repayment history of borrower.d) Assess/evaluate the repayment capacity of the borrower.e) The Proposed terms and conditions and covenants.f) Adequacy and enforceability of collaterals.g) Approval from appropriate authorityIn case of new relationships consideration should be given to theintegrity and repute of the borrowers or counter party as well as itslegal capacity to assume the liability. Prior to entering into anynew credit relationship the banks must become familiar with the

ACAE CHARTERED ACCOUNTANTSSTUDY CIRCLE - EIRCThe Study Circle organised a Seminar onSurvey under the Income Tax Act - Impor-tant Issues on 27th April 2012 from 5pm atACAE - Emami Conference Hall, KolkataASOCAS CHARTERED ACCOUNTANTSSTUDY CIRCLE - EIRCThe Study Circle organised a Seminar onBank Audit and Union Budget 2012 on 24thMarch 2012 from 3pm to 7pm at YMCA,Chowringhee. The speakers were CA.Somabrata Dutta and CA. SanjayBhattacharyyaDTPA CHARTERED ACCOUNTANTSSTUDY CIRCLE - EIRCThe Study Circle organised a Seminar onService Tax Construction Services on 12thMarch 2012 at 3, Govt. Place (West), IncomeTax Building, KolkataThe Study Circle organised a Seminar onLive Union Budget / Finance Bill - 2012 on16th March 2012 at 3, Govt. Place (West),Income Tax Building, KolkataThe Study Circle organised a Seminar onHow to Practice Time Management on 25th

STUDY CIRCLE, CHAPTER AND STUDY GROUP PROGRAMMES IN RETROSPECT - EIRCApril 2012 at 3, Govt. Place (West), IncomeTax Building, KolkataThe Study Circle organised a Seminar onTaxation Issues of HUF on 30th April 2012at 3, Govt. Place (West), Income Tax Build-ing, KolkataNAGAON CHARTERED ACCOUNTANTSCPE STUDY GROUP - EIRCThe Study Group participated in a Telecon-ference on Accounting Standards on 25thApril 2012The Study Group participated in a Telecon-ference on Taxation Issues in DevelopmentAgreements on 10th May 2012SALT LAKE CHARTERED ACCOUN-TANTS STUDY CIRCLE - EIRCThe Study Circle organised a Seminar onBank Audit & Discussion on Finance Bill,2012 on 25th March 2012SHILLONG CHARTERED ACCOUN-TANTS CPE STUDY GROUP - EIRCThe Study Group participated in a Telecon-

ference on Auditing Standards on 25th April2012VIEWS CHARTERED ACCOUNTANTSSTUDY CIRCLE - EIRCThe Study Circle organised a Seminar onRevised Schedule VI on 25th April 2012 from4pm at Merchants' Chamber of Commerce.The speaker was CA. Debasish MitraThe Study Circle organised a Seminar onUnion Budget 2012 on 19th March 2012 from4pm at Vidya Mandir. The speakers wereCA. N K Poddar, CA. S S Gupta, CA. ArunAgarwal and CA. Dipankar ChatterjiThe Study Circle organised a Seminar onSoft Skills - Stress Management on 5th May2012 from 6pm. The speaker was Ms. MeeraKumariVIP ROAD CHARTERED ACCOUNTANTSSTUDY CIRCLE - EIRCThe Study Circle organised a Seminar onRevised Schedule VI on 30th April 2012 atInternational Club, Kolkata

borrower or counter party and be confident that they are dealingwith individual or organization of sound repute and creditworthiness. However, a bank must not grant credit simply on thebasis of the factthat the borrower is perceived to be highly reputable i.e. namelending should be discouraged.While structuring credit facilities institutions should appraise theamount and timing of the cash flows as well as the financialposition of the borrower and intended purpose of the funds. It isutmost important that due consideration should be given to therisk reward trade –off in granting a credit facility and credit shouldbe priced to cover all embedded costs. Relevant terms andconditions should be laid down to protect the institution’s interest.Institutions have to make sure that the credit is used for thepurpose it was borrowed. Where the obligor has utilized fundsfor purposes not shown in the original proposal, institutions shouldtake steps to determine the implications on creditworthiness. Incase of corporate loans where borrower own group of companiessuch diligence becomes more important. Institutions shouldclassify such connected companies and conduct creditassessment on consolidated/group basis.In loan syndication, generally most of the credit assessment andanalysis is done by the lead institution. While such information isimportant, institutions should not over rely on that. All syndicateparticipants should perform their own independent analysis andreview of syndicate terms.Institution should not over rely on collaterals / covenant. Althoughthe importance of collaterals held against loan is beyond anydoubt, yet these should be considered as a buffer providingprotection in case of default, primary focus should be on obligor’sdebt servicing ability and reputation in the market.

21EIRC Newsletter | May 2012 Volume 38 | Issue No. 421EIRC Newsletter | May 2012 Volume 38 | Issue No. 4

Critical Aspects of E-filing &TDS Return - 11th April 2012

(L:R) CA. Ranjeet Kumar Agarwal, Vice Chairman, EIRC, CA. LalitAgarwal, CA. Akash Mansinka

ERP - A Value enhancer to Business -20th April 2012

(L:R) CA. Ranjeet Kumar Agarwal, Vice Chairman, EIRC, Mr. PugalT, Associate Vice President, Tally Solutions Pvt. Ltd., CA. PrasunKumar Bhattacharyya, Chairman, EIRC

Transfer Pricing GAAR & OtherInternational Tax Matters - 3rd May 2012

Full Day Workshop on Service Tax - 28th April 2012

(L:R) CA. Sushil Kumar Goyal, Former Chairman, EIRC, CA.Himanshu Patel, CA. Milan Chakravarti, CA. Prasun KumarBhattacharyya, Chairman, EIRC

L to R: Mr S Karmakar, Jt. Convenor, Mr Bhagat Singh, President, ICAIEA, CA Atis Basu, DCO Head,CA Subodh Kr Agrawal, VicePresident, ICAI, CA Jaydeep Narendra Shah, President, ICAI, CA Prasun Kr Bhattacharyya, Chairman, EIRC, Mr Deepak Sharma,Secretary, ICAIEA, Ms Nandini Guha, Regional Secretary, EIRC Branch of ICAIEA

Release of the Souvenir of Employees Association. - L to R :CA Subodh Kr Agrawal, Vice President, ICAI, CA Jaydeep NarendraShah, President, ICAI, CA Prasun Kr Bhattacharyya, Chairman,EIRC

(L:R) CA. Rajarshi Dasgupta, CA. Krishanu Bhattacharyya, FormerChairman, EIRC, CA. Prasun Kumar Bhattacharyya, Chairman, EIRC

(L:R) CA. Sushil Kumar Goyal, Former Chairman, EIRC, CA. RajarshiDasgupta, CA. Pulak Kumar Saha, CA. Krishanu Bhattacharyya,Former Chairman, EIRC

L to R: CA. Sushil Kr. Goyal, Member, EIRCand CS Mamta Binani,

19th Social & Cultural Function of Employees Association, EIRC,ICAI – 21.04.12

(L:R) CA. Ranjeet Kumar Agarwal, Vice Chairman, EIRC, Mr. J KMittal, CA. Prasun Kumar Bhattacharyya, Chairman, EIRC, Mr. J PKhaitan

L to R: CS Mamta Binani, CA Krishanu Bhattacharyya, Member, EIRC, CA. Prasun Kr.Bhattacharyya, Chairman, EIRC

Seminar on Corporate Laws, LLP & XBRL on 12th May, 2012

L to R: CA. Ranjeet Kr. Agarwal, Vice-Chairman, EIRC, Mr Debashis Bandyopadhyay, Registrarof Companies, W.B, MCA, CA. Prasun Kr. Bhattacharyya, Chairman, EIRC and CA Vinod Kothari

Mr Debashis Bandyopadhyay, Registrar ofCompanies, W.B, MCA

L to R: CA. Subhash Chandra Saraf, Secretary, EIRC, CA. Prasun Kr.Bhattacharyya, Chairman, EIRC and CA Debashis Mitra, Former Chairman, EIRC

Seminar on NBFC Audit on 10th May,12

L to R: Mr R.B.Kumar, AGM, RBI, CA Mohit Bhuteria and CA. SushilKr. Goyal, Member, EIRC

22EIRC Newsletter | May 2012 Volume 38 | Issue No. 422EIRC Newsletter | May 2012 Volume 38 | Issue No. 4

Orientation programme of the Branches of EIRC,ICAI at HHI - 9.05.12

Student meet with President and Vicepresident of ICAI

L to R: CA. Ranjeet Kr. Agarwal, Vice-Chairman, EIRC &Chairman, EICASA,CA. Subodh, Kumar Agrawal, Vice -President,ICAI, CA Jaydeep Narendra Shah, President, ICAI, CA.Prasun Kr. Bhattacharyya, Chairman, EIRC & Mr Vijay Kapur,Director, BOS, ICAI

L to R: CA. Sushil Kr. Goyal, Member, EIRC, CA. Sumantra Guha & CA Abhijit Bandyopadhyay, both Council Members, ICAI, CA. Subodh KumarAgrawal, Vice -President, ICAI, CA Jaydeep Narendra Shah, President, ICAI, CA. Prasun Kr. Bhattacharyya, Chairman, EIRC, CA. Ranjeet Kr.Agarwal, Vice-Chairman, EIRC, CA. Subhash Chandra Saraf, Secretary, EIRC & CA. Pramod Dayal Rungta, Treasurer, EIRC, ICAI.

Group photo of CA Jaydeep Narendra Shah, President,ICAI & CA. Subodh Kumar Agrawal, Vice –President, ICAI, with RegionalCouncil Members and EIRC Branch Managing Committee Members

Press Meet - L to R: CA. Subodh Kumar Agrawal, Vice President, ICAI, CA JaydeepNarendra Shah, President,ICAI, CA. Prasun Kr. Bhattacharyya, Chairman,EIRC,CA. Ranjeet Kr. Agarwal, Vice-Chairman, EIRC, CA. Subhash Chandra Saraf,Secretary, EIRC & CA. Pramod Dayal Rungta, Treasurer, EIRC, ICAI.

CA Vikas Kr Jain, Secretary & CA NaveenGarg, Chairman of Guwahati Branch

CA Vikas Kr Jain, Chairman, CA Sumit Sarkar, Member,CA Santosh Kr Gupta, Member, CA Amit Kr Ram, ViceChairman of Durgapur Branch

L to R: CA Aditya Maheshwari, CA Rajesh Agarwal, Secretary,CA Sanjeev Agarwal, Chairman, CA Sanjay Goyal, Treasurer,of Siliguri Branch

CA Rakesh Kr Jain, Chairman,Rourkela Branch

L to R: CA Mahendra Kr Kedia, Member, CA HimanshuShekar Barpanda, Vice Chairman & CA Nabin Kr Lath,Chairman of Sambalpur Branch

CA Raj Kr Routray, Chairman, CA Bimal Kr Agarwalla,Treasurer, CA Rajesh Kr Agarwal, Vice Chairman & CASachin Udaypuria, Member of Cuttack Branch

CA Rajendra Kr Das, Chairman &CA Raja N Tripathy, Secretary ofBhubaneswar Branch

CA Debarata Banerjee, Chairman & CABamdeb Biswas, Secretary of AsansolBranch

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