first page sub regional - nirc@icai m.pdf · the icai through this souvenir cum background material...

Name

Membership Number

Background Material

Sub Regional Conference

of NIRC of ICAI

(Haryana State)

16th

May 2015

Ch. Ranbir Singh Auditorium, Conference Hall,

Guru Jambheshwar University, Hisar.

Organised by

Northern India Regional Council of

The Institute of Chartered Accountants of India

Hosted by

Hisar Branch & Sirsa Branch of NIRC of ICAI

From the Desk of Chairman, NIRC of ICAI

Dear Professional Colleagues, At the outset I would like to welcome all the participants of today’s Sub Regional Conference of NIRC which is hosted by Hisar and Sirsa Branch of NIRC. The dynamic scenario essentially demands that the professionals at the helm of finance function of the corporations and other segments of the economy bring themselves in line with the need of the hour by upgrading knowledge and skills to match the societal expectations. The background of a Chartered Accountant is the most ripe to unlearn the past and learn the contemporary with ease and speed. Deep knowledge of business, its operational jugglery and implication of minutest of the managerial decisions came natural to a Chartered Accountant. Hence there was a growing need to equip members of the Institute of Chartered Accountants of India to enable them in discharging these onerous duties. I understand that Branches are the backbone of our Regional Council and play a very significant and important role in the activities of the esteemed Institute and Profession and in the overall interest of the Members and Students of the Institute who are in far flung areas. Infact Branches are arms and lengths of NIRC. So the undersigned is strongly in view of that, organizing this Sub Regional Conference at Hisar which is jointly hosted by Hisar and Sirsa Branches of NIRC of ICAI on the subjects viz: GST, Companies Act and Income Tax would be an apt one to equip our fellow members with the unique wisdom and knowledge which would go a long way in not only dealing with various issues with great expertise but also impart the knowledge to all concerned. I welcome you all in this Mega Joint Sub Regional Conference of NIRC. We at NIRC always look forward to organize maximum number of qualitative programs on contemporary and emerging topics. Conferences, Seminars and similar programmes also conducted to facilitate Continuous Professional Education and to offer a platform for interaction among members to share and benefit from diverse experiences and vision. I extend my sincere gratitude for the precious time spent and tremendous efforts put in by all eminent Speakers CA. Atul Kumar Gupta ji, Central Council Member, ICAI, CA. Kapil Goel ji and CA. Kamal Garg ji for their whole-hearted Cooperation in bringing out this Background Material and making this Conference a Grand Success. I believe that this Background Material will surely find a suitable place in the library which would be used as a Guide & reference. I, on behalf of myself and on behalf of Office Bearers and Members of NIRC, place on record our grateful thanks for the assistance extended by CA. Anoop Goel, Chairman of Hisar branch and CA. Rajinder Aggarwal, Chairman of Sirsa Branch and their entire Team without their help and cooperation, this Sub Regional Conference could not be held today at Hisar. Warm Regards & Best of Luck. (CA. Raj Chawla) Chairman, NIRC of the ICAI

Dear Professional Colleagues,

The Northern India Regional Council of the Institute of Chartered Accountants of India is immensely delighted to take this privilege to organize its Sub Regional Conference today at Hisar which is hosted by Hisar and Sirsa Branches of NIRC of ICAI.

It gives me immense satisfaction while writing this message as the Chairman of Branch Coordination Committee of NIRC of ICAI for the year 2015-16. It has been a unique privilege bestowed upon the Team NIRC which entails to organize its Sub Regional Conference today at Hisar. The objective of this Sub Regional Conference is to discuss the forthcoming essential Changes in various laws like Companies law, Income tax Act and GST. The panelists are extremely knowledgeable and experienced persons whose presentations will be add value to the deliberations of this Sub Regional Conference.

The Guest Speakers have spent their precious time to compile the data. I appreciate and compliment them for the brilliant effort. I want to personally offer my heartiest gratitude to all the Faculty and Guest Speakers of the Conference for sparing their precious time and acceding to our request to deliberate and share their views in the Conference.

I, on behalf of myself and on behalf of TEAM NIRC place on record our grateful thanks for the assistance extended by Chairman of Hisar & Sirsa branches and their entire Team for their Cooperation in organizing this Sub Regional Conference at Hisar.

CA. Rajinder Narang Chairman of Branch Co-ordination Committee of NIRC of ICAI

__________________________________________________________________________


I am extremely delighted and feel proud that Hisar and Sirsa branches of NIRC are jointly hosting this Sub Regional Conference at Hisar.

Dear Friends, This conference will help the members in updating themselves. Topics of the conference are of immediate importance I take this opportunity to congratulate the organizers for choosing the topics that will update the knowledge and skill of our members. The Guest Speakers CA. Atul Kumar Gupta ji, Central Council Member, ICAI, CA. Kapil Goel ji, and CA. Kamal Garg ji are eminent speakers having vide knowledge in their respective areas and I am sure that their deliberations & presentations will add the value to this Sub Regional Conference and to the members of this area. The guest Speakers have spent their precious time and give valuable inputs in preparation of this background material. We acknowledge the efforts of our guest speakers

I, On behalf of both the Branches and Regional Council thank all the speakers for accepting our invitation and sparing their valuable time and efforts for this conference.

I extend my sincere gratitude and thanks to all the Chairmen and other Executive Committee Members of the branches for organizing this Sub Regional Conference at Hisar.

I wish this conference for a grand success, May god bless us all.

CA. Deepak Garg Vice Chairman of Branch Coordination Committee of NIRC of ICAI


Hisar Branch has the privilege of Hosting the Sub Regional Conference of Northern India Regional Council of ICAI, New Delhi. This is the First Sub Regional Conference of NIRC of ICAI in Hisar this year and we have tried to cover topics of immediate importance for the members of this area in Practice or in Employment

It has always been an Endeavour of our profession to equip our members with latest knowledge and update so as to enable them to carry out the assigned responsibilities with excellence. In the era of globalization, deregulation, increasing complexity of business, maturity of IT systems and increasing expectations from stake holders, role of CAs in facilitating these changes occupied centre stage attention. The topics covered in this Sub Regional Conference include GST, Companies Act, 2013 and Income Tax Act. All Guest speakers are eminent Professionals in their respective areas of practice having good Practical experience.

This Background material has been published for the benefit of the members which will help them to use the same as a tool for refreshing their knowledge and skill and will be useful in the daily professional life of each of the member. This background material would have not been possible without the effort of CA Raj Chawla ji, Chairman of NIRC of ICAI and his entire team especially CA Rajinder Narang, Chairman Branch Coordination Committee of NIRC of ICAI. I am thankful to them for working for the cause of members of this region.

CA. Anoop Goel Chairman, Hisar Branch NIRC of ICAI

_______________________________________________________


It is indeed proud privilege for me to communicate to the worthy Members of the Sirsa Branch of NIRC of

the ICAI through this souvenir cum Background Material which is due to be released at Sub- Regional Conference of NIRC to be held on 16th May 2015. The topic for Sub- Regional conference are GST, The Companies Act 2013 and Income Tax Act and other related issues.

As business in India has expanded vastly due to the process of liberalization and globalization. While the Indian corporate are growing at a rapid rate, India has become the hub of manufacturing, servicing and outsourcing activities for the multinational corporations.

These changes have resulted in vast responsibilities on the professionals. Thus, it has become very important for us to always remain abreast with the fast changing developments taking place. The Sub-Regional Conference is a good platform for the members to share their knowledge and update themselves with the latest changes.

I extent my sincere gratitude for the precious time devoted by all the worthy Faculty Speakers of the Conference and above all the Team NIRC and also the Senior Members for making their presence in this Sub-Regional Conference of NIRC today at Hisar..

CA Rajinder Aggarwal Chairman, Sirsa Branch of NIRC of ICAI

Goods and ServiceGoods and Service Tax (GST)

CA Atul Kumar GuptaEmail: [email protected] , [email protected]: 098101036111 Mobile: 09810103611

Present and Proposed Scheme of Indirect Taxation GST –Benefits and Challenges Challenges in GST – Lesson from Present System

2

PresentationPresentation PPlanlan

C a e ges GS esso o ese t Syste Road to GST - Milestones Industry’ Expectations from GST Features of Proposed GST Illustration to Showcase Tax Benefit under GST Features of Constitution Amendment Bill IGST Model Features of Place of Supply Rules International Perspective in GST GST Planning

Present Tax Structure[5 Important Constituents]3

Present Indirect Tax Structure of IndiaPresent Indirect Tax Structure of India

Excise DutyEntry No. 84, List I, Schedule VII

Service TaxResiduary Entry No. 97, List I, Schedule VII

Sales Tax / VAT/ CSTEntry No. 54 of List II (VAT) and 92A of List I (CST)

Customs DutyEntry No. 83, List I, Schedule VII

Entry Tax/ Entertainment TaxEntry No. 52 &62 List II, Schedule VII

Taxable Event is Manufacture Taxable Event is Provision of Service( )

Taxable Event is Sale Taxable Event is Import & Export Taxable Event is Entertainment & Entry of Goods

Intra State Taxable

Excise and Service Tax

will be known

Local VAT & Other taxes

will be known

4

Proposed Proposed Indirect Tax StructureIndirect Tax Structure

Supplywill be known

as CGSTwill be known

as SGST

Inter State Taxable Supply

CST will be replaced by Integrated GST (IGST)

Approx. Sum Total of CGST

and SGST

Import From Outside

IndiaCustom Duty

In Place of CVD and

SAD, IGST will be charged

• Reduction in multiplicity of taxes.Mitigatio of cascadi g/ do ble ta atio5

Benefits to AssesseeBenefits to Assessee

• Mitigation of cascading/ double taxation.• More efficient neutralization of taxes especially for exports.• Development of common national market.• Simpler tax regime -

Fewer rates and exemptions. Conceptual clarity (Goods vs. Services).

6

Benefits to Exchequer/Govt.Benefits to Exchequer/Govt.

Simpler Tax system. Broadening of Tax base. Improved compliance & revenue collections (tax booster). Efficient use of resources.

Legacy issues which will use resources Non Harmonization of Tax rates

7

Challenges Challenges in GSTin GST-- Lesson from Present Lesson from Present SystemSystem

Lack of automation Lack of Procedural Manuals Lack of Skilled officials Double Registration- Handling old Registration Poor Quality of tax Returns No System for 100% Scrutiny of Tax Returns and Tax AuditNo System for 100% Scrutiny of Tax Returns and Tax Audit Lack of Cross Verifications with other tax administrations Lack of mechanism to control Evasion Impact on Prices

Low compliance cost Simple business processes

8

IndustryIndustry’ Expectations from ’ Expectations from GSTGST

Simple business processes Less requirement of automation initially Minimal ITC refund cases Exemptions instead of exclusions from GST Seamless flow of input credit Seamless flow of information between, supplier, buyer and tax administration Need for IT portal or agency like TINXSYS, NSDL

Automation of process by way of e-registrations, e-returns, e-payment No requirement of verifications during inter state movement of Goods9

IndustryIndustry’ Expectations from ’ Expectations from GSTGST

No requirement of verifications during inter state movement of Goods Zero rating of supplies to exporters Administrative efficiency in case of assessment and adjudication Ease of compliance Self-policing

Features of Proposed GST

Destination based Taxation Apply to all stages of the value chain

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pp y g Apply to all taxable supplies of goods or services (as against manufacture, sale or provision ofservice) made for a consideration except –

o Exempted goods or services – common list for CGST & SGSTo Goods or services outside the purview of GSTo Transactions below threshold limitsD l GST h i t t t Dual GST having two concurrent components –o Central GST levied and collected by the Centreo State GST levied and collected by the States

Features of Proposed GST contd.

CGST and SGST on intra-State supplies of goods or services in India.11

IGST (Integrated GST) on inter-State supplies of goods or services in India – levied and collectedby the Centre. IGST applicable to

o Import of goods and serviceso Inter-state stock transfers of goods and servicesg

Export of goods and services – Zero rated. Additional Tax of 1% on Inter State Taxable supply of Goods by State of Origin and nonCENVATABLE


All goods or services likely to be covered under GST except :12

g y po Alcohol for human consumption - State Excise plus VATo Electricity - Electricity Dutyo Real Estate - Stamp Duty plus Property Taxeso Petroleum Products (to be brought under GST from date to be notified onrecommendation of GST Council)T b P d t d GST ith C t l E i d t Tobacco Products under GST with Central Excise duty.

Features of Proposed GST contd.13

Central Taxes to Subsumed State Taxes to subsumed

Taxes to be subsumed Central Excise duty

(CENVAT) Additional duties of excise Excise duty levied under

Medicinal & ToiletriesPreparation ActAdditi l d ti f

State VAT / Sales Tax Central Sales Tax Purchase Tax Entertainment Tax (not

levied by the localbodies)L T Additional duties of

customs (CVD & SAD) Service Tax Surcharges & Cess

Luxury Tax Entry Tax ( All forms) Taxes on lottery, betting &

gambling Surcharges & Cess


GST Rates – to be based on RNR – Four rates Merit rate for essential goods and services St d d t f d d i i l14

Standard rate for goods and services in general Special rate for precious metals NIL rate

Floor rate with a small band of rates for standard rated goods or services for SGST This is similar to mandatory guidelines which will be issued by GST Council in line withEuropean Directive 12/2006p /

Optional Threshold exemption in both components of GST. Optional Compounding scheme for taxpayers having taxable turnover up to a certainthreshold above the exemption. HSN Code likely to be used for classification of goods. Present Accounting codes likely to be used for Services.

Present Scenario (Intra-State Trade of Goods)

State Tax = 13.31( 11 + 1.10 + 1.21)

VAT = 11VAT = 12.10ITC = ( 11)

1.10

VAT = 13.31ITC = ( 12.10)

1.21

Input ManufacturerInput Manufacturer Output ManufacturerOutput Manufacturer DealerDealer ConsumerConsumer

Excise = 10Excise = 11ITC = (10)

1Central Tax = 11

15

Tax Invoice (A)Value = 100Excise = 10VAT = 11

121

Tax Invoice (B)Cost = 100Value = 110Excise = 11VAT = 12.10

133.10

Tax Invoice (C)Cost = 121Value = 133.10VAT = 13.31

146.41

( 10 + 1)

GST Scenario (Intra-State Trade of Goods)

State Tax = 12.10( 10 + 1 + 1.10)

SGST = 10SGST = 11ITC = ( 10)

1

SGST = 12.10ITC = ( 11)

1.10


CGST = 10CGST = 11ITC = (10)

1Central Tax = 12.10

CGST = 12.10ITC = (11)

1.10

16

Tax Invoice (A)Value = 100CGST = 10SGST = 10

120

Tax Invoice (B)Cost = 100Value = 110CGST = 11SGST = 11

132

Tax Invoice (C)Cost = 110Value = 121CGST = 12.10SGST = 12.10

145.20

( 10 + 1 + 1.10)

Present Scenario (Inter-State Trade of Goods)

State Tax (Y) = 16.91( 13.91 + 3)

VAT = 11CST = 2.42ITC = ( 2.42)

0VAT = 13.91

Entry Tax = 3

State Tax (X) = 11 - Refund Claim

Excise = 10Excise = 11ITC = (10)

1Central Tax = 11


17

Tax Invoice (A)Value = 100Excise = 10VAT = 11

121

Tax Invoice (B)Cost = 100Value = 110Excise = 11CST = 2.42

123.42

Tax Invoice (C)Cost = 126.42Value = 139.06VAT = 13.91

152.97

( 10 + 1)

GST Scenario (Inter-State Trade of Goods)

State Tax (Y) = 12.22( 2.44 + 9.78**)

SGST = 10SGST = 12.22ITC = ( 9.78)

2.44

Add. Tax = 1.10

State Tax (X) = 1.10( 10 - 10* + 1.10)

CGST = 10

IGST = 22CGST = (10)SGST = (10)

2 Central Tax = 12.22


CGST = 12.22IGST = (12.22)

0

18


120

Tax Invoice (B)Cost = 100Value = 110IGST(20%) = 22Add. Tax = 1.10

133.10

Tax Invoice (C)Cost = 111.10Value = 122.21CGST = 12.22SGST = 12.22

146.55

( 10 + 2 + 10* - 9.78**)

Comparison (Trade of Goods)

Sr. No. Particular Intra-State Inter-State

Present GST Present GST

1. Initial Value 121.00 120.00 121.00 120.00

2. Centre’s Tax 11.00 12.10 11.00 12.22

3. State (X)’s Tax 13.31 12.10 11.00 1.10

4. State (Y)’s Tax - - 16.91 12.22

5. State’s Total 13.31 12.10 27.91 13.32

6. Total Tax paid to Govt. 24.31 24.20 38.91 –Refund

25.54

19

Claim7. Non-Vatable Tax borne by

Business11.00 0.00 25.00 1.10

8. Final value paid by Consumer 146.41 145.20 152.97 146.65

Present Scenario (Intra-State Trade of Service)

Input Service ProviderInput Service Provider Output Service ProviderOutput Service Provider ConsumerConsumer

Service Tax = 10Service Tax = 11ITC = (10)

1Central Tax = 11

( 10 + 1)

20

Tax Invoice (A)

Value = 100Service Tax = 10

= 110

Tax Invoice (B)

Cost = 100Value = 110Service Tax = 11

121

GST Scenario (Intra-State Trade of Service)

State Tax = 11( 10 + 1)

SGST = 10SGST = 11ITC = ( 10)

1

Input Service ProviderInput Service Provider Output Service ProviderOutput Service Provider ConsumerConsumer

CGST = 10CGST = 11ITC = (10)

1Central Tax = 11

( 10 + 1)

21

Tax Invoice (A)

Value = 100CGST = 10SGST = 10

120

Tax Invoice (B)

Cost = 100Value = 110CGST = 11SGST = 11

132

Present Scenario (Inter-State Trade of Service)

State Tax (Y) = 0State Tax (X) = 0

Service Tax = 10Service Tax = 11

ITC = (10)1

Central Tax = 12.10

Input Service ProviderInput Service Provider Output Service ProviderOutput Service Provider AgentAgent ConsumerConsumer

Service Tax = 12.10ITC = (11)

1.10

22

Tax Invoice (A)Value = 100Service Tax = 10

110

Tax Invoice (B)Cost = 100Value = 110Service Tax = 11

121

Tax Invoice (C)Cost = 110Value = 121Service Tax = 12.10

133.10

( 10 + 1 + 1.10)

GST Scenario (Inter-State Trade of Service)

State Tax (Y) = 12.10( 2.20 + 9.90**)

SGST = 10SGST = 12.10ITC = ( 9.90)

2.20

State Tax (X) = 0( 10 - 10*)

CGST = 10

IGST = 22CGST = (10)SGST = (10)

2 Central Tax = 12.10

Input Service ProviderInput Service Provider Output Service ProviderOutput Service Provider AgentAgent ConsumerConsumer

CGST = 12.10IGST = (12.10)

0

23


120

Tax Invoice (B)Cost = 100Value = 110IGST(20%) = 22

132

Tax Invoice (C)Cost = 110Value = 121CGST = 12.10SGST = 12.10

145.20

( 10 + 2 + 10* - 9.90**)

Comparison (Trade of Service)

Sr. No. Particular Intra-State Inter-State

Present GST Present GST1. Initial Value 110.00 120.00 110.00 120.00

2. Centre’s Tax 11.00 11.00 12.10 12.10

3. State (X)’s Tax 0.00 11.00 0.00 0.00

4. State (Y)’s Tax - - 0.00 12.10

5. State’s Total 0.00 11.00 0.00 12.10

6. Total Tax paid to Govt. 11.00 22.00 12.10 24.20

7 Non Vatable Tax borne by 0 00 0 00 0 00 0 00

24

7. Non-Vatable Tax borne by Business

0.00 0.00 0.00 0.00

8. Final value paid by Consumer 121.00 132.00 133.10 145.20

Road to GST- Milestones 2006, announcement of the intent to introduce GST by 01.04.2010 November 2009 First Discussion Paper (FDP) released by EC on which Comments25

November 2009 – First Discussion Paper (FDP) released by EC on which Comments were provided by Government of India. June 2010- Three sub-working Groups constituted by Government of India on: Business Process related issues. Drafting of Central GST and model State GST legislations. Basic design of IT systems required for GST in general and IGST in particular.

Road TO GST- Milestones contd.

March 2011 - Constitution (115th Amendment) Bill introduced in Parliament26

November 2012 – Committee on GST Design constituted by EC February 2013 - Three Committees constituted by EC

o Dual Control, Thresholds and Exemptions in GST regimeo RNRs for SGST & CGST and Place of Supply Ruleso IGST and GST on Imports

March 2013- GSTN Incorporated as Section 25 Company

Road TO GST- Milestones contd.

June 2013- Committee constituted by EC to draft model GST Law27

August 2013- Standing Committee on Finance submitted Report April 2014- Committee constituted by EC to examine business processes under GST December 2014- 122nd Constitutional Amendment bill introduced in Parliament

Features of Constitutional Amendment Bill

• 122nd Amendment Bill introduced in LS on 19.12.2014• Key Features

28

Key Featureso Concurrent jurisdiction for levy of GST by the Centre and the States –proposed Article246Ao Authority for Centre to levy & collection of IGST on supplies in the course of inter-Statetrade or commerce including imports – proposed Article 269Ao Authority for Centre to levy non-vatable Additional Tax – to be retained by originatingStateo GST defined as any tax on supply of goods or services or both other than on alcohol forhuman consumption – proposed Article 366(12A)

Features of Constitutional Amendment Bill contd.

Key Features contd.o Goods includes all materials, commodities & articles – Article 366 (12)o Services means anything other than goods – proposed Article 366 (26A)

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o Services means anything other than goods proposed Article 366 (26A)o Goods and Services Tax Council (GSTC) - proposed Article 279A

To be constituted by the President within 60 days from the coming into force of theConstitutional Amendments Consists of Union FM & Union MOS (Rev) Consists of all State Ministers of Finance Quorum is 50% of total members Decisions by majority of 75% of weighted votes of members present & voting 1/3rd weighted votes for Centre & 2/3rd for all States together

Features of Constitutional Amendment Bill contd.

Key Features contd. Council to make recommendations on

Taxes, etc. to be subsumed in GST30

Taxes, etc. to be subsumed in GST Exemptions & thresholds GST rates Band of GST rates Model GST Law & procedures Special provisions for special category States Date from which GST would be levied on petroleum products

Council to determine the procedure in performance of its functions Council to determine the procedure in performance of its functions Council to decide modalities for dispute resolution arising out of its recommendations

o Changes in entries in List – I & IIo Compensation for loss of revenue to States for five years

Integrated Goods and Service Tax (IGST)

Basic Fundamental to discuss in IGST:o GST in India envisaged on destination/consumption principleo GST in India envisaged on destination/consumption principle.o Place of supply to determine the place where the supply of goods/services will take placeand to determine whether supplies are inter state or intra state.o In sub-national taxation, determining the place of supply is important as tax revenueaccrues to the State where the supply occur or deemed to occur.o IGST model envisage levy of IGST by the Centre on all transactions during inter statetaxable supplies.

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o Tax revenues accrues to the destination/importing State based on Place of Supply Rules.

Integrated Goods and Service Tax (IGST) contd.

IGST model permits cross-utilization of credit of IGST, CGST & SGST for paying IGST unlikeintra State supply where the CGST/SGST credit can be utilized only for paying CGST/SGSTintra-State supply where the CGST/SGST credit can be utilized only for paying CGST/SGSTrespectively. IGST credit can be utilized for payment of IGST, CGST and SGST in sequence by Importingdealer for supplies made by him. IGST Model envisages that the Centre will levy tax at a rate approximately equal toCGST+SGST rate on inter-State supply of goods & services. It would basically meet the objective of providing seamless credit chain to taxpayer

32

located across States.

Integrated Goods and Service Tax (IGST) contd.

IGST model obviates the need for refunds to exporting dealers as well as the need for IGST model obviates the need for refunds to exporting dealers as well as the need forevery State to settle account with every other State The Exporting State will transfer to the Centre the credit of SGST used for payment of IGST The Centre will transfer to the importing State the credit of IGST used for payment of SGST Thus Central Government will act as a clearing house and transfer the funds across theStates

33

Illustration for IGST Model

Mr. A (based in Maharashtra) supplied Goods to Mr. B (based in Gujarat) and paid 17%IGST. Mr. A has Input credit of CGST 8% and SGST 8% from local Purchases. So he paid onlyIGST. Mr. A has Input credit of CGST 8% and SGST 8% from local Purchases. So he paid only1% to Central Government Account i.e. in IGST code of that product. Maharashtra willtransfer to Centre 8% SGST used for payment of IGST. Mr. B (based in Gujarat) who had purchased those goods supplied the same locally to Mr. C(based in Gujarat) and liable to SGST 10% and CGST 8%. He will utilize Credit of IGST of17% first for CGST (8%) and balance for SGST (9%) and will pay 1% in cash. GujaratGovernment where goods are consumed is entitled to get destination based tax i.e. SGST.Centre will transfer 9% IGST Credit used for payment of SGST to Gujarat In this example

34

Centre will transfer 9% IGST Credit used for payment of SGST to Gujarat. In this example,few important points may be noted:

Illustration for IGST Model

• Maharashtra Government in this transaction will not get any tax since it is inter statel f M h h G jsupply from Maharashtra to Gujarat• Gujarat Government will get 10% SGST for Import of Goods (9% from central Governmentand 1 % paid as cash by Mr. B)• Central Government will get 9% IGST on inter-state supply of goods to Gujarat (8% fromMaharashtra Government and 1% paid as Cash by Mr. A)• Important to note is that while Central Government got 9% as tax, at the same time Mr. B(based in Gujarat) has been allowed full credit of IGST paid by Mr. A (based in

35

(based Guja at) as bee a owed u c ed t o GS pa d by (basedMaharashtra)

For Taxpayers

36ADVANTAGES OF IGST MODELADVANTAGES OF IGST MODEL

For Taxpayers Maintenance of uninterrupted ITC chain on inter-State transactions for

dealers located across States

No refund claim for suppliers in exporting State, as ITC is used up while paying the Tax

No substantial blockage of funds for the inter- State supplier or buyer

No cascading as full ITC of IGST paid by supplier allowed to buyer g p y pp y

Model handles ‘Business to Business’ as well as ‘Business to Consumer’ transactions

ADVANTAGES OF IGST MODEL

For Tax Administrations

37

For Tax Administrations Upfront tax payments by suppliers in exporting State

No refund claims on account of inter-state supplies

Tax gets transferred to Importing State in accordance with Destination principle

Self monitoring model

Result in improved compliance levels Result in improved compliance levels

Effective fund settlement mechanism between the Centre and the States

Key Enablers for IGST

Uniform e-RegistrationUniform e Registration Common e-Return for CGST, SGST & IGST Common periodicity of Returns for a class of dealers Uniform cut-off date for filing of Returns System based validations/consistency checks on the ITC availed, tax refunds Effective fund settlement mechanism between the Centre and the States

38

Role of Dealers in GST Framework

Every dealer has to submit one single GST return consisting information about allEvery dealer has to submit one single GST return consisting information about allhis purchases/sales at Invoice level along with line item. Accordingly necessary records, registers are to be maintained and consolidationfor return will require automation and standard procedures.

39

Role of Central/State Government in GST framework

Central Government to act as clearing house for accounts settlement across States. Handling disputes between states over jurisdictional and enforcement issues. Develop and maintain GSTN with best of facilities for uninterrupted flow of credit, lesslitigation and facility to register, file return and in future inbuilt other features likerefund, scrutiny of returns. Draft model Legislation for CGST, IGST and SGST which will act as a Boundary wall,binding in nature both on Centre and States to legislate their respective GST Acts. Affix rate of SGST, within the parameters of band recommended by GST council.

40

Formulate mechanism for reconciliation of tax payments. Develop systems for scrutiny of returns and record of assesses for GST. Establish dispute resolution mechanism for issues relating to levy of GST.

Salient features of Proposed Place of Supply Rules

Place of Supply Rules should be framed keeping in view the following principles:o Rules for B2B Supplies and B2C supplies should be different.o Place of supply for B2B supplies should normally be the location of recipient of goods orservices and not where services is actually performed.

o This is required to maintain smooth flow of credit. To illustrate, Mr. A (located inRajasthan) participates in exhibition organized by Mr. B (located in Delhi).Normally place of supply will be Delhi and Mr. A located in Rajasthan will not be

41

eligible for input tax credit.

Salient features of Proposed Place of Supply Rules contd.

Rules for B2B supplies should be such so that input tax credit should be available torecipient. Place of Supply Rules should be guided by the principles that tax revenue atintermediate stage does not accrue to any tax administration as they are merely washtransactions. Place of Supply Rules should be guided by the principles that tax revenue accrues onlywhen the goods/services are consumed by the final consumer. Place of Supply Rules should take care of the situation where intangibles are ordered

42

from locations other than the locations where they are consumed.

Way Forward for Introduction of GST

AMENDMENT BILL TO BE PASSEDo Procedure for passage of Constitutional Amendment Bill To be passed by 2/3rd majority in both Houses of Parliament To be ratified by at least 50% of the State Legislatures Assent by President of India

Thereafter, GSTC to be constituted GSTC to recommend GST Law and procedure

43

GST Law to be introduced in Parliament/ State legislatures GSTN (GST Network) a Section 25 Company formed to design automation of GST inline with TINXYS/NSDL

Key Questions before introduction of GST

Key Design issues under Discussion – Extent of Dual Control Rate structure (based on RNR)ate st uctu e (based o N ) Exempted Goods or Services Exemption threshold Composition threshold Exclusion Vs. Zero rating of certain goods in GST regime Role of Centre / States in inter-State Trade

44

Role of Centre / States in inter-State Trade Place of Supply Rules for Goods and Services Mechanics of IGST model Account settlement between the Centre and the States under IGST model

Key Questions before introduction of GST

Key Business processes under Discussion – Multiple registration within one State Dispute settlement over taxable and enforcement jurisdiction Audit, enforcement, recovery etc.

45

Revenue Neutral Rates (RNR)

Rate which will give at-least the same level of revenue, which the Centre andStates are presently earning from Indirect taxes. How to achieve this rate -- require analysis of GDP, ConsumerConsumptions, exclusion and desired level of collection of Centre/state. We may derive the same by way of an illustration.

46

Illustration

Country A desires to collect Rs. 3000 Crores of revenue from Indirect Taxes. The totalC E di P h / i i R 30000 CConsumer Expenditure on Purchases/services is Rs. 30000 Crores. Now in case taxes are applicable on every product then a uniform rate of 10% willsuffice the collection. In case certain products say foods, petroleum, tobacco, electricity are excluded fromtax regime and the consumer expenditure on them is Rs. 10000 Crores, then to achievethe same level of taxes, rate need to be 15%.

47

Exclusion Vs. Zero Rated

Exclusion while immune a product/Services from levy of taxes on the other handdisallow the benefit of CENVAT/Input Credit of taxes paid which in turn inflate the cost/ p pof production/services. Buyer of these products/services while paying this additionalcost could not claim any benefit of taxes so paid and hidden in the cost. To illustrateElectricity company while paying 5% excise duty on coal has no option but to add thesame into cost of generation while claiming electricity charges from a builder who inturn may have claimed credit if such duty is charged as input taxes from him. Zero rated good on the other hand enable the producer/service provider to claim therefund of input taxes paid from department hence will not form part of cost of

48

refund of input taxes paid from department, hence will not form part of cost ofproduction/services.

International Perspective in GST

Rates and Policy issues of VAT Emerging Issues

o Bit Coins/Couponso B2Co Online Supply of Serviceso E Commerce Transactionso Dispute Settlement between States

49

o Dispute Settlement between Stateso Exclusionso RNR

Impact Areas for Businesses

Pricing, Costing, MarginsS l h i Supply-chain management Change in IT systems Treatment of tax incentives Treatment of excluded sectors Transaction issues

50

Tax compliance

Role of Professionals

Tracking GST development Review of draft legislation and impact analysisReview of draft legislation and impact analysis Industry Consultation for improvement in business process Review of final legislation and impact analysis Implementation assistance Post implementation support Tax Planning

51

Tax Planning Record Keeping Departmental Audit

RIGHTS AND DUTIES OF TAX PAYERS IN CURRENT PERSPECTIVE By CA. Kapil Goel, Advocate

A. Rights of Tax Payers

1. Right to fair hearing

(Refer Section 143(2) etc) It has now been well settled that the Income Tax Officer though not bound to rely on evidence produced by the Assessee as he considers to be false, yet if he proposes to make an estimate in disregard of that evidence he should in fairness disclose to the Assessee the material on which he is going to found that estimate; and that in case he proposes to use against the Assessee the result of any private inquiries made by him, he must communicate to the Assessee the substance of the information so proposed to be utilized to such an extent as to put the Assessee in possession of full particulars of the case he is expected to meet and that he should further give him an ample opportunity to meet it. The Income Tax Officer is not bound by any technical rules of the law of evidence. It is open to him to collect materials to facilitate assessment even by private enquiry. But if he desires to use the material so collected, the Assessee must be informed of the material and must be given an adequate opportunity to explain it and controvert the contents of it. (emphasis supplied) [See Dhakeshwari Cotton Mills Ltd. Vs. Commissioner of Income Tax (1954) 26 ITR 775 SC, C. Vasantlal and Co. Vs. Commissioner of Income Tax, Bombay City (1962) 45 ITR 206SC and Kishinchand Chellaram Vs. Commissioner of Income Tax, Bombay City (1980) 125 ITR 713 SC].

Tin Box Company vs Commissioner Of Income-Tax on 27 February, 2001 2001 249 ITR 216 SC Two questions were placed before the High Court, of which the second question is not pressed. The first question reads thus: "1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in not setting aside the assessment order in spite of a finding arrived at by it that the Income-tax Officer had not given a proper opportunity of hearing to the assessee?" 4. In our opinion, there can only be one answer to this question which is inherent in the question itself: in the negative and in favour of the assessee. The Income Tax Officer is not bound by any technical rules of the law of evidence. It is open to him to collect materials to facilitate assessment even by private enquiry. But if he desires to use the material so collected, the Assessee must be informed of the material and must be given an adequate opportunity to explain it and controvert the contents of it. (emphasis supplied) [See Dhakeshwari Cotton Mills Ltd. Vs. Commissioner of Income Tax (1954) 26 ITR 775 SC, C. Vasantlal and Co. Vs. Commissioner of Income Tax, Bombay City (1962) 45 ITR 206 SC and

Kishinchand Chellaram Vs. Commissioner of Income Tax, Bombay City (1980) 125 ITR 713 SC] Where an order had been passed by the Assessing officer without granting the assessee an opportunity to cross examine and the assessee preferred a writ petition. The Apex court held that the High Court ought not to have set a side the order of assessment but to have only granted the assessee an opportunity to cross examine the witness. (Asst year 2004-05). ITO vs. M. Pirai Choodi (2011) 334 ITR 262. – Decision of Madras High Court in M. Pirai Choodi vs. ITO (2008) 302 ITR 40 (Mad), set aside. 2. Right against harassment

Latest CBDT Instruction/Office Memorandum dated 7/11/2014 (limited scrutiny as per instruction no. 7 of 2014 dated 26.09.2014 in AIR/CIB/26AS cases & summons issuance to be tightened and monitored and remand by CIT-A on specific matter) 3. Right to be assessed on true income

Hon’ble Supreme Court in the case of CIT Vs. Vatika Township Ltd. 367 ITR 466(SC) Constitution bench At the same time, it is also mandated that there cannot be imposition of any tax without the authority of law. Such a law has to be unambiguous and should prescribe the liability to pay taxes in clear terms. If the concerned provision of the taxing statute is ambiguous and vague and is susceptible to two interpretations, the interpretation which favours the subjects, as against there the revenue, has to be preferred. This is a well established principle of statutory interpretation, to help finding out as to whether particular category of assessee are to pay a particular tax or not. No doubt, with the application of this principle, Courts make endeavour to find out the intention of the legislature. At the same time, this very principle is based on “fairness” doctrine as it lays down that if it is not very clear from the provisions of the Act as to whether the particular tax is to be levied to a particular class of persons or not, the subject should not be fastened with any liability to pay tax. This principle also acts as a balancing factor between the two jurisprudential theories of justice – Libertarian theory on the one hand and Kantian theory along with Egalitarian theory propounded by John Rawls on the other hand. Tax laws are clearly in derogation of personal rights and property interests and are, therefore, subject to strict construction, and any ambiguity must be resolved against imposition of the tax Supreme Court in case of Excel Industries 358 ITR 295 27. Applying the three tests laid down by various decisions of this Court, namely, whether the income accrued to the assessee is real or hypothetical; whether there is a corresponding liability of the other party to pass on the benefits of duty free import to the assessee even without any imports having been made; and the probability or improbability of realisation of the benefits by the assessee considered from a realistic and practical point of view (the assessee may not have made imports), it is quite

clear that in fact no real income but only hypothetical income had accrued to the assessee and Section 28(iv) of the Act would be inapplicable to the facts and circumstances of the case. Essentially, the Assessing Officer is required to be pragmatic and not pedantic.

Hon’ble Apex Court in the case of CIT Vs. Mr. P. Firm in 56 ITR 67 wherein the Bench comprised three of their Lordships had expounded that if a particular income is not taxable under IT Act, it cannot be taxed on the basis of estoppel of any other equitable doctrine. If a particular income is not exigible to tax, AO has no power to impose tax on the said income (CBDT Circular 14 of 1955)

That the addition is an important piece of evidence but it cannot be said that it is conclusive and it is open to assessee who made the addition to show that it is incorrect. This proposition has been fortified by Hon’ble Supreme Court of India in the case of Pullangode Rubber Produce Co. Ltd. v. State of Kerala And Another (1973) as reported in 91 ITR 18;

Also as per Instruction No.F-286 2/2003 dated 10-03-2003 the Board has advised that there should be a focus and concentration on collection of evidence of income which leads to information on what has been disclosed before the Income-tax Department while recording statement during search/survey and no attempt should be made to obtain the confession. Assessing Officer should rely upon evidence/material gathered during the course of search/survey while framing assessment. IN THE INCOME TAX APPELLATE TRIBUNAL BENCH “D” CHENNAI Shri R. Natarajan 146 TTJ 315 (Third member decision) It is a settled principle of jurisprudence that delivery of justice should not be fettered by technicalities. Where there is a glaring instance of injustice writ large on the face of the records, it is the bounden duty of the Tribunal to stand by the side of justice to redress the grievance of a hapless assessee. The Income-tax Department is collecting tax not for itself. It is collecting tax for the Sovereign State, that is, Union of India. Union of India as the sovereign authority does not require to levy tax on an amount returned by mistake. The sovereign authority does not want to take advantage of a mistake committed by an innocuous assessee. It is not the policy of the Sovereign State to crave for undue enrichment. Bombay high court in 349 ITR 404 Similar views The burden of showing that the assessee had undisclosed income is on the revenue. The burden cannot be discharged by merely referring to general probabilities and possibilities as also the burden is on the revenue to prove that the income sought to be taxed is within the taxing provisions and there was in fact income Supreme Court in the case of Parimisetti Seetharamamma vs CIT 1965 57 ITR 532 (apply to deeming provisions of section 68; 69; 69B etc) Merely because the claim was not made out under one particular provision of the Act, but was so made out under another provision of law, assessee could not be debarred to raise such legal question. it is legally permissible to raise

question of deduction under Section 37 of the Act even if it was not raised before the authorities below. SC 66 ITR 710. AIR information: Assessment

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH “A”,MUMBAI ITA No.5037/M/2012 Assessment Year: 2008-09 M/s. A.F. Ferguson & Co.,

Date of Hearing : 07.10.2014 We have considered the rival contentions of the ld. representatives of the parties. It is an undisputed fact on the file that the professional fees shown by the assessee in its P&L account far exceeds than the amount shown in the AIR information. Even the assessee has reconciled the major portion of the receipts. It has not been denied by the Revenue Authorities that full and complete details of the parties are not mentioned in the AIR information. The addition in this case has been made by the lower authorities solely on the basis of AIR information. In our view, the addition, made solely on the basis of AIR information, especially in the absence of full details of parties and when the professional receipts declared by the assessee far exceeds than the amount mentioned in the AIR information, is not sustainable in the eyes of law. Our above view is fortified with the decision of the Bangalore Bench of the Tribunal in the case of “DCIT vs. Shree G. Selva Kumar” in ITA No.868/Bang/2009 decided on 22.10.10 and another in the case of “Mrs. Arati Raman vs. DCIT” in ITA No.245/Bang/12 decided on 05.10.12 wherein it has been held that the assessment order based only on the AIR information would not stand in the eyes of law. If the assessee denies that he is in receipt of income from a particular source, it is for the AO to prove that the assessee has received income as the assessee cannot prove the negative. Reliance can also be placed on the decision of Mumbai Bench of Tribunal in the case of Shri S. Ganesh vs. ACIT” in ITA No.527/M/2010 decided on 08.12.10 wherein the Tribunal has held that in the absence of any material brought by the revenue authorities that the assessee has received amount more than the professional fees which has been declared by him in the P&L account and when the professional income declared by the assessee far exceeds the professional fees shown in the AIR information, then additions solely based on the AIR information are not sustainable. ITA NO.7583/Mum/2013 IN THE INCOME TAX APPELLATE TRIBUNAL “J” BENCH, MUMBAI Assessment year: - 2009-10 30.05.2014 We have considered the rival submissions and relevant material on record. The Assessing Officer has made the addition on account of unaccounted sales in respect of the sale made to the following four parties… The above discrepancy was noted by the Assessing Officer as per the AIR information. The CIT(A) has directed the Assessing Officer that if the amount of Rs. 29,89,000 has been recognized as sales by the assessee in the subsequent year then the Assessing Officer should

verify and consider the same. It is the case of the assessee that this amount is only an advance received and work was executed only in the subsequent year, therefore, this amount cannot be treated as sales for the year under consideration. We are of the view that if the assessee has recognized this sale in the subsequent year on the basis of the fact that work has been executed in the subsequent year then this amount cannot be treated as sales of the assessee for the year under consideration. Accordingly the Assessing Officer is directed to verify this fact and then allow the claim of the assessee if found correct. As regards the other amounts though the assessee could not reconcile the discrepancies between the AIR information and book entries, however the entire unaccounted sale cannot be added to the income of the assessee and only the profit margin involved in the sale can be treated as income. Therefore, the Assessing Officer is directed to restrict the addition only to the profit margin of the sales treated as unaccounted sales. IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI ‘E ‘ BENCH MUMBAI BENCHES, MUMBAI ITA No. 4180 & 4181/Mum/2009 (Asst Years 2005-06) Swatantryaveer Savarkar Seva Samiti 7 Kamal Niwas 394 N C Kelkar Marg Dadar (W) Mumbai These appeals by the revenue are directed against the two separate orders dated 13.3.2009 one is arising out of the assessment order passed u/s 144 and the other one is arising from the penalty order passed u/s 271(1) ( c) of the Act for the AY 2005-06. We have considered the rival contention and perused the relevant material on records. This is a case of educational society running military school. The assessee has been regularly filing return of income along with audited books of account. Since the assessee is exempted u/s 10(23C)(v) being charitable educational institution, no tax was required to be paid. It is not in dispute before us that the assessee has been receiving cash amount being fees from the students and depositing the same in the saving bank account. This practice of receiving fees in cash and depositing the same in the bank account is not a new practice for the year under consideration but this practice and fact exists during other earlier years also. It is also not in dispute before us that the transaction of cash receipt being fees received from the students has been duly recorded in the regular books of account and available with the jurisdictional Assessing Officer. Once the fees received by way cash from the students is the regular practice in the case of school and has been regularly accepted by the jurisdictional Assessing Officer then treating the same as unexplained investment by the ITO, HQ CIB on the basis of annual information Return without verifying the facts either from the jurisdictional Assessing Officer or from the assessee, is not justified and highly improper. Though, the ITO, HQ CIB has been granted special jurisdictional; however, any information received regarding the assessee, who has been regularly assessed to tax, the matter or information ought to have been sent to the AO having jurisdiction over the assessee. The ITO, HQ CIB Pune had made no efforts to find out even the status of the assessee from the jurisdictional Assessing Officer. When the PAN and other information are readily available in the Central Information Centre; then instead of making the assessment in the absence of the assessee, the ITO, HQ CIB was supposed to make minimum essential enquiry and verification from the jurisdictional

Assessing Officer at least. The CIT(A) considered from the record, which was already filed by the assessee before the jurisdictional Assessing Officer and found that the cashi deposited in the saving bank account represents school fees received from the students and the said deposit have been explained by the assessee. The relevant portion of the CIT(A) is reproduced as under;.. 6.1 The CIT(A) has examined only those facts and records, which were already available with the Assessing Officer having jurisdiction over the assessee and filed along with the return of income for the Assessment Year under consideration, thus, it would not amount to violation of Rule 46 of the IT Rules. Even otherwise, when it has not been disputed by the revenue about the source and nature of the deposit in the bank account, then, we do not find any reason to set aside the matter to the record of the Assessing Officer for any verification.. 7 In view of the above facts and circumstances, we do not see any error or illegality in the order of the CIT(A); accordingly, the same is upheld. The revenue appeal is devoid of any merit IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 974 OF 2012 DIT (Exemptions), Mumbai. … Appellant v/s M/s.Swatantraveer Savarkar Seva Samiti, Mumbai. Perused the order passed by the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal. After perusing these concurrent orders, we are of the opinion that so far as the jurisdiction of the Assessing Officer is concerned, the observations and the findings in the Tribunal's order must be held to be confined and restricted to the facts and circumstances peculiar to this case. Secondly, the Tribunal found that though the Assessing Officer may have had no opportunity to peruse the records as the case was closed, the Commissioner of Income Tax (Appeals) called upon the assessee to produce the relevant records. They were produced and which demonstrated and proved that every single amount collected in cash and by way of fees from the students has been kept in a separate bank account. It is from the bank account the investment has been made. Thus the sources revealed are found to have been traced and to this bank account. In such circumstances, we do not think that the present appeal gives rise to any substantial question of law, much less, the one framed in the memo of appeal. The appeal, therefore, deserves to be dismissed and is accordingly dismissed. No costs.

4. Right to be assessed on profit embedded in receipts (applies to AIR cases: cash deposits in bank accounts from undisclosed trading transactions; 26AS mismatch (extra receipts); Survey and search cases loose documents assessment etc That estimation of reasonable profit embedded in a receipt is duty of ld AO and right of appellant as held in following binding precedents: a. Judgement of Gujarat High Court in the case of DCIT vs. Panna Corporation (82

CCH 266);

b. Judgement of Gujarat High Court in the case of Commissioner of Income Tax v. President Industries, reported in (2002) 258 ITR 654

c. Judgement of Gujarat High Court in the case of Commissioner of Income Tax v. Gurubachhan Singh J. Juneja, reported in (2008) 302 ITR 63

d. Commissioner of Income Tax v. Samir Synthetics Mill, reported in (2010) 326 ITR 410

e. M. P. High Court in the case of Man Mohan Sadani v.Commissioner of Income Tax, reported in (2008) 304 ITR52

f. M. P. High Court in the case of CIT vs. Balchand Ajit Kumar , 263 ITR 610 (MP)

5. Right to choose method of accounting INCOME TAX APPELLATE TRIBUNAL MUMBAI - ‘C’ BENCH MUMBAI ITA Nos. 3408 Mum 2010 & 3559/Mum/2011 Poddar Ashish Developers Date of Pronouncement : 12- 03 - 2014 7. We have heard the rival submissions and perused the material before us. We have also carefully considered the guidance notes issued by ICAI as well as Accounting Standards AS-7&9 in the light of provision of section 145 of Act. Principles applicable with regard to the method of accounting can be summarised as under: i. Section 145 of the Act, deals with the method of accounting. It is for the assessee to adopt any recognised method of accounting for his business. Income shall be computed in accordance with the method of accounting regularly employed by the assessee. In other words,it is open to the assessee to opt for such method of accounting as he deems reasonable and appropriate. The proviso to sub-section(1) empowers the AO to compute the income on such basis and in such manner as he determines if the accounts are correct and complete but the method adopted is such that, in his opinion, the income cannot properly be deduced therefrom. The jurisdiction can beinvoked where he is of the opinion that the income cannot properly be deduced therefrom. He cannot exercise the jurisdiction merely on the ground that the method adopted, which is otherwise regular or fair,is detrimental to the Revenue or advantageous to the assessee. (200 ITR 496-Doom Dooma India Ltd.-Gau.) ii. Every assessee is entitled to arrange its affairs and follow the method of accounting, which the Department has earlier accepted. It is only in those cases where the Department records a finding that the method adopted by the assessee results in distortion of profits that the Department can insist on substitution of the existing method.(Bilahari Investment P. Ltd.-299ITR1-SC)

iii. The AO’s power to choose the basis and manner of computation of income is not an arbitrary power to assess the income, but he must exercise his discretion and judgment judicially. iv. The accounts which are regularly maintained in the course of business and are duly audited, free from any qualification by the auditors, should normally be taken as correct unless there are adequate reasons to indicate that they are incorrect or unreliable. The onus is upon the AO to show that either the books of account maintained by the assessee were incorrect or incomplete or that the method of accounting adopted by him was such that true profits of the assessee cannot be deduced therefrom.(325ITR13,Paradise Holidays-Del.) v. If a particular accounting system has been followed and accepted and there is no acceptable reason to differ with it,the doctrine of consistency would come into play.(339ITR382-Jagatjit Industries Ltd.,Del.) Hon’ble Supreme Court in the case of United Commercial Bank v. CIT 240 ITR 355(SC) wherein it was held that the method followed consistently for thirtyyears and accepted by Revenue Method was valid and could not be rejected – Income Tax Act,1961. Refer Hon’ble Privy Council in CIT v. Sarangpur Cotton Mfg. Co. Ltd., 6 ITR 36 (PC) wherein it was held that the Income Tax Officer is bound by the method of accounting regularly employed by the assesse. The Hon’ble Supreme Court in the case of CIT vs. Realest Builders & Services Ltd. 307 ITR 202 (SC) observed that unless the Assessing Officer gives a finding based on facts and figures that there is an underestimation, the presumption would be that the entire exercise is revenue neutral. In the case before the Hon’ble Supreme Court the issue was as to whether income accrued to the assessee on registration of sale-deed in favour of the plot buyer or whether it accrued at the time of execution of the agreement. As per the Revenue, income accrued on the date of execution of agreement when assessee received full consideration of the plot and not when the sale-deed stood executed. Quite clearly, the issue before the Hon’ble Supreme Court also related to the timing of the taxability of income only. Without emphasizing on the rival issues involved before the Hon’ble Supreme Court, the reasoning laid down there is to be understood to mean that in order to reject the in situations like the present, the Assessing Officer must show that there is an under-estimation of profits, otherwise the presumption would be that the entire exercise is revenue neutral.

6. Right to get demand stay u/s 220(6) as per parameters explained by Bombay high court in KEC International Vs. B.R.Balakrishnan 251 ITR 158 & UTI Mutual Funds v/s. ITO 345 ITR 71

7. Right to possess Streedhan Instruction no.1916 dated 11.5.1994 issued by the Central Board Direct Tax

8. Right against non effective and compulsive litigation

Bombay high court (in case of Tata Petrodyne Ltd 20 NOVEMBER 2014 order) expressing its anguish & displeasure on “It is unfortunate that the Revenue officials, often very senior, unmindful of the damage that they cause to larger public interest by indulging in fruitless litigations, file frivolous Appeals to this Court and burden this Court unnecessarily” & “It is only to bring to the notice of the Department and hoping that a change in the regime will bring a modification or change in the outlook and mindset, that we direct that a copy of this order to to the Secretary in the Department of Revenue, Government of India, Ministry of Finance” observing that “this is a fit case to bring to the notice of the higher officials in the Department, the act of the Revenue officials, particularly in the Bombay area” Same orders in cases of L&T Ltd and Sairang Developers and Promoters Pvt.Ltd by Bombay high court.

9. Search and Seizure cases & Survey cases i) Right to obtain copy of search warrant (vide delhi high court order in MDLR

Ltd) ii) Right to obtain copy of panchnama iii) Right to obtain copy of statement recorded u/s 132(4) and 133A iv) Right to obtain copy of seized material (refer SC decisions reported in 125 ITR 714 & 334 ITR 262) 10. Right to get speaking notice which is not vague (refer Karnataka high

court leading decision in Manjunath case 359 ITR 565) 11. Right to do TAX PLANNING 341 ITR Page 1 (Supreme Court Vodafone

case) 12. Right to get refund of excess tax paid u/s 237 (Form 30)

The Allahabad High Court, in the case of Babu Ram Chandra Bhan and another V. Income-Tax Officer and another, reported in (1991) 190-Income Tax Reports-260 while considering the provision of Section 237 held that a person becomes entitled to refund only when he satisfies the Assessing Officer that a certain amount is due to him. This satisfaction necessarily involves an inquiry where there is a dispute as to the entitlement to the amount to be refunded. While there is no specific provision empowering the Income-tax Officer or the Assessing Officer to investigate such a claim, such a power is implicit and inherent in him as would be evident from a reading of section 237 of the Income-tax Act, 1961. Allahabad high court in M/S Usha Polytex Limited 7. We have considered the arguments of the counsel for the parties. Section 245 of the Act provides that where any refund is due to any person, the Income-tax authorities may set off the amount to be refunded against any sum

remaining payable under the Act by the person to whom refund is due, after giving him an intimation in writing to such person. Thus Section 245 authorizes for set off the refund against the dues of the same person that too after giving notice to him which is mandatory as held by this Court in Heera Lal and sons Vs. Income Tax Officer, (1985) 156 ITR 30 (All) and Pradeep Kumar Harsaran Lal Vs. Assessing Officer, (1998) 229 ITR 46 (All). There is no provision which authorizes Income-tax authorities to set off the refund of a person against the dues of another person. The petitioner was not given any notice nor he ever gave his consent for set off against the dues of M/S Narain Properties Ltd. The record shows that the petitioner has consistently made representations for his refund to the various authorities and had made all efforts from pillar to post. Action of the respondents in avoiding the refund of the petitioner is most arbitrary. The step of setting off the refund towards dues of another person without intimation to the petitioner is illegal and without jurisdiction. Right u/s 245: Adjustment made u/s 245 is impermissible without giving an opportunity to the assessee as is the requirement under Section 245 of the said Act as interpreted by this court in Glaxo Smith Kline Asia (P.) Ltd v. CIT: 290 ITR 35 (Del). The same sentiment is reiterated in Genpact India v. ACIT: 205 Taxman 51 (Del) and Court on its Own Motion v. CIT: 352 ITR 273 (Del). (Held by Delhi high court in Oriental Insurance case on 16.10.2014) 13. Right to stop and prevent recovery once tax is deducted under

TDS provisions as per section 205 (2005) 278 ITR 206 (Smt.Ansuya Alva vs Deputy Commissioner of Income Tax) (2007) 293 ITR 539 (Bom) (Yashpal Sahni vs Rekha Hajarnavis, Asst. CIT (Bom.) Madras high court in Executors of the Estate of S. Shanmuga Mudaliar

“15. Sec.205 of the Income Tax Act reads as follows: "205. Bar against direct demand on assessee._ Where tax is deductible at the source under sections 192 to 194, section 194A, section 194B, section 194BB, section 194C, section 194D, section 194E, section 195 and section 196A, the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income". 16. The plain reading of the section makes it clear that whenever tax is deductible under the provisions of this Act and where the tax has already been deducted, no demand can be raised on the deductee. This implies that to the extent of TDS, demand cannot be raised on the deductee. However, for the failure on the part of the deductor, suitable provisions are available in section 201 and other sections mentioned supra.”

14. Right to get asset released u/s 132B once all dues are settled and proceedings are terminated

15. Reopening Provisions Section 147 to Section 152 Special Rights and

privileges

a. Right to get notice “issued” within prescribed time u/s 149 (refer Gujarat high court in 334 ITR 25 applied in ON exim by Delhi ITAT reported at 157 TTJ 633) Note: Till availability of time u/s 139(4) filing of belated return reopening seems apparently not permissible;

b. Right To get notice “served” as per law before final assessment u/s 153 read with section 148 at latest available address refer Delhi high court Eshaan Holdings [2012] 344 ITR 541 (Del.);

c. Right to get notice from jurisdictional officer refer Lt. Col. Paramjeet Singh Versus Commissioner of Income Tax and another (1996) 220 ITR (P&H high court order)

d. Right against multiple proceedings FOR same period (refer SC in 242 ITR 381)

e. Right to know reasons recorded before conclusion of assessment (Bombay high court in 340 ITR 66) where return u/s 148 is submitted;

f. Right to file objections to challenge reasons recorded as per dictum of SC in GKN Driveshaft 259 ITR Page 19;

g. Right to get the objections disposed by speaking order as highlighted in Delhi high court in Haryana Acrylic 308 ITR Page 38 before further proceedings are assumed;

h. Right to have all back material used in reasons for forming belief that income has escaped assessment (refer Delhi high court in Pardeep Gupta 303 ITR 95);

i. Right to get valid notice under section 143(2) post filing of valid return u/s 148; (refer Apex Court in Hotel Blue Moon 321 ITR 362)

j. Right to get proceedings dropped once reasons are found non existing and/or there is no addition required on reasons recorded as per Delhi high court in Ranbaxy 336 ITR 136;

k. Right for finality and certainty (refer SC order in 106 ITR page 1) 16. Right to have valid scrutiny u/s 143(2) as per CBDT guidelines

a. Andhra Pradesh high court in 270 ITR 572 b. Delhi high court Joginder pal Gulati vs OSD W.P. (C) 6773 of 2011

c. Hon'ble Chhattisgarh High Court in the case of DCIT vs. Sunita Finlease Ltd., [2011] 330 ITR 491

d. Hon'ble Calcutta High Court in the case of Amal Kumar Ghosh vs. ACIT and Others [2014] 361 ITR 458 (Cal).

17. Right to take certified copy of order sheet Delhi high court in Mitsui

reported at 195 CTR 104 18. Right to keep cash (plea of OPENING cash, rotation, circulation and

recycling without any period)

a. Ahd ITAT in Anand Autoride 99 ITD 227/ 99 TTJ 1250; b. P&h High court in Kaushalya Wati 201 Taxation 572; c. ACIT vs. Buldev Raj Charla & Ors (2009)121 TTJ 366(Delhi),

19. Right against more than presumptive income assessment where

conditions of section 44AD are fulfilled a. P&H High Court in decision of CIT vs Surinder Pal Anand 242 CTR 61 b. Allahabad High Court in case of CIT vs Nitin Soni 207 Taxman 332

20. Right to make sales in cash refer Bombay high court in 75 ITR 33; 21. Right to get enquiry done u/s 131 & 133(6) by AO to discharge onus for

credits etc refer citations at 361 ITR 10; 357 ITR 536 22. Right to file revised return u/s 139(5) within given time to correct any error

(possibly no penalty u/s 221 for non payment of self assessment tax etc at 139(1) return filing time can be levied if same is made good by revised return time)

23. Right to raise new plea (legal or factual) before first appellate and

second appellate authority dehors return and assessment: The Supreme Court had an occasion to consider the power of the Tribunal in the decision reported in (1998) 229 ITR 383 (National Thermal Power Co. Ltd. V. Commissioner of Income-Tax). The facts therein are the assessee had made short term deposits with banks. The interest received on such deposits during the previous year relevant to the assessment year 1978-79, amounted to Rs.22,84,994/-, was offered by the assessee for tax assessment and the same was completed. Before the Commissioner of Income Tax (Appeals), several issues were raised by the assessee, but the said amount of Rs.22,84,994/- was not challenged by the assessee nor considered by the Commissioner of Income Tax (Appeals). The assessee went before the Tribunal and even before the Tribunal, the assessee failed to raise a ground at the time of filing of the appeal originally. However, by letter dated 16.7.1983, additional grounds were raised based on two decisions of the Tribunal and pleaded that interest earned before setting up of business was not taxable as income and therefore, new grounds were raised. On a reference, the Honourable Apex Court framed the following question of law:

Where on the facts found by the authorities below a question of law arises (though not raised before the authorities) which bears on the tax liability of the assessee, whether the Tribunal has jurisdiction to examine the same ? 14. By interpreting Section 254 of the Income Tax Act, the Supreme Court held that nothing prevented the Tribunal to consider the questions of law arising in the assessment proceedings, although not raised earlier. The Supreme Court relying upon the decision in the case of Jute Corporation of India Ltd. v. CIT [1991] 187 ITR 688, held that the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. For better clarity, we extract the relevant portion, which is as follows: "In the case of Jute Corporation of India Ltd. v. CIT [1991] 187 ITR688, this court, while dealing with the powers of the Appellate Assistant Commissioner observed that an appellate authority has all the powers the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income-tax Officer. This court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The Appellate Assistant Commissioner must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The Appellate Assistant Commissioner should exercise his discretion in permitting or not permitting the assessee to raise an additional ground in accordance with law and reason. The same observations would apply to appeals before the Tribunal also." Similar view has been taken by the Bombay High Court in the decision reported in (2012) 349 ITR 336 (Bom) (Commissioner of Income Tax, Central - I V. Pruthvi Brokers and Shareholders Pvt. Ltd.), where the assessee omitted to claim deduction inadvertently and such a claim was made before the Commissioner of Income Tax (Appeals). Also refer to following citations to support right to take new plea and claim raised for first time before CIT-A & ITAT i) Delhi high court Sam Global 360 ITR 682 ii) Delhi high court Jai Parabolic 306 ITR 42 iii) Delhi high court Jindal Saw 328 ITR 338 iv) Bombay high court Software consultants 349 ITR 404 v) Orissa high court 336 ITR 112 vi) Delhi high court in EXPEDITORS INTERNATIONAL INDIA PVT LTD held If

the jurisdictional pre-conditions are missing and are absent, the assessee can object and question the reopening in the appellate proceedings. It is not necessary that the assessee must file a writ petition and question the reassessment proceedings.

24. Right to challenge jurisdictional infirmity at any stage : Raza Textiles Ltd. vs Income Tax Officer, Rampur on 22 September, 1972 Equivalent citations: AIR 1973 SC 1362, 1973 87 ITR 539 SC, (1973) 1 SCC 633 No authority, much less a quasi-judicial authority, can confer jurisdiction on itself by deciding a jurisdictional fact wrongly It is incomprehensible to think that a quasi-judicial authority like the Income-tax Officer can erroneously decide a jurisdictional fact and thereafter proceed to impose a levy on a citizen In Kiran Singh & Ors. v. Chaman Paswan & Ors., AIR 1954 SC 340 it was observed by T. L. Venkatarama Ayyar, J. speaking for a Bench of four Judges as follows: - “It is a fundamental principle well-established that a decree passed by a Court without jurisdiction is a nullity, and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction, whether it is pecuniary or territorial, or whether it is in respect of the subject-matter of the action, strikes at the very authority of the Court to pass any decree and such a defect cannot be cured even by consent of parties.” is in respect of the subject-matter of the action, strikes at the very authority of the Court to pass any decree and such a defect cannot be cured even by consent of parties.” The aforesaid principle was reiterated by the Supreme Court in Superintendent of Taxes v. Onkarmal Nathmal Trust (AIR 1975 SC 2065) and Dasa Muni Reddy v. Appa Rao (AIR 1974 SC 2089). In the first of these decisions it was pointed out that revenue statutes protect the public on the one hand and confer power upon the State on the other, and the fetter on the jurisdiction is one meant to protect the public on the broader ground of public policy and, therefore, jurisdiction to assess or reassess a person can never be waived or created by consent. This decision shows that the basic principle recognized in Kiran Singh (supra) is applicable even to revenue statutes such as the Income Tax Act. Dasa Muni Reddy (supra) is a judgment where the principle of coram non judice was applied to rent control law. It was held that neither the rule of estoppel nor the principle of res judicata can confer the Court jurisdiction where none exists. Here also the principle that was put into operation was that jurisdiction cannot be conferred by consent or agreement where it did not exist, nor can the lack of jurisdiction be waived. These two later judgments were noticed by the case of Gujarat High Court in P. V. Doshi v. CIT, (1978) 113 ITR 22. According to the Gujarat High Court, the rule of res judicata cannot be invoked where the question involved is the competence of the Court to assume jurisdiction, either pecuniary or territorial or over the subject matter of the dispute. The Court further held that since neither consent or waiver can confer jurisdiction upon the Assessing Officer where it did not exist, no importance could be attached to the fact that the assessee, in the first round of proceedings, expressly gave up the plea against the erroneous assumption of jurisdiction by the assessing authority. According to the Court, the “finality or conclusiveness could only arise in respect of orders which are competent orders with jurisdiction and if the proceedings of reassessment are not validly initiated at all, the order would be a void order as per the settled legal position which could never have any finality or conclusiveness. If the

original order is without jurisdiction, it would be only a nullity confirmed in further appeals”. In this view of the matter, the Court finally answered the reference in favour of the assessee. A learned Single Judge of this Court in the case of Must. Shahaba Begum v. Must. Pukhraj Begum & Ors., AIR 1973 (Del.) 154 held that where the final decree was not engrossed a proper stamp paper, it was not a decree that could be acted upon until proper stamp was supplied and if on the basis of the decree, the executing Court directs sale of property and distribution of the sale proceeds, it is open to the judgment debtor to take up the claim for the first time before the executing Court that the decree which was insufficiently stamped was a nullity and, therefore, the sale pursuant to the decree was also a nullity and possession of the property cannot be delivered. In coming to the conclusion, the learned Judge applied the rule in Kiran Singh (supra). 25.

in the case of Kailashben Manharlal Chokshi Vs. Commissioner of Income Tax reported in [2010]328 ITR 411 (GUJ), wherein it has been held that retracted statement recorded under section 132(4) cannot be the basis for assessing undisclosed income of the assessee. In the above judgment, the Division Bench held that there must be some corroborative evidence to the admission.

B. Duties under Income Tax Law an overview 1. Duty to file true and correct Return of income (in light of prosecutions etc) 2. Duty to “disclose” fully to avoid exposure of reopening and concealment penalty; 3. Duty to cooperate in enquiry u/s 131, 133(6), 133C etc 4. Duty to explain in statement recorded u/s 132(4) with reference to presumption u/s

292C; 5. Duty to deduct TDS & Collect TCS under Chapter XVII-B etc a) SC in Eli Lily 312 ITR 225 b) SC in GE Technology Centre 327 ITR 456; c) Allahabad high court in the case of Jagran Prakashan Ltd. vs. Dy. CIT 345

ITR 288; & ICICI Bank Ltd. vs DCIT 156 TTJ 569 6. Duty to maintain books and get them audited as per prescription given u/s 44AA and

Section 44AB; 7. Duty to follow circle rate for immovable property refer sections 50C; 43CA and Section

56 8. Duty to follow KYC norms under following provisions:

i) Section 115BBC Anonymous donation: Name and Address; (refer Delhi ITAT Hans Raj Samarak 133 ITD 530

ii) Section 115BBE: Anonymous income/Headless income : Evidence for earning of income : independent audit trail

iii) Section 40A(3) & Section 269SS: Banking Mode of transaction of purchases and loans and deposits; (direct cash deposit in supplier etc bank no adverse inference possible refer [2013] 350 ITR 227 (P&H) Shelly Passi & Anupam Tele Services [2014] 366 ITR 122 (Guj). & R.C. Goel Vs. CIT, 259 CTR (Del) 15.

v) Section 68 (source of source exception in context of share application money by finance act, 2012)

CARO, 2015(Notified on 10th April, 2015)

By:CA K l GCA Kamal Garg

[B. Com(H), FCA, DISA (ICAI), LLB][email protected], 9811054015

Applicability• Applicable to foreign companies defined u/s 2(42);

• Not Applicable to:

1 Banking Company1. Banking Company

2. Insurance Company

3. Section 8 Company

4. Private Company, if:

i. (Paid up Capital + Reserves) <= Rs. 50 Lacs; AND( p p ) ;

ii. Outstanding Loan <= Rs. 25 Lacs; AND

iii. Turnover <= Rs. 5 Crores

at any point of time during the financial year.

Turnover [Section 2(91)]

• “Turnover" means the aggregate value of theli ti f t drealisation of amount made:

1. from the sale, supply or distribution of goods; or

2. on account of services rendered; or

3. both,

by the company during a financial year

Applicability• Not Applicable to:

5. One Person Company [Sec. 2(62)];

6 Small Company [Sec 2(85)]: a Company having:6. Small Company [Sec. 2(85)]: a Company having:

a) Paid up share capital < 50 lakhs [5 cr.]; andb) Turnover as per last P & L < 2 cr. [20 cr.]

• Following do not qualify as a Small Company:

a) Public company;) p y;

b) Holding or a subsidiary company;

c) Section 8 Company;

d) Co. or body corporate governed by any special Act

Significant Matters

Clause 3(i): Fixed Assets

• Proper Record maintenance for quantiy &• Proper Record maintenance for quantiy & location;

• Physical Verification at reasonable intervals

• Material discrepancies properly dealt in Books;

• Substantial part of fixed assets disposed if• Substantial part of fixed assets disposed, if yes, Whether Going Concern affected

Significant Matters

Clause 3(ii): Inventories

Ph i l ifi ti t R bl i t l• Physical verification at Reasonable intervals

• Procedure of physical verification is Reasonable

• Proper records maintained

• Material discrepancies properly dealt in Books

CARO vis-à-vis Section 189 PartiesClause 3(iii) [(a) – (b)] : Loans (secured/ unsecured) Granted• Number of parties covered u/s 189 register and amount

involved• Receipt of principal and interest whether regular• Receipt of principal and interest – whether regular• Terms and conditions are prejudicial• Reasonable steps taken to recover in case overdue

amount > Rs. 1 lac.Clause 4 (III) [(e) – (g)] : Loans Taken• Number of parties and amount involvedu be o pa t es a d a ou t o ed• Terms and Conditions PrejudicialClause 4 (V) : Section 301 Contracts or Arrangement• Completion of entries in Register• Transaction > Rs. 5 lacs are Reasonable

CARO vis-à-vis Internal Control and Internal Audit System

Clause 3(iv): Internal Control Procedures• In respect of:p Purchase of inventory and fixed assets; Sale of goods and services;

• Commensurate with the size of the company and nature of its business – Identify major weaknesses, if any.weaknesses, if any.

• Continuing failure to correct major weaknessClause 4 (VII) : Internal Audit (Applicability??)• Commensurate with nature & size of business

CARO vis-à-vis Statutory Dues and Financial Dues

Clause 3(vii): Undisputed Statutory Dues• Statutory dues to be deposited regularly• Identification of undisputed amountp• Amounts involved in dispute not deposited and the

forum (mere representation before a Forum not a dispute)

• T/f to IEPF – whether made in timeClause 3(ix): Default in repayment of duesClause 3(ix): Default in repayment of dues• What constitutes Default;• Coverage: Financial Institutions, Banks, debenture

holders;• principal as well as interest

CARO vis-à-vis Term Loans and Other Loans

Clause 3(xi) : Application of Term Loans• Generally beyond 36 months and predetermined

purpose (capital expenditure)• Actual utilisation of term loans• One to One correlation not necessary• Purpose to be stated (actual (+) pending

utilisation)utilisation)Clause 4 (XVII): Application of Funds – Short-Term• Preparing movement of funds – Source and

Application

CARO vis-à-vis Sick Company

Clause 3(viii): Sick Company• Reporting about following required if

company has been registered > 5 years;• Accumulated Losses > 50% of Net Worth Computation of Accumulated Losses C t ti f N t W th & Adj t Computation of Net Worth & Adjust

Qualification• Cash Losses in C.Y. and P.Y.

Significant MattersClause 3(v) : Public Deposits• Compliance with RBI Directives, Sec 73 to Sec 76 -

E i ti f S tExamination of System;• Order if any issued by NCLT/ CLB/ RBI whether

complied withClause 3(vi) : Cost Records• Proper cost records as prescribed u/s 148(1)p p ( )Clause 4 (XII) : Adequacy of Documents w.r.t. shares/

debentures/ other securities• Maintaining adequate records for loans and advances

given on security of above

Significant MattersClause 4 (XIII) : Chit Fund Companies• NOF/ Deposits Liability > 1:20;• Compliance with Prudential Norms• Adequate procedures for credit worthiness appraisals;• Adequate procedures for credit worthiness appraisals;• Repymt Schedule vis-à-vis borrower’s repymt capacityClause 4 (XIV) : Companies dealing in shares, etc.• Proper recordsClause 3(x): Guarantees for loans taken by others

from bank or financial institutionsfrom bank or financial institutions• All guarantees are recorded properly• Terms and conditions are not prejudicial to interests of

company

Significant Matters

Clause 4 (XVIII) : Preferential Allotment• If made to Sec 301 Parties• Valuation in case of unlisted companiesClause 4 (XIX) : Debentures• Proper Security or charge has been created in

favour of Debenture TrustClause 4 (XX) : Disclosure of End-use of funds –Clause 4 (XX) : Disclosure of End-use of funds –

Public Issue• Raising of funds through public issue• Relationship between amount raised and amount

used

Significant Matters

Clause 3(xii): FraudsF d b th C ti d• Fraud on or by the Company noticed or reported during the year;

• If yes, then indicate the nature and the amount involved

• Audit Plan to conform with SA 240;• Audit Plan to conform with SA 240;• Reports of Internal Audit;• Enquiries made to management

Changed Face of “Significant Financial Transactions”

under Companies Act, 2013

Turnover [Section 2(91)]

• “Turnover" means the aggregate value of theli ti f t drealisation of amount made:

1. from the sale, supply or distribution of goods; or

2. on account of services rendered; or

3. both,

by the company during a financial year

Cash flow statement made mandatory except for Small Companies, OPCs and Dormant Companies

• Under section 2(40)(iii) of the 2013 Act, Cash flow statementshall form part of the financial statements for allshall form part of the financial statements for allcompanies;

• Exception: Cash Flow Statement not mandatory for:

1. One Person Companies [Section 2(62)],

2. Small Companies [Section 2(85)], and

3 Dormant Companies [Section 455];3. Dormant Companies [Section 455];

• Section 143(2) of the 2013 Act also requires the auditor'sreport to state whether in his opinion the financial statementsgive a true and fair view of the cash flow for the year

Section 2(85) vs. CASR, 2006• Section 2(85): "small company" means a company, other than a

public company,—(i) paid-up share capital < Rs. 50 Lakhs or such higher amountas may be prescribed which shall not be more than Rs 5 crores; oras may be prescribed which shall not be more than Rs. 5 crores; or(ii) turnover (as per last P & L Account) < Rs. 2 crores or suchhigher amount as may be prescribed which shall not be more thanRs. 20 crores

• CASR, 2006: “Small and medium sized company” means, acompanycompany—”…...........(iii) whose turnover (excluding other income) < Rs.50

crores in the immediately preceding accounting year;(iv) which have borrowings (including public deposits) < Rs. 10crores at any time during the immediately preceding accountingyear…………….”

Statement of Changes in Equity made mandatory if applicable

• According to section 2(40)(iv) of the 2013 Act, thefi i l t t t h ll l i l dfinancial statements shall also include:

1. a statement of changes in equity [SOCIE],

2. if applicable

No. of shares Share Share Retained Foreign Cash flow Other Equity Total equity

capital premium earnings currency hedging reserve attributable to the

translation reserve equity holders of

Statement of Changes in Equity

Howe (India) Private Limited

Other components of equity

translation reserve equity holders of

reserve the Company

As at April 1, 2010 14,427 1,442,700 6,321,474 26,973,819 - - 6,216,075 40,954,068 40,954,068

2,102,893

(2,102,893) (2,102,893) (2,102,893)

Cash dividend paid (including dividend tax thereon) for the previous year

Proposed Dividend declared for the current year

Addtions to General Reserves 2,000,000 2,000,000 2,000,000

Profit for the year 19,343,943 19,343,943 19,343,943

Transfer to General Reserves (2,000,000) (2,000,000) (2,000,000)

Other comprehensive income - - - - - As at March 31, 2011 14,427 1,442,700 6,321,474 46,317,762 - - 6,216,075 58,195,118 58,195,118

Consolidated financial statements made mandatory [Section 129]

• Where a company has one or more subsidiaries, itshall:

1. prepare a CFS of the company and all thesubsidiaries in the same form and manner as thatof its own; and

2. lay the CFS also before the AGM of the companyalong with the laying of its financial statementalong with the laying of its financial statement

• The term "subsidiary" for above purposes shall include:

1. associate company [Section 2(6)], and

2. joint venture

Consolidated financial statements made mandatory….contd.

• The company shall also attach along with its financial statement,a separate statement containing the salient features of thefinancial statement of its subsidiary(s) in prescribed formfinancial statement of its subsidiary(s) in prescribed form[Form AOC 1 as per Rule 5 of Accounts Rules, 2014];

• The provisions of this Act applicable to the preparation,adoption and audit of financial statements of a holdingcompany shall, mutatis mutandis, apply to CFS also;

• The auditor of a holding company shall also have the right ofg p y gaccess to the records of all its subsidiaries insofar as itrelates to the consolidation of its financial statement with that ofits subsidiaries.[Section 143(1)];

• Section 143(1) seems to imply that auditor of holding companyshall also be auditor of CFS.

Depreciation• Schedule II of the Companies Act, 2013 provides the

useful life as against the minimum rates of depreciationprescribed in Schedule XIV of the Companies Act, 1956;prescribed in Schedule XIV of the Companies Act, 1956;

• For Intangible assets, there is no specific provision in theSchedule XIV of the Companies Act, 1956;

• Now, for intangible assets, the provisions of theAccounting Standards would be applicable;

• Component Accounting made mandatory: Where cost• Component Accounting made mandatory: Where costof a part of the asset is significant to total cost of theasset and useful life of that part is different from theuseful life of the remaining asset, useful life of thatsignificant part shall be determined separately

Revaluation Reserve vis-à-vis Depreciation

The depreciable amount of an asset is:

• the cost of an asset; or

• other amount substituted for cost,

• less its residual value [Part A of Schedule II].

Some Issues under Schedule II

• Useful life;

• Residual Value;

• Depreciation Methods – whether altogether absent;

• Low value items;

• Transitional Provisions;

• Disclosure Requirements

Useful Life, Residual Value and Depreciation Methods

• Part ‘A’ of Schedule II:• Depreciation is the systematic allocation of the• Depreciation is the systematic allocation of the

depreciable amount of an asset over its useful life [<life under Part ‘C’, unless justified];

• The depreciable amount of an asset is the cost of anasset or other amount substituted for cost, less itsresidual value [< 5% of Original Cost, unlessjustified];justified];

• The useful life of an asset is the period over which anasset is expected to be available for use by an entity, orthe number of production or similar units expectedto be obtained from the asset by the entity

Low value items• Note 4(a) of Schedule II:

• Where cost of a part of the asset is significant to totalp gcost of the asset and useful life of that part is differentfrom the useful life of the remaining asset, useful life ofthat significant part shall be determined separately

• This requirement shall be voluntary in respect of thefinancial year commencing on or after the 1st Aprilfinancial year commencing on or after the 1st April,2014 and mandatory for financial statements inrespect of financial years commencing on or after the1st April, 2015.

Transitional Provisions

Note 7 of Schedule II: From the date this Schedulecomes into effect the carrying amount of the assetcomes into effect, the carrying amount of the assetas on that date—

• shall be depreciated over the remaining useful lifeof the asset as per this Schedule;

• after retaining the residual value,• may be recognised in the opening balance of

retained earnings where the remaining useful life ofan asset is nil

Disclosure Requirements

Note 3 of Schedule II: The following informationh ll l b di l d i th t lshall also be disclosed in the accounts, namely:—

• depreciation methods used; and

• the useful lives of the assets for computingdepreciation, if they are different from the lifespecified in the Schedulespecified in the Schedule

NIRC of ICAI (2015 – 2016)

CA. Raj Chawla Chairman

CA. Hans Raj Chugh CA. Rajesh Kumar Agrawal CA. Yogita Anand Vice-Chairman Secretary Treasurer

CA. Deepak Garg CA. Rajinder Narang CA. Swadesh Gupta NICASA Chairman NICASA Member NICASA Member

CA. Radhey Shyam Bansal CA. Vishal Garg CA. Gopal Kumar Kedia Immediate Past Chairman Past Chairman Member

CA. Harit Agrawal CA. Manoj Kumar Bansal CA. Pramod Kumar Maheshwari Member Member Member

Central Council Members of ICAI (Northern Region)

CA. Charanjot Singh Nanda CA. Sanjay Agarwal CA. Naveen N.D.Gupta Central Council Member, ICAI Central Council Member, ICAI Central Council Member, ICAI

CA. Vijay Kumar Gupta CA.Sanjiv Kumar Chaudhary CA.Atul Kumar Gupta Central Council Member, ICAI Central Council Member, ICAI Central Council Member, ICAI