Year: 2013

Related Party Transactions and Minority Rights – Part 2

PART C: Information on & Around

In the issue of June, 2013 in this column, it was reported that as a consequence of 97th Amendment to the Constitution the Co-operative Societies become Public Authorities and get covered under RTI. Recently the Supreme Court passed a judgment as noted below, which has given impression that SC has held that Co-op. Societies are not so covered. Mr. Vijay Kumbhar has now analysed the judgment as under:

Co operative societies not out of ambit of RTI

The manner and timing of reporting regarding Supreme Court’s (SC) judgement (CIVIL APPEAL NO. 9017 OF 2013) about co-operative sugar factories (CS) is amazing. In many news papers they have published date of judgement as 15th October. Actually it was given on 7th October. At least people concerned with RTI knew about it but it was not discussed thoroughly. On 9th of October Anna Hazare and Medha Patkar alleged about Rs. 10,000 crore scam in the sale of the co-operative sugar factories purchased by the political leaders across parties in Maharashtra. After that, a lot of news items appeared in the media. That stunned the government as well as cooperative mafias .Then suddenly news appeared in the media “Cooperatives out of bounds of RTI, rules Supreme Court”.

If read carefully it is clear that SC has only decided about who should provide the information, and it has made it clear that Registrar of Cooperatives (RoC) is duty bound to provide the information irrespective of whether CS is substantially financed or not. Before one draws any conclusion let us study some of the paragraphs of the said judgement. In para 12 SC says, we are in these appeals concerned only with the cooperative societies registered or deemed to be registered under the Co-operative Societies Act, which are not owned, controlled or substantially financed by the State or Central Government or formed, established or constituted by law made by Parliament or State Legislature

It is very evident from the above para that this judgement is not applicable to only societies mentioned above. Then how one can say that due to SC judgement all societies have come out of RTI ambit.

In para 52, SC says Registrar of Cooperative Societies functioning under the Cooperative Societies Act is a public authority within the meaning of Section 2(h) of the Act. As a public authority, Registrar of Co-operative Societies has been conferred with lot of statutory powers under the respective Act under which he is functioning. He is also duty bound to comply with the obligations under the RTI Act and furnish information to a citizen under the RTI Act.

Information which he is expected to provide is the information enumerated in Section 2(f) of the RTI Act subject to the limitations provided under Section 8 of the Act. Registrar can also, to the extent law permits, gather information from a Society, on which he has supervisory or administrative control under the Cooperative Societies Act. Consequently, apart from the information as is available to him, under Section 2(f), he can also gather that information from the Society, to the extent permitted by law. Registrar is also not obliged to disclose that information if those information fall under Section 8(1)(j) of the Act. No provision has been brought to our knowledge indicating that, under the Cooperative Societies Act, a Registrar can call for the details of the bank accounts maintained by the citizens or members in a cooperative bank. Only that information which a Registrar of Cooperative Societies can have access under the Cooperative Societies Act from a Society could be said to be the information which is “held” or “under the control of public authority”. Even that information, Registrar, as already indicated, is not legally obliged to provide if that information falls under the exempted category mentioned in Section 8(j) of the Act.

Apart from the Registrar of Co-operative Societies, there may be other public authorities who can access information from a Cooperative Bank of a private account maintained by a member of Society under law, in the event of which, in a given situation, the society will have to part with that information. But the demand should have statutory backing.

It is clear from above para that whatever information the register has and can gather from cooperative societies, he/she is duty bound to furnish it to applicant under RTI act , irrespective of whether society is substantially financed or not. The only binding on the register is to take into consideration section 8 of the RTI act. However that burden was already there. In para 53, SC says, ‘Consequently, an information which has been sought for relates to personal information, the disclosure of which has no relationship to any public activity or interest or which would cause unwarranted invasion of the privacy of the individual, the Registrar of Cooperative Societies, even if he has information, is not bound to furnish the same to an applicant, unless he is satisfied that the larger public interest justifies the disclosure of such information, that too, for reasons to be recorded in writing’. From reading of above para it is well clear that SC has said that even if information is personal one if there is larger public interest RoC may provide that to applicant.

In para 40 SC says The burden to show that a body is owned, controlled or substantially financed or that a non-government organization is substantially financed directly or indirectly by the funds provided by the appropriate Government, is on the applicant who seeks information or the appropriate Government and can be examined by the State Public Information Officer, State Chief Information Commission, Central Public Information Officer etc., when the question comes up for consideration. A body or NGO is also free to establish that it is not owned, controlled or substantially financed directly or indirectly by the appropriate Government.

In para 41 SC says Powers have been conferred on the Central Information Commissioner or the State Information Commissioner under Section 18 of the Act to inquire into any complaint received from any person and the reason for the refusal to access to any information requested from a body owned, controlled or substantially financed, or a non-government organisation substantially financed directly or indirectly by the funds provided by the appropriate Government.

From reading para 40 and 41 together one can easily draw the conclusion that if Cooperative society or NGO body is owned, controlled or substantially financed then PIO, Information Commission have powers to decide over that. In other words if they come to conclusion that concerned CS or NGO is owned, controlled or substantially financed directly or indirectly by the funds provided by the appropriate Government they can declare such organisation a public authority. Otherwise registrar of cooperatives is duty bound to furnish the information. 240 (2013) 45-B BCAJ In other words Supreme Court in its recent judgment has only decided about who should provide the information under RTI Act , is it Registrar of co operative societies or direct societies and also answered that RoC is duty bound to supply the information in case CS is not substantially financed or ask society to appoint PIO if satisfied.

Against above opinion based on analysis made by Shri Vijay Kumbhar, some hold the view otherwise. Finantail Express (dated 23.10.2013) has reported as under: Cooperative societies including coop banks will not fall within the definition of ‘public authority’ for purposes of the Right to Information Act, and hence the Registrar of Cooperative Societies is not liable to provide information to the general public under this law, the Supreme Court has held in the case, Thalappalam Service Cop Bank Ltd vs state of Kerala.

It said that the powers exercised by the Registrar and others under the Cooperative Societies Act are “only regulatory or supervisory” and will not amount to dominating or interfering with the management or affairs of the society so as to control it. Besides, “the societies are not statutory bodies and are not performing any public functions and will not come within the expression ‘sate’ within the meaning under Article 12 of the Constitution of India,” it added.

Recognizing that the right to privacy was a sacrosanct facet of Article 21 of the Constitution, the apex court said that if the information relates to personal information, the disclosure of which has no relationship to any public activity or interest or which would cause unwarranted invasion of the privacy of the individual, the Registrar, even if he has got that information, is not bound to furnish the same to an applicant, unless he is satisfied that the larger public interest justifies the disclosure of such information, that too, for reasons to be recorded in writing.

In this case, various coop societies had challenged the full Bench of the Kerala High Court’s judgment that upheld the state government’s circular and brought coops within the RTI ambit. The state government claimed the circular to be in the larger public interest so as to promote transparency and accountability in the working of every co-operative society in Kerala.

Readers View

The Editor,
BCAJ,
Mumbai – 400 020.

17th July, 2013

Dear Sir,

Re: FDI Reforms

Faced with harsh economic environment, both domestic as well as global, the Dollar starved Government has ushered in FDI Reforms. It has increased FDI Limits in 12 sectors (excluding Civil Aviation, Multi Brand Retail and News Media). In several sectors, 49% limit has been changed to Automatic Route from the FIPB Route. The decision was taken by 11 Key Ministers by consensus. Same day it was reported that Posco of South Korea has junked its $5.3 billion Karnataka Steel Project because of inordinate delay in getting iron ore mining rights. Other FDI Projects in Steel Sector proposed in last 10 years by Arcelor Mittal and others have not yet seen fructification due to delays in Land Allotment and getting exclusive Coal and Iron Ore Mining rights.

Besides the Reforms at Policy Level, the FDI Regulations are such a maze of Press Notes, Circulars, Notifications, Clarifications etc. that leave aside a foreigner, even the Regulators and Expert Consultants cannot find their way through . At times, the RBI does not implement the policy level changes made by the Finance Ministry, Commerce Ministry and DIPP.. Therefore, there is an urgent need to cut thru the clutter of such Press Notes, Circulars and Notifications and ensure that all the concerned ministries and their Officials and RBI are on the same page.

Further, the Reform Mindset has to percolate down to the State Government and the Municipal Authorities Today, it is seen that the Local Bureaucrats and Politicians, whether high or low, are not concerned with development of the State or the Country; their only concern is how do they get their pound of the flesh. They look for opportunities to milk the Businessmen and Industrialists, who are, therefore, looking for greener pastures abroad.

The decision to open up some sectors of the economy to greater foreign investment is a step in the right direction, coming as it does at a time when the country needs such investment to plug a yawning current account deficit. But the idea will not work if the government imposes unreasonable restrictions which put off investors.. While ensuring that loopholes are not exploited, the effort must be to make implementation of rules investor-friendly. The rules themselves must be fair and transparent. Only then will the benefits flow. If Governments, both at the Central and at the States, do not take care of the above, the policy relaxations will remain on paper and would not result in inflow of Foreign Exchange as earnestly hoped by the Union Cabinet and such hope will only remain a “Maya” (illusion).

Yours sincerely,

Tarun Singhal

Representation

July 22 ,2013

To,

Mr. P. Chidambaram
The Hon’ble Finance Minister
Government of IndiaNorth Block,
Secretariat, New Delhi – 110 001.

Hon’ble Sir,

Subject: Applicability of Transfer pricing provisions to Specified Domestic Transactions covered u/s. 40A(2)

The Finance Act, 2012 has extended the applicability of transfer pricing provisions to Specified Domestic Transactions including payments made to related party covered u/s. 40A(2). Since payments covered within the purview of Section 40A(2) are tax neutral having no tax arbitrage and in view of difficulty in availability of comparables in public domain with regard to various expenses such as managerial remuneration, ESOP/ESOS cost etc., it is suggested that provisions relating to Specified Domestic transactions should not apply to payments covered u/s. 40A(2). We request your Honour to kindly peruse the attached representation which highlights the reasoning and difficulties likely to be faced in complying with the provisions which are not likely to result in any significant tax revenue.

Thanking you,

We remain,

Yours truly,

For Bombay Chartered Accountants’ Society

Naushad Panjwani                               Kishor Karia                            Deepak Shah
President                                             Chairman                                  Co-Chariman
                                                                   International Taxation Committe

Representation on applicability of Transfer pricing provisions to Specified Domestic Transactions covered u/s. 40A(2)

Legislative Intent behind introduction of Domestic Transfer Pricing provisions for certain Specified Domestic Transactions:

The introduction of the provisions for domestic transfer pricing was an outcome of the suggestions given by Honourable Supreme Court in CIT vs. Glaxo Smithkline Asia (P) Limited 236 CTR 113.

The Hon’ble Supreme Court while deciding on the issue of section 40A(2) made some of the important observations as under:

• The present Transfer pricing provisions does not apply to domestic transactions

• In domestic transactions, under invoicing and over invoicing will be revenue neutral, except in two circumstances:

i. Where one of the related entities is loss making or

ii. Where one of the related entities is liable to pay tax at a lower rate and the profits are shifted to such entity.

The Explanatory Memorandum to Finance Bill 2012 clarifies that the genesis of these provisions lies in suggestion made by the Supreme Court (SC) in the case of CIT vs. Glaxo Smitkline Asia (P) Ltd. (supra). The relevant points from the explanatory memorandum explaining the intent for introduction of domestic transfer pricing provisions are as follows:

• Presently there is no method prescribed to determine reasonableness of expenditure to re-compute the income in related party transactions

• There is a need to provide objectivity in determination of income and determination of reasonableness of expenditure in domestic related party transactions

• There is a need to create legally enforceable obligation on assessee to maintain proper documentation

Thus based on the observations of the Hon’ble Supreme Court, the Finance Act 2012 has extended the applicability of the transfer pricing provisions for specified domestic related party transactions with an intent:

• To discourage tax abuse where the companies resort to tax arbitrage by shifting of profits by undertakings having huge accumulated losses/ enjoying tax holidays/ differential tax rates.
• To shift from Fair Market Value (FMV)/ ordinary profit to Arms Length Price (ALP).

These SDT are contained in section 92BA of the Income Tax Act, 1961 (‘Act’) which is reproduced hereunder:

Section 92BA – Specified Domestic transaction

“Specified Domestic Transactions” in case of an assessee means any of the following transactions, not being an international transaction, namely –

i. any expenditure in respect of which payment has been made or is to be made to a person referred to in clause (b) of s/s. (2) of section 40A;

ii. any transaction referred to in section 80A;

iii. any transfer of goods or services referred to in s/s. (8) of section 80-IA;

iv. any business transacted between the assessee and other person as referred to in s/s. (10) of section 80-IA;

v. any transaction, referred to in any other section under Chapter VI-A or section 10AA, to which provisions of s/s. (8) or s/s. (10) of section 80-IA are applicable; or

vi. any other transaction as may be prescribed, and where the aggregate of such transactions entered in to by the assessee in the previous year exceeds a sum of Rs. 5 crore.

The major implication in a case where a transaction is classified or covered under SDT, then FMV as contemplated by any of the specified provisions will need to be determined in accordance with ALP as defined in the section.

If section 92BA is applicable,

• ALP as determined by adopting most appropriate method as per section 92C(1) will be considered as measure of FMV for transactions specified u/s. 92BA. This makes it mandatory for the taxpayer to compute ALP as per methods specified u/s. 92C (including sixth method recently notified on 23rd May 2012).

• The taxpayer is also obliged to maintain contemporaneous documents u/s. 92D as also obliged to obtain & furnish auditor’s report u/s. 92E of the Act.

While the objective for introduction of the domestic transfer pricing provisions to discourage tax abuse and curb tax evasion on account of tax arbitrage resorted by the tax payers seems laudable and the application of the said provisions with respect to transactions relating to sections 80A, 80IA, 10AA is reasonable but application of said provisions for transactions covered u/s. 40A(2) does not seem to have any logic and sound reasoning, as it is impossible to get comparable cases from public domain. Business is not conducted, either with third party or with related one, in the real life based on Public database or theory of methodology as prescribed u/s 92C of the Income Tax Act, 1961.

The host of transactions that could be covered under the ambit of domestic transfer pricing regulations u/s. 40A(2) are as follows:

• service, maintenance and administration charges

• construction cost and purchase of material

• corporate guarantee charges

• Interest payments on loans advanced amongst group companies

• payment of royalty

• shared services cost/management cross charges

• payments to directors and/or their relatives

• ESOP and/or ESOS cost borne for directors or their relatives

• ESOP and/or ESOS cost reimbursed

The provisions of section 40A(2) are analysed in detail below to rationalise the assertion that domestic transfer pricing provisions should not be applicable in case of section 40A(2).

Analyzing the provisions with respect to section 40A(2) to evaluate whether the intended objective is achieved:

Attention is invited to departmental Circular No. 6 – P dated 06-07-1968 and Circular No. 4 – P [LXXVI-65] dated 07-06-1968. Relevant extract of the said circular is reproduced below:

“It may be noted that the new provision is applicable to all categories of expenditure incurred in businesses and professions, including expenditure on purchase of raw materials, stores or goods, salaries to employees and also other expenditure on professional services, or by way of brokerage, commission, interest, etc. Where payment for any expenditure is found to have been made to a relative or associate concern falling within the specified categories, it will be necessary for the Income-tax Officer to scrutinise the reasonableness of the expenditure with reference to the criteria mentioned in the section. The Income-tax Officer is expected to exercise his judgment in a reasonable and fair manner. It should be borne in mind that the provision is meant to check evasion of tax through excessive or unreasonable payments to relatives and associate concerns and should not be applied in a manner which will cause hardship in bonafide cases.” (Emphasis provided)

Thus the provisions of section 40A(2) were introduced in order to check whether the Taxpayers carrying on business transactions with related parties made excessive and unreasonable payments/expenditure, provisions of section 40A(2) were introduced in the Act in the year 1968, which empowered the tax authority to disallow payments to ‘related parties’ which are excessive or unreasonable.

Following are the existing provisions under the Act, that provide for transactions between related parties should be valued at market value:

Section 40A(2) – Expenses or payments not deductible in certain circumstances. The existing provisions of clause (a) of s/s. (2) of the aforesaid section 40A provide that:

• where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in clause (b) of the said section, and

• the Assessing Officer is of the opinion that such expenditure is excessive or unreasonable having regard to fair market value of the goods, services or facilities

• for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him there from, so much of expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as deduction.

A fair market value is required to be assigned to the transactions between related parties in terms of section 40A(2). However, there was no specific valuation machinery/methodology prescribed in the Act to find out whether the same is at fair market value or not. Thus, though the provisions have existed under the law since 1968, these were rendered subjective in absence of specific method being prescribed to ascertain and demonstrate the FMV. Thus, there has been an ongoing litigation on this subject and the desired objective of working out reasonable expenditure applying FMV has not been achieved in reality.

Having regard to judicial precedent on the subject, and particularly having regard to Circular 6-P of 1968, section 40A(2) can be regarded as anti abuse provision where the onus of proving fulfillment of all the conditions which result in disallowance lie on the AO.

It is respectfully stated that the intent of legislature for extending transfer pricing regulations to domestic transactions and bringing within the ambit of SDT the payments covered u/s. 40A(2) would become superfluous/ redundant where the parties amongst whom the transaction has been undertaken are subject to same rate of tax and there is no tax arbitrage.

It can be observed that the provisions of section 40A(2) were introduced way back in 1968 and were meant to cover cases of tax evasion. These regulations were issued / enforced at a point of time when there were soaring rates of tax and there existed host of incentive provisions under the Act. However, over a period of time the provisions have been rationalised and liberalised whereby most of the incentives have faded out. Currently the scenario is such that all entities are subject to almost the same rate of taxation and in cases not less than Minimum Alternate Taxes (MAT).

Though we agree and strongly believe that specified domestic transactions should be applicable in cases where there is possibility of resorting to tax arbitrage i.e. in case of transaction between a loss making entity and a profit making entity. However even in this case, it can be appreciated that the tax arbitrage available would be only in form of deferring the tax liability to later date since by shifting of income from a profit making company to a loss making company, the group could reduce its tax liability for the current year, though the impact will be reversed in future years given carry forward of losses. Also considering the position of book losses there could arise a situation where the loss making entity would be liable to pay the Minimum Alternate Tax. Accordingly in our view where the parties involved in the transaction are subject to almost same rate of tax there is little scope of resorting to tax arbitrage.

Further the provisions as prescribed currently have aroused various issues such as:

• Whether indirect shareholding is covered?

• Whether shareholding of individual directors can be aggregated for determining substantial interest?

• Benchmarking issues?

Accordingly in our view, bringing the transactions covered u/s. 40A(2) under purview of domestic transfer pricing provisions necessitating the taxpayer to benchmark the transactions to arrive at arm’s length price of such transaction is burdensome, will lead to increase in compliance burden and causes lot of inconvenience for the assessees which may not be desirable.

Relevant issues arising with respect to benchmarking payments covered by section 40A(2):

ALP Concept

• Concept of ALP applicable for determining taxable income arising from international transactions which was introduced in 2001 is now extended to SDT.

• ALP defined to mean a price which is applied or proposed to be applied in a transaction between persons other than Associated Enterprises (AEs), in uncontrolled conditions.

• Comparability and Functions, Assets and Risks (FAR) fundamental to the concept of ALP

• Comparison of conditions in a controlled transaction with conditions in transactions between uncontrolled enterprises

• Compensation usually reflects functions performed (taking into account assets used and risks assumed) (FAR)

ALP concept usually relevant for transactions between “separate enterprises”; may need to be applied by analogy to SDT involving inter-unit transfer of goods/services.

Methods prescribed for computing ALP

ALP is required to be computed using any of the following methods being the most appropriate method

• Comparable uncontrolled price method (CUP)

• Resale price method (RPM)

• Cost plus method (CPM)

• Profit split method (PSM)

• Transactional net margin method (TNMM)

• Such other method as may be prescribed by the Board – method prescribed in May 2012 by inserting Rule 10AB. The rule is reproduced herewith:

“10AB. For the purposes of clause (f) of s/s. (1) of section 92C, the other method for determination of the arm’s length price in relation to an international transaction shall be any method which takes into account the price which has been charged or paid, or would have been charged or paid, for the same or similar uncontrolled transaction, with or between non-associated enterprises, under similar circumstances, considering all the relevant facts.”

Rules provide guidance on application of the methods and factors to be considered in selecting the most appropriate method.

Deficiency in prescribed methods and absence of introduction of practicable and thoughtful method/ approach

It is important to note that even though the provisions of SDT provide for determining the ALP of the domestic transactions by applying the methods that are prescribed for international transactions, however, it would be difficult to apply the prescribed methods to determine the ALP of domestic transactions. This would lead to enormous litigation for tax authorities and taxpayers.

It would be appreciated that no method has been formulated for the purpose of benchmarking the specified domestic transaction but the methods prescribed by OECD (Organization for Economic Co-operation Development) which is applicable for international transactions has been made applicable even for benchmarking specified domestic transactions. It is big challenge for the taxpayers to collate data of comparable transactions/ comparable companies from the public databases available for benchmarking the specified domestic transactions. In several instances it is impracticable to benchmark the specified domestic transactions.

For instance – Payment of managerial remuneration

It is impractical to benchmark payment of remuneration to the directors/ other payments to directors. Salary of directors is determined by the management based on several factors viz qualifications, experience which are individual traits and varies from company to company. Certain judicial precedents have accepted the view that if the managerial remuneration is within the limits prescribed in the Companies Act, 1956, the same is a reasonable expenditure u/s. 40A(2)(b).

The table below explains the concepts of FMV and ALP. There are lot of contentious issues on this subject as to whether FMV is different from ALP? Is ALP synonymous with Market value?

There is a significant difference between the concepts of FMV and ALP whereas the concept of FMV deals with arriving at a value at which a particular transaction may be executed, the concept of ALP deals with profitability arrived on execution of the transaction under most of the methods prescribed except under the Comparable Uncontrolled price method which deals with price i.e. value of the transaction.

Applicability of regulations resulting in Economic double taxation

Further, application of the domestic transfer pricing provisions to payments covered by section 40A(2) may result in to economic double taxation. Here , one may appreciate that even the Hon’ble Supreme court in its observations have specified that under invoicing or over invoicing would be revenue neutral except under the two circumstances as specified. Thus, where the payment covered under section 40A is made amongst two entities both of which are subject to same rate of tax it is in effect a tax neutral situation. Specified Domestic Transactions are not meant to cover revenue neutral transactions lest it would result in economic double taxation. The transfer pricing adjustments for Specified Domestic Transactions would result in double taxation in revenue neutral cases and hence corresponding adjustments are warranted. The provisions of subsection 4 of section 92C ‘Computation of arm’s length price’ is reproduced below for ready reference:

(4) Where an arm’s length price is determined by the Assessing Officer u.s/s. (3), the Assessing Officer may compute the total income of the assessee having regard to the arm’s length price so determined :

Provided that no deduction u/s. 10A 93[or section 10AA] or section 10B or under Chapter VI-A shall be allowed in respect of the amount of income by which the total income of the assessee is enhanced after computation of income under this sub-section :

Provided further that where the total income of an associated enterprise is computed under this sub-section on determination of the arm’s length price paid to another associated enterprise from which tax has been deducted 94[or was deductible] under the provisions of Chapter XVIIB, the income of the other associated enterprise shall not be recomputed by reason of such determination of arm’s length price in the case of the first mentioned enterprise.

It can be observed from the above provisions that the regulations do not contemplate any correlative adjustments and do not permit recomputation of income of the recipient enterprise if excessive or unreasonable expenses are disallowed in the hands of tax payer at time of the assessment then corresponding adjustment to the income of the recipient will not be allowed in the hands of recipient of income. Hence, it would lead to double taxation in India.

Applicability of regulations resulting in Unreasonable burden of compliance cost on industry and business

It would further be appreciated that the enforceability of the aforesaid provisions would result in unreasonable burden of compliance cost on industry and business. Firstly, it is a big challenge for the taxpayers to collate data of comparable transactions/comparable companies from public databases for benchmarking their transaction, further maintaining documentation and observing the compliance requirements would lead to unreasonable burden and cost for the taxpayers.

To conclude it is respectfully submitted that the introduction of Specified domestic transactions may be useful except in cases of Section 40A(2). In circumstances where there is no base erosion and in instances as described above which result in to tax neutrality, the provisions of domestic transfer pricing should not be extended to payments covered u/s. 40A (2) which cause undue hardship and compliance burden to the taxpayers withoutany significant benefits to the revenue. Accordingly, Section 40A(2) should be excluded from the net of Specified domestic transactions.

ICAI and its members

Message from Ministry of Corporate Affairs :

“Over the years, the ICAI has made a name for itself in the development of accounting discipline. It has been catering to the needs of modern day accountancy requirements by generating qualified CAs to meet the present as well as the future needs of the industry.

The Institute has intensified its focus on global best practices and has raised the bench mark of accountancy profession in India. It has thus come a long way since its establishment”.

EAC Opinion

Accounting for unspent expenditure towards Corporate Social Responsibility

Facts:

A company being a Government of India enterprise, is engaged in the business of transmission of power from the generating units in central sector to various State Electricity Boards.

The company has stated that the Guidelines on Corporate Society Responsibility (CSR) for Central Public Sector Enterprises (CPSEs), issued by the Department of Public Enterprises (DPE) on 9th April, 2010, provides that each CPSE has to mandatorily create CSR budget through a board resolution as a percentage of net profit of the previous financial year. The above guidelines also provide that the amount allocated for CSR activities should be transferred to a CSR fund which will accumulate – as in the case of non-lapsable pool for the North East.

In accordance with the above guidelines, in the financial year (F.Y.) 2011-12, 1% of profit after tax (PAT) of the previous year was earmarked to CSR activities after approval of the Board of Directors.

The company has also stated that upto the F.Y. 2010- 11, actual expenditure incurred on CSR activities was charged to the statement of profit and loss and the difference between 1% of PAT of previous year and actual expenditure (hereinafter called as ‘unspent expenditure’) was appropriated through the statement of profit and loss to CSR reserve.

During the F.Y. 2011-12, it was considered that unspent expenditure is not in the nature of reserve to be created by appropriation of profit but is an obligation to be incurred. As such, it is in the nature of provision rather than reserve fund. Accordingly, provision was made for the unspent expenditure for the year as well as unspent expenditure as at the beginning of the year.

Query:

On the basis of the above, the company has sought the opinion of the Committee on the following issues:

(i) Whether the unspent expenditure should be charged to the profit and loss account and provision be created for the same, or (ii) the unspent expenditure be appropriated through the profit and loss account to CSR reserve, or (iii) to adopt any other accounting treatment.

Opinion:

The Committee noted the definitions of ‘provision’. ‘liability’ ‘obligating event’ ‘present obligation’ and paragraphs 14, 16, 17 and 18 of AS 29, notified under the Companies (Accounting Standards) Rules, 2006 as well as DPE Guidelines and is of the view that as per the DPE Guidelines, there is a mandate for creation of a budget/fund and not to spend on CSR activities as a percentage of profits, which would only form a basis for evaluation of the performance of an enterprise. However, there is no mandate on the amount of expenditure, which has to be necessarily incurred by an enterprise during a period of its operation. Thus, there is a mandate only on the creation of a budget or fund rather than an obligation to incur expenditure during a period. Since as per DPE Guidelines, there is no such obligation on the enterprise, provision should not be recognised. Accordingly, the Committee is of the view that the requirement in the DPE Guidelines for creation of a CSR budget can be met through creation of a reserve as an appropriation of profits rather than creating a provision as per AS 29.

[Pl. Refer Page nos. 139 to141 C. A. Journal – July, 2013]

ICAI News:

(Note: Page Numbers given below are from C.A. Journal of July, 2013)

i) Member as a senior citizen – Age reduced to 60 (P.182)

The Council of the ICAI has decided to reduce the age from 65 years to 60 years for treating a member as senior citizen for the purpose of payment of annual membership fee and certificate of practice fee.

ii) New Branches of ICAI (P. 167 to 168)

The following five branches of ICAI have been established. With this addition, there are 138 Branches of ICAI in India now.

a) Sikar (Rajasthan) – CIRC
b) Sirsa (Rajasthan) – NIRC
c) Rewari (Haryana) – NIRC
d) Nanded (Maharashtra) – WIRC
e) Dhule (Maharashtra) – WIRC

iii) Branches of WIRC Students Association (P. 169)

The following branches have been set up

a) Latur (b) Ahmedabad (c) Sangli and (d) Goa

iv) The following Institutions have recognised Chartered Accountancy Qualification for registration to PhD Programme (P. 169 to 171)

a) Arinahilingam Institute for Home Science and Higher Education for Women, Coimbatore – deemed university

b) Indian Institute of Technology, Madras

c) Dr. D.Y. Patil Vidyapeeth University, Pune

d) Central University of Jharkhand, Ranchi.

v) The following Campus Placement Programme for newly qualified C.As. has been or organised by ICAI during the month of August and September, 2013 (P. 180)

No.

Centre

Interview Dates

Ahmedabad, Bhubaneswar,

12th -19th

Chandigarh,
Coimbatore,

August,2013

Ernakulam, Indore,
Jaipur,

Kanpur, Nagpur, Pune

Bengaluru, Chennai, Hyderabad,

6th -13th

Kolkata, Mumbai, New
Delhi

September, 2013

PART D: Good Governance

Pavan Varma, an author and a former diplomat and corruption adviser to the Bihar Chief Minister wrote in the Times of India on Sunday 18th March 2013, under the title, “A Republic in Crisis” Excerpts thereof: There is an uncomfortable fact which we are unwilling to confront. And that is that our young republic is facing a systemic crisis.

This crisis is not about an individual. It is not about any one party. It is not about one international economic showdown. And, it is not a crisis which will be necessarily resolved by the next general elections, or the ones after that. The crisis that we are in is that two fundamental pillars of our republic, governance and democracy, which should be complimentary, have become antithetical to each other. This was not a situation envisaged by our Constitution makers. Their presumption was that democratic election would throw up a party, or a combination of parties, which on the basis of a stable majority would govern effectively in order to give back to the people what they had promised.

Governance and democracy must be complimentary to each other. There could be better solutions to the one I have proposed. But the blunt truth is that we must find a solution. We cannot afford to lose any more time. The people of India will not wait anymore.

PART C: Information on & Around

BMC & RTI:

If all goes as planned, there will be no need to put an RTI application to get information about the Brihanmumbai Municipal Corporation (BMC) as the civic body, in a year’s time, plans to digitise each and every document and put it up on their website for all to see. Not a small feat as they have over 80 Crore papers to be displayed online.

“All these documents are important and they are so old that even turning pages can damage them. If we want to preserve these documents, getting them digitised is the only way,” said a senior civic official. “Once the digitisation is done, there will be no need to submit a right to information (RTI) application for obtaining information regarding the BMC,” said Sitaram Kunte, Municipal Commissioner.

Nagpur SIC:

On Saturday 16th March, Times of India reported: SIC heard three appeals and levied a fine of only Rs. 18,000 in all the last six months and so on. The State Information Commission (SIC) bench in Nagpur seems to be doing everything to blunt the Right to Information (RTI) Act, 2005, a legislation that has empowered common people against the system. Next day on Sunday, 17th March, Times of India issued clarification as under:

The state information commissioner, Bhaskar Patil, has pointed out that the headline ‘Nagpur info chief clears 3 of 1,849 pleas in 6 months’ is incorrect. He stated that the SIC had heard and disposed of 1,978 appeals and complaints from June to December last year, out of which it levied monetary fine in three cases. The SIC had also recommended ‘disciplinary action’ on 41 cases out of 1,849 second appeals and 485 complaints. The error is regretted.

Corruption and RTI:

The Central Vigilance Commission (CVC) has slammed the Department of Revenue in the Ministry of Finance and two of its key organs – the Central Bureau of Direct Taxes (CBDT) and the Central Board of Excise and Customs (CBEC) – for shielding its allegedly corrupt senior officials.

In response to an RTI application filed by Economic Times, CVC has revealed the minutes of all annual review meetings held by it in 2012 with Central Vigilance Officers (CVOs) of various government sectors. The minutes of such meeting held on 27th July, 2012, with CVOs of the Revenue and Transport Sector reveal that CVC came down hard on the Department of Revenue, CBDT and CBEC for going slow against corruption. The minutes clearly state that CVC Pradeep Thakur said at the meeting that there is a “perceptible tendency” in the Department of Revenue of “trying to protect particularly senior officers” in the organisation. CVC asked Shashi Shekhar, the additional secretary (revenue) and CVO of Department of Revenue, to make concerted efforts to liquidate the pendency of corruption complaints, saying the commission was concerned over the inordinate delay in implementation of its advice for action.

Shielding top officers is a phenomenon in CBDT too, the minutes indicate. “CVC expressed its concern at the inordinate delays being caused by CBDT in finalising regular department action cases, implementation of CVC’s advice and in grant of sanction for prosecution. CVC stated that such delay indicated reluctance of the administration in taking action against senior officials and such delays, especially in grant of sanction for prosecution, are completely unacceptable. CVC also expressed its displeasure at the arbitrary fashion in which adjudicating officers are passing the orders while deciding cases of higher revenue implications,” the minutes say. CVC was similarly anguished about the large number of pendency of action against allegedly corrupt officials in CBDT, saying Supreme Court has recently made it mandatory for prosecution sanction to be granted within three months and officers intentionally delaying the same to be held accountable.

As per the CVC annual report for 2011, CBDT and CBEC were still to take action against a total of 474 corrupt officers against whom CVC advised action over six months ago. 330 such cases were pending in CBEC while 144 cases were pending in CBDT. In comparison, CBEC took action only against 69 of its officers last year while CBDT acted against just eight officers.

PART B: RTI Act, 2005

Excerpts from Mrs. Aruna Roy’s letter to RTI Users: The importance of a National Compaign for people’s Right to Information (NCPRI):

“As we proceed into the eighth year of the use of the RTI we need to look – not only at the shortcomings which we always do-but at our immense gains. Not so much to compliment ourselves as to strengthen our resolve to carry on with millions of our struggles that its use has spawned. The RTI has forced the re-distribution of power, demanded participatory decision-making and specific accountability. It has legitimised questioning as a part of decision-making. It has questioned representative democracy and pushed the system to acknowledge, though reluctantly, that it has an obligation to the sovereign citizen.

Sometimes, one has the good fortune to be a part of campaign for an issue that has a seminal impact on the lives of people. In all our collective dreams we define a space where equality will be an accepted norm and justice accessible. We have all thought and expressed the desire of a corruption-free India, where arbitrary use of power can be questioned and addressed. The Right to Information Act has addressed and facilitated the realisation of some of these dreams.

There was to begin with the unstated understanding that even confronting corruption needed an equal emphasis on the arbitrary use of power. In other words, RTI was fundamental to a democracy, and democracy, in order to stay alive with its principles intact, needed the RTI.

Once the law was made, the NCPRI accomplished a basic objective and many of its constituent members withdrew to the background. Many users, groups and organisations have grown. All of us continue to be amazed at the number of users, and the thousands of ways in which the law has empowered people to access food, shelter and justice, individually and collectively.It has been and continues to be a revelation of the ingenuity of the concerned citizen-user. An acid test of any legislation is its continued use even after meeting with road blocks and deliberate attacks, in this case even on our lives. RTI has addressed that challenge with persistence and diligence. We always said the devil lies in the details. The RTI users have continued to pursue and conquer these devils! The RTI empowers the citizen, or citizens, as the case may be, to challenge and question the State as part of their regular life, activities and campaigns.

Individual users all over the country have already revolutionised the interaction with the State with their imaginative use of the RTI. If we manage to work together, our collective work may have a great impact on India’s ethical future. It may force the system to keep its constitutional promises and forever change the face of governance in this country. It is true that India is not one of the easiest countries to live in, nor one of the most efficient bureaucracies to deal with. Yet, we live and must claim our rights as citizens and continually challenge unethical action, from the individual to all of its citizens and in every aspect through which the constitution guarantees our sovereignty.”

Company Law

Companies Bill is passed:

The New Companies Bill with 29 chapters, 470
sections and 7 schedules, was passed by the Lok Sabha on December 18,
2012 and then transmitted to the Rajya Sabha for concurrence. The Rajya
Sabha made 9 amendments to the Bill before passing it on August 8th,
2013. Thereafter the Lok Sabha has agreed to the amendments made by the
Rajya Sabha to the Companies Bill 2012. The Bill was awaiting
Presidential assent.

The highlights of the Companies Bill 2012 as passed
by the Rajya Sabha can be seen at

http://www.icsi.edu/WebModules/Linksofweeks/ Cos%20bill%20highlights.pdf

Indirect Taxes

MVAT UPDATE

Guidelines -institution of prosecution and compounding of offences

Trade Circular 5T of 2013 dated 24-07-2013

In this circular guidelines regarding institution of prosecution and compounding of offences in case of non-filing of returns or late filing of returns have been provided.

SERVICE TAX UPDATE

91. VCES- CBES Clarification Circular No. 170/5/2013 -ST dtd. 18th August, 2013

The Voluntary Compliance Encouragement Scheme, 2013 (VCES) which has come into effect from 10-5- 2013 has given rise to a number of practical problems. Some of the issues raised with reference to the Scheme have been clarified by the Board vide Circular No. 169/4/2013-ST, dated 13-05-2013. Further to encourage the defaulting assessee to pay the tax dues for the period prescribed in the scheme with immunity from interest, penalties and other consequences of such non-payment, the CBEC has issued this circular in the question answer form to clarify all the doubts in a very simple and lucid manner.

Direct Taxes

84. Due date for filing the Returns of Income for A.Y. 13-14, extended from 31st July, 2013 to August 5th, 2013. – F.No 225-117-2013-ITA. II dated 31st July, 2013

85. Central Government notifies differential rate of interest in respect of rupee denominated bond of an Indian company for the purpose of section 194LD of the Act – Notification no. 56/2013 dated 29th July, 2013

86. Income-tax (11th Amendment) Rules, 2013 – Amendment in Rule 21AB and introduction of Form 10F

– Notification no. 57/2013 dated 1st August, 2013 –

A non-resident proposing to claim benefit under Double Tax Avoidance Agreement entered into between India and his country of residence is required to furnish an undertaking in Form 10F along with the Tax Residency certificate. The amendment is effective from 1stApril, 2013.

87. INSTRUCTION NO.10/2013[F.NO.225/107/2013/ ITA.II], DATED 5th August, 2013 relating to the procedure and criteria for selection of scrutiny cases under compulsory manual during the financial year 2013-14.

88. Income-tax (12th amendment) Rules, 2013 – amendment in Rule 37BB and amendment to Form 15CA and 15CB- Notification no. 58/2013 dated 5th August, 2013

Rule 37BB is amended with effect from 1st October, 2013, which prescribes the procedure to be followed by a person responsible for making a payment to a non-resident. Form 15CA i.e., the form to be filled by the person making remittance and Form 15CB, a certificate to be issued by the Chartered Accountant are amended.

89. Income tax (13th amendment) Rules, 2013 – amendment in Rule 12C and amendment to Form 64- Notification no. 59/2013 dated 5th August, 2013 –

Income paid or credited to by the Venture Capital company or venture capital fund is required to be furnished in Form 64. Form 64 is to now to be furnished electronically under digital signature.

90. Central Government authorises 14 entities to issue during the financial year 2013-14, tax free, secured, redeemable, non-convertible bonds-Notification no. 61/2013 dated 8th August, 2013

ICAI and its Members

1. Finances of ICAI

Audited Accounts of ICAI for the year ended 31-3-2012 have been recently released at the 63rd Annual Meeting held in February, 2013. The summarised position given below will show that the net worth of ICAI as at 31-3-2012 was Rs. 838.77 crore. (including Earmarked Funds of Rs. 162.86 crore). The Net Surplus as per Income & Expenditure Account for the year ending 31-3-2012 was Rs. 182.61 crore.

4. Our New President and Vice President

On 12-2-2013, Shri Subodh Kumar Agrawal (Kolkatta) is elected as President and Shri K. Raghu (Bangalore) is elected as Vice President of ICAI for the year 2013-14. Our greetings and best wishes to both of them for a successful term of office.

5. EAC Opinion

Accounting for Preliminary and other Pre-operative expenses and Government Grants in Profit and Loss Statement

Facts

A State Government accorded sanction for implementation of the High Speed Rail Link (HSRL) to the International Airport. A Ltd., a wholly owned Government company, was appointed as nodal agency of the State Government for the HSRL project and to play a similar role that it has been playing in the implementation of another International Airport. Further, sanction was also accorded to constitute Special Purpose Vehicle (SPV Ltd.) to implement the project on PPP – BOT basis by inviting Expression of Interest (EOI) and Request for Proposal (RFP). A Ltd. was also authorised to engage the services of another company, B Ltd on assignment basis as project consultants to assist SPV Ltd., in the implementation of this project.

By another Government order, sanction was accorded to release an amount of Rs. 2.50 crore to A Ltd. for utilising the funds to pay consultancy fee to study the impact of City Airport Terminal (CAT) on the traffic and to suggest engineering solution to tackle the traffic problem and project consultancy fee for incorporation of SPV Ltd. and documentation charges/fee for preparation of MOA & AOA of SPV Ltd., Accordingly, A Ltd. incorporated SPV Ltd. on 31st March,2008 with the main objective-to implement HSRL Project to an International Airport under PPP concept. SPV Ltd. initially issued 49,996 shares to A Ltd and 4 shares to nominees of State Government, Thus, it became a subsidiary of A Ltd.

Thereafter, SPV Ltd. prepared its accounts for the period from the date of incorporation to 31st March,2009 i.e. for the first year. It prepared only balance sheet and no profit and loss account or income and expenditure account was prepared as company had not commenced its operations. A note was given that pre-operative/implementation (construction) period expenses till the completion of the project will be capitalised and preliminary expenses would be amortised in five equal installments after commencement of its operation. In the next year i.e. in the financial year 2009/10, the SPV Ltd .prepared its profit and loss account and preliminary expenses and pre-operative expenses were charged including the expenses incurred by A Ltd on behalf of SPV Ltd., in the profit and loss statement.

Query

On these facts, an opinion of EAC was sought, whether the accounting by SPV Ltd. for expenses/ funds which were received by A Ltd. as promoter of SPV Ltd. by preparing the profit and loss account for the financial year 2009/10 is in compliance with the requirements of the Companies Act, 1956 and Accounting Standard issued by ICAI and if not what is the appropriate accounting treatment?

Opinion

The Committee after considering AS-26 was of the view that cost of starting up an activity that includes incorporation expenses, including preliminary expenses incurred by A Ltd. towards incorporation of SPV Ltd., in bringing an enterprise into existence as a separate legal entity should be expensed as no intangible asset or other asset is acquired or created that can be recognised, unless such expenditure is required to be capitalised as part of the cost of a fixed asset as per AS-10 in the books of SPV Ltd.

Further, the Committee was of the view that the funds received from the Government meet the definition of “government grants” as per provisions of AS-12 and should be recognised accordingly. Besides, the Committee was of the view that funds received were both in the nature of grants related to revenue and of the nature of promoters’ contribution. Hence, the funds received for meeting the envisaged obligation of SPV Ltd. should be treated as income to match against the expenses incurred for the period. The funds in the nature of “promoters’ contribution” should be taken to capital reserve as per the requirements of AS 12 and amount received from the Government against the issue of the shares be recognised as share capital.

As regards preparation of profit and loss account before commencement of commercial operations by the SVP Ltd., the Committee noted that as per requirement of section 210 of the Companies Act, 1956, a profit and loss account has to be prepared for each annual general meeting from the date of incorporation of SPV Ltd. Same view has been taken in the circular no. 2/17/64-ER dated 29th January, 1964 issued by the Department of Company Affairs. Hence, the preliminary and other expenses incurred should be expensed in the year of their incurrence. Similarly, the grants which were earned by SPV Ltd. during the period should be recognised as per requirements of AS 12. Therefore, the Committee has taken the view that the profit and loss account should be prepared by SPV Ltd. from the date of incorporation, even before commercial commencement of the project.

Hence, the accounting by SPV. Ltd for expenses/ funds received by A Ltd. while preparing the profit and loss account of the financial year 2009/10 was not correct and was not in compliance with AS 10, AS 26 and AS 12. The expenses/funds received should be accounted for in the profit and loss account of SPV Ltd. of the respective years in which these are incurred/earned.

[Pl. Refer Page nos. 1246 to 1253 of C. A. Journal – February, 2013]

6. ICAI News
(Note : Page Nos. given below are from C.A. Journal for February, 2013)

(i) Council Elections – 2013
Results of Council Elections held in December, 2012 were declared on 7-1-2013. 22nd Council was constituted effective from 12-2-2013. Out of 1,92,641 voters, 90,228 voters (46.83%) exercised their franchise. Region wise voting percentage was Western 49.81%, Southern 44.07%, Eastern 42.23%, Central 46.14% and Northern 47.45%. (Page – 1171)

(ii) November, 2012, Final Examination Result.
(a) Both groups – 12.97%, (b) Group I – 27.30%, (c) Group II – 21.85%
Rank –   1 Ms. Prema Jaykumar (Mumbai) 75.88%
Rank –   2 Mr. Ashokkumar Indiana (Rajamahendra varam) 75.25%
Rank –   3 Mr. N. Gnansampath (Coimbatore) 74.13% (P. 1173)

(iii) Members of New Central and Regional Councils
Names of New Central Council and Regional Council members and given on pages 1184/1185.

(iv) New Publications
ICAI has published a book on “Commonly Used Terms in Public Finance & Government Accounting”.
(P. 1326)

(v) ICAI Awards – 2012
ICAI has declared the following Awards to Western Region for 2012
(a) Best Regional Council – WIRC
(b) Best Students Association – Western India
(c) Best Branch (Large Branch) – Baroda, Nagpur (WIRC) and Ludhiana (NIRC)
(d) Best Branch (Medium Branch) – Aurangabad (WIRC) and Salem (SIAC)

Ethics and u

Gross negligence – Clause 7 of Part I of Second Schedule (contd.)

Series 4

Shrikrishna (S) – My dear Arjuna, you are looking very tired today. It seems the 30th September fever is on.

Arjuna (A)– I have lost my sleep! Anything can happen, our profession is so vulnerable!

S – I agree. Your Institute’s motto is ya esha suptesju jagarti – You have to be constantly awake.

A – That refers to mental awakening, but I have even lost physical sleep.

S – Why? You only need to be diligent—and vigilant. Is it that difficult?

A – In the last few meetings, you have been telling me about due diligence and gross negligence. But what exactly should one do? Tell me specific things…

S – In the eleventh chapter of the Geeta, I showed you my ‘vishwa-roop’ – no end to the forms in which I manifest myself. I mean the forms in which I appear before you. In the same way, there cannot be an exhaustive list of instances of negligence!

A – I understand that, but today I heard a story— so alarming, I don’t know whether it is negligence or misfortune! It is beyond imagination.

S – What did you hear?

A – What to tell you. The story is like a nightmare!

S – Arjuna. In this month of September, you don’t have much time. So, be quick. What happened?

A – My friend was the auditor of a company for six years. He left the audit 3 years back. Big Company. Turnover 600 crores!

S – What was its business?

A – It had some mines in Bihar. Suddenly, he received a complaint filed by a bank.

S – What was it about?

A – That big company had turned into an NPA. And the auditor was being made a scapegoat.

S – This is very common. It is strange that the auditor is blamed for such things, as if the company’s performance depends on the auditor! But that auditor must have committed some blunder.

A – Actually, the company’s corporate office was in Mumbai; the auditor says he used to do 100% audit.

S – But did he ever visit the business site?

A – Of course! During six years, he visited the mines on two to three occasions.

S – Then what is the problem? Why did he give up the audit?

A – There was some issue about his fees.

S – Ok. But what is the problem? He has to simply show how he conducted the audit. He has to show working papers, audit programme, noting, management representation, etc.

A – All that, he has done. He has taken everything on record. Stock statements, bank statements, bank’s certificates, copies of other important documents.

S – Then he need not worry. If the business has failed, what can he do?

A – Actually, the management was thinking of an IPO!

S – Very good. At least common investors will be saved.

A – But the real story is that there was a CBI raid on the company. The auditor was also summoned, and interrogated.

S – This is also common. But the auditor has to answer it without fear if he has done the job properly.

A – The shocking revelation was that the company did not have any real business at all! Everything was fake and fabricated. Bank statements, correspondence, banks certificates, contracts, licences, bills, invoices, vouchers and practically all records were false!

S – But what about those mines?

A – God alone knows. They showed some mines. What does an auditor understand about mines? When we go for stock taking, we are really not capable of understanding anything. It is a futile exercise. Even about machinery, what do we know?

S – Strange. Really intelligent, what massive planning!

A – I feel banks should have known this earlier. If there are no business transactions through a bank, they should know immediately. Yet they keep on renewing the facilities.

S – Actually, that underlines the importance of third-party evidence. Middle-level audit firms avoid writing directly to debtors, bankers, suppliers, and other concerned parties. They don’t verify records of other laws—like VAT, excise, labour laws.

A – But a fraudster can produce any fabricated documents.

S – Leave this extreme case alone. The fact remains that third party evidence can reveal so many things that are important for audit.

A – The moral of the story is that we should suspect everything. There is no use acting merely as a watchdog. We should becomebloodhounds only.

S – Times have changed. Bad elements are becoming stronger. Proportion of truth in every walk of like is reducing. This calls for ‘professional scepticism’ —don’t act too much in good faith.

A – The story is a real eye-opener. We must train our staff, try to follow all that we learnt in audit books, be more assertive with clients.

S – You said it! Ganesh festival is approaching. The Lord will save you only if you are alert and diligent. God bless you.

Om Shanti !

The above dialogue between Shri Krishna and Arjuna is a continuation of earlier dialogues published in BCA Journals of May 2013 and June 2013. It deals with the terminologies ‘gross negligence’ and ‘lack of due diligence’ used in Clause (7) of Part I of Second Schedule. This is the most important and serious charge of misconduct. Discussion on this clause will continue.

Representation

22nd March 2013

To,

Mr. P. Chidambaram
Honorable Finance Minister
Government of India,
North Block, Vijay Chowk,
New Delhi – 110001

Respected Sir,

Subject: Union Budget 2013-2014: Post Budget Recommendations on Indirect Taxes.

We have seen with interest the budget presented by your honor, on behalf of United Progressive Alliance (UPA) Government, in the Parliament on 28th February 2013 and appreciate your concern for challenges faced by the country and your efforts to accelerate economic growth.Our suggestion on various topics for rationalization of law, rectification of certain anomalies and correction of drafting, etc., are given in the enclosed representation relating to indirect taxes. We hope that our Representation will receive due consideration.

Thanking You,

For Bombay Chartered Accountants’ Society
Deepak R. Shah Govind G. Goyal
President Chairman, Indirect Taxes and Allied Laws Committee

Post budget memorandum 2013-14

Suggestions on Legislative amendments proposed in Indirect Taxes:

Service Tax

1. Section 78A – Introduction of personal penalty – to be dispensed with

1.1 The Bill has proposed to introduce a new section 78A for imposing a financial penalty up to Rs. 1,00,000/- on directors, managers, secretary or other officers incharge of the company for specified contraventions committed by a company.

1.2 In this regard, it may be noted that for similar contraventions, such persons are already liable to prosecution under Section 89 of the Act r.w. s. 9AA of the Central Excise Act. Thus, in view of the liability for prosecution there is no need to provide for penalty also. Such a corresponding penalty is absent in Customs, Excise and Income-Tax. Further, in any case separate penalties are already provided for the company which has defaulted.

1.3 Further, in absence of a corresponding amendment in s. 80 of the Finance Act, 1994 the defense of ‘reasonable cause’ u/s. 80 would not be available to the imposition of penalty under the above proposed section.

1.4 In view of the above, the new provision Section 78A is very harsh. It is hereby suggested that it should be deleted.

2. Section 90 & 91 – Proposal to define certain offenses as cognizable and provide power to arrest – to be deleted.

2.1. The Bill has proposed to introduce Section 90 to provide that notwithstanding anything contained in the Code of Criminal Procedure, 1973, all offences under sub-clause (ii) of the sub-section 89 of the Act (i.e. person collects service tax and fails to pay within 6 months to the credit of Central Government) shall be cognizable and non bailable. Further, it is proposed to introduce section 91 to assign powers to Commissioner to authorize Central Excise officer (not below the rank of superintendent) to arrest the assessee who commits the specified offences under the law.

2.2. Historically, the Service Tax law has always recognized that a large number of service tax assesses are from the unorganized sector. Further, the process of provision of service is quite different from manufacture. Manufacturing takes place with a defined set of activities and within a defined boundary having its own sets of rules and regulations eg. Factories Act, 1948; Standards of Weights and Measures Act, 1976 etc. A service by contrast, has no defined set of activities or defined place. It may be rendered even from the home of a self-employed person. Thus, the wherewithal for the service provider is much less. Lastly, the evidence available for non-compliance in case of manufacturing units would be more easily decipherable as against the service sector. Hence, such provisions of the excise law should not verbatim be made applicable to service tax.

2.3. Secondly, in any case, prosecution is already provided for in Section 89 which could be invoked, if required, in the normal course.

2.4. Thirdly, providing the service tax department the power to arrest would inculcate a fear psychosis in the service tax paying fraternity which will be counter productive from the Government’s prospective. There could also be cases where interpretation and opinion may vary and hence providing impromptu power to arrest without going through the prosecution proceedings u/s. 89 would be unjustified.

2.5. In view of the above, it is hereby suggested that Section 90 and 91 proposed by the Bill should be deleted as Section 89 would meet the ends of justice.

3. Voluntary Compliance Encouragement Scheme (VCES)

3.1 The VCES has been introduced to grant waiver of interest and penalties in cases where tax has been unpaid as on 01.03.2013. The Scheme is not applicable in many cases where the assessee has either disclosed the taxes in return, but was unable to pay due to genuine financial hardships. Similarly, the Scheme is not applicable in cases where SCN has been served on the assessee. This results in a situation that the Scheme favours dishonest and non compliant assesses as compared to compliant assesses who have been victims of interpretation of dynamically changing law.

3.2 It is therefore suggested that the Scheme be extended to the following cases:

a. Where letter of enquiry or SCN has already been issued.

b. Cases where the tax has been paid but interest and penalties are not paid, even if the tax has been disclosed in the returns, demanded through a SCN or an Order or the matter is pending in litigation

c. Cases where the tax has not been paid but is disputed either at the adjudication level or appellate level, if the assessee agrees to pay the tax and withdraw the appeal, the interest and penalties should be waived.

3.3 It may be noted that by doing so, there is very little loss of Revenue to the Government since even in the past when such disclosure schemes have been declared, the Tribunals have been liberal in waiving penalties to similarly placed assesses who were not eligible for the Scheme.

3.4 In fact, extending the Scheme to such cases of litigation will result in a substantial increase in the revenue collection and would bring an end to many matters pending in litigation, leaving the adjudication and the appellate machineries to deal with genuine matters of dispute and ensure an expeditious disposal. This will also further the objective of the Government of setting a 365 day time frame for final disposal of the Appeal at the Tribunal level.

3.5 As regards the scheme, time limit should be prescribed for the following :
(a) rejection of declaration by designated authority under section 96 (2); and

(b) Giving a declaration of discharge under section 97(7).

4. Appeals to Tribunal – Certain drafting improvements

Section 86(5) is proposed to be amended to enable the Tribunal to condone a delay in filing the appeal by an assessee. Similarly, s. 86(4) also needs to be amended to enable the Tribunal to deal with the cross-objections filed by an assessee.

Hence it is hereby suggested that in section 86(4), before the words, figures and brackets “subsection (3)” the words “sub-section (1) or” maybe inserted.

5. Service Tax on air-conditioned restaurants – certain exclusions to be provided.

5.1 With the amendment of entry 19 in the mega exemption w.e.f from 1.4.13 all air-conditioned restaurants will be liable for Service Tax. This would bring a huge number of restaurants although the tax net pushing up the prices of eating out. The Excise Law has well appreciated that Excise Duty should not be applicable on food and food stuffs (Chap 1- Chap 22). Having alcoholic beverages may be a luxury but eating out for a substantial part of public may be a necessity. Secondly a host of small eating houses providing lunch at reasonable prices would be affected including cafeterias in hospitals, factory, offices etc.. Thirdly the threshold limit of 10 lakhs is too minimal for a restaurant.

5.2 In view of the above the following are suggested:

(i) Eating Houses/Cafeteria in factory, offices, hospitals should be exempted;

(ii) All restaurants, eating houses and messes having turnover up to Rs. 4 crore in a year (in line with excise) should be exempted.

Customs

6. Section 47 of the Customs Act

6.1 The section is proposed to be amended to reduce the interest-free period for payment of customs duty from 5 days to 2 days. It is difficult to get bills of entry assessed in 2 days, and in most cases, the reason for delay in clearance is not attributable to the assessee. It is therefore suggested that the interest-free period be retained at 5 days.

ICAI And Its Members

1. Code of Ethics:

The Ethical Standards Board has given answers to some of the questions relating to Ethical issues at Pages 1364-66 of CA Journal for March, 2013. Some of these issues are as under:-

(i) Whether the statutory auditors consisting of ten or more members can conduct the branch audits of the same company?

Response

The Council has prescribed certain self-regulatory measures, in order to ensure a healthy growth of the profession and an equitable flow of professional work among the members. One of the recommendations of this nature is that the branch audits of a company should not be conducted by its statutory auditors consisting of ten or more members, but should be conducted by the local firms of auditors consisting of less than ten members. This should not be understood to mean any restriction on the right of the statutory auditors to have access over branch accounts conferred under the Companies Act, 1956. This restriction may not apply in the following cases:

(a) where the accounting records of the branches are maintained at the head office of the respective companies; and
(b) where significant operations of an undertaking or a company are carried out at its branch office.

(ii) Is there any ceiling on the fees to be accepted from one company?

Response

To ensure that the professional independence of a member in full-time or part-time practice does not appear to be jeopardised, he should, as far as possible, take care to see that the professional fees for audit and other services received by the firm in which he is a partner, by him and his partners individually and by firm or firms in which he or his partner are partners from one or more clients or companies under the same management, does not exceed 40% of the gross annual fees of the firm, firms and partners referred to above. ‘Companies under the same management” here would refer to the definition of this expression as provided in Section 370(1-B) of the Companies Act, 1956. Further, such ceiling on the gross annual professional fees of a member would be applicable, where such fees does not exceed Rs. 2 lakh in respect of a member or firm, including fees received by the member or firm for other services rendered through the medium of a different firm or firms in which such member or firm may be a partner or proprietor. No such ceiling on the gross annual professional fees of a member would be applicable in the case of audit of government companies, public undertakings, nationalised banks, public financial institutions or where appointments of auditors are made by the Government.

(iii) Can a member share profits with the widow of his deceased partner? Response When there are two or more partners and one of them dies, the widow of the deceased partner can continue to receive a share of the profit of the firm. A legal representative, say widow of a deceased partner, would be entitled to share the profits only where the partnership agreement contains a provision that on the death of the partner, his widow or legal representative would be entitled to such payment by way of sharing of fees or otherwise for the specified period.

2. EAC Opinion Accounting for common fixed assets constructed for a project under progress:

Facts: A Government of India company (Company) is engaged in the construction and operation of thermal power plants in the country. The company is involved in the construction of power projects. Every project has a defined capacity expressed in terms of Megawatts (MWs) and such capacity is further divided into stages and units. The company envisages construction of power projects that are around 1000/1320/2000/3000 MW in capacity. These normally consist of individual generating units of 500/660 MW capacity. The capacities are built in clusters called stages. Generally, each stage may consist of two or more units and power projects are constructed in phased manner. In coal based thermal power plants, coal is a basic fuel which is used in the process of generation of electricity. To cater to the coal requirement of a generating unit, a coal handling plant comprising track hopper, crusher house, conveyor and coal stock yard is constructed. Through the coal handling system, coal is supplied to the two different generating units of the first stage of the project. For the construction of coal handling system for two generating units of a stage, a single contract is awarded. The total package includes (a) construction of coal handling plant including conveyor system and the mechanical structure and (b) construction of separate coal supply arrangements beyond the crusher house to different generating units of the project. Thus, the coal handling plant is a common system catering to all generating units of the first stage of the power project. As per Accounting Standard (AS) 10, “Accounting for Fixed Assets” the company, on commercial declaration of the first unit of stage (Unit I) of the project has capitalised the cost of systems which have started functioning (including the cost of coal handling plant) alongwith the cost of first unit. As the cost of the portion of cold handling plant declared commercial is not directly available, the cost of coal handling system is technically estimated/assessed by a committee comprising members from Engineering, Finance and Erection Department of the project.

Query:

On these facts, opinion of EAC has been sought on the following issues: (i) whether the accounting treatment followed by the company for capitalisation of coal handling system on technical assessment/ estimates alongwith Unit ONE is in order? (ii) If answer to (i) is in negative, on what basis, the cost of coal handling system declared commercial alongwith Unit One should be capitalised?

EAC Opinion: After considering paragraphs 9.1 and 9.2 as well as 10.1 of AS-10, the Committee has expressed the view that the coal handling plant handles and processes the fuel required for operation of generating units. Thus, in the Company’s case, power generating units and coal handling system can be considered as composite plant which would be ready for its intended use only when either Unit One or Unit Two and coal handling system to the extent related to the relevant unit, are ready for commercial production. Therefore, those parts of composite plant which are ready for their intended use and can be operated independently of the remaining parts should be considered to be ready for commencement of commercial production/ intended use. Accordingly, in the Company’s case, coal handling system, although under construction but since substantially complete, such that Unit One is ready to commence commercial production, it would be correct to capitalise that cost of the coal handling plant which is necessary for making Unit One operational when unit One is ready to commence commercial production. As regards using technical estimates for determining the cost of related portion of coal handling plant which is to be capitalised, the Committee is of the view that technical estimates can be used provided these approximate the cost of such system reliably. [Refer pages 1402 to 1405 of C. A. Journal of March, 2013 ]

3. New Office Bearers of WIRC The following Office Bearers of WIRC are elected for 2013-14

(i) Chairman: CA Mangesh Kinare,
(ii) Vice Chairman: CA Parag Raval,
(iii) Secretary: CA Neel Majithia, and
(iv) Treasurer: CA Priti Savla. We congratulate the new team of WIRC and wish them successful year in office.

4. Chairman – Vice Chairman of some Important Committees of Central Council (Refer Pages 1479-1484 of CA Journal for March, 2013)

(i) Executive, Examination, Finance, Disciplinary Committees & Editorial Board

Chairman : CA Subodhkumar Agarwal, President
Vice Chairman : CA K Raghu, Vice President

(ii) Other Committees:

5. Revised Form of Audit Reports:
Audit Reports for Financial Statements for the periods beginning on or after 01-04-2012 have to be issued in the Revised format as suggested in the Revised Standard on Auditing (SA) 700 – Page 1485 of CA Journal for March, 2013.

6. ICAI News
(Note: Page Nos. given below are from C.A. Journal for March, 2013)

(i) Standard on Internal Audit (SIA) 18 – Related Parties

This Standard is published on Pages 1491-1494

(ii)    New Publications of ICAI
(a)    Compilation of Registration Provisions under VAT Laws of different States (Page 1489)
(b)    Technical Guide on Accounting Issues in Retail Sector (P. 1489)

(iii)    PCE – IPCE Results – November 2012 Examination (Page 1349)
(a)    PCE: Both Groups 320(5.45%), Group I 1943 (22.17%) and Group II 1870 (14.78%)
(b)    IPCE Both Groups 5720 (11.15%), Group I 25269 (25.14%) and Group II 20326 (21.13%)

From the President

Dear Members,

Come February and anxiety builds up. Every section of the Society talks about the Budget, and is waiting for the Budget with lot of expectations.

I would like you all to ponder over the following Questions, which I often pose before myself and struggle to find answers to it.
• Why do we show so much eagerness and concern for the Budget to be presented ?

• Has the Budget not become an non-event ? If I rightly recollect, in 2006-2007, our present Finance Minister, who was Finance Minister during that period, expressed that he wants the Budget to be an non-event.

• Whether the ritual of presenting the Finance Bill is a Farce ?

I know that our’s is a country of rituals, but it’s time to end the Budget Speech tradition. It serves no purpose. Over the years, it’s been reduced to merely presenting more of a general economic survey and policy statements. The Finance Minister presents the Budget outlining key estimates and proposals. Many times, the gap between the Finance Minister’s speech on the floor of the House and what comes out in fine print may render this ritual to be nothing but a farce.

And the reason why I think in that direction, is based on some of the recent announcements which are made prior to the Budget, and I don’t see any reasons or logic to announce it prior to the Budget, and that they can’t wait till the Budget:

• Deferrment of implementation of GAAR until 2016 announced in mid January.

• Announcement of raising the Import Tariffs on Yellow metal and Duties on Gold ore in the last week of January.

• Across-the-board increase in passenger train fares, in January – a move that will add about 66 billion rupees to the railway revenue. The timing of the increase did raise questions, as it comes less than two months before the railway budget. As you are aware that the Revisions in train fares are usually announced in the rail budget and are implemented from April 1, when India’s fiscal year starts. But the early announcement was with the objective to limit opposition protests since Parliament was not in session.

If that’s what it is, perhaps it’s time to do away with the tradition altogether.

Today, everyone knows that the Tax laws are bad, but administration is worse. It is pitiable that the Economic reforms to strengthen the basis of our economy are being consistently ignored. The Government’s attitude to disrespect the judiciary is becoming a new trend. Furthermore, the Government is under constant pressure or is forced to withdraw or water down it’s Budget proposals, and even policies which are in the interest of the country. Sometimes, it struggles to implement it’s own proposals under the pretext of a review.

Considering the present situation, it’s high time that the following issues which need to be tackled and implemented, be taken up with the Government :

• Why is there a secrecy around the Budget making process?

• Why the pre-budget and post-budget memorandums sent by professional organisations in the interest of the Tax paying public at large for rationalisation, simplifications and reducing hardship are not being deliberated or debated with representatives of such bodies? As there is no inclination for the same, there is a feeling expressed that the process of memorandum making is becoming somewhat of a futile exercise.

• Why is there no machinery to consider proposals on a continuous basis and review the provisions regularly and periodically?

• Why the system is not equipped to make the best use of proposals received from various professional bodies in their right perspective?

• Why can’t we unite to seek our right for accountability in Government Departments?

Let’s hope a day will come where there would be an end to such farce, and a time will come where the Government in power has the courage to share with the country, from the heart, what it truly feels, their true, unedited understanding of the state of the nation and the party’s unexpurgated vision for the country.

Let’s hope that we see stable tax rates, a commitment to fiscal discipline and more reforms focusing on the economic revival in the forthcoming Budget. And await the answer to speculation going around that this would be an ‘Election Budget’ laden with sops and handouts.

With Warm Regards,

Yours truly,
Deepak R. Shah

Direct Taxes

Income tax (third amendment) Rules, 2013 – amendment in Rule 12 and substitution of forms SAHAJ (ITR 1), ITR 2, ITR 3, SUGAM (ITR 4S), ITR 4 and ITR V – Notification no- 34/2013 [S.O.1111(E)] dated May 1, 2013 –

The important amendments are as under :

(a) Form SAHAJ (ITR 1) cannot be used if the assessee has incurred a loss under the head ‘Income from other sources’ or if the assessee wants to claim tax relief u/s. 90/90A or has any income exceeding Rs. 5,000 exempt from tax.

(b) Form SUGAM (ITR 4S) cannot be used if the assessee wants to claim tax relief u/s. 90/90A or has any income exceeding Rs. 5,000 exempt from tax.

(d) Mandatory e-filing of return of income, if income exceeds Rs. 5,00,000 or if the assessee wants to claim tax relief u/s. 90/90A.

Procedure for deduction and payment of tax u/s 194 IA, issue of certificate of tax deducted etc.– Notification No. 39/2013 dated May 31, 2013

• Any sum deducted u/s. 194IA of the Act shall be paid electronically to the credit of the Central Government within a period of seven days from the end of the month in which the deduction is made.

• TDS payment u/s. 194IA shall be accompanied by a challan-cum-statement in Form No. 26QB.

• Since tax deducted is to be deposited accompanied by a challan-cum-statement in Form No.26QB, the amount of tax so deducted shall be deposited to the credit of the Central Government by remitting it electronically into the Reserve Bank of India or the State Bank of India or any authorised bank.

• Every person responsible for deduction of tax u/s. 194IA of the Act shall furnish the certificate of deduction of tax at source in Form No. 16B to the payee within 15 days from the due date for furnishing the challan-cum-statement in Form No. 26QB.

• Form 16B is to be generated online from the web portal within 15 days from the due date of deposit and must be downloaded from the TDSCPC website. Once the certificate is downloaded, it must be signed and stamped and then sent to the payee.

Cost Inflation Index for the financial year 2013-14 is 939 – Notification No. 40/2013 dated June 6, 2013

Income tax (Sixth amendment) Rules, 2013 – amendment in Rules 10A to 10E and substitution of Form 3CEB. Notification no- 41/2013 [S.O.1491(E) ] dated June 10, 2013

Income tax (Seventh amendment) Rules, 2013 – amendment in Rule 12 and substitution of forms ITR 2, ITR 3, ITR 4, ITR 5, ITR 6 and ITR 7 – Notification no- 42/2013 [S.O.1513(E)] dated June 11, 2013 – The important amendments are as under :

(a) No attachments to be filed alongwith the return filed in ITR 7.

(b) Mandatory e-filing of audit reports issued u/s 10(23C)(iv), 10(23C)(v), 10(23C)(vi), 10(23C)(via), 10A, 12A(1)(b), 80IA, 80IB, 80IC, 80ID, 80JJAA and 80LA.

The Finance Bill 2013, received the Presidential Assent on May 10, 2013

Agreement for Exchange of information relating to tax matters between India and Monaco enters into force – Notification No. 43 /2013 dated June 12, 2013

Commodities Transaction Tax Rules, 2013 – Notification No. 46/2013 [SO 1769(E)] dated June 19, 2013 – These rules to come in force from July 1, 2013

FROM THE PRESIDENT

Dear Members,

It’s a matter of great honour to pen a message for a prestigious Journal like BCAJ, and I was fortunate in putting across my thoughts and views on topics or issues related to our profession or developments in the Society, that concern us and to which we seek answers. I have enjoyed communicating with you over such issues, and getting valuable feedback and inputs in these twelve months, and I do hope you enjoyed my communications as much as I enjoyed writing them.

When this issue reaches you, I will have completed my term as the President of a body which prides itself as an institution that provides a foundation of knowledge, skills and professional values that enables CAs and CA students to continue learning and adapt to changes throughout their professional lives.

It is said that :

If you want to walk quick, walk alone

If you want to walk far, walk together.

I have understood the importance of this saying in the last one year. In this issue, I would like to share with you all, some of my learning and feelings in my journey as the President of this august body, which I would cherish for the rest of my life. It is an experience that is useful in one’s day to day life and in carrying out our duty and responsibilities, may it be towards clients, colleagues, family or friends.

The Value of Teamwork : Teamwork is at the heart of great achievements. If you want to reach your potential or strive for the seemingly impossible, you need to become a team player. If you lead a team, then you must convince your teammates to sacrifice their individual goals for the good of the group. And the most important quality you need to practice is the ability to understand how people think and feel. As you work with others, recognise the truth that all people, whether leaders or followers, have something in common. The ability to look at each person, understand and connect with him is a major factor in successful relationships.

A leader needs to figure out which button to push with each individual person on his team. One person will respond well to being challenged; another will want to be nurtured, another will need frequent follow-up. One of the important factors is to inspire others and make them feel good. That is important because people will go further than they thought they could when someone reposes faith and tells them they can. And the fact of life is : Individuals play the game but teams win championships.

To create an atmosphere of teamwork, one should understand the importance of peaceful coexistence. You would agree with me that thoughts, belief, and objects are infinite in their qualities and modes of existence, so we may not be able to see, understand all of them.

Often you have to face the situation when there is a disagreement. And whenever there are disagreements, naturally there are differences which may lead to conflict. Conflict is omnipresent. This conflict happens due to a multiplicity of viewpoints, and that truth and reality are perceived differently from diverse points of view, and that no single point of view is the complete truth. The common example is : A half glass of water can be called either half full or half empty. Both these views are correct. It is important how you look at it. Most of the time we believe that what we know or what we believe is the correct belief and understanding. Therefore, we may not be ready to listen to and understand the other person’s viewpoints and therefore arguments happen. Not only do we start arguments but we also want to win them. In this attempt of winning the argument we may lose friends, or hurt someone or spoil our relations with people. So, the moot question is – How do we overcome such a situation or resolve the conflict? The simplest answer would be – you either convince others or you get convinced by them. If both these things do not happen then we should learn to agree to disagree. Thus, we can coexist with differences.

The other important aspect one should never forget or one should always realise that we are dependent on others till we say goodbye to this world. With gratitude in our hearts, life becomes richer and more joyful. If we are able to return an act of kindness, it enhances our nobility. Many of our troubles could be eliminated if we could focus more on the blessings received and be grateful to others. I for one believe that the culture of saying thanks is slowly vanishing in our day to day humdrum of life. So, let us make a point to foster it consciously in our own personal lives.

In the end I would say that I thoroughly enjoyed each and every moment of this great opportunity which I got to lead, and advance the professional organisation of an immense repute like BCAS, the memories of which I will cherish for the rest of my life. Also during my tenure I have been fortunate to have the support, guidance, blessings and good wishes of a large number of people. I take this opportunity to express my gratitude to all. And above all I am thankful for the continuous and consistent support and cooperation from you all members and the CA fraternity at large. All regular activities of the Society continued to receive full attention during the year, and the attendance at our programmes reaffirms our faith in this continued journey of BCAS vision to be a principle-centered and learning-oriented organisation to promote quality service and excellence in the profession of Chartered Accountancy.

The new Team at BCAS for 2013-14 has been elected. My congratulations to Mr. Naushad Panjwani, and Mr. Nitin Shingala on being elected as the President and Vice-President respectively. Your continued support, suggestions and feedback to the newly elected team at BCAS for 2013-14 will help them offer improved and increased services.

Thank you and goodbye.

With warm regards.

Deepak R. Shah

ICAI and its members

1. Code of Ethics

The Ethical Standards Board of ICAI has considered certain ethical issues. Some of these issues are as under:

(i) Issue No: 1

What is the Conceptual Framework approach?

Response:
It is a framework that requires a professional accountant to identify, evaluate and address threats to compliance with the fundamental principles, rather than merely comply with a set of specific rules. Professional accountants are required to apply this conceptual framework to identify threats to compliance with the fundamental principles, to evaluate their significance and, if such threats are significant, then to apply safeguards to eliminate them or reduce them to an acceptable level such that compliance with the fundamental principles is not compromised.

(ii) Issue No: 2

What are the threats involved while complying with the fundamental principles?

Response:
Compliance with the fundamental principles may potentially be threatened by a broad range of circumstances. Many threats can be categorised as (a) Self-interest threats; (b) Self-review threats; (c) Advocacy threats; (d) Familiarity threats; and (e) Intimidation threats.

(iii) Issue No: 3

What are the available safeguards that may eliminate or reduce the threats at an acceptable level?

Response:
Safeguards that may eliminate or reduce such threats to an acceptable level fall into two broad categories viz. (a) Safeguards created by the profession,legislation or regulation; and (b) Safeguards in the work environment.

(iv) Issue No: 4

What is Ethical Conflict Resolution?

Response:
Ethical conflict resolution means to resolve a conflict in the application of fundamental principles while evaluating compliance with the fundamental principles.

(v) Issue No: 5

What is Independence?

Response:
Independence requires:

Independence of Mind – The state of mind that permits the expression of a conclusion without being affected by influences that compromise professional judgment, allowing an individual to act with integrity, and exercise objectivity and professional skepticism.

Independence in Appearance – The avoidance of facts and circumstances that are so significant that a reasonable and informed third party, having knowledge of all relevant information, including safeguards applied, would reasonably conclude a firm’s or a member of the assurance team’s, integrity, objectivity or professional skepticism had been compromised.

(vi) Issue No: 6

What is the conceptual Framework to Independence?

Response:
It is to be applied to specific circumstances and relationships. It gives various examples about the threats to independence that may be created by specific circumstances and relationships and also provides how professional judgment is used to threats to independence or to reduce them to an acceptable level depending on the characteristic of the individual assurance engagement.

2. EAC OPINION

Capitalisation of Borrowing Costs

Facts
(i) A Government company commenced its business in September 1987. The core business of the company is power generation at its power stations located across India. The power is fed into the regional grids and is shared by various States as per the allocation made by the Ministry of Power, Government of India and agreement with beneficiary States.

(ii) The Company has stated that the borrowing of funds is a centralised function at head office and is not on the basis of specific project appraisal. The borrowing is on the basis of statement of affairs of the company and is made for two or three projects in common and not on the basis of borrowing for one specific project. Sometimes, the loan is raised for a project even after the completion of substantial construction activity in that particular project. The interest is allocated on the actual utilisation of funds for each project. On unutilised funds, the allocation of interest to any specific project is not practical as the quantification of loan amount attributable to each specific project is not workable/possible.

(iii) The borrowings made by the company were common for various projects in general and not for a specific project. Loan amount attributable to a specific Project was also not identified/ quantified in the loan agreements executed with various banks. The utilisation of loans was made progressively based on the construction activities undertaken at various project sites. Till that time, the unutilised loan funds were kept at head office which got mixed up with the common pool of funds which was used for various purposes. These funds were also invested in short- term and long- term basis keeping in view the future requirement. The interest income earned on these investments was credited to the statement of profits and loss.

(iv) Therefore, under such circumstances, it becomes difficult, rather impossible, to indentify a particular project to which the unutilised loan fund relates and attributing interest cost to a specific project.

Query
(v) In the light of the aforementioned facts, the Company has sought the opinion of the EAC of the ICAI on the following issues. (i) Whether the accounting treatment carried out by the company, i.e. capitalising the interest on the portion of funds utilised for capital projects as capital expenditure and charging off the balance amount of interest on the unutilised portion of the funds available with the company to the statement of profit and loss, even though these were raised for two to three projects as mentioned above, is correct? (ii) Whether whole of the interest on unutilised portion of funds need to be capitalised even though the funds were not actually utilised on any of the projects under construction?

EAC Opinion:
(vi) The Committee has considered the Facts of the Case and noted that “as the company was also having sufficient surplus funds, these funds along with the unutilised funds of the borrowing were invested on short-term and long-term basis keeping in view the future requirement.”

(vii) After considering Accounting Standard (AS 16) “Borrowing Cost” the committee has stated that to the extent that funds are borrowed generally,(i.e., without specifying any particular project) and used for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitilisation should be determined by applying a capitalisation rate to the expenditure on that asset. In the Company’s case, it has raised common loans for various projects in general and utilisation of loans was made progressively based on the construction activities undertaken at various project sites. Accordingly, it may be difficult to identify exact amount of borrowing funds utilised for a particular project. However, determining to what extent general borrowings have been used for a specific project, is a question of factand should be determined by exercising the best judgement considering various factors, for example, information related to cash inflows and outflows.

(viii) The Committee, therefore, has taken the view that to capitalise the borrowing costs, it is not sufficient that the funds are generally borrowed for meeting capital expenditure; it is also essential that the funds from those borrowings should be used for the purpose of obtaining a qualifying asset. The Committee notes from the Facts of the Case that there were general borrowings which were not even utilised for any project of the company during the period. Accordingly, the Committee is of the view that borrowing costs related to only utilised funds for the purpose of any project should be capitalised by applying weighted capitalisation rate as per paragraph 12 of AS 16, subject to the satisfaction of the conditions specified in paragraph 14 of AS 16 borrowing costs related to unutilised funds should be charged to the statement of profit and loss.

Therefore, the accounting treatment carried out by the company is correct. (Refer pages 1733 to 1737 of C.A. Journal, May 2013.)

3. Campus Placement Programme:

ICAI organised Campus Placement Programme for Chartered Accountants in various cities in February-March, 2013. Some of the important statistics given on Page 1807 of C.A. Journal for May, 2013 are as under:-

(ii) Salary Package

Highest Salary offered for >

Domestic Postings `16.55 lakh P.A. (5 Candidates)

International Postings `21.00 lakh P.A (4 Candidates)

• Minimum salary paid by

Corporates Rs.4.5 lakh P.A.

C.A. Firms Rs.3.00 Lakh P.A.

4. ICAI News:

(Note: Page Nos. given below are from CA Journal of May, 2013)

(i) Reporting of Foreign Currency Gains & Losses (P.1664)

ICAI has suggested making it mandatory for companies to report foreign currency gains and losses separately in their financial statements. Companies will now have to separately state the impact of foreign exchange fluctuations in their balance sheets. This change will help a reader of the financial statement understand as to how much impact the foreign currency has had on the company. The move will help avoid divergence in accounting and bring more transparency in reporting of numbers. From now on, companies should show the Foreign Currency Monetary Item Translation Difference Account (FCMITDA) separately, under which they have to show foreign currency fluctuations “under the ‘Equity and Liabilities’ side of the balance sheet under the head ‘Reserve and Surplus’” These changes were approved by the Council. Further, ICAI has suggested changes in reporting of gains or losses with regard to hedging instruments related to long term foreign currency items. It is suggested that Exchange difference related to the hedging instrument obtained to cover the exchange risk on long term foreign currency monetary items should also be separately shown in the balance sheet.

(ii) ICAI Publications

(a) Education Material on Indian Accounting Standard (Ind AS) Revenue (P 1724)

(b) Technical Guide on Internal Audit of Textile Industry (P.1737)

(d) Technical Guide on Internal Audit in Oil & Gas Refining and Marketing (Downstream) Enterprises (P.1764)

(e) Technical Guide on Business Control, Monitoring and Internal Audit of Construction Sector (P.1797)

(iii) Exposure Draft on Auditing Standards

Exposure Draft on “Assurance Engagement to Report on the compilation of Proforma Financial Information included in a Prospectus” (Page 1732 of CA Journal for May, 2013).

Lecture Meeting

Financial Instruments (Including derivative transaction) – Accounting aspects on 21st November 2012 at Indian Merchants’ Chambers

Mr. Raghuraman K. Iyer, Chartered Accountant, explained the accounting aspects related to recognition, measurements and disclosure of financial instruments including issues arising therefrom at this lecture meeting. The learned speaker dealt with in great detail about financial assets and liabilities and derivative accounting. The meeting was attended by over 350 participants. The webcast of the meeting is available on BCAS Web TV to subscribers.

ICAI Election and Governance–Members expectations and duties on 28th November 2012 at Indian Merchants’ Chamber

In view of the triennial elections to the Central and the Regional Councils of the ICAI, the Society organised a panel discussion moderated by Mr. Shariq Contractor. The learned panelists Mr. Arvind H. Dalal, Mr. Y. M. Kale and Mr. Jayant P. Gokhale, Chartered Accountants, highlighted various challenges being faced by the profession and discussed the role of the members, including voting for the right candidates in the upcoming election. The panelists answered questions from the audience. The webcast of the meeting is made available on BCAS Web TV to all the members.

Mr. Dilip V. Lakhani, Chartered Accountant, explained the legal provisions in respect of a Limited Liability Partnership (LLP) at this lecture meeting. The speaker discussed various issues arising relating to formation and taxation, conversion of a Partnership Firm/Company into LLP, tax issues relating to conversion, conversion of LLP into a Company, formation of LLP by Chartered Accountants in Practice, compromise and arrangements, merger & demerger, dissolution of LLP, winding up of LLP, implications under the FEMA and stamp duty implications. The meeting was attended by over 450 participants. The webcast of the meeting is made available on BCAS Web TV to the subscribers.

Other programmes

Professional Accountant Course – Batch XV, Inauguration on 20th November 2012 at HR College

The 15th batch of the Professional Accountant Course, jointly organised by the Human Resource Committee of the Society and HR College of Commerce & Economics, was jointly inaugurated by President Mr. Deepak Shah, Chartered Accountant and Mrs. Indu Shahani, Principal of HR College. The dignitaries congratulated about 60 students enrolled for this course for continuing their learning and motivated them to pursue excellence. Mr. Parag Thakkar, Vice Principal of HR College, and Mr. Manish Reshamwala, Chartered Accountant and course coordinator, also addressed the participants ,giving them guidance about the course and how to gain maximum benefit therefrom.

The Infotech & 4i Committee had organised this 2 Day Workshop which received very good response from 65 participants comprising of members as well as non-members and was addressed by the following learned faculties:

The participants gained immensely from the wealth of knowledge and experience shared by the learned faculties.

The Thirteenth Intensive Study Course on Double Tax Avoidance Agreements conducted by the International Taxation Committee of the Society received full house response from 67 participants, in line with earlier editions. The course commenced with a welcome address by President Mr. Deepak Shah and inaugural address by Mr. Kishore Karia, Chairman the International Taxation Committee, who explained the structure of this course to the participants. The inaugural programme was followed by the first session where the learned faculty Mr. T.P. Ostwal, Chartered Accountant, introduced the participants to the concept of Double Tax Avoidance Agreements.

4th Residential Study Course on IFRS/Ind AS from 13th to 15th December 2012 at Hotel Dukes Retreat, Khandala

The 4th Residential Study Course was organised from 13th to 15th December 2012 by the Accounting & Auditing Committee of the Society at the scenic location of Khandala amidst the Sahyadri range. The following Papers with case studies by learned faculties were discussed: The group discussions were led by a team of able group leaders comprising of Ms. Anagha Thatte, Mr. Ashutosh Pednekar, Mr. Atul Shah, Mr. Jayendran Iyer, Mr. Jayesh Gandhi, Mr. Paresh Clerk and Mr. Prashant Mehta.

Over 65 participants, comprising of members as well as non-members, returned home well rejuvenated and enriched by wealth of knowledge and experienced gained through the deliberations. The CD containing course reference material, case studies with solutions and presentations given by respective paper writers will be released soon.

Analysis & Discussion on the Implications of the Supreme Court decision of 13th September 2012 in the matter of Namit Sharma with regard to Right To Information Act on Thursday, 29th November 2012 at Society Office.

This lecture meeting was organised by the Society jointly with the Public Concern for Governance Trust, Dharma Bharathi Mission, Forum of Free Enterprise and M. R. Pai Foundation. The learned speakers Hon. Justice (Retired) Hosbet Suresh and Shri Shailesh Gandhi, Former Central Information Commissioner, discussed and analysed the Supreme Court’s judgment, its impact on rights of the citizen under the RTI Act and representations being made to the Government by various organisations. The meeting evoked very good response and was attended by over 100 persons.

Workshop on MVAT & Service Tax from 6th December 2012 to 30th March 2013 at STPAM Library, Mumbai

The Workshop on MVAT & Service Tax, organised by the Society jointly with the Chamber of Tax Consultants (CTC), the Sales Tax Practitioners’ Association of Maharashtra (STPAM), All India Federation of Tax Practitioners (AIFTP) and Malad Chamber of Tax Consultants (MCTC) was inaugurated on 6th December 2012 at the STPAM Library. The Presidents of the respective organisations, i.e. Mr. Deepak Shah, Chartered Accountant, BCAS, Mr. Manoj Shah, Chartered Accountant, CTC, Mr. Pankaj Parekh, Chartered Accountant, STPAM and Mr. Sachin Gandhi, Chartered Accountant, MCTC welcomed the participants.

The Course Coordinator Mr. Pranav Kapadia, Chartered Accountant, introduced the workshop structure and various sessions. The workshop evoked strong response from over 200 participants, highlighting the importance of indirect taxes amongst practicing professionals.

ICAI and its Members

1. Code of Ethics:

The Ethical Standards Board of ICAI has given answers to some of the Ethical Issues on pages 888-889 of the CA Journal of December, 2012. Some of these issues are as under:-

(i) Issue: Can a Chartered Accountant in Service accept or agree to accept any part of fees, profits or gains from a lawyer, a Chartered Accountant or broker engaged by such company, firm or person or agent or customer of such company, firm or person by way of commission or gratification?

Comment: Clause (2) of Part II of First Schedule to the CA Act prohibits a member in service from accepting or agreeing to accept any part of fees, profits or gains from a lawyer, a Chartered Accountant or broker engaged by such company, firm or person or agent or customer of such company, firm or person by way of commission or gratification.

(ii) Issue: Whether a member of the Institute shall be deemed to be guilty of professional misconduct, if he includes in any statement, return or form to be submitted to the Council any particulars knowing to be false?

Comment: As per Clause (3) of Part III of the First Schedule to the CA Act, a member of the Institute, whether in practice or not, shall be deemed to be guilty of professional misconduct if he includes in any statement, return or form to be submitted to the Council, any particulars knowing them to be false.

(iii) Issue : Whether a member of the Institute shall be deemed to be guilty of professional misconduct, if he does not supply the information called for, or does not comply with the requirements asked for, by the Institute?

Comment: A member of the Institute shall be deemed to be guilty of professional misconduct if he does not supply the information called for, or does not comply with the requirements asked for by the Institute. (As per clause 2 of part-III of the First Schedule to the CA Act)

(iv) Issue: Whether a joint auditor will be responsible for the work done by other joint auditor?

Comment : Council direction under Clause (2) of Part 1 of the Second Schedule to the CA Act prescribes that in respect of audit work divided among the joint auditors, each joint auditor is responsible only for the work allocated to him, whether or not he has prepared a separate report on the work performed by him. On the other hand, all the joint auditors are jointly and severally responsible:-

(a) in respect of the audit work which is not divided among the joint auditors and is carried out by all of them;

(b) in respect of decisions taken by all the joint auditors concerning the nature, timing or extent of the audit procedures to be performed by any of the joint auditors. It may, however, be clarified that all the joint auditors are responsible only in respect of the appropriateness of the decisions concerning the nature, timing or extent of the audit procedures agreed upon among them; proper execution of these audit procedures is the separate and specific responsibility of the joint auditor concerned;

(c) in respect of matters which are bought to the notice of the joint auditors by any one of them and on which there is an agreement among the joint auditors;

(d) for examining that the financial statements of the entity comply with the disclosure requirements of the relevant statute; and

(e) for ensuring that the audit report complies with the requirements of the relevant statute.

(v) Issue : Whether the member in practice can permit his name or the name of his firm to be used in connection with an estimate of earnings contingent upon future transactions, in a manner which may lead to the belief that he vouches for the accuracy of the forecast?

Comment : Under Clause 3 of Part-I of the Second Schedule of the CA Act, a member in practice cannot permit his name or the name of his firm to be used in connection with an estimate of earnings contingent upon future transactions, in a manner which may lead to the belief that he vouches for the accuracy of the forecast. However, the Council has decided that a Chartered Accountant can participate in the preparation of profit or financial forecasts and can review them, provided he indicates clearly in his report the sources of information, the basis of forecasts and also the major assumptions made in arriving at the forecasts and so long as he does not vouch for the accuracy of the forecasts.

2. Employee Benefits- (AS-15) – FRRB Comments on Non-compliances

Financial Reporting Review Board (FRRB) of ICAI has reviewed published accounts of certain companies. It has noticed non-compliances by some companies with regard to disclosure requirements under AS-15. These comments are at Page 999 of CA Journal for December, 2012. Some of these comments are as under.

(i) Enterprises often state in their accounting policies that “Provision for gratuity is made in the accounts, considering the balance sheet date as the notional date of retirement”. It was noted that as per AS 15, the provision for gratuity should be determined through actuarial valuation which should be based on assumptions that are not excessively conservative and should reflect the economic relationship considering the factors such as inflation, salary increase, the return on plan and discount rates. It was viewed that the stated policy indicates that provision for gratuity is determined by the company based on the assumption that all its employees retire on the balance sheet date, which is an excessively conservative assumption. Since it does not consider actuarial risk, it was viewed that actuarial valuation is not followed by the company while valuing its liability towards gratuity, which is against AS 15.

(ii) Accounting policy on termination benefits of a company states that payments under Voluntary Retirement Scheme are recognised in the profit and loss account of the year in which such payments are effected. It was viewed that considering the provision given under paragraph 134 of AS 15, an enterprise is required to provide for termination benefits on accrual basis. Accordingly, the stated accounting policy is observed to be against the requirements of AS 15 as well as Section 209(3) (b) of Companies Act, 1956.

(iii) Certain companies have adopted an accounting policy on employee benefits under which any payment to defined contribution scheme is charged as expense, as they fall due. It was viewed that as per paragraph 45 of AS 15, the expense of defined contribution plan should be recognised for each period of service rendered by the employees. However, the accounting policy states that such expense has been recognised by the enterprise when it falls due. It was viewed that such policy does not clearly indicate as to whether the contribution so made, is the appropriate accrual of liability or not. It is essential because the contribution in excess of what is due is to be recognised as an asset and contribution falling short is to be recognised as liability.

3. Empanelment of CA Firms for 2013-14

The following Notification issued by C and AG office is published on P. 1005 of CA Journal of December, 2012.

Applications are invited online from the firms of Chartered Accountants who intend to be empanelled with C & G office for appointment as auditors of Government Companies/Corporations for the year 2013-2014. The format of application will be available on C & G website: www.cag.gov. in from 1st January, 2013 to 15th February, 2013. Chartered Accountant firms can apply/update the data showing the status of their firm as on 1st January, 2013 and generate online acknowledgement letter for the year. They are also required to submit related documents (to be notified in this office website) to this office by 31st March, 2013. Only the Chartered Accountant firms who have generated online acknowledgement letter for the year 2013 -2014 and submitted the documents before the due date will be considered for empanelment.

4. Tax Accounting Standards

The committee appointed by CBDT to formulate Accounting Standards for the purposes of Notification u/s. 145(2) of the Income tax Act has submitted its report on 26-10-2012. This committee has recommended Accounting Standards on the following 14 issues. These Accounting Standards will be called “Tax Accounting Standards” (TAS). The committee has recommended that TAS, as notified u/s. 145(2), will apply only to the computation of Taxable Income and the assessee will not be required to maintain books of accounts in accordance with the requirements of TAS. This will mean that the assessee will have to follow Accounting Standards issued by ICAI for preparing the financial statements and TAS for computing Taxable Income under the Income tax Act. If there is a conflict between ICAI issued AS and TAS, it is stated that TAS will apply for computing the Taxable Income. The committee has also recommended that for ensuring compliance with the provisions of TAS, Tax Audit Report u/s. 44AB will be modified and it will be the duty of the Tax Auditor to certify that the computation of taxable income has been made by the assessee in accordance with the provisions of TAS. In other words, the Tax Auditor will have to certify the correctness of taxable income. This will place additional responsibility on practicing Chartered Accountants when these TAS are notified u/s. 145(2).

List of Recommended TAS

TAS

Corresponding
AS

Topic

Disclosure Accounting Policies

Valuation of Inventories

Events Occurring after the

Previous Year

Prior Period Items

Construction contracts

Revenue Recognition

Accounting for Tangible Fixed

Assets

The Effects of Changes in

Foreign Exchange Rates

Government Grants

Securities

Borrowing Costs

Leases

Intangible Assets

Provisions, Contingent Liabilities

And Contingent Assets

Ethics and u

Shrikrishna (S) – Arjunji, you are smiling. Khush Dikh Rahe ho!

Arjun (A) – Yes. Scrutinies are under control. MVAT audit is on 15th January. So December is a little relaxed.

S – I Know. You will start VAT audits only after 10th January – at 11th hour, and then expect further extension.

A – Can’t help it. Articles now go on leave from December itself for May exam!

S – Such a long leave? But what about Council’s rule about maximum leave?

A – That is only on paper. Articles always dictate their terms.

S – Anyway. But there must be something else behind your happy mood. Any plans for festival season?
A – Yes. Good news is that one of my client’s bank loan of Rs. 5 crores has been sanctioned !

S – So what?

A – He has agreed to pay me fees of 3% of the loan. I had also insisted on it, so there will be good collection.

S – Hey! Talk softly. Somebody will hear.

A – I am taking my family on a long holiday. Wait. I will just call my office to raise an invoice. Sanction letter is in my hand. I should get fees as soon as the loan is disbursed.

S – If bill is not raised, please hold it. For God’s sake, don’t mention this to anyone and never ever mention it in the bill.

A – Why? What is wrong about it? I have slogged for the sanction. I spent so much time on preparing the project report; visited the bank so many times; had so many meetings. 3% is absolutely reasonable.

S – O dear. Please don’t do such foolish acts. A – I don’t understand. You only preached Karmayog in Geeta. I have performed Karma. I must get the fruit. It is my rightful reward.

S – Do you always charge like this? Based on the result of your work?

A – Of course! Now see, for client’s refunds, you know how many times we need to visit tax offices? It is common to charge 10% of refunds.

S – Before talking of 10%, please spend two minutes to read clause (10) of Part I of the First Schedule. Very simple.

A – What do you mean? Should we not charge?

S – You should always charge. But not linked with loan amount or refund amount. Are you a broker?

A – Then how should we charge?

S – It should be based on your inputs in terms of time, paper work done, expense incurred, representation skills, seniority, experience and such factors.

A – But why? Client is benefited after all. What is wrong if he pays based on the benefit?

S – That is precisely what I preached in Geeta. Karmayog is – Just do your duty sincerely. You have no right in the reward in this manner.

A – You are confusing me. You mean, we should do social work in the profession?

S – No dear. I only mean you should not be attached to the fruit. If your percentage theory is accepted, will you not charge any fees if loan is not sanctioned? Or refund is not received?

A – This, I had never thought about. But clients don’t pay unless the client gets a beneficial result.

S – See, a doctor will charge you even if you are not cured; even if surgery is not successful. Why? Because rendering service is in his hands and not the result. His fees are quoted before the operation and he does not increase it when operation is successful; nor reduces it even if treatment fails.

A – But I am told lawyers charge on the result of the case especially in Western countries. S – Don’t quote these examples. It is not a standard of ethical behaviour. A – But what is the logic?

S – If your reward is dependent on results, you are likely to make many compromises; resort to unscrupulous means. You may try to give result by hook or by crook. Not necessarily by professional approach.

A – You said it is acting like a mere broker. I see a point in what you are saying.

S – It may impair your independence. Your dignity and grace will be lost. In fact, you will lose respect in the eyes of clients.

A – It will be like a gamble. Either a big fee or a big zero! And the result is never in our hands. Anything may happen between the cup and the lip. All efforts then go waste. That’s what you to mean to say.

S – Same is the case with assignments of investigation. You cannot say that fees will be a percentage of quantum of discrepancy or fraud detected; or on any other findings as such.

A – Yes. I agree. If nothing is found, that does not mean we should not get any fees. After all, we have worked diligently. Result is always uncertain. But tell me, is it always a misconduct? There could be situations where we need to charge based on some result.

S – Yes. Council has thought of this. See clause 192 of your Regulations.

A – What is that?

S – Basically, it is in respect of assignments where the Government decides the structure of fees. For example, a Liquidator’s fees may be based on realisation of assets or disbursement of assets; or audit of a cooperative society where fee is decided on the basis of capital or net profits; or that of a valuer under direct taxes.

A – I have seen some of my colleagues even entering into a regular written agreement for fees on a percentage basis. I must caution them.

S – Yes dear. Remember, yours is a profession; not a business. And certainly not a broking business or commission agency.

A – Thanks for opening my eyes in time. Your advice is always ‘invaluable’; and you also should not charge me a percentage of it! Indeed, You Are Bhagwan! Om Shanti This is based on Clause 10 of Part I of First Schedule and Regulation 192 Clause (10) – charges or offers to charge, accepts or offers to accept in respect of any professional employment, fees which are based on a percentage of profits or which are contingent upon the findings, or results of such employment, except as permitted under any regulation made under this Act; Regulation 192 – Restriction on fees No Chartered Accountant in practice shall charge or offer to charge, accept or offer to accept, in respect of any professional work, fees which are based on a percentage of profits, or which are contingent upon the findings, or results of such work:

Provided that:

(a) in the case of a receiver or a liquidator, the fees may be based on a percentage of the realisation or disbursement of the assets;

(b) in the case of an auditor of a co-operative society, the fees may be based on a percentage of the paid up capital or the working capital or the gross or net income or profits; and

(c) in the case of a valuer for the purposes of direct taxes and duties, the fees may be based on a percentage of the value of the property valued.

Ethics and u

Shrikrishna (S) Arjun, Congrats. You got possession of new flat. When are you shifting?

Arjun (A) I will shift in two or three weeks. That way I got possession in March itself. But children’s exams were there.

S – Ok. But it is far away from the city. That area has just started developing. A – Yes. But it is a spacious flat. That way, in Mahabharata, we had stayed even in exile. I don’t mind staying away from city.

S – There also, rates may be too high. How did you manage the funds? You are always crying that there is not much earning in the profession.

A – It is true. You can’t earn much unless you compromise on principles. Anyway, I took housing loan. Then I also took some gold loan against Subhadra’s ornaments. But now the gold rates have fallen. They may demand additional security. Still there was a shortfall. Then I borrowed some amounts from 2-3 clients. 5 to 10 lakh each.

S – Very good. But how will you repay all these loans? EMI will be pretty high.

A – See, I am giving my old flat on leave and licence. That rental will come. And clients I will adjust against their audit fees. As it is, they never pay my fees in time.

S – Oh! You do their audit?

A – Yes. How can I repay loans in lakhs from their meagre tax fees? Even audit fees are not very high. But there are 3-4 concerns in each group. So somehow I will make it.

S – But how can you do their audit?

A – Why? What happened? Why can’t I do their audits? They are not my relatives. After you told me once, I gave up the audits of Bhima’s business.

S – Oh dear Arjuna, you cannot be the auditor when you are indebted to a client. There are the Council’s guidelines.

A – When did the Council issue these guidelines?

S – They were very old. But on 8th of August, 2008, the Council issued them afresh.

A – What do they say?

S – They cover many topics. Chapter X says you cannot accept appointment as auditor of a concern if you are indebted to it for more than Rs.10,000/-.

A – Oh My God! Then I will shift these loans to my partner’s name, and show that I borrowed from my partner! So simple!

S – No Arjuna. Even your partner cannot be a borrower of that concern.

A – Just Rs.10,000/-? Such a ridiculous limit!

S – Council’s limit is Rs.10,000/-. But in Companies Act, it was just Rs.1,000/-. They may increase it in the new Law.

A – Then, what I will do is that I will ask my friend to sign these audits. Actual work I will do myself. He will just sign.

S – Is he close to you?

A – Of course! He is a guarantor to my loan.

S – Then he also cannot accept the audit. If you are guarantor to a borrower of a concern, then also you can’t accept that audit.

A – This is too much!

S – See, if you are in debt or under obligation of someone, you are likely to compromise with your duties as an auditor. You may tend to accommodate him.

A – Then I will get another friend to sign it. He has given his property as a collateral security for my loan.

S – Again a problem! An auditor to be independent, should not have provided any security for any loan given by that concern to any third person.

A – Two of the concerns are private limited companies. You mean, the limit is then just Rs.1,000/-?

S – Yes. Then the limits fixed in the relevant statute will apply.

A – O God! Serious problem! These clients are so useless. They are thoroughly disorganised. They don’t maintain their accounts properly. I have to literally spoon feed them! Their record is in a complete mess! Somehow, I have been signing. But I cannot expose it to a stranger.

S – Arjun; you are cursing a client who has lent you money when you needed it.

A – That’s true. But he is thoroughly indisciplined. I have always overlooked the blunders in his accounts and accommodated him.

S – Shall I ask you one thing? Do you keep your own accounts properly? And up-to-date?

A – Ah! But I adjust it myself at the year end, while filing my return.

S – Then remember. Chapter V of the Council guidelines says a practicing CA shall maintain and keep proper books of account! – Cashbook, ledger, etc. It is a disgrace to you that the Council had to issue such a guideline. Please introspect my dear! Are you disciplined yourself?

A – Let it be. Tell me about that indebtedness again. I have taken a housing loan from the Dadar branch of a bank. I am getting the audit of Thane branch of the same bank. Then what is the position?

S – Still you can’t accept. The bank as a whole is one concern. You are a borrower of the Bank; and which branch you are auditing is immaterial.

A – Oh. This is very harsh!

S – This is to ensure auditor’s independence. And remember, it is not restricted to mere statutory audit but covers all audits.

A – Actually, I am giving my old flat on leave and license basis to a bank and I will be taking a security deposit of Rs. 1 lakh. I think, that should not be a problem. It is not a loan as such. Can I then do that bank’s audit?

S – No dear. The word used is indebtedness. Security deposit is also a debt.

A – I must caution my friends. I am sure, they are not aware of all this. Tell me, can we take advance fees? It is a dream for a CA; as they don’t pay until the next year’s audit starts. But hypothetically —

S – Taking advance fees is also indebtedness.

A – Hey Bhagwan, good that you made me aware well in time. I am really indebted to you.

The above dialogue is with reference to Chapter V and Chapter X of the Council General Guidelines, 2008 Issued On 8th August, 2008 which read as under:-

Chapter V: Maintenance of books of account :

A member of the Institute in practice or the firm of Chartered Accountants of which he is a partner, shall maintain and keep in respect of his/its professional practice, proper books of account including the following:-

(i) a Cash Book

(ii) a Ledger Chapter X: Appointment of an auditor when he is indebted to a concern.

A member of the Institute in practice or a partner of a firm in practice or a firm shall not accept appointment as auditor of a concern while indebted to the concern or given any guarantee or provided any security in connection with the indebtedness of any third person to the concern, for limits fixed in the statute and in other cases for amount exceeding Rs.10,000/-.

Further, readers may also refer pages 313 to 323 of ICAI’s publication on Code of Ethics, January 2009 edition (reprinted in May 2009).

PART d: Good Governance

Audacity of Ideas in the age of Resentment:

Thank the ancient Greeks for giving us the idea. Two thousand and six Hundred years on, trust the modern Greeks for showing the world how to mess up the idea of democracy. Today the “bailout” nation of the Eurozone is up for sale. literally: The cash-starved government is even selling state buildings; and the Emir of Qatar is buying six islands off Ithaca. Amidst the doom, the neo-Nazi party that promises salvation calls itself Golden Dawn. Greece is just one example of how the best form of governance is capable of offering the worst scenario of freedom to a people.

Narendra Modi (Gujarat Chief Minister) on governance:

“Democracy should not just be a five-year contract given to a leader by way of votes. It must be a participative process in which people work with the government to ensure better governance and greater development.”

Government is file, governance is life; Government is all about power, governance is about empowerment.

PART B: RTI Act, 2005

Review petition made by Ms. Aruna Roy and Mr. Shailesh Gandhi in the matter of Order of the Supreme Court in Namit Sharma’s case.

The judgment in Namit Sharma’s case had had resulted in stopping the functioning of five State Information Commissions.

Now the Supreme Court has passed the following order:

O R D E R I.A.NO. 6 in R.P.(C) No. 2309 of 2012

This is an application for stay of the operation of the judgment dated 13th September, 2012 passed in Writ Petition (C) No. 210 of 2012 titled Namit Sharma vs. Union of India reported as 2013 (1) SCC 745 during the pendency of the Review Petition (C) No. 2309 of 2012 titled Union of India vs. Namit Sharma. We have heard learned counsel for the parties and we are not inclined to stay the operation of the entire judgment in Namit Sharma vs. Union of India but we direct that the following directions in sub-paras 108.8 and 108.9 quoted here-in-below shall remain stayed during the pendency of the Review Petition (C) No. 2309 of 2012.

108.8 The Information Commissions at the respective levels shall henceforth work in Benches of two members each. One of them being a ‘judicial member’, while the other an ‘expert member’. The judicial member should be a person RP(C) 2309/2012 etc. 3 possessing a degree in law, having a judicially trained mind and experience in performing judicial functions. A law officer or a lawyer may also be eligible provided he is a person who has practiced law at least for a period of twenty years as on the date of the advertisement. Such lawyer should also have experience in social work. We are of the considered view that the competent authority should prefer a person who is or has been a Judge of the High Court for appointment as Information Commissioners. Chief Information Commissioner at the Centre or State level shall only be a person who is or has been a Chief Justice of the High Court or a Judge of the Supreme Court of India.

108.9 The appointment of the judicial members to any of these posts shall be made ‘in consultation’ with the Chief Justice of India and Chief Justices of the High Courts of the respective States, as the case may be”.

We further direct that wherever Chief Information Commissioner is of the opinion that intricate questions of law will have to be decided in a matter coming before the Information Commissioners, he will ensure that the matter is heard by a Bench of which at least one member has knowledge and experience in the field of Law.

We make it clear that subject to orders that may be finally passed after hearing the Review Petitions, the competent authority will continue to fill up the vacant posts of Information Commissioners in accordance with the Act and in accordance with the judgment in RP(C) 2309/2012 etc. W.P.(C) No. 210 of 2012 except sub-paras 108.8 and 108.9 which we have stayed. This is to ensure that functioning of the Information Commissioners in accordance with the Act and the Judgment is not affected during the pendency of the Review Petitions. We further make it clear that the Chief Commissioners already functioning will continue to function until the disposal of the Review Petitions. I.A.No. 6 is ordered accordingly.

PART D: Good Governance

• I am lucky to have made my money. After a certain point in time, money cannot make a difference in your life. I feel that it’s not even called charity, it’s about accountability and the responsibility to society.

—PNC Menon (Founder, Sobha Developers)

• At the root of poor governance is our lethargy for change, whether it is in the implementation of schemes or adherence to values. I do not have to remind you how grievously hurt the nation was when a young woman, the symbol of an aspiring nation, lost her life in the brutal assault in India in December last year. As I had said earlier, I repeat and I do believe that it is time to reset our moral compass. The police and investigative organisations can play a crucial role in creating conditions that could engender changes. An alert police force and investigative agency can ensure that no crime goes unpunished. It is important to ensure speedy and thorough investigation of allegations. The prosecution should also be speedy so that the guilty are punished without delay. This would enhance the deterrent value of punishment. It would improve responsiveness, one of the most important features of good governance.

— Pranab Mukharjee, The President

PART C: Information on & Around

Due to some technical problems, the said opinion is not being published here. Same is posted on the website of BCAS www.bcasonline.org and PGDT rtiforyou.info

RTI in action or inaction?

2007-08

2011-12

Total registered public authorities

1,597

2,314

Submitted returns

1,382

1,593

Requests pending from last year

23K

4.3L

Received in year

2.6L

6.6L

Total

2.9L

10.9L

Disposal %

Rejection %

7.2

8.3

Surprisingly, only 29 ministries/departments out of 66 are providing complete information to the Central Information Commissioner (CIC) on how they handle RTI queries. Out of 2,314 public authorities registered with the CIC some 721 are defaulters – they don’t give information about their response to queries. In 2007-08, a total of 2.6 lakh queries were received. This jumped to 6.6 lakh in 2011-12. But what is revealing is that in 2011-12 over 4.3 lakh queries were carried over from the previous year. The rate of disposal has dipped from 86% in 2006-07 to about 68% in 2011-12.

Illegal new construction in Parel, Mumbai

Uncertainty looming over the fate of illegally constructed buildings such as the apartments at the Campa Cola Compound in Worli and building collapses across the city, it is Parel’s turn to tell another grim tale of real estate malpractices.

Documents obtained under RTI by Mahesh Vengulkar, include various incriminating documents about the structure.

The building is very old and was purchased for Rs. 3 crore by a builder some years ago. “Under the guise of carrying out repairs to the dilapidated structure, an unauthorised fourth floor was added to it and individual flats are being sold in the market for around Rs. 7 crore each,” alleged Vengulkar.

Out of 22 under-construction flats on the illegal fourth floor, added Vengulkar, eight flats are allegedly complete and occupied. “The builder owes the government over Rs. 43 crore as Property Tax as per notices put up on the building last December. We are demanding a fresh structural audit from the Brihanmumbai Municipal Corporation (BMC) and are sure that the building will be deemed unfit for habitation and its occupants will be rendered homeless,” said Vengulkar.

He added that it was surprising how the builder constructed an illegal floor and flats in spite of numerous complaints made over the years.

CBSE flouts RTI Act:

The decision by the Central Board of Secondary Education (CBSE) to charge Rs. 500 to release photocopy of Optic Magnetic Reader (OME) sheet, answer key and calculation sheet of students who appeared for the Joint Entrance Examination (Main) 2013 is the violation of RTI Act.

As for the violation of the RTI Act, the CBSE has asked students who have already applied for answer keys through the RTI to reapply by paying Rs. 500. The RTI Act stipulates that only Rs. 10 can be charged for application and an additional Rs. 2 for photocopying.

PART B: RTI Act, 2005

Landmark development for RTI application:

The Government of India has announced that Online RTI facility is to be extended to all central ministries. Indian citizens will now be able to seek information from all central ministries by filing their RTI applications Online.

The Government has launched an exclusive portal – https://rtionline.gov.in- for this purpose, initiating this facility currently only for the questions asked from the Ministry of Personnel. All other central ministries will be covered under it within a month.

“This portal, developed by NIC*, is a facility for Indian citizens to online file RTI applications and first appeals and also to make online payment of RTI fees”, said a note issued by the Department of Personnel and Training (DoPT).”

*NIC: National Infotech Centre

It said, “The prescribed fees can be paid through Internet banking of State Bank of India and its associate banks as well as by credit or debit cards of Visa or Master, through the payment gateway of SBI linked to this site”.

The entire website is prepared in such a way that the system would provide online reply to all RTI applications. This facility is, however, presently not proposed to be extended for field offices or subordinate offices.

The Right to Information Act, which was enacted in 2005, mandates timely response (within 30 days) to citizens’ requests for government information. The information seeker has to pay a fee of Rs. 10 for getting the information.

“Arrangements have been made to provide training to the RTI nodal officers, RTI Cell officials and the NIC or information technology personnel attached with the ministries and departments within the next two to three weeks”, said the DoPT.

Giving details of the guidelines for the information seeker, the department said that the text of the application that can be uploaded at the prescribed column (on the website) was, at present, limited to 500 words only. “In case an application contains more than 500 words, then it can be uploaded as an attachment”, it said.

In case additional fee is required, covering the cost for providing information, the CPIO will intimate the applicant about the same through the portal. The first appeals filed through the website will also reach electronically to the ‘Nodal Officer’ of the DoPT, who would transmit the appeals to the concerned First Appellate Authority (FAA).

RTI and Co-operative Societies:

97th Amendment to the Constitution

Said amendment w.e.f. 15-02-2012 amends 3 articles:

1. In Article 19 (article of fundamental rights) the term “Co-operative societies” is added in clause (1)(c) thereof.

2. Article 43-B is inserted:

It reads: Promotion of co-operative societies – The State shall endeavour to promote voluntary formation, autonomous functioning, democratic control and professional management of cooperative societies.

3. Part IX B is inserted:

It provides certain guidance on State Bye-laws of Co-operative Society.

The amendment 3 above has been struck down by the High Court of Gujarat. The final para of the order reads as under:

“We, therefore, allow this Public Interest Litigation by declaring that the Constitution [97th amendment] Act, 2011/ inserting part IXB containing Articles 243ZH to 243ZT is ultra vires the Constitution of India for not taking recourse to Article 368(2) of the Constitution providing for ratification by the majority of the State Legislatures. This order, however, will not affect other parts of the Constitution [97th amendment] Act, 2011. In facts and circumstances, there will be no order as to costs.”

We, many RTI activists, are of the opinion that by virtue of “Co-operative Societies” having been inserted in Article 19 of the Constitution as part of 19(1)(c), they become body of self-government established or constituted by or under the Constitution u/s. 2(h) of the RTI Act.

Bombay Chartered Accountants’ Society referred the matter to one Senior Advocate who has given opinion that co-op societies become a Public Authority as defined under 2(h) of the RTI Act.

PART A: Orders of CIC

Appeal:

The appellant before the Commission complained that FAA did not give him the opportunity of hearing by which he could have explained the nature of information sought.

Decision Note:

“The Commission directs the CPIO to furnish the information to the appellant, free of cost, within 15 days from the date of receipt of this Order.

As regards the appellant’s submissions that he was not given an opportunity of personal hearing by the FAA, it is needless to say that rendering an opportunity of hearing to the parties is a fundamental principle of jurisprudence. It is conducive to fairness and transparency and accords with the principles of natural justice. An opportunity of hearing to the parties also brings greater clarity to the adjudicating authorities. This Commission always gives an opportunity of hearing to the parties but this does not appear to be usually done by the FAAs, as probably there are practical difficulties therein, partly arising out of the number of appeals involved and partly due to the limited time frame in which the matters are required to be decided. In view of this, we would only like to suggest that the FAA should, as far as possible, give the appellant, including the third party, if any, an opportunity of hearing specially if he so requests, without forgetting that the essence of the RTI Act is to provide complete, correct and timely information to the appellant.”

[Pradeep A. Ingole vs. CPIO, Department of Posts, Navi Mumbai Division, Panvel: Decided on 03-04- 2013. Citation RTIR II (2013) 55]

Fiduciary Relationship (Section 8(1)(e) of the RTI Act):

The appellant before the Commission submitted that the sudden fall in the share prices of the ICICI Bank had been widely reported and he wanted to know about the entire matter, by inspecting the records generated by the SEBI in the course of its investigation. He could not understand why the CPIO has not allowed him to inspect the records. In response, the respondent submitted that the press release issued by the SEBI contained whatever details about the entire matter that could have been disclosed without breaching the confidentiality of the information received from various other entities including stock exchanges and, thus, he justified the response of the CPIO.

CIC in his Order stated:

“We have carefully considered the facts of the case. Admittedly, the newspapers had widely reported about the fall in the share price of the ICICI Bank. As the respondent informed us, the Bank itself had also complained to the SEBI following which a preliminary enquiry had been made. Even if the substance of the enquiry has already been placed in the public domain through a press release, we do not see any particular reason why the rest of the records and documents received/generated by the SEBI in this regard should not be disclosed to the public. The ICICI bank is a major financial institution in the country. A sudden fall in its share price, for whatever reason, has wide implications for the general public and also for millions of investors. Ordinarily, all such information should be placed in the public domain so that people know for sure why this had happened and what implications it would have for the investors. Needless to say, there cannot be a better public interest than this. Therefore, we do not find much merit in the decision of the CPIO to invoke the exemption provision contained in s/s. 1(e) of section 8 of the Right to Information (RTI) Act. Even in that s/s., it is very clearly stated that such information can still be disclosed if a larger public interest will be served by that.”

“Keeping all this in view, we are of the opinion that the Appellant should be allowed to inspect all the relevant records relating to this particular case. We direct the CPIO to invite the Appellant on any mutually convenient date within 15 days of receiving this order and to show him the records and documents, including file noting and correspondence, relating to this matter. Needless to say, if these records and documents contain any commercial confidence of any third party entity, the CPIO shall take steps to serve/mask those records and documents before allowing any inspection.”

[Dr. Terence Stephen Nazareth vs. CPIO, SEBI, Bandra (E), Mumbai: 400 051: Decided on 20-03-21013: Citation: RTIR II (2013)24]

Personal Information – Section 8(1)(j) of RTI Act:

Vide RTI dated 27-06-2011, the appellant had sought EOU Balance Sheet and P/L account details of M/s. Natural Remedies for the period 2004-2010.

CPIO vide letter dated 15-07-2011 informed the appellant that as the information related to a third party their views were sought. The third party objected to the disclosure of the information, as it would affect the competitive and commercial nature of the business of the Company and that litigation was pending between the Company and the applicant before the High Court of Karnataka. The information was denied u/s. 8(1)(e) of the RTI Act.

CIC in the order stated:

“Submissions made by the appellant and public authority were heard. The CPIO submitted that the documents sought by the appellant i.e. the balance sheet and profit and loss statement are part of Income Tax returns which have been held to be exempt from disclosure by the Supreme Court in the case of Girish Ramchandra Deshpande. The appellant submitted that the CPIO has not followed procedures and that the information sought by him was in larger public interest. In response to a query from the Commission, the appellant submitted that he was involved in litigation with the said company.”

“The Hon’ble Supreme Court in the case of Girish Ramchandra Deshpande vs. CIC, [RTIR IV (2012) 2016 (SC)], has held that Income Tax Returns are personal information exempt from disclosure u/s. 8(1)(j) of the RTI Act, unless a larger public interest is involved. In the light of the decision of the Hon’ble Supreme Court, the Commission concurs with the decision of the CPIO/AA.”

[Kartikey Agarwal vs. DCIO, Circle 12(2) and Addl. CIT, Range – 12, Bamgore: Decided on 01-04-2013: Citation RTIR II (2013) 57]

From Published Accounts

Section B:

• No provision diminution in value of investment in subsidiary

• Subsidiary has recognised impairment in value of its assets and effect of such provision for impairment given in CFS

Tata Power Ltd (31-3-2012)

From Notes to Accounts (Standalone financial statements)

The Company has a long term investment of Rs. 4,112.08 crore (including advance towards equity) (31st March, 2011 – Rs. 3,172.50 crore) and has extended loans amounting to Rs. 248.88 crore (including interest accrued) (31st March, 2011 Rs. 221.06 crore) to Coastal Gujarat Power Limited (CGPL) a wholly owned subsidiary of the Company which is implementing the 4000 MW Ultra Mega Power Project at Mundra (“Mundra UMPP”).

CGPL has agreed to not charge escalation on 55% of the cost of coal in terms of the 25 year power purchase agreement relating to the Mundra UMPP. As a result of the changes in the fuel prices, CGPL’s management has assessed the recoverability of the carrying amount of the assets under construction at Mundra as of 31st March, 2012 of Rs. 16,366.50 crore and concluded that the cash flows expected to be generated (on completion of construction and commencement of commercial operations) over the useful life of the asset of 40 years, would not be sufficient to recover the carrying amount of such assets and has therefore recorded in CGPL’s books as at 31st March, 2012, a provision for an impairment loss of Rs. 1,800.00 crore.

In estimating the future cash flows, management has, based on externally available information, made certain assumptions relating to the future fuel prices, future revenues, operating parameters and the asset’s useful life which management believes reasonably reflects the future expectation of these items. In view of the estimation uncertainties, the assumptions will be monitored Himanshu V. Kishnadwala Chartered Accountant From published accounts on a periodic basis and adjustments will be made if external conditions relating to the assumptions indicate that such adjustments are appropriate.

The company’s investments in Indonesian coal companies through its wholly owned subsidiaries, Bhira Investments Limited and Khopoli Investments Limited, were made to secure long term coal supply. The management believes that cash inflows (in the nature of profit distribution) from these investments from an economic perspective, provide protection from the risk of price volatility on coal to be used in power generation in CGPL, to the extent not covered by price escalations. In order to provide protection to CGPL and to support its cash flows, the Management has committed to a future restructuring under which the Company will transfer at least 75% of its equity interests in the Indonesian coal companies to CGPL, subject to receipt of regulatory and other necessary approval, which are being pursued and will also evaluate other alternative options.

Having regard to the overall returns expected from the Company’s investments in CGPL, including the proposed future restructuring no provision for diminution in value of long term investment in CGPL is considered necessary as at 31st March, 2012.

From Auditor’s Report

Without qualifying our opinion, we draw attention to the following matters referred to in the Notes forming part of the financial statements:

(i) xxxx

(ii) provision for investment in a subsidiary referred to in Note 32(j), which describes the key source of estimation uncertainty as at 31st March, 2012 relating to the Company’s assessment of the recoverability of carrying amounts of assets including assets under construction that could result in material adjustment to the carrying amount of the long-term investment in the subsidiary.

From Notes to Accounts (Consolidated Financial Statements) Coastal Gujarat Power Limited (CGPL) is implementing the 4000 MW Ultra Mega Power Project at Mundra (“Mundra UMPP”). During the year, CGPL has declared commercial operations for its first Unit of 800 MW and continues the construction activities for the balance 4 unit of 800 MW each at its project site at Mundra

In terms of the 25 year Power Purchase Agreement (PPA), CGPL has agreed to charge no escalation on 55% of the cost of coal. As at 31st March, 2012, CGPL has in pursuance of Accounting Standard 28 (AS 28) –

“Impairment of Assets”, assessed impairment of its Mundra UMPP, having regard to the upward revision in the fuel prices. Based on such assessment, CGPL has accounted an impairment loss of Rs. 1,800 crore in respect of its Mundra UMPP, which has been recognised as an exceptional item-impairment loss in the Statement of Profit and Loss. The recoverable amount of the relevant assets has been determined on the basis of their value in use. The discount rate used in the current period and the previous year in measuring value in use is 10.57% per annum.

In estimating the future cash flows, CGPL’s management has based on externally available information, made certain assumptions relating to the future fuel prices, future revenues, operating parameters and the assets’ useful life, which CGPL’s management believes reasonably reflects the future expectation of these items. However, if these assumptions change consequent to change in future conditions, there could be future adverse/favourable effect on the recoverable amount of the asset. The assumptions will be monitored on periodic basis by CGPL’s management and adjustments will be made, if external conditions relating to the assumptions indicate that such adjustments are appropriate.

Consequent to the impairment loss in respect of Mundra UMPP, certain financial covenants in the loan agreements in respect of loans borrowed for construction of the project have not been met as at 31st March, 2012. No notice has been served by the lenders, declaring the loans taken as immediately due and payable. Meanwhile, CGPL has approached the lenders to seek waiver from the compliance with the financial covenants to the extent that such breach is due to the changes in foreign exchange rates and increases in coal prices and CGPL’s Management expects to receive such waivers. Accordingly, loans aggregating to Rs. 11,162.12 crore are considered to be long-term borrowings (including current maturities of long term borrowings of Rs. 566.57 crore).

Letters

1st October, 2013
The Editor,
BCAJ,
Mumbai.

Dear Sir,

Re: Overhaul Economic & Tax Laws, Rules and Regulations

One often hears that one of the prime causes of slow Economic Growth is that our Laws, Rules & Regulations are not conducive to promote economic activity. Over the years, we have created such a thick jungle / maze of complicated Laws, Rules and Regulations, notifications and circulars in every area of Economic Activity that one finds it difficult to traverse the same; particularly, small businessmen and entrepreneurs. One really wonders if even various officials who are supposed to administer and implement the Laws, Rules & Regulations, truly understand the same; whether such a thick web is used for causing harassment and enabling extraction.

Every new law has admirable aims like inclusivity, environmental preservation and fair land acquisition. But there is no provision of funds for staff and expertise required to implement the new regulations effectively. This overloads a bureaucracy already collapsing under old commitments. Some district collectors say they have to oversee 3,000 schemes.

Good governance requires simple laws and enough financial resources to administer them. Otherwise, we get unending delay, cynicism and corruption. Don’t confuse this with policy paralysis: that’s a separate problem. Even when policymakers want to proceed, rules and regulations produce delays that are not merely long but cannot even be quantified or provided for.

Yes, we need rules sensitive to inclusion and the environment. But they must also be designed for compliance within reasonable, predictable periods. Uncertainity frightens the Indian investor no less than the foreigner. The most worrying phenomenon is that of Indian investors saying that they would rather invest abroad than in India. To end the investment drought, the Cabinet has often met to clear projects worth lakhs of crores. The very fact that projects galore cannot proceed without Cabinet intervention is a serious structural failure.

In any good system, the Cabinet makes policy, and project-by-project implementation is done by the ministries. If rules and regulations make it impossible for ministries to clear projects, the answer cannot be Cabinet meetings that guillotine the scrutiny process. Rather, the scrutiny process must be overhauled thoroughly so that clearances occur predictably within a fixed time frame, without Cabinet rescues.

RBI Governor Raghuram Rajan says repeatedly that we must slash red tape and unnecessary regulation. Yet, the government keeps coming out with more new laws, rules and regulations. Not a single legislative or administrative effort aims to ruthlessly prune the same.

Time has come to trust our citizens/businessmen and seriously review the jungle of laws, rules and regulations, to unleash the entrepreneurial energies of India’s Citizens. The administrative machinery should be strengthened to catch and punish those engaged in grave illegal acts and wrong doings.

Regards,
Tarun Singhal.

FROM THE PRESIDENT

Dear Members,

Our country is passing through a phase of slowdown or a no growth economy. The unchecked monetary accumulation in the form of black money and the increasing poverty (the rich and poor gap) has been extensive over the past few years. At such a stage, the various questions that bother us are: Who is responsible for the same? Why, even after 65 years of Independence, and despite having abundant resources and talented people, are we still at the stage of a developing country? In the scenario of globalisation and industrialisation, why should our country lag behind? Why should we tolerate our flawed education policy, which makes nothing other than providing the sheet of paper that is called a degree? Why is half the population below the below poverty line, what are the reasons for increasing unemployment, which results in people getting frustrated, and increase in criminal activities and hindering of overall progress.

There are a number of factors that can be attributed to the situation. But the most important one is our political system and the persons who are at its helm. Our political system has some weak points and just because of that, our politicians have become the kings of the political system. They are ruling our political system. They just think about power, money, life after retirement and hence, we come across innumerable cases of scams, rather than welfare of the society. The fact is that political leaders are taking undue advantage of public wealth, the wealth of the common people.

Ours is a democratic country and to a large extent, the system of coalition government especially for the last two decades has given rise to new tactics of saving the government rather than reviving the country. And because of these coalitions as well as opposition parties, it often takes a long time (almost years) to pass certain bills or implement policies like; FDI in multi brand retail, Companies Bill, Lokpal Bill, Grievance Redressal Bill etc. (these are a few examples of the same).

It is said that, a system is as good as the people manning it. Our political system consists of the representatives elected by us. Thus, blaming the political system directly for being in such a sorry state of affairs is solely due to the negligence or wrong voting or non-voting policy of the people.

It is the people or we as citizens, who don’t have the collective courage to go against the people who try to finish our democratic tradition, knowing well that we have elected our representatives to echo our feelings, fulfill our needs and to support us always. Today, common people fear entering politics. Alas, the people have allowed the soul and the principle values of our freedom fighters that their life demonstrated to die. Weonly put up pictures of freedom fighters on the wall and name the streets after them, without learning anything from their life.

One should know one’s responsibility towards the country and one should know one’s rights. When each and every individual know’s his own role towards the society, we will be a leading country in the world.

I think it is always important to see the core of the situation before analysing the surface of it. Firstly, we have to change the inner world (ourselves), then the outer world (politicians) will change automatically. So the solution is, that we have to return to good values and not allow ourselves to be misguided. There will always be bad elements who will misguide, the problem is our willing participation in allowing evil to win over good.

At the same time, certain reforms should be brought in: like a candidate stanting for an election should not have even a single case filed against him and investigating agencies like CBI should be given autonomy as against being under the control of the government. We can see that many CBI cases haven’t been solved yet due to political pressure due to vested interests of the leaders.

Also to a large extent, the manner in which election campaigning is done is itself a cause for worry. Politicians openly indulge in vote-bank politics. They target the vulnerable poor population which represents 60% of our population. As a result of which, wrong people, who are just interested in promoting their own welfare, are elected. But, now it’s not the time to remain ignorant and just be a spectator. I hope there will be a strong appeal for electoral reforms in the near future.

Is it not the time to move a step forward and see that our political system does not puncture our country’s values any more, and is not an obstacle to the Indian growth?

So, it’s time to rise up. We should all gear up for the ensuing elections, motivate our talented youth to break the shackles and show that our country can no more be manipulated by any politician – either regional or national.

It’s time to think differently and prepare ourselves to usher in some radical changes.

Company Law

82. Modification to the Name Availability Guidelines

The Ministry of Corporate Affairs has vide General Circular No. 12/2013 dated 28th June 2013 modified the Name Availability Guidelines for Registration of electoral Trusts as Companies u/s. 25 of Companies Act 1956 as under:

“If it includes the words indicative of separate type of business constitution or legal person or any connotation thereof, the same shall not be allowed for e.g. Cooperative Society, trust, LLP, Partnership, Society, proprietor, HUF, Firm, INC, PLC, GmBH, SA, PTE, Sdn, AG etc.

Explanation ; i) name including phrase ‘electoral Trust’ may be allowed for registration of Companies to be formed u/s. 25 of the Companies Act 1956 under electoral Trusts Schemes, 2013 as notified by CBDT.

2. The Company to be formed u/s. 25 should be a new Company and should comply with Section 293-A of the Act i.e., which contains the prohibitions and restrictions regarding political contributions. The name application should be alongwith an affidavit to the effect that the name obtained shall only be used for the purpose of registration of Companies under electoral Trust Scheme as notified by the CBDT.”

83. Annual filings time limit

The Annual Filings for the year ended 31.03.2013 including the XBRL filing needs to be done within the time limit specified.

PART D: good governance

• It is in the supervisory neglect of routine tasks that the seeds of poor governance lie. Any supervisory authority must come together with supervisory responsibility. For example, chief commissioners of income tax should, by this principle, have authority- and therefore the corresponding responsibility- to deploy their subordinate commissioners as they find fit. As things stand, though, it is the central taxes board and the minister concerned who exercise this authority. Yet, if the officers are then discovered to be negligent in their new posts, the board or minister are not held even remotely answerable. On the other hand, since chief commissioners do not decide the commissioners’ deployment, they can claim helplessness.

• Poor governance arises essentially from corrupt practices and negligence or dereliction in official conduct. Both can be tackled, if supervisory responsibility is effective.

(From the article under the title “India’s bureaucracy works in feudal matrix. Little wonder corruption and poor governance flourish in our country”, by Anil Dhar, a freelancer)

PART C: Information on & Around

• Information on Emergency:

1) Believe it or not, the government has claimed that it does not have any documents pertaining to the Emergency period. Neither the Prime Minister’s office nor the home ministry have given any response to RTI activist Manoranjan Roy who sought Information on the Emergency.

2) Earlier, V Narayanasamy, minister of state in the PMO, had acknowledged that official records on the Emergency are “not available in the PMO”. “A thorough search was made to retrieve and trace records of correspondence between the then PM and the President of India relating to proclamation of emergency. However, no such records were found in the PMO,” Narayanasamy said. The Central Information Commission (CIC) had then sought an investigation into the matter and said the government must “ensure that these records are retrieved or traced, wherever they might be, and should be preserved appropriately for citizens so that they can access them.”

Two years on, the reply to Roy’s query reveals that the documents are still missing. The home ministry has blamed the National Archives of India saying that it is the “repository of non-current records”. But the archives department officials say otherwise. A member of archival advisory board of the National Archives of India, on the condition of anonymity, said, “While the ministries are bound to transfer all records for archival, no records on the emergency were transferred to us for safe-keeping.”

• Mumbai Cricket Association (MCA) ground:

On the recommendation by NCP supremo Sharad Pawar, BMC handed over 39,950 sq.m. plot to the MCA to promote cricket without observing rules connected with such allotment of land. This information was obtained by Anjali Damania of AAP through the RTI route.

Damania alleges that rules did not allow for the plot to be developed. The BMC was supposed to give only operational rights to MCA. So, how could the MCA raise Rs.270 crore by way of membership fees on a BMC plot?”

PART B: RTI Act, 2005

• This feature in BCAJ is to report on matters connected with RTI. However, in this issue 1 report on “The Rajasthan Right In Hearing Act, 2012” (RRHA) which received the assent of the Governor on 21-05-2012. This is relevant to the RTI Act. Under this Act, duties are cast on the Public Hearing officer (similar to the Public Information officer under the RTI Act). Section 4(5) provides: The Public Hearing Officer on receipt of a complaint u.s/s. (1) shall, within the stipulated time limit, provide an opportunity of hearing to the complainant and after hearing the complainant, decide the complaint either by accepting it or by referring it to an authority competent to grant the benefit or relief sought for or by suggesting an alternative benefit or relief available under any other law, policy, order, programme or scheme or by rejecting it for the reasons to be recorded in writing and shall communicate his decision on the complaint to the complainant within the stipulated time limit. Section 5(3) provides: Every public authority shall be responsible for the development, improvement, modernisation and reform in redressal of grievance system including redressal of grievance through information technology.

Section 7: Penalty provisions read:

(1) Where the second appellate authority is of the opinion that the Public Hearing Officer has failed to provide an opportunity of hearing within the stipulated time limit without sufficient and reasonable cause, it may impose on him a penalty which shall not be less than five hundred rupees but which shall not exceed five thousand rupees:

Provided that before imposing any penalty under this s/s., the person on whom penalty is proposed to be imposed shall be given a reasonable opportunity of being heard.

(2) The penalty imposed by the second appellate authority u.s/s. (1) shall be recoverable from the salary of the Public Hearing Officer.

(3) The second appellate authority, if it is satisfied that the Public Hearing Officer or the first appellate authority has failed to discharge the duties assigned to him under this Act, without assigning sufficient and reasonable cause, may recommend action against him under the service rules applicable to him.

The Rajasthan Right of Hearing Rules are enacted on 09-06-2013 some of the rules are:

Rule 11: No fee shall be payable along with complaint, memo of first appeal or second appeal and revision application per Rule 11.

Rule 20 provides for Establishment of Information & Facilitation Centre: It reads (1) The State Government may establish Information and Facilitation Centre which may include establishment of customer care centers, call centers, help desks and people’s support centers or any other e-mitra, Rajiv Gandhi Seva Kendra or other institutions authorised to act as Information and Facilitation Center.

(2) If the complaint is received by any Information and Facilitation Centre authorised for receiving complaints, the In-charge of the Information and Facilitation Centre shall transfer the same immediately to the Public Hearing Officer concerned and the time taken in such transfer shall not be counted in the stiputed time limit.

(3) The unique registration number given on complaint and action taken on complaint or transfer of complaint may also be made online for efficient and effective hearing of grievance of the people.

(4) A State wide net work may be developed by the State Government to receive, register and monitor the complaints.

This RRHA is very powerful Act, similar to the RTI Act. To note that it is only for complaints against Authorities in the State of Rajasthan. It is hoped that other states legislate similar law.

It may also be noted that the Central Government has introduced the Bill under the title:

THE RIGHT OF CITIZENS FOR TIME BOUND DELIVERY OF GOODS AND SERVICES AND REDRESSAL OF THEIR GRIEVANCES BILL, 2011

Unfortunately it is not enacted yet even though introduced in 2011 as we know that parliament does not function much due to political disputes between parties. Once such an Act is enacted, the great relief will be available to the citizens and it would be a supplement to the RTI Act. I reproduce clauses 3 & 4 of the Bill:

3. Subject to the provisions of this Act, every individual citizen shall have the right to time bound delivery of goods and provision for services and redressal of grievances.

4. (1) Every public authority shall publish, within six months of the commencement of this Act, a Citizens Charter specifying therein all the category of goods supplied and services rendered by it, the time within which such goods shall be supplied or services rendered.

(2) Without prejudice to the generality of the provisions contained in s/s. (1), the Citizens Charter shall provide all or any of the following matters, namely:-

(a) the details of all the goods supplied and services rendered by the public authority and the name of person or agency through which such goods are supplied or services rendered and timings during which such services are supplied or services rendered;

(b) the conditions under which a person becomes entitled for goods or services, and the class of persons who are entitled to receive such goods and avail services;
(c) the quantitative and tangible parameters (including weight, size, frequency) of the goods and services available to the public;

(d) complaint redressal mechanism including the time within which the complaint be disposed of and the officer of the public authority to whom such complaint may be made;

(e) the name and addresses of individuals responsible for the delivery of goods or rendering of services mentioned in (a) above;

(f) any other functions, obligations, responsibility or duty the public authority is required or reasonably expected to provide;

(g) any other information relevant to delivery of goods or provision of services or such other information as may be prescribed.

(3) The appropriate Government may, by notification, make rules in relation to citizens’ charter and grievance redressal.

Let us hope that this bill becomes the Act in the coming session of Parliament starting in August 2013.

• July issue of BCAJ reported the three-member decision of CIC ruling that political parties are covered under the RTI Act. They were given six weeks time to appoint PIO, FAA etc. None of the six political parties have complied with this order.

It is now reported that Government shall overturn CIC’s order. The Bill amending the RTI Act shall be moved in the coming monsoon session. It shall provide in the definition of public authority [section 2(h) of the RTI Act] that it will not include any political party registered under the Representation of the People Act. RTI Activists all over the country has mailed to the President of India that he should not give assent to such bill.

PART A: Orders of CIC

Section 7 (1) of the RTI Act:

• The appellant sought huge information from the postal Department, Bangalore about:

1. The total number of account holders in postal savings viz. saving bank, MIS, PPF etc. at the respective post offices in Bangalore Urban Area during the financial years 2009–2010 & 2010–2011 respectively.

2. The monthly turnover/collections at the above post offices during the financial years 2009–2010 & 2010–2011.

CPIO replied and stated that the information requested by the appellant is not being compiled at the central level and was scattered in 187 sub-post offices and if they had undertaken this work it would have disproportionately diverted the resources of the public authority – Whether the CPIO should collect and compile the information, which is not available in his office, from other subordinate offices and furnish the same to the applicant? – the Commission held that a CPIO is expected to provide the information available with him and he is not required to collect and compile the information on the demand of a requester nor he is expected to create a fresh one merely because someone has asked for it.

Decision notice
The main issue raised by the appellant is whether the CPIO should collect and compile the information, which is not available in his office, from other subordinate offices and furnish the same to the applicant. On this issue the Commission has already observed, vide Decision No. 216/IC(A)2006. File No. CIC/MA/A2006/00608 dated 31-08-2006, as under:-

“Transparency in functioning of public authorities is expected to be ensured through the exercise of right to know, so that a citizen can scrutinise the fairness and objectivity of every public action. This objective cannot be achieved unless the information that is created and generated by public bodies is disclosed in the form in which it exists with them. Therefore, information is to be provided in the form in which it is sought, u/s. 7(9) of the Act. and, if it does not exist in the form in which it is asked for and provided to the applicant, there is no way that proper scrutiny of public action could be made to determine any deviations from the established practices or accepted policies”.

Thus, a CPIO is expected to provide the information available with him. He is not required to collect and compile the information on the demand of requester nor is he expected to create a fresh one merely because someone has asked for it. Because, such attempts would not allow for scrutiny of public action to detect and determine the nature and extent of deviation from the accepted policies. In view of the forgoing, the CPIO’s representative’s submissions are upheld in so far as they relate to the collecting and compiling of data from 187 sub-post offices.

The Commission, however, agrees with the appellant’s argument regarding non-supply of information by the CPIO requested in query 2 of his RTI application dated 21-10-2011. The CPIO should either have sought the assistance of his counterpart in the office of the Director of Accounts (Postal) Bangalore or transferred this part of the RTI application to him for supply of information. Accordingly, the CPIO is directed to furnish the information (requested in query 2) to the appellant within 15 days from the date of receipt of this order. It is, however, clarified that the information as available on record with the Director of Accounts (Postal) should be provided and there is no need to collect and/or compile any data.

[S.C. Chopra vs. Department of posts, Karnataka Circle, Bangalore: Appeal No. CIC/BS/A/2012/000481/2393 dated 02-05-2013]

• The appellant sought following information from PIO of EPF Appellate Tribunal, New Delhi:

1. Provide details of case history with all relevant case papers, photocopies of all documents submitted, citations referred to by the Appellant and the Respondent in the above referred case/appeal.

2. Details of applicable penalty payable by the Institution concerned for the default as decided and levied by the Appellant Tribunal.

3. Details of exemption in penalty and relief, if granted in the matter.

4. Details as to, can the appellant tribunal in case of double default exempt penalty or grant any relief to the appellant/institution.

5. Whether the attachments enclosed qualify the institution concerned for any relief in penalty amount.

6. Status report of the case/appeal as of now.

The appellant’s contention before CIC was that PIO has not given information sought in the RTI Application. He stated that a fee of Rs. 118 has been wrongly charged from him for provision of information in violation of sections 7(3)(a) & 7(6) of the RTI Act and the documents supplied do not answer his queries. The CPIO’s representatives stated that they (‘Employees Provident Fund Appellant Tribunal’) are a judicial forum and as per their rules they are required to charge a fee of Rs.10 per page for supply of certified copies of decisions, however, they will refund the charges. As regards the appellant’s second contention that the documents supplied do not answer his queries, the CPIO’s representative argued that under the RTI Act the CPIO is required to provide the information/documents as available on record and is not expected to answer queries/provide interpretation(s)/clarification(s); he added that all the documents contained in the relevant file have already been forwarded to the appellant.

Decision notice
The RTI act does not cast on the public authority any obligation to answer queries in which a petitioner attempts to elicit answers to his questions. The Petitioner’s right extends only to seek information as defined in section 2(f) of the RTI Act either by pinpointing the file, document, paper or records etc. or by mentioning the type of information as may be available with the specified public authority. It is noted that in the matter at hand copies of all documents contained in the file have been provided and there is no further information/ document available which can be furnished.

As stated by the CPIO’s representative the fee of Rs. 118 should be refunded to the appellant within 7 days from the date receipt of this order.

[ Rashad Shaikh vs. PIO, EPF Tribunal New Delhi : Appeal No. CIC/BS/A/2012/00512/2409 dated 06.05.2013]

From the President

Dear Members,

By the time this issue reaches you, the Finance Bill, 2013 would be out and everyone would be engrossed in discussing and evaluating the implications and changes brought in the Bill, and attending Lectures and Seminars by the experts.

The most important event post-Budget, that almost all professionals look up to, is the talk of Mr. S. E. Dastur on Direct Tax Provisions of the Finance Bill. Year after Year, Mr Dastur from the BCAS platform, addresses the crowd of almost 3500 to 4000 at Yogi Sabhagruha, Dadar (E), and many more watching a live webcast. This year’s talk of Mr Dastur would make a history in BCAS books, as it would be his 25th talk for BCAS. It’s a treat to the mind and ear, to hear Mr Dastur analysing the budget provisions . The members and others in the profession who missed his live talk can watch the same on BCAS Web TV.

The other stalwart in the field of Indirect Taxation, Mr. Vikram Nankani, will address on Indirect Tax Provisions of the Finance Bill, 2013 on 13th of March at IMC.

While you make your analysis and study of the Finance Bill, 2013, we too at BCAS start gearing up and work for it’s most prestigious and acclaimed Publication, BCAS Referencer 2013-2014, which is in its 51st year and would be released in June 2013. At this juncture, let me share that the BCAS Referencer 2012-2013 App is now available for download both on Android and Apple store.

After the presentation of the Budget, once the anxiety is over, every section of the Society talks about the impact of the Budget, who are the beneficiaries and who are the losers. But all discussion ultimately ends with the most sensitive issue and that is Inflation.

Let me illustrate the same with recent reports after the presentation of the Rail Budget on 26th February. Railway Minister Mr Pawan Kumar Bansal has tried to take a small step by linking freight tariffs to oil prices, to make railways viable.

But, India Inc has expressed concern over the hike in freight rates, which they feel will add to the gloom in an already depressed business environment which may lead to higher inflation. Also, the issues surrounding government spending, and the massive deficit, always brings the topic of inflation to the forefront. The subject of inflation has remained an emotionally charged topic of debate over the last several years.

But I for one always pose before myself and struggle to find answers to a few Questions, like:

What is Inflation, and why is Inflation so widely feared ?
How does Inflation impact one’s life ?
If it’s a major concern, why hasn’t it been tackled systematically ?
Why the Government has failed to curb Inflation ?
Why Reported Inflation seems different than Reality ?
Is Inflation the Endless Farce ?

I would like you all to ponder over the above Questions, in the light of the following thoughts:

We all, while talking about money and the price of goods and services, use the word “inflation” quite regularly. But honestly speaking, few know what it actually means, what it measures and how it is calculated.

We often hear an older person talk about how different things were 40-50 years ago. It only costed five rupees to see a movie. A house only costed about Rs. 100-250 per sq. ft. In the intervening years, prices have risen, sometimes drastically. Seeing a movie in the theatre now costs about Rs. 200-350; and a house costs about Rs 10,000-50,000. From 1973 to now, an Indian pays 48 times for one litre of fuel. That’s inflation.

Many economists argue that a low steady rate of Inflation as opposed to zero or negative rate is good for the economy. They advocate that “Inflation is the grease on the wheels of the economy”.

On the other hand, the common man is least interested in knowing either the WPI/CPI or the calculations thereof. What he wants is a reasonable price and that he is not made to pay a higher price for the same item every next time he goes to market.

What common men or consumers don’t realise is that once a price increases, any future drop in inflation doesn’t have an effect on the earlier price. It just means that we will pay slightly less on the increase going forward.

For me, inflation is one of the catch phrases that’s heard all the time and is an inevitable threat to our material wellbeing.

Considering the present scenario and the political instability in our country, and the fear of future inflations hanging in the air, it would not be wrong to say that the future Law of Inflation would be : Whatever goes up will go up more & more.

I would end with a Quote by Milton Friedman:

“Inflation is Taxation without Legislation”.

With Warm Regards,
Yours truly,
Deepak R. Shah

From published accounts

Section B:

Consolidated Financial Statements: Accounting Policy adopted by respective foreign jurisdictions followed and not aligned to accounting policy followed in standalone financial statements

Tata Global Beverages Ltd. (Year ended 31-03-2013)

From Significant Accounting Policies on CFS

Employee Benefits

iii) With regard to overseas subsidiaries and associates, liabilities for retirement benefits are determined as per the regulations and principles followed in the respective countries. Defined benefit obligation of overseas subsidiaries accounted for in the reserves in its financial statements, in compliance with the local generally accepted accounting principles, are recognised in Group’s Reserve and Surplus (Refer Note 41(d)).

From Notes to Accounts on CFS

Post Retirement Employee Benefits

d) The Group has substantial international operations with approximately 65% of its revenues coming from overseas operations. For the purposes of consolidated financial statements, actuarial gains and losses relating to defined benefit pension scheme of overseas subsidiaries has been accounted for in the Reserves instead of the statements of profit and loss, applying the accounting principles of consolidation under Accounting Standard 21 and the policy followed by the overseas subsidiaries and as recognised by the relevant overseas accounting framework. Adoption of the above policy is required to reflect a consistent framework amenable for better inter-firm comparison and to reflect the underlying performance. Overseas actuarial gains/losses principally relate to a defined benefit retirement scheme of an overseas subsidiary which is closed for future accruals. These gains/losses represent increase in the value of future long-term payment obligations due to changes in interest rates and other actuarial assumptions based on the market position as at the year end. The actuarial assumptions are subject to significant fluctuations especially under volatile market conditions. Had the company followed the policy of accounting overseas actuarial gain/ (loss) in the statement of profit and loss, the profit before tax, profit after tax before shares of results of Associate & Minority interest and profit after tax would have been lower by Rs. 4215.20 lakh (Rs. 10215.00 lakh), Rs. 3245.70 lakh (Rs. 8516.00 lakh) and Rs. 2695.23 lakh (Rs. 7071.71 lakh) respectively.

From Auditor’s Report

Emphasis of Matter

As mentioned in Note 41(d) to the financial statements, the overseas subsidiaries of the group have defined benefit schemes relating to which the actuarial losses or gains are allowed to be recognised in the Reserves as per the local generally accepted accounting practices followed in those respective jurisdictions. For the purpose of consolidated financial statements, the holding company management has adopted the accounting policy in respect of actuarial gains or losses for its overseas defined benefit schemes to reflect the applicable accounting framework of the respective jurisdictions and consequently accounted it in the Reserves instead of in the Statement of Profit and Loss. Had the company followed the practice of recognition of actuarial losses on the aforesaid defined benefit plans in the Statement of Profit and Loss as per Accounting Standard (AS 15) on Employee Benefits, the charge to employee benefits expenses would have been higher by Rs. 4215 lakh, the deferred tax credit would have been higher by Rs. 969 lakh, the consolidated profit before taxes and minority interest would have been lower by Rs. 4215 lakh and the profit after taxes after minority interest would have been lower by Rs. 2695 lakh.

Profit recorded on sale/exchange of shares in entities under common control Mawana Sugars Ltd. (18 months ended 30-09-2012)

From Notes to Accounts
A Memorandum of Understanding (MOU) was signed between the Company and Government of Punjab in 1933 for setting up an Industrial Estate in Punjab. Siel Industrial Estate Limited (Siel – IE) was incorporated in an earlier year as a wholly owned subsidiary of the Company for setting up the Industrial Estate. The clear and unencumbered title and possession of the land for the aforesaid Industrial Estate came to Siel – IE in October, 2011 and now Siel – IE holds approximately 455 acres of land at Rajpura, Punjab.

The Company, Siel – IE and Siel Infrastructure and Estate Developers Private Limited (Siel – IED), which was acquired from Usha International Limited, the holding company, and consequently, became a wholly owned subsidiary for the Company during the period, have entered into a Joint Development Agreement for the development of the Industrial Estate.

During the period, the Company has sold 13,475,000 equity shares of Rs.10/- each of Siel – IE to Siel – IED for a consideration aggregating to Rs. 1350.20 million, as determined though an independent valuation of Siel – IE based on the Net Asset Value method wherein the market value of the aforesaid land of 455 acres has been considered for the valuation. The consideration has been received by the Company in the form of 13,501,950 equity shares of Rs. 100/- each fully paid up of Siel – IED. Accordingly, the Company has recognised a profit of Rs. 1215.45 million in the Statement of Profit and Loss as an exceptional item.

From Auditor’s Report

4(b) Note 49 of the financial statements explains the transactions underlying the recognition of profit on transfer of shares of Siel – IE, a wholly owned subsidiary of the Company, to Siel – IED, another wholly owned subsidiary of the Company.

In our opinion, as the amount recorded as profit on sale of shares of Siel – IE to Siel – IED represents surplus arising out of recognition of the fair value of Siel – IE shares exchanged for the additional shares acquired in Siel – IED and since this exchange of shares in Siel – IE for shares in Siel – IED is an exchange of shares in entities under common control without dilution in the Company’s control over Siel – IE even after the non-monetary transfer of shares to Siel – IED, the Loss after tax for the period is understated by Rs. 1215.45 million.

6. Subject to our comments and the effects of the matters discussed in paragraph 4 above, and further to our comments in paragraph 3 and the Annexure referred to in paragraph 5 above, we report that:

….. (not reproduced)

Lecture Meeting

Selected Tax Accounting Standards, 20th December 2012, at Indian Merchants’ Chamber

Mr. Kishor B. Karia, Chartered Accountant and past president of the Society, presented an insightful analysis of proposed Tax Accounting Standards (TAS). The learned speaker explained various issues and challenges likely to arise from implementation of proposed TAS in the current form, resulting in increased hardships and litigation. The meeting was attended by over 400 listeners.

Recovery & Stay Proceedings, 2nd January 2013, at Indian Merchants’ Chamber

Dr. K. Shivaram, Advocate, explained legal provisions in respect of Recovery & Stay Proceedings and recent case laws on the subject. The learned speaker covered recovery proceedings before and after assessment, properties that can be and cannot be attached, joint and several liability of directors and partners, remedies against recovery and other related issues. The meeting was attended by over 250 listeners. The webcast of the meeting is available on BCAS Web TV to the subscribers.

Other Programmes

Educate a Child – Create a Personality, 19th December 2012, at the Society’s Office

This programme was jointly organised by the BCAS Foundation and Dharma Bharathi Mission, to encourage volunteers to devote their time to educate the underprivileged children living in slums and at Municipal schools in Mumbai and demonstrate benefits of volunteering. It was an interactive meeting of all stakeholders with young nation builders to hear their experience, to share, to interact and to recognise their good work as well as that of their mentors. Mr. Narayan Varma, Chartered Accountant and Trustee, BCAS Foundation, and Mr. Paramjeet Singh, Trustee, Dharma Bharathi Mission, welcomed and addressed the volunteers who were felicitated at the hands of Mr. Vinay Somani, Founder, Karmayog.

Sports Day, 30th December 2012, at BMC Sports Complex

The Membership & Public Relations Committee organised the First Sports day for members, their families and students. Mr. Dilip V. Lakhani, Chartered Accountant and Past President and a former All India Ranked International Table Tennis Player, inaugurated the event. The Sports Day received enthusiastic response from 65 participants who enjoyed playing games like Badminton, Table Tennis, Carrom and Chess. The programme ended with prize distribution ceremony at the hands of President Mr. Deepak R. Shah, Chartered Accountant, to the following Winners and Runners-Up:

Right to Information
Future Possibilities & Way Forward, 15th January 2013, at the Society’s Office

This meeting was organised by the BCAS Foundation to discuss various challenges being faced by the Right to Information movement and the way forward. The discussion was led by eminent social and RTI activists Ms. Aruna Roy [member of National Advisory Council (NAC) and co-founder of the Mazdoor Kisan Shakti Sanghathan], Mr. Shailesh Gandhi (former central information commissioner), Mr. Nikhil Dey [member of National Council for People’s Right to Information (NCPRI)] and Mr. Shankar Singh [member of Mazdoor Kisan Shakti Sangathan (MKSS)] along with other RTI activists. The forum felt that violence on users, court stay on prominent decisions of the information commission, rulings that limit the scope of RTI and threats from the government through legislations were major challenges being faced. Also, most new laws being framed provide for exemption from the RTI Act diluting the power of the RTI. Also, the Courts have been limiting the scope of RTI with words like ‘intimidating and suppressing’ when information about bureaucrats is sought. While RTI has managed to achieve a lot and people have learnt to use it, the system, too, is learning to resist it. It was agreed that there was a need for a country-wide alliance for transparency and accountability. Mr. Narayan Varma, Chartered Accountant and Trustee of BCAS Foundation, chaired the meeting. He explained the active role played by the Society in RTI movement and assured continued active participation by the Society.

Screening of “AHIMSA-The Strength of Non violence”, 14th January 2013, at the Society’s Office

BCAS Foundation, Dharma Bharathi Mission and Public Concern for Governance Trust jointly arranged the screening of this movie which shows an exemplary story of how after a tenacious, nonviolent struggle, the villagers of Sannai in Madhya Pradesh, India, obtained their rights for land and water. The exemplary story of these tribal people showed the fascinating strength inherent in the principle of Ahimsa: non-violence. In a society where corruption and caste conflicts undermine democratic rights, the Adivasis are supported by activists of the Gandhian Forum for Solidarity: “Ekta Parishad”. To this day, its founder P.V. Rajagopal and his colleagues train young people in non-violence when struggling for a dignified and sustainable social change. The film maker Professor Kari Saurer, from Zuric, Switzerland was present at the screening.

The movie was well appreciated by the audience.

PART d: GOOD GOVERNANCE

Shiv Nadar:

Shiv Nadar, chairman of HCL, states that India Inc is not doing enough at the philanthropy front.

Talking about “Shiv Nadar Foundation”, he says:

“I firmly believe that philanthropy is most effective and outcome-oriented when you ensure that your pledge actually gets spent. Disclosures further help build an environment of trust and transparency. Good governance is therefore not an added bonus; it is at the heart of what makes philanthropy successful. In its journey of two decades, we have operated on our core values of transparency and robust governance systems”.

PART B: RTI Act, 2005

DoPT of Ministry of Personnel, Public Grievances & Pensions have recently issued one Office Memo as under:

Sub: Disclosure of personal information under the RTI Act:

The
Central Information Commission in one of its decisions (Sh. Manoj Arya
vs. CPIO, Cabinet Secretariat: CIC/SIRS/P/2013/000058 of 25.06.13) has
held that information about the complaints made against an officer of
the Government and any possible action the authorities might have taken
on those complaints, qualifies as personal information within the
meaning of provision of section 8 (1) (j) of the RTI Act, 2005.

The
Central Information Commission while deciding the said case has cited
the decision of Supreme Court of India in the matter of Girish R.
Deshpandevs. CIC and others (SLP (C) no. 27734/2012) in whichit was held
as under:-

“The performance of an employee/Officer in
anorganisation is primarily a matter between theemployee and the
employer and normally those aspects are governed by the service rules
which fall under the expression personal information, the disclosure of
which has no relationship to any public activity or public interest. On
the other hand, the disclosure of which could cause unwarranted invasion
of the privacy of that individual.” The Supreme Court further held that
such information could be disclosed only if it would serve a larger
public interest.

From published accounts

Section A:

Revision to Financial Statements

Compiler’s Note

The Companies Act, 2013 vide sections 130/131 permits revision of financial statements under the circumstances mentioned in the said sections. The Companies Act, 1956 does not contain similar provisions. However, some companies have resorted to revision of financial statements adopted by the Board of Directors, but before the same were adopted by the shareholders in the Annual General Meeting. Given below is one such instance where the financial statements have been revised for reversing the decision of the Board of Directors for recommendation of dividend. (Readers interested in similar instances can also refer BCAJ February 2013)

Nagarjuna Fertilizers and Chemicals Ltd 31st March 2013

From Notes to Accounts

Revision of Financial Statements

The Board of Directors at their meeting held on 3rd May, 2013 had considered and approved the Audited Financial Statements of the Company comprising of the Balance sheet as on 31st March, 2013, the statement of Profit and Loss and Cash Flow Statement for the year then ended together with significant accounting policies and other explanatory information.

The Directors had recommended a Dividend at a rate of 100% 1.e. Rs. 1/- per share on the fully paid up capital of the Company to be paid in accordance with the Articles of Association of the Company out of the profits of the Company, absorbing a sum of Rs. 5,980.65 lakh, apart from dividend tax of Rs. 1,016.41 lakh.

The recommendation of the Board for payment of Divided was based on Profits available and the expectation of realisation of government subsidy, and market outstanding which ensure the ability of the Company to meet its commitment in respect of Dividend payment and repayment obligations to the Lenders.

Consequent to the approval of the Board of Directors on a review of the financial position of the Company, the Board noted that in view of the non-receipt of subsidy from the Government of India which has accumulated to substantial amounts and the unlikelihood of receipt in the near term having regard to the increasing uncertainty in the economic situation, market realisations not being to the expectations, higher commitments and outlays on account of appreciated value of dollar, there could be a stress on the cash flows as the same would be required for the operations. The Company accordingly may not be able to meet its commitments of payment of dividend which is required to be paid out immediately on approval by the shareholders at the ensuing Annual General Meeting.

In view of the changed circumstances as stated above, the Board has reconsidered the decision to recommend the dividend payment as stated above and resolved to withdraw the recommendation made earlier and accordingly, the Board has resolved to cause revision of the financial statements of the year 2012-2013.

In view of the above decision, financial statements which were considered and approved at the meeting held on 3rd May, 2013 have been revised for reversal of the provisions made for proposed dividend and dividend tax aggregating to Rs. 6,997.06 lakh and consequent reversal of transfer to General Reserve Rs. 850.00 lakh.

From Auditors’ Report

As stated in Note 3, the financial statements for the year ended on March 31, 2013 approved by the Board of Directors and reported by us on May 3, 2013 have been revised to give effect of reversal of provision made for proposed dividend and dividend tax of Rs. 5,980.65 lakh and Rs. 1,016.41 lakhs respectively consequent to the Board’s decision

Your Directors consequent to a review of the financial position of the company, in view of the company facing severe financial stress owing to the non-receipt of subsidy from the Government on India which has accumulated to substantial amounts, market realisations not being to the expectations, higher commitments and outlays on account of appreciated value of dollar, the unlikelihood of the cash flow improving in view of the increasing uncertainty in the economic situation, have re-considered the Audited Annual accounts and Audited Financial Results of the company for the year ended 31st March, 2013.

The Board of Directors after careful re-consideration of the Audited Accounts and having explored all available options have approved the Audited Accounts and decided to withdraw the recommendation for payment of dividend to conserve the funds for the future in view of the present outlook of the Industry.

FROM THE PRESIDENT

Dear members of BCAS family,

On this 15th August, after a long time, I wasn’t enjoying my usual Independence Day holiday. No movie, picnic, cards or eating out. Instead, I was in Jaipur, hosting the BCAS ITF Conference. I was going over the arrangements for the conference with Nitin Shingala and the other coordinators. As we went to inspect one of the open air venues, we saw the Indian flag fluttering in a wet Jaipur morning. The hotel staff had just concluded the flag hoisting ceremony. I instantly rued the missed opportunity of being there. Gosh! I hadn’t attended a flag hoisting ceremony in so many years.

The realisation shamed me. A volley of thoughts ran through my mind, all of them violently shaking me up. Last month, I had attended a celebration of the US Independence Day in India. The joy and vigour with which it was being celebrated in India amazed me. And here I was, an Indian, in India, but not a witness to any flag hoisting, national anthem singing or celebrations. To be honest, there wasn’t any joy that I was feeling on this occasion. Does it mean that I and others who felt like me are not patriotic?

I love my country. I get goose bumps when I hear or recite our national anthem. I am fiercely protective of anyone criticising my country (and unfortunately, it is fellow Indians who criticise the most). If this is not patriotism, then what is?

But I don’t feel any different on the Independence Day than any other day. It may not appeal to you and I apologise for the same, but this is an honest confession. Is it just me not valuing my independence or is it because I don’t feel independent in an independent India? On 15th August 1947, we gained ‘Independence’ from the British Raj. We were earlier ruled by someone we did not choose, we now get to elect the people who rule us. That bit has surely changed. Let us think back on how that has changed India…

History tells us that under the British Rule, we were suppressed, oppressed and exploited. Even today, there is abject poverty, lawlessness, corruption, communalism, casteism, rising crimes against women and children, hunger, exploitation and what not. I wonder if those affected by these factors feel ‘Independent’. How does a child, deprived of her right to education, enjoy her independence? What does Independence mean to the scores of children suffering from malnutrition or to the farmers who committed suicide out of poverty?

We have read that under the British Rule, we toiled to fill the Queen’s coffers. Is our toiling to fill Swiss Bank lockers any different?

We were fighting for Independence from the British Raj then. Most of us continue to fight for independence from corruption, poverty, crime, lawlessness and communalism. Some fight for a separate state and some for autonomy. Some through agitation and some through violence. I fear that at this rate, we may be on the way to become the next USSR.

Today’s “freedom fighters” (the conscience keepers) are won over by fear, force or just lured. The Press had no freedom then. Today this ‘freedom’ can be bought over. There were communities that were suppressed then. After six decades of independence, they still cry ‘reservations’.

Think honestly, how many of us really celebrate the Independence Day? Some old timers maybe, but what about the youth? Is Valentine’s Day celebrated more?

On the economic front, many opine that we have gone back to the scenario similar to that prevalent in the preliberalisation days. On the socio-political front have we gone back to the pre-Independence days? Is this state of mind on account of the events of the last few years?

This year’s front page news was about the mumbling PM and grumbling PM-in-waiting. Will next year’s front page news be about the roaring Indians and soaring Economy? Will we see true freedom soon? Freedom from oppression, suppression, corruption, poverty, illiteracy, inequality, hatred and hostility? This Independence Day I didn’t sing Tagore’s National Anthem. But I did read his Gitanjali as a prayer.

Jana Gana Mana
Thou art the rulers of the minds of all people,
dispenser of India’s destiny.
Thy name rouses the hearts of Punjab, Sind, Gujarat
and Maratha,
Of the Dravida and Orissa and Bengal;
It echoes in the hills of the Vindhyas and Himalayas,
mingles in the music of Yamuna and Ganga and is
chanted by the waves of the Indian Sea.
They pray for thy blessings and sing thy praise.
The saving of all people waits in thy hand,
thou art the dispenser of India’s destiny,
Victory, victory, victory to thee.

Gitanjali
Where The Mind Is Without Fear
Where the mind is without fear and the head is
held high
Where knowledge is free
Where the world has not been broken up into
fragments
By narrow domestic walls
Where words come out from the depth of truth
Where tireless striving stretches its arms towards
perfection
Where the clear stream of reason has not lost its
way
Into the dreary desert sand of dead habit
Where the mind is led forward by thee
Into ever-widening thought and action
Into that heaven of freedom, my Father, let my
country awake.

I look forward to the day when we celebrate our Independence day with pride, joy and in complete freedom. This is possible. Possible if we the citizens dream it, wish, desire, toil and command it. It will happen. Hopefully soon.

Here’s wishing everyone happiness and love.

With Warm Regards
Naushad A. Panjwani

Society News

Effective Inter-Action with
Clients & Success Factors of Successful Organisations, 30th June
2013, at Directi Internet Solutions Pvt Ltd, Andheri East.

Participants of Effective Inter-Action with Clients & Success Factors of Successful Organisations

Human
Resources Committee had organised a very helpful full day workshop.
This workshop was intended to enhance the soft skills required in the
corporate business environment. Honourable speakers, in their
motivational speeches, enhanced the knowledge of the audience with their
rich experience sharing. The speakers at the Workshop were Mr. Vivek
Patki and Dr. Anil Naik.

The knowledge shared in the lectures
was well received by the audience. More than 20 participants attended
the program for the enlightenment of above knowledge.

Workshop on Standards on Revised Audit Report & Audit Documentation, 21st June 2013, Jai Hind College, Churchgate.

Mr. Naushad Panjwani (President), Mr. Mukesh Trivedi, Mr. Himanshu Kishnadwala, Mr. Khushroo Panthaky (Speaker), Mr. Suril Shah

Accounting
& Auditing Committee organised an informative workshop on Standards
on Auditing (SAs) 700,705,706. These standards have undergone important
changes recently and are critical for issuance of audit report. The
workshop was meant to enable the auditors to discharge the attest
function in accordance with the requirements and to maintain appropriate
documentation. The speakers were delighted at the undivided attention
from over 120 participants. The session ended with the honourable
speakers’ answering of doubts on the subject of their expertise.

Topics covered by both the Speakers:

Topics

Speakers

Standards on Auditing on Audit conclusions and Reporting:
(SA 700, SA 705, SA 706, SA 710, SA 800, SA 805, SA 810)

CA. Khushroo B. Panthaky

SQC1 & SA 230 (Audit Documentation)

CA. Khurshed Pastakia

Filing of Returns for Assessment Year 2013-14, 3rd July 2013, Rama Watumull Auditorium, Churchgate.

Mr. Ameet Patel (Speaker), Mr. Naushad Panjwani (President) Mr. Deepak Shah and Mr. Saurabh Shah

Mr.
Ameet Patel, Chartered Accountant, spoke on Filling of Returns for
Assessment 2013-2014. In his presentation, Mr. Patel covered the various
guidelines. He deliberated on recent amendments in ITA/ITR and further
went on to describe a stepwise guide to select ITR forms as per
requirements, explained usability of the changes in online filing of
returns, online form submission process, general changes across ITRs and
lastly, the precautions to be taken while preparing the Return of
Income.

The lecture was well appreciated by an audience of over
900 people attended. Even as the lecture ended late on a rainy evening,
the questions from enthusiasts compelled the speaker to continue longer
than the usual end time.

The presentation is made available at
www. bcasonline.org & www.bcasonline.tv respectively, for benefit of
the members and all subscribers.

Domestic Transfer Pricing – Important Issues, 10th July 2013, Rama Watumull Auditorium, Churchgate.

Mr.
Pinakin D. Desai, in his first lecture of the BCAS year 2013-14, spoke
about the new topic. Transfer pricing regulations introduced in India in
2001, till very recently covered only cross border transactions between
associated enterprises. The Finance Act, 2012 has extended
applicability of transfer pricing to ‘Specified Domestic Transactions’.
Focusing on the new provisions, Mr. Desai spoke on their implications.
With his vast experience and in-depth knowledge on International
Taxation, Mr. Desai addressed a full auditorium of more than 580 people.

Mr. Pinakin Desai (Speaker)

The
presentation is made available at www. bcasonline.org &
www.bcasonline.tv respectively, for members’ benefit and all
subscribers.

64th Annual General Meeting, 6th July 2013, Rangaswar Hall, Y. B. Chavan Pratishthan, Nariman Point.

The
64th AGM of BCAS was held on Saturday, 6th July 2013 at Rangaswar Hall,
Y. B. Chavan Pratishthan, Mumbai. The President of the Society Mr.
Deepak Shah took the chair. All items as per the agenda given in the
notice were undertaken including adoption of accounts and appointment of
the auditors amongst other things.

Mr. Raman Jokhakar, Joint
Secretary announced the results of the election of President, Vice
President, 2- Joint Secretaries, Treasurer & 8 – members of the
Managing Committee for the year 2013-14. Also the names of co-opted
members and ex-officio members were announced.

The “Jal Erach Dastur Awards” for best feature and best article appearing in BCAS Journal during 2012-13 was announced. The winners were: Puloma Dalal, Bakul Mody for the feature on ‘Service Tax’, Sriraman Parthasarathy for article on ‘Auditor’s Dilemmas!’.

Three books were released at the AGM:

1. Audit Checklist for Companies – by Raman Jokhakar & Nalin Shah was released by Mr. K. C. Narang.

2. Mandatory Accounting Standards – by Himanshu Kishnadwala, Jayesh Gandhi, Manish Sampat, Vijay Maniar, Ashish Shah & Abhay Mehta; Released by Mr. Arvind Dalal.

3. RTI Book – by Narayan Varma; Released by Mr. Pradeep A. Shah.

Thereafter, the Outgoing and Incoming Presidents Mr. Deepak Shah & Mr. Naushad Panjwani respectively, addressed the members.

Outgoing President Deepak Shah’s Speech

Dear Members,

President elect Naushad Panjwani, Vice President elect Nitin Shingala, Raman Jokhakar, Chetan Shah, Mukesh Trivedi, distinguished past presidents of the Society, President of Chamber of tax Consultants Yatin Desai, Vice President Paras Savla, other office bearers, my Managing Committee colleagues, Core Group members, other Seniors in this profession and friends.

A very good evening to all of you. It’s a honour and privilege to address this distinguished gathering at the AGM, and I am extremely thankful to one and all for being here on such a special occasion. A mixed feeling as I stand before you as the President of BCAS for the last time. I find it hard to believe how quickly this year has gone by.

On this very date last year, I stood before you giving my acceptance speech, feeling excited and nervous, thinking whether I would leave upto the reputation created by other past presidents who have served this society selflessly.

Let me admit that following a glorious tradition of excellence, continuing since more than six decades is not an easy task. It’s always a challenge for any incoming President to maintain the high standards and excellent quality set by predecessors, of the Society which is always ahead of its time. Throughout the year one thing that kept passing through my mind was that I will have to take the initiative, be innovative and will have to go the extra mile.

In a few hours from now, I will lay down the responsibilities of this office. My most enjoyable journey of the recent past from an Office Bearer to President of this august body ‘BCAS’ is ending today. When time flows by, it becomes history. But sometimes history is immortalised in timeless moments and lives on forever. It becomes ageless. And today is that day in history for me.

It is normally said that : Every path has its puddles. But I feel delighted to say, that with the Grace of God, for me it was smooth, beautiful, and I enjoyed each and every moment of my journey thoroughly walking down this path with each one of you.

For me it has been a satisfying year and I am obliged that I was given this opportunity to do my bit for the Society. I have tried to fulfill the trust reposed in me, and do my best for the Society by putting my heart, mind and soul even into the smallest act, and have taken utmost care to maintain and raise the high standards of this august body. It was gratifying to witness the hard work, commitment and conviction of my colleagues unfold before me.

In my endeavour to meet expectations, whatever I could do was by banking upon the goodwill this Society has garnered over the years. I have witnessed this in many interactions with different people from all walks of life. And if I have seen further than others, it is by standing upon the shoulders of giants.

A Chinese proverb states :

Behind an able man there are always other able men.

Ladies sitting here please excuse me for using this statement. At this juncture I am not quoting the age old saying that “Behind every successful man there is a woman” mainly for two counts : Firstly, for me

It’s not the things we get, but the hearts we touch that will determine our success in life.

And the second reason is : That yet the views of my mother–in-law are to be received.

So for now I would talk about those able men only : And I can see many of them in front of me who have inspired me and Motivated me from time to time. Believe me, Motivation makes it possible to accomplish what you should accomplish.

I owe my deepest thanks to the past presidents who gave me this extraordinary opportunity to serve this wonderful organisation. I salute them for the dedication and competence they have brought to the service of BCAS. I for one believe that the respect, success and growth that this Society has achieved over the years has been possible only because of the past President’s connect. Their guidance leads to Goodwill, and their directions shows you the path of Truth. Year after year they are setting a perfect example while creating a pathway for others to follow. And for these reasons we thought that this year we should raise a toast of gratitude for their priceless patronage down the years.

So in this year we made a humble beginning by felicitating 12 of our Senior Past Presidents who are above 75 years of age.

And to me working with them and under their guidance for more than a decade now, has given me a feeling like Small boy becoming a Big man, through the influence of big men who care about small boys.

Come July and all Presidents are posed with common questions like : How was your term ? What was your experience ? Feeling Relieved ? How do you feel about leaving ?

For any President at BCAS : There are two constants: “The time we come and the time we go – Everything in between is in one’s own hands”

But let me admit that leaving this most coveted post is ” sweet sorrow”.

As regards my term : The last year has been nothing short of living a dream, it has been a memorable year with humble experience. There have been good days and tough days, it’s been a roller coaster ride with all the ingredients:

• Fast paced, Action packed,

• Drama,    Emotions,
•    Competition, Gossips
•    Fun , Food
•    and most importantly Friends, friends & friends and lasting Friendships
•    Sorry, How can I forget or ignore the amount of grey hair, the added kilos (thanks to RRC’s), hyper moments, but BCAS has taught me TO BE POSITIVE, so to gain something you have to lose something.

If I have to share my thoughts, my experience and my sentiments with you

It has been the privilege of a lifetime to serve as BCAS president. I have been blessed to represent this society we all love. And I will always be honored to carry a title that means a lot to me.

It has immensely contributed in my self development. It has been a story of how faith, teamwork, and commitment can help and make a difference. It’s been an absolute pleasure to interact with each and every one associated with BCAS in one or the other way.

I would say that this most prestigious post, or I would say from the time I joined the Core group one most important thing which I have learnt is that: Any great relationship is based on two important things :

First to find out the similarities… Second to respect the differences.

The last one year’s worth in my life is incomparable. It has enhanced my perception and has given me :

Courage : To stand for what you believe in, regardless of the odds against you, and pressure that tears at your resistance.

Confidence : To keep continuing with it.

Determination : Of stopping at nothing, and doing what’s in your heart you know is right.

I have also learnt virtues like :

Selflessness : Giving more than you have, and expecting nothing, but nothing in return.

Pride of Service : Doing more than is expected, No matter the time, effort it takes, to the best of my ability.

To me BCAS is like a family away from home. And the memories of all the wonderful experiences, and many anxious moments converted to blissful experiences will be cherished for years to come.

And this precious year of mine, I would like to dedicate to my parents who provided me with the best in life, and yet taught me the importance of compassion, sharing and humility, and above all self belief. And these core virtues have made this day possible for me.

Words cannot convey my gratitude to my dear wife Nita, and a wonderful family back home that have stood by my side and encouraged me throughout this journey, making several sacrifices in order to ensure that I continue on my chosen path with tranquility.

As far as activities are concerned I would say that a lot is done and lot is to be done as every president feels when laying down the office and, I am no exception.

Since we began our journey, we have created, improved and reinvented over many programmes, and taken new initiatives too. All regular activities of the Society continued to receive full attention during the year. There were many things which were planned but could not be put into action or implemented for some or the other reason. A few projects that comes to my mind are Online Journal BCAJ, Revamping BCAS website, Research Publications, Increasing infrastructural facilities for the benefit of members, setting up point of contacts for outstation members. But I have no regrets, as I am confident that the new team will complete the unfinished agenda in the ensuing year.

Overall, it has been another busy year for BCAS, and I would like to acknowledge and thank my colleagues Naushad, Nitin, Raman, and Chetan for their zealous commitment shown towards the working of the Society, and their contribution and cooperation throughout the year, and being hugely supportive in all my endeavours.

Once again a Big Thanks to Past Presidents for always being there when I needed, and letting me go free when I needed freedom.

The members of the Managing Committee have been extremely generous in support and advice provided to me personally in helping me to discharge my own responsibilities.

My sincere gratitude and appreciation to core group members especially the Convenors for the unstinted support and real hard work put in by them throughout the year, and taking the real burden of all the activities.

Truly, BCAS is proud to have such active members. I once again appreciate each and every single effort and sacrifices made with all my heart.

I thank the sister organisations (AIFTP, CTC, STPAM, WIRC) and other co-organisers for making all efforts to hold more and more joint programmes, and complementing one another in imparting education.

I cannot adequately express my appreciation of the untiring and devoted hard work put in by the staff led by Mr. Cassem Rajabali, who have always proved equal to the demands placed on them. My appreciation to all employees for their enormous personal efforts as well as their collective contribution to the Society’s performance over the years and particularly in 2012-2013. I must admit that all of you have exhibited great loyalty and diligence towards your respective obligations.

I am pleased to express my very sincere gratitude to all those friends and well-wishers who extended support to me in all my endeavours and were instrumental in seeing that what I wished is done, and all who have extended their support in my mission.

Last but not the least, I was indeed fortunate to receive continuous and consistent support and cooperation from our members. All regular activities of the Society continued to receive full attention during the year. The attendance at our programmes reaffirms our faith in this continued journey of our mission. It has been their support/guidance that has helped us evolve to serve you better.

Thanks to all Hon’ble guests for their valued and encouraging presence at this AGM.

My final task is a pleasant one indeed ie., handing over the mantle to Mr Naushad Panjwani. I have enjoyed working with him and have witnessed at first hand the many admirable qualities that will stand him in good stead over the coming year. He has lot many plans for the Society, and with able Office Bearers, they will take Society to greater heights. I wish him and his team all the very best.

I would end with an assurance that I am and will always be available to BCAS to repay my debts of gratitude I owe to the Society. And I will keep reminding myself my very own punchline : ME & MY BCAS.

I say a good-bye with a whole lot of positive thoughts of my tenure and in the end I would say :

“To meet and to know is the beauty of life,
To meet and to depart is the way of life”

Incoming President Naushad Panjwani’s speech

President Deepak Shah, my colleagues Nitin, Raman, Chetan, Mukesh, respected Past Presidents,

seniors and friends. I cannot thank you enough for the high and unmerited honour that you have conferred on me this day. I can’t think of many occasions when two men are sitting next to each other having such contrasting emotions as now; one a relieved man and the other a nervous wreck. A few days ago I witnessed 12 of our past presidents being felicitated for the contribution that they have made to the Bombay Chartered Accountants’ Society. And I was daunted. Such illustrious, ingenious and industrious people have been presidents of BCAS! This year, I have the pleasure of working alongside 14 dedicated, selfless and accomplished chairmen of the 9 committees, who have been presidents of BCAS not very long ago. And again I am daunted. I am about to step into the very large and warm shoes that Deepak is vacating. And I’m very daunted! I can only take a leaf out of what William Faulkner has said “Do not be daunted by the accomplishments of your predecessors. Don’t even try to equal or better your predecessors, focus on being better than yourself”. Now that looks like an achievable benchmark. I’m indeed honoured and proud to be elected the 64th president of the Bombay Chartered Accountants’ Society and probably the first president from the industry.

Last year has been an amazing year at BCAS for me. Deepak has so patiently mentored me. I have observed him diligently discharge his responsibilities as the President. I could see him so thoroughly enjoy himself and that was infectious. Deepak is a man of few words but full of action. He has been courageous, patient, polite and a thorough consensus builder. Thank you Deepak for everything. I shall try to remember all that I’ve learnt from you.

I know I should keep this short and come straight to the point and discuss the plan for the year but I request you to bear with me so that I can thank my gurus. Like they say, “Public speaking is the art of diluting a two-minute idea with a two-hour vocabulary”, I promise I will not take two hours. I want to thank my late grandmother from whom I learnt the importance of relationships. I miss her a lot on all my joyous occasions and today is one such day. Dilip Muzumdar because of whom I am a CA. N C Mehta who instilled values in my professional conduct. Anant Gawande from whom I learnt to balance work and family life. Komal Bir Singh who introduced philanthropy to me. Ninad Karpe who introduced me into BCAS.

Pranay Vakil who drew me into the exciting world of real estate. And last but not the least, the man who came into my life around the time I lost my father and since then has been more to me than a father, Mr. Narayan Varma, I love you.

In 10 days from now Afsheen and I shall celebrate the silver jubilee of our marriage. And in the interest of domestic peace I have to mention her. I would like to take this moment to say that Afsheen I have a lot to thank you and Lahra for all that I have achieved.

In the last few years I have been on committees of various trade bodies and associations. And I’m proud to say that BCAS is the most collaborative forum that I have come across. The BCAS culture fosters innovation and offers a platform for all to learn, grow and lead. BCAS is blessed to have such a large army of volunteers constituting the core group; 199 this year. The convenors, who are the future of the Society, give their all to ensure that the flag of BCAS is flying high. The past presidents of the Society are its back bone. I have no hesitation in saying that without their participation, the Society’s programs would not be of this magnitude and character.

I have gained a lot from BCAS. Be it knowledge, leadership skills, friends and lots of pleasant memories. I have never ever been at a loss as all I had to do was make a call to the countless experts within the core group. I continue to make those calls to this day. Actually it was very convenient to have Gautam Nayak as my neighbour in the earlier years of my practice.

There are so many moments, the memory of which brings a smile to my face. In particular I cherish my interactions from my early years of practice with Gautam, Nikhil, Ninad, Hitesh and Himanshu. Shariq’s firm has always had a very high standard for hiring people. I know this because my only application for a job ever was rejected by his firm. Since then he hasn’t missed an opportunity to remind me of what a wise decision he made. All of them were such fun people to be with. Pranaybhai has always been my ‘captain’ and I know I can call upon him for anything anytime.

Not being in practice and having no illusions of possessing knowledge of technical subjects myself, I am not suited to make suggestions on these matters. I am confident that the other 198 core group members will continue to light this torch as in the past. But having reasonable experience and expertise in marketing, I do see some head room for BCAS to spread further. We must and we certainly will continue to address the needs of practicing chartered accountants, who form the majority of our membership. But I also see opportunity and a need for the Society to reach out to members in Industry, members from outstation and the youth.

As has been the practice for some time now, each of the 9 newly constituted committees have met and chalked out their annual plans. I am happy to report that each of these committees have paid heed to my requests and have either included programmes where there were none or scaled up their existing programmes to benefit the new target segment of our membership.

Deepak had formulated a very well thought out annual plan last year. I see no reason to tamper with that and the office bearers would like to take this plan forward in the current year. We would just like to scale it up. You have a copy of the same in your hands. Let me spell out a few specific initiatives:

• Last year we experimented with a program for the Real Estate Industry, which met with great success. This year we will have four industry specific programs. Though it’s very tempting to charter into familiar territory, I will exclude Real Estate. Senior member of the Managing Committee, Himanshu Vasa has taken upon him to help BCAS connect with CAs from the industry. I have very high hopes from him.

• BCAS was very visible at one point of time with our articles featuring in frontline newspapers and magazines. No more. We cannot be shy if we want to reach out to a large audience. We cannot become thought leaders if we are not known. Our well researched and incisive representations need to find a larger audience and that’s the only way the only way that the law makers will listen to us. I am going to attempt making BCAS more visible and our voice a few decibels louder. I am happy that Shariq Contractor and Rajesh Kapadia have consented to guide me and Niña, Sangeeta, Toral, Sonalee and Pinky have agreed to work with me on this.

• Study circles have been the life line of the Society in the past. Unfortunately, membership, attendance and participation are all dwindling. While the various committees have recognised this and are working to revive them, I have requested Shardul Shah to help the office bearers with conceptualising ways and means to turn the tide.

• Mumbai has now spread far and wide and along with it, our membership. It is our responsibility to make it convenient for members from suburbs to enjoy the fruits of our efforts too. The office bearers will endeavour to take as many programs out of South Mumbai as possible.

• Today technology is a way of life. Our membership is becoming tech savvy. The need to commute is on the decline and the ease of communication is unbelievable. In such an environment, technology cannot remain the onus of just one committee. All committees will have to imbibe technology and technology-based programmes in their scheme of things. It is with this intent that I have dropped InfoTech from the scope of 4i committee. The 4i committee should focus on innovation, identify new areas of practice, incubate ideas and at an appropriate time hand them over to the concerned committee as programmes.

• Today 35 % of India’s population is between the ages of 25 and 35. I have no statistics of how many chartered accountants are in this age group but just 15 % of our members are under the age of 35. What is the reason for this? What do we need to do to bring many more into our family? One thing I’m sure of, if we do not have the exuberance of the youth with us, we will soon become irrelevant. With this concern in mind, I have tasked 3 very young and dynamic members, Mandar Telang, Jinal Shah and Mahesh Nayak to reach out to the youth and help the Society connect with them. At one point of time the Society had very youthful members.

• Shri Arvind Dalal and Late Shri Ajay Thakkar were only 35 when they became presidents of the Society.

• Shri Haren Jokhakar and Late Shri Shailesh Kapadia only 32.

• And Late Shri Daulat Vora was only 31.

I dream of BCAS having an even younger president one day.

• BCAS and the BCA foundation have been carrying out activities of CSR nature. But these are far and few and also, not well publicised. I have requested Mayur Nayak to prepare a CSR plan for the Society which will help us conducting them in a more planned manner and on a larger scale. I am sure that the recent calamities that have caused loss of life and livelihood in Uttarakhand are playing heavily on your minds. We, the office bearers and the Trustees of the Foundation are finalising a plan to contribute to the rehabilitation of those affected and urge each and every one of you to contribute generously towards this. The appeal letter has been emailed and a copy of the same is on the desk outside.

The journey of BCAS is like a relay race. The baton is passed from one president to another, year after year. I make one solemn promise to all, I will run fast, I won’t drop the baton and when the time comes, I will pass it on to my successor such that, I hope, you will be proud of me.

65th Foundation Day : Nationhood – the next step, 6th July 2013, Y. B. Chavan Pratishthan, Nariman Point.

The Founding day celebrations was started by Chief Guest Mr. Nasser Munjee, by releasing of ‘Laws & Business – A Compendium’ by CA Anup Shah, published under the auspices of Shailesh Kapadia Memorial Publication Fund. Thereafter Mr. Munjee further took the stage with his presentation, and he went on to speak about the values that he cherished from great thinkers, philosophers, philanthropists and leaders. Through his lecture he delivered thoughts that provoked minds of all present. One of the hindrances to Nationhood deliberated by Mr. Munjee included living with the past; a refusal to change institutions that were built to serve a different objective and resistance to replace them with those of contemporary relevance. The session ended with a rather detailed discussion through questions from the full house of more than 180 people.

Ethics and u

Eternal vigilance: (Cl. (7) of Part I of 2nd Schedule)

Shrikrishna (S) – Yes, My dear Arjun, how was your vacation? How was your Europe tour?

Arjun (A) – Well, my family had lot of fun there. It was quite smooth. But I was constantly worried.

S – Why?

A – So many things pending in office. Many articles on leave for exam. There were phone calls almost every two hours.

S – Oh! So sad! You mean to say, in your absence nobody can tackle the things here?

A – All are useless. Even the partners depend upon me for small decisions.

S – How many years are you in the profession now?

A – More than 25 years.

S – Still you have not built up a good organisation? Have you learnt to delegate work to juniors? Haven’t you established systems?

A – Off and on I try to; But the staff is not stable. They don’t want to learn. Qualified people are afraid of taking decisions. And about articles and trainees, the less said the better.

S – If such is the situation, how can you perform well even if you are here? CA Profession is essentially a team-work.

A – I feel, our profession is a continuous struggle. You never feel that you have settled down. Every now and then something new crops up.

S – But then, have you spared any time to train your staff and articles?

A – Where is the time to do all that? It is always a fire-fighting exercise. You should see our plight in September.

S – I know, you have to sign many audits.

A – This year, there is further fuel to fire.

S – Why? What is new this year?

A – All these years, we were just uploading the returns. Actual audit reports, we sign much later. Sometimes, even while doing next year audit. From this year, we need to upload the audit reports as well!

S – Oh! That means just as I told Bhagavad-Gita to you in Mahabharata, I need to spend a lot of time telling you about systems.

A – It is easy to preach all that philosophy. Same is the case with those Management trainers. Everything seems very sweet when they talk. But the worries come back as soon as the training session is over.

S – That only shows that you are not a professional. What I told in Geeta was not merely for that Mahabharata war. I told you that life itself is a continuous war. You need to equip yourself to fight it.

A – Tell me all those things after 30th September. Till then I have no time. I have to complete so many audits.

S – Arjun dear, precisely for that you need to work on systems. Otherwise, you will sign wrong balance sheets.

A – Who told you that the balance sheets we sign are correct? We only write that it is true and fair!

S – That is why there are so many disciplinary cases for negligence.

A – How to cope up with so much work? Everybody comes at the 11th hour.

S – That is why you need to plan. You need to be pro-active. You need to communicate and initiate things well in time. This is the appropriate time to plan the work to be completed in September.

A – I am told, they don’t take all the errors that seriously. They say even if there is some negligence, it does not matter. What is punished is only ‘gross negligence’! That means, there should be some blunder! A gross negligence?

S – You are mistaken. Now the trend is changing. In the year 2006, your CA Act was amended. Earlier, on the Second Schedule, Part one, Clause (7) mentioned only about gross negligence. But now, they have also added ‘lack of due diligence’.

A – My God! That makes it too wide! Many times, we just change the year and print the same audit report.

S – Due to computers, there is a cut and paste. Very dangerous!

A – I am told, there are many misconduct cases for errors even in charitable trusts’ balance sheet. I don’t understand how does it matter? There is no tax liability. It may be a small school.

S – This is a common misconception. You are so much obsessed with the thoughts of taxation! You believe, there is nothing beyond taxation. Remember, you cannot forget your role and duties as an auditor. Audited balance-sheet is used for many things other than tax. It is used for giving grants in aid. It may have implications in service tax. Or ever TDS to be done by trusts.

A – I remember one case where a member signed a trust’s balance-sheet. It was correct. But the cash book showed negative cash balance on a few days in between! Addition made in income tax was also deleted.

S – Still he was held guilty. There is obviously a lapse in the role as an auditor. Your signature loses credibility. Whether revenue or any person is affected or not is immaterial.

A – Then you better explain to me all these things next month. I should not wait till September.

S – Yes. This year is 150th birth anniversary of my beloved disciple – Swami Vivekananda. He appealed to the people to wake up and act. Same way, there is special awakening required among professionals. And now there are grave consequences under new Companies Bill.

A – I will follow your advice, O Lord!

The above dialogue is with reference to Clause (7) of Part I of Second Schedule, which reads as under :

A chartered accountant in practice shall be deemed to be guilty of professional misconduct, if he –

Clause (7): does not exercise due diligence, or is grossly negligent in the conduct of his professional duties.

[Note: This is the most important and serious charge of misconduct. Discussion on this clause may continue with few illustrations.]

FROM THE PRESIDENT

Dear members of BCAS family,

I have been out of practice (pun intended) for many years now since I joined the industry. I had almost forgotten how busy practicing CAs get in a few months in a year. Come September and they become unavailable to friends and family and are completely at the service of their clients. As most of the active core group members, including the office bearers are practicing Chartered Accountants, the activities at BCAS were a wee bit slow.

So a text from my daughter gave me time to reflect on a few things. But first her text; “Papa, can we reschedule our dinner tonight, please? I am so sorry but have to go for dinner with a few friends. Thank you for your understanding!”

The text got me thinking. Yes, I was upset that I couldn’t spend quality time with her, as I had planned. Then why was I not angry? And it struck me… It was the three golden words that she used in her text which set the tone of the text as a very polite request. What if her text read – “Dad, am cancelling dinner. Meeting my best friend for her birthday”?

What am I talking about? What else but the three magic words – Sorry, Please and Thank You! Please–Order someone to do something and they may do it grudgingly, but request that person and you will see him smile. Notice the change in demeanour between ordering an employee to fetch a file and requesting him to get the file. Think about how you felt when you were summoned and how you felt when your presence was requested. What is it about “please” that pleases us and changes the equation between two persons? The fact is that we often take relationships for granted and order people to do things for us instead of requesting them to do us a favour. What is the response from the other person? A wife feels inferior, children are scared and employees are disdainful. A short and simple “Please”, makes the other person feel gracious.
Sorry–They say, “to err is human…” and we do exercise this right. But it takes a lot of courage to accept our mistakes and apologise for them. Saying sorry does not make a person any inferior. In fact, the person is perceived as being honest and is respected. Sorry expresses so many feelings—“I am sorry” – apology, “I am sorry for your loss” – sorrow/sympathy, “I am sorry I said that” – regret, “It’s a sorry situation” – pity. Many of us would have realised the importance of sorry at one point of time or another. For those who have not yet realised its significance, here’s a perspective – Australia, a whole nation, commemorates the mistreatment of a part of its population by having a “National Sorry Day” every year on 26th May, since 1998!

Thank You – Not a day goes by without us taking help from another person, be it family, friends or colleagues and even strangers. Have we ever acknowledged the favours we took? Did we thank the liftman for dropping us at the right floor while we were busy on a call? What about our staff which works round the clock to help us meet deadlines? Do we thank our parents for their fabulous upbringing? Have we thanked our wife for managing the house so efficiently while we are busy at work? Did we remember to thank our husband for supporting our career when husbands in other houses don’t let their wives work? These are small acts of kindness and easy to overlook.

From the time we start our day till we step into our bed for a good night’s sleep, we have taken a number of favours. However, how many times do we thank the other person truly? Why not be free and generous in saying Thank You! Express your gratitude! It does not take away your credit, but definitely makes the other person happy and more willing to help you the next time!

These three simple words can work wonders for people. Genuine use of these words in day-to-day communication with people brings a definite change in the way people respond. Then it doesn’t matter if it is business or personal life.

How do we feel when we are wronged and the other person doesn’t apologise for it? How about not being thanked for a favour? And how about being ordered and not requested to perform a task?

Doesn’t this sound rude?

There is a saying we learnt in school —“Do unto others as you would like others to do unto you”. If I am not polite in my dealings with others, do I have any right to be offended by their rudeness? At the same time, if I am gracious, polite and sensitive, does the other person have any reason to be rude to me?

These three short and simple words sure have a lot of power. They can make a friend out of a foe.

Don’t they add a touch of kindness in this increasingly busy world? In a life which is becoming more and more mechanical, these words help to make relationships human.

These are not just tools for communicating but also for connecting. Many people find ways to express these sentiments in innovative ways. Munnabhai gives his Jaadu ki jhappi. My friend, Lt. Gen. Ata Hasnain has his “10 handshakes-a-day” rule.

I am brought out of my reverie by a knock at my office door by the peon. I ask for a cup of tea and after a split-second, remember to say “please”.

Kudos to the person who invented these three magic words!

Here’s wishing everyone happiness and love.

With Warm Regards

Naushad A. Panjwani

Direct Taxes

1. Protocol amending DTAA between India and
Sweden effective from 16th August, 2013 – Notification No. 63/2013 dated
14th August, 2013

2. NEW DRPs constituted – Order No. 2/FT & TR/2013 dated 27-08-2013

The
CBDT has issued this order for Constitution of the Dispute Resolution
Panel in Delhi, Mumbai, Ahmedabad, Pune, Kolkata, Bangalore, Hyderabad
and Chennai with effect from 19-08-2013

3. CBDT Instruction
on unmatched TDS challans in Form 26AS–Instruction No. 11/2013 dated
27-08-2013 ( available on www.bcasonline. org)

4. Income-tax
(14th amendment) Rules, 2013– amendment in Rule 37BB and amendment to
Form 15CA and 15CB-Notification No. 67/2013 dated 2nd September, 2013.

In
terms of Notification No. 58/2013 dated 5th August, 2013, Income-tax
(12th amendment) Rules, 2013 were issued to amend Rule 37BB with effect
from 1st October, 2013. Rule 37BB is further amended vide Notification
No. 67/2013 which prescribes the procedure to be followed by a person
responsible for making a payment to a non-resident. Form 15CA i.e., the
form to be filled by the person making remittance and Form 15CB, a
certificate to be issued by the Chartered Accountant are amended.

CBDT
Instruction on procedure for adjustment of refund against
demand—Instruction No. 12/2013 dated 09-09-2013 ( available on
www.bcasonline.org)

Safe Harbour rules notified vide
Income-tax (16th Amendment) Rules, 2013–Notification No. 73/2013 dated
18th September, 2013 Transfer Pricing: Finance Ministry Press Release
Reg Safe Harbour Rules

The Ministry of Finance has issued a
press release stating that the Safe Harbour Rules have been finalized
after considering the comments of various stake holders. The significant
aspect is that in case of transactions in the nature of routine ITES
and ITS activities the earlier ceiling of Rs. 100 crore has been
removed. Transactions upto Rs. 500 crore have been provided safe harbour
margin of 20% and transaction above Rs. 500 crore have been provided
safe harbour margin of 22%. Similarly, the ceiling of Rs. 100 crore
provided for transactions in the nature of corporate guarantee has been
removed. Also, the rules provide for a time bound procedure for
determination of the eligibility of the assessee and the international
transactions. Any rejection of the option exercised by the assessee
shall be by way of a reasoned order passed after hearing the assessee.
The assessee shall have a right to file an objection with the
Commissioner against adverse finding regarding the eligibility. The
Commissioner shall thereafter decide about the validity of the option
exercised by the assessee.

7. Compulsory manual scrutiny
norms for scrutiny during F.Y. 2013-14 have been modified— Instruction
No. 13/2013 dated 20-09-13 ( available on www.bcasonline.org)

8.
Clarification received on 20-09-2013 from the ADIT (Systems), New Delhi
in respect of mandatory requirement of mentioning of Bank Account No.
& IFSC Code in case of Foreign Companies in ITR-6

On
representation, the ADIT (Systems), New Delhi, has clarified vide an
email to the Society that in ITR 6 in case of Foreign Companies not
having a bank account in India, in the space meant for Bank Account No.
put ‘999999999’ i.e. 9 times 9 and in IFSC Code put ‘NNNN0NNNNNN’ [the
fifth digit being ‘Zero’ and NOT alphabet ‘O’], in all cases where there
is no bank account available in India.

9. Board issues instructions regarding non-filers

Instruction No.14/2013
F.No. 225/153/2013/ITA.II
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes

North Block,ITA-II,Division New Delhi the 23rd of September, 2013

All Chief-Commissioners of Income-tax All Directors-General of Income-tax

Sir/Madam

Subject: Standard Operating Procedure for cases under Non-filers Monitoring System (‘NMS’)-regarding-

The
existing procedure for monitoring cases of ‘Non-Filers of IT Returns’
as identified by Director General of Income Tax (System) has been
examined by the board. It is felt that at present, cases of Non-Filers
are not being uniformly monitored by the Assessing Officers due to lack
of consistency in approach in dealing with such cases. Therefore, in
order to streamline processing of such cases and to ensure consistency
in monitoring NMS cases by the Assessing officers, the Board, hereby
lays down the following Standard Operating Procedure:

1. The
Assessing Officer should issue letter to the assessee with 15 days of
the case being assigned in NMS, seeking information about the return of
income flagged in NMS. Facility to generate letter has been provided in
the NMS module in i-taxnet.

2. If the letter is delivered, the Assessing Officer to capture the delivery date in the NMS module.

3.
If the letter is not delivered, the Assessing Officer should issue
letter to the alternate address of the assessee available in the Online
Monitoring System or any other address available with the Assessing
Officer through field enquiries or otherwise. All addresses used in IT
Return, AIR, CIB databases have been made available to the Assessing
Officer in the Online Monitoring System to assist the field formations
in identification of current address of the taxpayer.

4. If the
return is received, the assessing officer should capture the details in
AST within 15 days of filing of return, if the assessee informs that
paper return has already been filed which was not captured in AST, the
details of return should be entered in the AST within 15 days of
receiving such information. E-files returns will be automatically pushed
to NMS.

5. If no return is required to be filed in the case, (
non-resident etc.), the Assessing Officer should mark “No return is
required” and mention reason for the same in NMS which needs to be
confirmed by Range head.

6. If the Assessing Officer is not able
to serve the letter and identify the taxpayer, assessing officer should
mark the assessee “Assessee not traceable” in NMS which needs to be
confirmed by Range head.

7. In cases where the assessee has been
identified and no return has been filed within 30 days of the time
given in the letter, the Assessing Officer should consider initiation of
proceedings u/s 142(1)148 in AST.

8. The cases will be
processed every week by the Directorate of Systems and will be marked as
closed in NMS. If one of the following actions are taken for A.Yr.’s
2010-11, 2011-12, and 2012-13:

a) Details of return are available in AST

b) Notice u/s 142(1) or 148 has been issued in AST

c) “ No return is required” is marked by the Assessing Officer and confirmed by Range head.

I
am further directed to state that the above be brought to the notice of
all officers working under your jurisdiction for necessary and strict
compliance.

(Rohit Garg)
Deputy Secretary Government of India

Copy to:
1. Chairperson, CBDT.
2. All Members, CBDT.
3. DIT(PR,PP & OL),Mayur Bhawan,New Delhi.
4. The Comptroller and Auditor-General of India.
5. The DGIT(Vigilance),New Delhi.
6. The Joint Secretary and Legal Advisor, Ministry of Law and Justice, New Delhi
7. All Directors of Income Tax, New Delhi.
8. The DGIT(NADT) Nagpur.
9. ITCC Division of CBDT(3 copies).
10. The DGIT (Systems), New Delhi.
11. NIC, N/o Fin –for uploading on the Department’s website.
12. Data Base Cell-for uploading on irs officers website.

(Rohit Garg)

Deputy Secretary Government of India

PART B: RTI Act, 2005

National Campaign for people’s Right to Information (NCPRI) held 4th RTI National Convention for four days (15th February to 18th February) at Hyderabad.

NCPRI was formed in 1996 and functions as an AOP till today. Prominent Individuals running the same are Ms. Aruna Roy, Mr. Nikhil Dey, Ms. Anjali Bharadwaj and others. NCPRI has played a key role in drafting the Central RTI Act of 2005. It holds convention every two years. On 15th and 16th February, the subjects of discussion were the future course of NCPRI-structure, decision making process, role of NCPRI etc. It then produced a summary, part of it reads:

Objectives

The National Campaign for people’s Right to Information (NCPRI) seeks to empower the people and to deepen democracy, through promoting people’s right to information. By using this right, it seeks to fight corruption and social apathy, to make governments and other institutions and agencies having an impact on public welfare, more humane and accountable to the people and to promote efficiency and frugality.

Values

The NCPRI is committed to support participatory just, secular and humane democracy.

Methods and Activities

The NCPRI endeavours to constantly engage and interact with the state and with other institutions and agencies. It campaigns for the enactment and use of right to information law that is effective and accessible to all. It also supports people’s efforts at developing the ability and motivation to use the right to information for addressing individual and social problems. It works at disseminating the RTI law and encourages and supports the development of materials related to transparency and governance, the raising of awareness about the fundamental value of information, the conduct of research and the setting up of information clearing houses. It seeks to further the cause of transparency by adopting other direct and indirect methods, including the filing of information requests, the fighting of legal cases and the holding of public hearing.

It also decided on its structure and also to democratise the same, details will be posted on www. bcasonline.org and www.pcgt.org.

On 17th February, delegates were divided in to 15 groups to discuss 15 topics for its activities and to draft Hyderabad Declaration on The Right to Information (Pattern similar to BCAS-RRC)

On 18th February, the final Hyderabad Declaration of the RTI was adopted at a public meeting which was also addressed by Mr. Vajahat Habbibullah (the first Central Chief Information Commissioner)

On the afternoon of 18th February, there was a visit to a NGO specialising on social audit to understand the process of social audit, a subject of great importance to build accountability and contain corruption.
It was a rewarding and satisfactory convention.

LECTURE MEETING

LECTURE MEETING:
Lecture Meeting on Important Provisions under the Companies Act, 2013, 24th October 2013

Investigation Office (SFIO), constitution of National Financial Reporting Authority (NFRA), Class action suits, Corporate Social Responsibility (CSR) etc.

After the success of the previous lecture meeting on the same topic in South Mumbai, the Society organised this second lecture in the suburbs to help members understand the various issues arising from these new provisions. The meeting was addressed by Mr. Himanshu Kishnadwala, Chartered Accountant.

More than 100 participants benefited from the analysis made by the learned speaker.

The Companies Act 2013 has introduced key provisions regarding several topics of importance including duties and liabilities of Directors, Auditor rotation, establishment of Serious Fraud The presentation and video of the Speaker is made available at www.bcasonline.org & www. bcasonline.tv respectively, for the benefit of all members and subscribers.

ICAI and its members

1. Some Ethical Issues

The Ethical Standards Board of ICAI has given answers to some Ethical Issues as under on Pages 694 and 696.

Issue No.1

Whether the information contained in the website of Chartered Accountants and/or Chartered Accountants’ firm can be circulated on their own or through e-mail or by any other mode or technique?

Response

Sub-paras (3) & (4) of para (m) in the Code of Ethics under commentary to Clause (6) of Part 1 of the first schedule to the C.A. Act prescribes that Chartered Accountants and/or Chartered Accountants’ firms should ensure that none of the information contained in the website be circulated on their own or through E-mail or by any other mode or technique except on a specified “pull” request. ‘Chartered Accountants’ firms would ensure that their websites are run on a “pull” model and not a “push model” of the technology to ensure that any person who wishes to locate the Chartered Accountants or Chartered Accountants’ firms would only have access to the information and the information should be provided only on the basis of specific “pull” request.

(ii) Issue No.2

Can a member put up his photograph on the website?

Response

Revised sub-para (8) of para (m) in the Code of Ethics under commentary to clause (6) of Part 1 of the First Schedule to the C.A. Act provides that display of passport size photograph is permitted.

(iii) Issue No.3

Whether a Chartered Accountant in practice can use expressions like Income Tax Consultant. Cost Accountant, Company Secretary, Cost Consultant or a Management Consultant?

Response

Council direction under Clause (7) of Part 1 of the First schedule to the C.A. Act prescribes that it is improper for a Chartered Accountant to state on his professional documents that he is a Income tax consultant, Cost Accountant , Company Secretary, Cost Consultant, whereas it is permitted to mention his degrees.

(iv) Issue No.4

Can a Chartered Accountant in practice give the date of setting up of the practice or date of establishment on the letterheads and other professional documents, etc.?

Response

Council direction under Clause (7) of Part 1 of the First Schedule to the C.A. Act prescribes that the date of setting up of the firm should not be mentioned on the letterheads and professional documents, etc. However, in the website, the year of establishment can be given on a specific “pull” request.

(v) Issue No.5

Whether a Chartered Accountant in practice can use the designation ‘Corporate Lawyer’?

Response

A Chartered Accountant in practice is not permitted to use the designation ‘Corporate Lawyer’.

2. ICAI Council Affairs

Attention is invited to the following Times of India Newspaper Report of 02-11-2013 from Chennai. Let us hope that the council issues detailed clarification on the issue.

“Holding that all is not well with the functioning of the Institute of Chartered Accountants of India (ICAI)the Madras High Court has decided to hear the CBI and the Chief Vigilance Commission (CVC) before passing Orders on PIL seeking CBI/CVC probe into the irregularities in the establishment of Rs. 97.5 crore centre of excellence at Nagpur.

“The ICAI is supposed to be the apex board to regulate the affairs of the body and monitor the functioning of its members. It also exercises disciplinary jurisdiction over its members. In case the apex body itself violates financial discipline, it is really a serious matter,” observed justice K. K. Sasidharan on Wednesday.

“Records indicate that all is not well with the statutory body. The council members have expressed their strong views and the President and Secretary on account of entering into certain financial dealing without taking the council into confidence. The transaction is not confined to the centre of excellence at Nagpur. There are other land dealings also involving substantial amount,” the judge said.

In his PIL, V. Venkata Siva Kumar wanted the court to order a probe by the CBI or the CVC into the project, and ‘unravel irregularities, conspiracy and criminal breach of trust’ committed by the president and other office bearers of the ICAI.

Minutes of the meeting revealed that the ICAI secretary had told the members that CVC regulations were not applicable to ICAI. The Nagpur land deal was cancelled due to protests by members.”

3. EAC Opinion

Accounting treatment of share application money pending for allotment invested by the holding company in subsidiaries:

Facts:
Consequent to State Electricity Reforms Transfer Scheme 2000. the erstwhile State Electricity Board (SEB) was reorganised into three Corporations namely, State Power Corporation Ltd. (SPCL), State Vidyut Utpadan Nigam Ltd. And State Jal Vidyut Ltd. we.f. 14-01-2000. The City Electricity Supply Area was separated as a subsidiary company of SPCL and christened as the City Electricity Supply Company Limited (CESCO) vide State Transfer of K Zone Electricity Distribution Undertaking Scheme, 2000.

SPCL (hereinafter referred to as ‘the Company’) is dealing with bulk purchase and sale of electrical power in the State and had a turnover of Rs. 12,197.66 crore in the financial year (F.Y)) 2007- 08. It purchases electricity from various power generation utilities. Further, it sells the electrical power to its wholly owned subsidiary companies holding distribution license under the Electricity Act, 2003. The company is a Government company and is holding 100% shares in its subsidiaries, which are also Government companies as ‘Investments’.

The funds received from the State Government are invested by the company in the subsidiary distribution companies as ‘share application money’. The allotment process from share application money to share capital rests with the respective subsidiary distribution companies. Pending allotment of share application money, these subsidiary distribution companies have utilised such amounts in the creation of capital assets.

The subsidiary distribution companies have negative net worth and, accordingly, the auditors advised the company to make suitable provisions in the annual accounts for diminution in the value of investments in accordance with Accountant Standard (AS) 13, “Accounting for Investments” considering that such investments in subsidiary distribution companies was made as long term investment.

Query:
Now, the company has sought the opinion of the Expert Advisory Committee on the issues: (i) Whether share application money is to be considered for making provision for diminution in the value of investments even though the shares for the same are yet to be allotted. (ii) Whether share application money, in respect of which shares are allotted subsequent to the end of the financial year but before the adoption of accounts of the company, should be considered as share capital for the purpose of making the provision for diminution in the value of investments. (iii) For making provision for diminution in the value of investments, whether the company can consider the fact that the revaluation of assets under progress and that the fair market value of assets would be higher than the historical value/cost of assets?

EAC Opinion:

The Committee notes that the erstwhile SEB was restructured into three corporations, one of which is the company. Further, its electricity distribution business has been divested to its wholly owned subsidiary companies. The company as well as its subsidiary companies are Government companies. The company has invested the funds received from the State Government as share application money in subsidiary companies, some of which is pending for allotment. In this regard the issue raised is whether the provision for diminution in the value of investments should made against the share application money, even though the shares for the same are yet to be allotted as on the balance sheet date. The Committee notes the definition of the term ‘Investments’ as defined in AS13, and ‘Advance’ as defined in the ‘Guidance Note on Terms Used in Financial Statements’, issued by ICAI.

After considering the above, the Committee is of the view that although the share application money pending for allotment may not give any benefits to the company (neither dividend, interest, rental nor capital appreciation) till shares are allotted against it to the company. However, since the money has been given to the subsidiary companies, this application money for shares may be considered to be held ‘for other benefits’. Further, the Committee notes that the money so provided has been utilised by the companies for acquisition of capital assets and all the companies being State Government companies operate as per the instructions of the State Government. Further, it indicates existence of a ‘contract of contribution’ to share capital against which shares have been allotted after the balance sheet date but before the approval of accounts. The Committee is therefore, of the view that all this indicates that irrespective of the fact that whether shares are allotted to the company or not, the money given as share application money would not be refundable to the company. Therefore, considering ‘substance over form’, the Committee is of the view that these are of the nature of long term investments. Accordingly, provision for diminution in the value of investments other than temporary should be considered against the same. Further, the Committee is the view that it should be disclosed in the financial statements with an appropriate nomenclature and notes to accounts so as to give the correct picture of the situation, viz., shares are yet to be allotted against these investments. The Committee is also of the view tht even if shares are allotted against such application money after the balance sheet date, but before adoption of accounts, there is no need for disclosing it as ‘shares’ till the date of allotment, as it is taking place in the subsequent year. However, additional disclosures regarding allotment (which takes place in subsequent year before adoption of accounts) may be made in the financial statements. (pages 720-724 of C.A. Journal of November, 2013)

4. ICAI News

(Note: Page Nos. given below are from C.A. Journal of November, 2013)

(i) Announcement:

All the members of the Institute of Chartered Accountants of India (ICAI) are hereby informed that in terms of the authority granted under Section 30(1)(i) of the C.A. Act, the Council of ICAI has prescribed Regulation 47 of the C.A. Regulations, 1988, which reads as under:

“No amount shall be charged from, or be payable by, an articled assistant or any other person on his behalf, directly or indirectly, whether by way of premium or as loan or deposit or in any other form in connection with his engagement as an articled assistant.”

In view of the above, charging of premium from articled assistants is misconduct under the provisions of C.A. Act and punishable u/s. 21B(3) of the C.A. Act (page 696)

(ii) Health Insurance Scheme for Members of ICAI

ICAI has taken a major initiative for arranging in the form of specially designed Health Insurance scheme with the special features like no health check-up, no age limit & entry barrier, premium discount in lieu of cumulative bonus, 5% discount in premium to be paid to the Insurance company, where the Member has not preferred any claim in the expiring policy in case of renewal of the policy, wide coverage for pre-existing diseases etc. for Members & Students of ICAI. The scheme has been in force from 12th March, 2013 for the Members of ICAI. Please visit http:/icai. newindia.co.in, to apply online for Insurance policy and to view other formalities as well as details about the aforesaid insurance scheme. (page 804)

(iii) Professional Indemnity Insurance for Members & CA Firms of ICAI

ICAI has arranged insurance protection for members in practice/firms in the form of specially designed professional indemnity insurance at a reasonable premium i.e. 85% discount in market rate. The scheme has been effective from 12th March, 2013 for the Members in practice/ Firms of the ICAI.

Members and CA firms desirous to avail the benefits of the aforesaid scheme may please visit http:/icai.newindia. co.in & online solution for the same. (page 804)

(iv) 64th Annual Report and Accounts of ICAI

The 64th Annual Report of the Council and the Annual Accounts for the year 2012-13 have been published in the Gazettee of India and will shortly be hosted on the website of the institute – www. icai.org. The same is being e-mailed to the members whose e-mail ids are on the record of the Institute.

In this connection, members who have not furnished their e-mail ids are requested to provide their e-mail ids to enable the said report being sent to them also. Further, hard copy of the above Report would also be forwarded to those desirous of the same. Accordingly, members desirous of a hard copy of the above Report may write, giving their membership number and complete postal address, to Shri G. Ranganathan, Deputy Secretary (e-mail: councilaffairs@icai.in). (page 806)

(v) New ICAI Publication

Compendium of Opinions (Vol XXXI) (Page 813)

FROM THE PRESIDENT

These are depressing times for most Indians – firstly, as the country has been drifting in her economic growth performance, and secondly the spate of scams, scandals, charges and counter charges of corruption cutting across the entire spectrum, add to the woes of citizens. In the last few months, the country has witnessed the eruption of a number of egregious events, and we as citizens not only look for government intervention but question the Government for all the wrongs committed by a few unscrupulous individuals. The Government does take measures both fiscal and others to remedy the situation. At the same time, the Government is demanding that corporates and other organisations become more socially responsible.

In this communication, rather than discussing what the Government and Corporates should do or are not doing, I have attempted to share my thoughts on Social Entrepreneurship and Individual Social Responsibility which can make up for the shortcomings of the bureaucracies and the Government. It may appear to be a new concept in relation to Corporate Social Responsibility, but it is a concept as old as The Golden Rule — Do unto others as you would have them do unto you.

The quote by Hubert H. Humphrey says it all – “The impersonal hand of the Government can never replace the helping hand of a neighbour”.

Social Entrepreneur is someone who recognises a social problem and uses entrepreneurial principles to organise, create and manage a venture to make a social change, and will assess its success in terms of its impact on the Society. A leading example is, Dr. Verghese Kurien, Founder of the Amul Dairy Project, who was amongst the earliest social entrepreneurs, who started a co-operative movement and made it a sustainable project. His vision was big, there was passion in his actions. His terrific leadership sustained the involvement of others in the project at the grass root level. Thus as a Social Entrepreneur, you become the agent of change, by grabbing the new, yet overlooked opportunities, and changing the world for the better.

Whereas, taking the Individual Social Responsibility, you commit yourself towards the community where you live, by taking interest towards what is happening in the community, as well taking an active part in solving some of the local problems. And today, we see individuals are becoming more socially responsible.

I for one believe that various norms of any society are always determined by the norms of the dominant elements in society. As professionals we are part of this dominant element and have a significant role to play in the improvement of all standards of conduct, whether in relation to business or otherwise. We can become role models for a large part of the society. Therefore, the norms we adopt and the manner in which we conduct ourselves will largely determine the norms of our society.

It is time to show that we professionals do not merely discharge a function. We must go well beyond the responsibilities of the function we discharge. We have a responsibility not merely to satisfy the needs of an individual client or employer but also a responsibility to oneself, to obtain satisfaction for the work we do for, and in all cases where public interest is involved, to ensure that the same is safeguarded.

I am sure many of us would be more active in pro bono work, and taking part in various developments in different ways, working through non-profits and citizen groups, by working in the private and government FROM THE PRESIDENT 140 (2013) 45-A BCAJ Bombay Chartered Acountant Journal, may 2013 9 from the president BCAJ sectors to find what is not working, and solve the problems by attempting to improve the system, and where necessary change it.

But really speaking being socially responsible not only requires participation in socially responsible activities and mentoring, but to actually make it a lifestyle. Only through a commitment to embrace and embed social responsibility into your personal value and belief system, you truly become socially responsible in all you do.

In the end, I would say that All Social responsibility is voluntary; it is about going above and beyond what is called for by the law (legal responsibility). Just Remember :

“We make a living by what we get, but we make a life by what we give.” – Winston Churchill.

“It profits us to profit the non-profits.” – Peter Drucker

With warm regards,

Yours truly,
Deepak R. Shah

PART d: Good Governance

Progress of Governance

Writing on Narendra Modi, Mr. Pavan Varma (former diplomat and currently adviser to the Bihar C.M.) writes-

And, finally—and this is something that touches the life of every Indian—of what good is governance if it revives communal strife thereby jeopardising the very project of governance?

From TISCO’s annual report under the title “Governance Systems”

Policies
A number of policies have been put into place to ensure that governance standards are met. They are based on zero tolerance towards corruption and unethical behaviour. These include:

• The Gift Policy
• Whistle Blower Policy
• Whistle Blower Reward Policy
• Vendors Whistle Blower policy
• Sexual Harassment Prevention and Redressal Guidelines

PART C: Information on & Around

Pending cases at magistrate courts in Mumbai:

In 75 magistrate courts in Mumbai as on 01-04- 2013, pending cases as per reply received to the query made under RTI are 3.82 lakh. As on 31- 07-2013 number is 3.72 lakh. When classified it reveals that 8464 cases are pending for more than 20 years, 51074 pending more than 10 years and 67721 are pending since more than 5 years. Highest number of cases, (11953), are in 26th court, Borivali and lowest, (102) in 19th court, Esplanade.

Relief to sexual crime victims

Gopal Kansara has proved that RTI is potent weapon in the hands of humble citizens.

Acting on the 2011 Supreme Court directive to States to formulate a plan to provide relief and rehabilitate women who had been assaulted or raped, Kansara has used RTI to make sure the verdict is implemented. In the process, he has brought succor to a minor rape victim in his locality, a woman publicly molested in Guwahati and several trafficked children in Delhi.

“On January 2 this year, newspapers reported that a minor girl had been raped by a driver nearby. I wrote to the district collector seeking monetary relief for her,” said Kansara. As he got no response to his letter or fax, Kansara filed an RTI in February asking for a copy of the FIR, the medical report, action taken report and details of rehabilitation.

“After the RTI application, the collector wrote to the local authorities and Rajasthan chief minister. Soon Rs. 3 lakh was sanctioned for the girl and deposited in a bank,” he said.

He did something similar in the case of the public molestation of a 20-year-old girl outside a Guwahati pub by over a dozen men in mid-2012. “I did not know her, nor have I ever been to Assam. But I strongly felt I should do something. I filed an RTI application with the Assam government asking what relief had been given to her [as per the SC order]. Soon she was given Rs. 50,000 by the state government,” he added.

Since 2006, Kansara has filed more than 750 RTI applications on a range of issues and says he will continue to do so even though he has been threatened with murder several times. “The RTI has done what no other law in the country has done. It has made the common man a VIP. It has freed him from approaching local politicians every time for little things.”

Refund of Security Deposit etc. by Kelkar College:

RTI activists, Ranjit Mahanti in reply to his RTI application to Kelkar College, Mulund was informed that data he had sought would require much work and asked him if the activist will pay for the expense involved in compiling information sought. Mr Mahanti had sought information from the college about the practice in refunding security deposit taken from its students. College replied:

“We wish to inform you that information required by you about security deposits is extremely large work. It may require one year’s time. It is not possible for us to complete this during our routine work, for which we have to appoint two additional employees on contract basis. Kindly let us know whether you are ready to pay for the expenditure towards this work for information required by you.”

In this connection it is worth noting the judgment of S.C. in the case of Institute of Chartered Accountants vs. Shaunak H. Satya reported in A.I.R. 2011 S.C. 3336, [RTIR IV (2011) 82 (SC)]

“One of the objects of democracy is to bring about transparency of information to contain corruption and bring about accountability. But achieving this object does not mean that other equally important public interests including efficient functioning of the Government and public authorities, optimum use of limited fiscal resources, preservation of confidentiality of sensitive information, etc. are to be ignored or sacrificed.“

PART D: Good Governance

Excerpts from the article of Makarand Paranjape:

Makarand Paranjape reported in Sunday Times of 3-2-2013:

“From this brief overview of the facts it is clear that the republic is not as intolerant as it is badly governed. This is a crisis not of tolerance but of governance. The political establishment had failed to uphold the Constitution and the rights that are guaranteed under it. Laws meant to safeguard the weak are often manipulated or twisted to bully or browbeat those who dare to speak inconvenient truths. The powers vacated or abused by an ineffective executive are only partially compensated for by an interventionist judiciary, an over-active press, or a popular uprising like Anna Hazare’s.”

Excerpts from the article of William Bissel reported in Sunday Times of 3-2-2013

“As Thomas Kuhn has said in The Structure of Scientific Revolutions, we are facing a challenge that is the result of paradigm shift where the evidence of the failure of our concepts of governance stare us in the face. And yet, in the avalanche of evidence that speaks of this failure, the system remains paralysed applying praradigms of governance that will no longer suffice.

So, how does the class of 2014 begin to put in place the foundations of a new system of governance?

I believe that such a system will have to be built on a new paradigm of measuring overall wellbeing using tools that allow government to create a holistic view of what the elements of wellbeing are: access to security (specially for women), clean air, safe drinking water, reliable sewage facilities, access to a good nutrition for all, schools that teach, colleges that skill.”

PART B: RTI Act, 2005

When the Government announced that it will bring the bill in the Parliament to do away with the decision of CIC ruling that political parties are covered u/s 2(h) of the RTI Act (see BCAJ of July 2013) RTI Activists all over the country huddled together in a group and held the view that it is appropriate that political parties should be considered as “public authority”. Disregarding civil society’s strong objection as all political parties are in favour of exempting themselves from the RTI Act, Government tabled the bill in the Lok Sabha on 14-08-2013. Same reads as under:

BE it enacted by Parliament in the Sixty-fourth year of the Republic of India as follows: –

1. (1) This Act may be called the Right to Information (Amendment) Act, 2013 (2) It shall be deemed to have come into force on the 3rd day of June, 2013.

2. In section 2 of the Right to Information Act, 2005 (hereinafter referred to as the principal Act), in clause (h), the following Explanation shall be inserted, namely:-

‘Explanation- The expression “authority or body or institution of self-government established or constituted” by any law made by Parliament shall not include any association or body of individuals registered or recognised as political party under the Representation of the People Act, 1951.’

3. After section 31 of the principal Act, the following section shall be inserted, namely:-

“32. Notwithstanding anything contained in any judgment, decree or order of any court or commission, the provisions of this Act, as amended by the Right to Information (Amendment) Act, 2013, shall have effect and shall be deemed always to have effect, in the case of any association or body of individuals registered or recognised as political party under the Representation of the People Act, 1951 or any other law for the time being in force and the rules made or notifications issued thereunder.”

It is interesting to note that Prime Minister in his Independence Day speech on 15-08-2013 covered RTI as under:

“Through the Right to Information Act, the common man gets more information than ever before about the work of the government. This legislation is being used on a large scale at all levels. The Act frequently brings to light irregularities and corruption and opens the door for improvements. I am sure that the RTI will lead to further improvements in the way the government functions.”

Isn’t this a contradiction that in his speech he states “I am sure that the RTI will lead to further improvements in the way the government functions,” while by introducing the RTI Amendment Bill it excludes the way political parties function?

• In BCAJ of June 2013, it was reported that online RTI facility is created by the Government. The portal is a facility for Indian citizens to file RTI applications online and first appeals and also to make online payment of RTI fees. The facility was then made available only by a few ministries/ departments.

Now DoPT has extended facility of online filing of RTI Application and the first appeal to all ministries. Office Memorandum, dated 30-07-2013 reads as under:

Subject: Extension of RTI web portal for online filing of RTI application.

1. In continuation of this Department’s O.M. of even number dated 22-04-2013, it is intimated that the facility of RTI online web portal has been extended to 37 Ministries/ Departments of Government of India, so far (list enclosed). It is planned to extend this facility to all the remaining Ministries/Departments of Government of India by mid-August, 2013. This facility is presently not proposed to be extended for field offices/attached/subordinate offices.

2. It is again requested that training to all the CPIOs and First Appellate Authorities (FAAs) may be provided by the concerned Ministry/ Department, through the officials trained by DoPT/NIC. If required, further training can be provided by DoPT/NIC, on the request of the concerned Ministry/Department. User name/ password to all the CPIOs and FAAs are to be provided by RTI Nodal Officers of the concerned Ministry/Department. It is imperative that the RTI Nodal Officers update the details of the CPIOs/ FAAs in the system and issue user name and password to them at the earliest.

List of 37 ministries/departments include: –

1. DEPARTMENT OF ECONOMIC AFFAIRS

2. DEPARTMENT OF REVENUE

3. DEPARTMENT OF HEAVY INDUSTRY

4. MINISTRY OF SHIPPING

5. MINISTRY OF CORPORATE AFFAIRS

Full list & further details can be viewed on https:// rtionline.gov.in

• Mrs. Deepak Sandhu succeeds Shri Satyananda Mishra as Chief Information Commissioner at Central Information Commission.

PART C: Information on & Around

CBI goes to the Delhi High Court:

Vide provisions of section 24, RTI Act does not apply to the intelligence and security organisations specified in the Second Schedule.

The Central Board of Investigation (CBI) has been added in the Second Schedule to the RTI Act w.e.f. 29-6-2011.

The matter was taken to the Madras High Court pleading that the CBI is not the intelligence and security organisation. But, it was lost.

Mr. C.J. Karira made an application to the CBI asking it to furnish information relating to the status of sanction for prosecution against government officials facing allegations of corruption between 2007 to 2011. Same was denied. He filed an appeal to CIC. He pointed out that the information which the CBI declined to reveal on his RTI plea has been disclosed by the ministry of personnel in a number of responses to Parliament members. Hence, it is disclosable under Proviso to s/s. 1 to section 24.

The 1st Proviso to section 24 reads as under: Provided that the information pertaining to the allegations of corruption and human rights violations shall not be excluded under this sub-section.

The Commission in its decision directed the CBI to disclose the status of sanction for prosecution against government officials facing allegations of corruption between 2007 to 2011.

The CBI has now approached the Delhi High Court seeking exemption under the RTI Act from disclosing information held by it on allegations of corruption. The Delhi High Court has stayed the CIC Order and has fixed the matter on 3rd April for further hearing.

Mumbai Police

On an average, 120 Mumbai police personnel have died while on duty every year since 2002, with 98% of them succumbing to various illnesses, including cardiac arrest, according to an RTI reply. Other causes of death included illnesses such as diabetes, hypertension and heart-related problems, among others.

“Due to long duty hours, a policemen cannot plan their days. They don’t get time to exercise. Moreover, when policemen are deployed at any place, they have to eat the food available there, which may be unhealthy,” Additional Commissioner of police (Crime) Niket Kaushik said.

Vice–Chancellor of Mumbai University:

A query filed by Mr. Anil Galgali an RTI activist under the RTI Act, revealed that the Mumbai University (MU) hired senior advocates to fight the cases challenging the VC’s job. The university had hired senior advocates, Rafique A. Dada – known for fighting tricky cases – Naushad Engineer and Sagar Talekar.

MU’s finance and accounts PIO A. R. Jadhav said the university had paid Rs. 4,10,900 to the three lawyers. MU legal adviser Ajit Karwande received a letter from advocate R. A. Rodrigus on 11th July, 2011, with bills that needed to be settled: professional charges of Dada (Rs. 3,30,900), Engineer (Rs. 45,000) and Talekar (Rs. 35,000).

Irrelevant Information:

Rejecting an RTI application filed by a Kandivali resident seeking information of the last 10 years on the appointment, transfer and retirement of Government employees in Maharashtra, Ratnakar Gaikwad (Chief SIC) wrote in the order:

“Applicants should not ask for detailed and irrelevant information as public information officers (PIOs), besides performing their statutory duties, are also engaged in the task of providing information to the people. In such circumstances, it would be appropriate if such information is sought which would bring in transparency and accountability in administration, halt corruption and is in public interest.”

FROM THE PRESIDENT

Dear members of BCAS family,

On 5th November 2013, the Indian Space Research Organisation launched Mangalyaan into the earth’s orbit on its 780 million kms journey to Mars from its launch base at Sriharikota. India is only the 4th country in the world to have successfully achieved this. It is indeed a proud moment for all Indians. Amidst all the other achievements and accolades related to this project, the one significant aspect which impressed me was the cost of the project; ? 450 crores, a fraction of what expeditions of other countries cost. This proves a point that India has technological wherewithal to carry out complex projects, innovating on the way. Congratulations to Dr. K. Radhakrishnan and his team for this achievement.

India has an abundance of entrepreneurial resources. But individual enterprise can achieve precious little if the environment is not enabling. There are many shackles that need to be broken. The state needs to play its role of the facilitator. In the times of elections, everyone has their wish list. I have mine too.

India has gained a name for itself for IT/ITES. But its true potential is in the manufacturing services. That’s where value addition happens. That’s where we can use our natural resources and the abundant skilled labour to its potential. And that’s where capital creation will happen. And this sector needs liberalisation in Land, Labour and Licences.

Licence means a permit from an authority to own or use something, do a particular thing, or carry on a trade. After the initial spurt of liberalisation, we have stopped opening up our economy. Whether it pertains to investments, way of doing business, transfer of ownership, access to national natural resources etc. There are restrictions needing multiple permits for most aspects of businesses. One-window-clearance is unheard of. The next government should commit itself to creating an enabling, facilitative, non-interfering and progressive environment.

Labour laws are another area which needs liberalisation. Traditionally, the state has always tried to control the labour force. Reasons are obvious; vote bank, extortion and what not. There are over fifty national laws and many more state-level laws. These laws have hampered the growth of the formal manufacturing sector. According to a World Bank report in 2008, heavy reform would be desirable. The executive summary stated,

“India’s labor regulations – among the most restrictive and complex in the world – have constrained the growth of the formal manufacturing sector where these laws have their widest application. Better designed labor regulations can attract more labor- intensive investment and create jobs for India’s unemployed millions and those trapped in poor quality jobs. Given the country’s momentum of growth, the window of opportunity must not be lost for improving the job prospects for the 80 million new entrants who are expected
to join the work force over the next decade.”

Gone are the days of Zamindari and Maaliki. Labour needs no protection. There are ways to prevent exploitation. Inclusive growth will ensure that capital and labour work in tandem.

In my opinion, land is going to the biggest spoiler for the India Story. Everybody believes in the India story. Some are hugely optimistic, some cautiously optimistic and then a few are cynics. The chief constituents of our GDP are agriculture, services and manufacturing. The contribution of Agriculture to the GDP in terms of percentage will only keep shrinking as other sectors grow faster. More and more agricultural land is being converted to NA for non-agricultural purposes. Moreover due to the restrictive nature corporatisation or cooperative farming is a non-starter. Any progress in agriculture will involve improving yields hence more harvests in a year and more crops from same land. Agriculture will then not be constrained for want of land.

Services are another major contributor to the GDP, who will soon reach a plateau as they are not capital intensive and thrive on cheap labour. Such contracts will flow to other developing countries as labour and real estate become expensive in our country. Even otherwise, this sector is largely urban-centric, as it needs qualified labour and infrastructure. The availability of land for this sector can be easily addressed partly by improving infrastructure and connectivity to peripheral areas or by simply changing Development rules by granting higher FAR/FSI. Vertical development suits this segment. So there seems to be no constraints to this sector for want of land. Same is the case for residential development. High-rise, high-density is a solution to address scarcity of land.

The manufacturing segment will raise its share in GDP significantly. India has great enterprise, talented workforce, availability of many raw material, natural resources and cultivable, development of ports and other infrastructure. However, land for manufacturing segment has special requirements. This facility needs horizontal development, which means it needs higher ground coverage as compared to any other development. The high-rise concept cannot work here. Also, it needs to be away from cities and farms. Hypothetically, if the manufacturing segment doubles its output in the next ten years, it will need twice the land that this segment occupies today. Where is this land? The Land Acquisition Bill makes getting land thatmuch more difficult. The states are shying away from helping aggregation. The courts are taking pro-farmer stands. Barring a few states like Gujarat, no state is in a position to allot land for manufacturing when investors are queuing up with opportunities of setting up large facilities in India. Industrial development Corporations are failing to make land available for manufacturing. In a place like Chakan, off Pune, MIDC has over 7,000 applications pending for allotment of land. SEZ’s, a great vehicle for organised manufacturing, have fizzled out.

Hence, availability of land will be a major bottleneck to India’s growth story.

Solutions are obvious. There is no rocket science. We are not lacking in ideas. We are lacking in our political will. Politicians are playing their game of vote banks. Growth can only benefit all. Thus, I would like my next government to promise liberalisation of Labour, Licences and Land. Here’s wishing everyone happiness and love.

With Warm Regards

Naushad A. Panjwani

From published accounts

Section A: Goodwill adjusted against Securities Premium pursuant to scheme of arrangement approved by High Court

Cairn India Ltd (31-03-2013)

From Notes to Financial Statements

Scheme of arrangement

The shareholders of the Company had in February 2010 approved a Scheme of Arrangement (‘Scheme’) between the Company and four of its wholly owned subsidiaries, Cairn Energy India Pty Ltd (‘CEIPL’), Cairn Energy India West BV (‘CEIW’), Cairn Energy Cambay BV (‘CEC’), Cairn Energy Gujarat BV (‘CEG’), (collectively the ‘transferor companies’), with an Appointed date of 1 January 2010. The Scheme of Arrangement had been approved by the Hon’ble High Court of Madras and Hon’ble High Court of Bombay and was subsequently approved by other relevant regulatory authorities on 18th October 2012. Accordingly, from 1st January 2010, the Indian undertakings of the transferor companies stood transferred to and vested in the Company on a going concern basis.

In accordance with the provisions of the aforesaid Scheme,

i) The Indian undertakings of the transferor companies relating to exploration, development and production of crude, natural gas and related by-products have been transferred to the Company on a going concern basis. The transfer of assets and liabilities representing the Indian undertakings has been effected from the “Appointed date” of 1st January 2010, as defined in the Scheme.

ii) Assets and liabilities transferred from the transferor companies are as under:

Not reproduced here

The above mentioned deferred tax liabilities (net) have been further reduced by Rs. 4,563 lakh on account of application of tax rate as applicable to the Company and fixed assets have been further decreased by Rs. 530 lakh due to alignment of accounting policy (on depreciation) as consistently followed by the Company, and adjustments in respect of these have been recorded in the Statement of profit and loss.

iii) As a consideration for the transfer of the above mentioned assets and liabilities and consequential expected future cash flows from the transferor companies to the Company, the Company has reduced the value of its investment in its direct subsidiary Cairn India Holdings Limited (‘CIHL’) by Rs. 1,495,278 lakh and consequentially a goodwill of Rs. 1,016,703 lakh, after adjusting the net assets taken over of Rs. 478,575 lakh, has been recorded in the books of accounts in accordance with the provisions of Accounting Standard (AS)-10 of the Companies (Accounting Standard) Rules, 2006 (as amended). The reduction in value of investments in CIHL has been considered on the basis of an independent valuation of the future discounted cash flows from CIHL as at 31st December 2009.

iv) Further, in accordance with the Special Resolution passed by the shareholders of the Company u/s. 78 and 100 to 103 of the Companies Act, 1956, which was an integral part of the aforesaid Scheme approved the Courts, the goodwill of Rs. 1,016,703 lakh as mentioned in (iii) above has been adjusted against the securities premium account and as a result both goodwill and securities premium account are stated lower by Rs. 1,016,703 lakh each. This accounting, although different from that prescribed under the Accounting Standards, is in conformity with the accounting principles generally accepted in India, as the same has been approved by the Courts and has no impact on the profit for the year.

v) Since the Scheme received all the requisite approvals in the current year, operations of the Indian undertakings of the transferor companies from 1st January 2010 to 31st March 2012, as detailed below, have been accounted for in the current year’s statement of profit and loss as a separate line item.

Not reproduced here

Further, net cash flows for the period 1st January 2010 to 31st March 2012 pertaining to the transferor companies on account of operating, investing and financing activities aggregating to Rs. 795,008 lakh, Rs. (441,815) lakh and Rs. (4,778) lakh respectively have been included in the current year’s statement of cash flows as a separate line item under the respective heads.

From Independent Auditors’ Report

Emphasis of Matter
Without qualifying our opinion, we draw attention to note no. 26 of the accompanying financial statements, relating to the accounting treatment adopted by the Company pursuant to a Scheme of Arrangement approved by the Honorable High Court of Bombay and by the Honorable High Court of Madras and other relevant regulatory authorities, whereby the Company has adjusted goodwill aggregating to Rs. 1,016,703 lakh, which arose upon implementation of the said scheme, against the securities premium account. This accounting of showing both goodwill and securities premium account lower by Rs. 1,016,703 lakh, although different from that prescribed under the Accounting Standards, is in conformity with the accounting principles generally accepted in India, as the same has been approved by the Courts.

From Directors’ Report

Auditors’ Report
In the accompanying financial statements, the Company has adjusted goodwill against the securities premium account pursuant to the Scheme of Arrangement approved by the Honorable High Court of Bombay and by the Honorable High Court of Madras and other relevant regulatory authorities. This accounting although different from that prescribed under the Accounting Standards, is in conformity with the accounting principles generally accepted in India, and the same has been approved by the Courts. The same has been reported by the Auditors under “Emphasis of Matter” in their report.

Indirect Taxes

MVAT UPDATE

MVAT NOTIFICATION

Notification No. VAT 1512/CR 115/Taxation-1 dated 16.05.2013

By this Notification, Rule 55B is inserted with effect from 15-10-2011 for applicability of set-off to developers and units in Special Economic Zone.

Notification No. VAT 1513/CR 61/Taxation-1 dated 21.05.2013

By this Notification, the Government of Maharashtra has made certain further amendments in the Maharashtra Value Added Tax Rules, 2005.

Amendments to Schedule Entries and Notifications under the Maharashtra Value Added Tax Act 2002 Trade Circular No. 3T of 2013 dated 10.06.2013

In this Circular, Commissioner has briefly discussed the amendments in Schedule entry of the Maharashtra Value Added Tax Act, 2002 & in certain Notifications. These amendments are made to give effect to the budget proposals.

From published accounts

Section B:
Losses on account of Robbery of Plant and Machinery, Factory shed and building etc.

Vikash Metal & Power Ltd (15 months ended 30-06-2012)

From Notes to Financial Statements
As the incident of the Robbery had taken place on 12th April, 2012, depreciation on the item lost was taken till that date and removed from the gross block and accumulated depreciation and booked as Loss Due to Robbery under Extraordinary Item. The Written Down Value as on date of incident was booked as Loss under the Profit & Loss Account. The company has filled the Insurance Claim but as the company predicts the time period will be long to get the claim thus loss was booked to show the clear picture of Financial Statements

Note on inventories:

a) Raw Materials

b) Work in progress

c) Finished goods

d) Stock in trade
(in respect of goods
acquired for trading)
e) Stores & Spares

f) Others (Steel Scrap)

C.Y (Rs.)

–

P.Y (Rs.)

684,043,644

12,556,443

396,346,810

1,916,244

13,746,757

108,972,788

– 1,217,582,686

Note – As the incident of the Robbery had taken place on 12th April, 2012, Inventory item lost was booked as “Loss Due To Robbery” under Exceptional Item. The company has filed the Insurance Claim but as the company predict the time period will be long to get the claim thus loss was booked to show the true and fair view of Financial Statements.

From Auditor’s Report

1. We have audited the Balance sheet of VIKASH METAL & POWER LIMITED as on 30th June, 2012 and also the Profit & Loss Account and the Cash Flow Statement for the period from 01.04.2011 to 30.06.2012, annexed thereto. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

2. We have conducted our audit in accordance with auditing standards generally accepted in India. Those standards required that we plan perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An Audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion but restricted to the following:-

Since in the referred period, a major incident took place at the work site of the company. A robbery took place at the works site and major parts of plants has been reported lost and looted thus putting the question on the going concern concept of the company and moreover the company operation was suspended from October, 2011.

The management of the company has explained to us that in the said robbery, many important papers were found missing and the company is trying to recreate all the missing papers.

Further, the management has explained that during the said period the company has loss to tune of Rs. 16,064.84 lakh which has eroded the company capital and the net worth becomes negative and still the liabilities on the company are huge. The company is indebted to bankers; statutory liabilities are also here and not being paid up from more than six months and outstanding liabilities to many trade payables which is again a point of concern.

4. Further to our comments in the annexure referred to in paragraph 3 above, we report that:

a) The management could not provide us all the information and documents due to papers destroyed in robbery as explained by the management.

b) Limitation of Scope, In our opinion, proper books of account, are maintained as required by law, and kept by the Company so far as appears from our examination of those books kept at the company’s office, but we are unable to form any opinion on factory accounts as we were not in a position to examine the books kept at factory due to its destruction during robbery.

c) The management has not ascertained the impairment loss, if any, required to be provided form in accordance with the requirement of mandatory Accounting Standard-28 “Impairment of Assets” issued by the Institute of Chartered Accountants of India. In view of it involving judgment of the management, we are unable, to quantify the same;

d) As explained by the management, no actuary valuation for gratuity has been made by the actuarial as no employees was there as on 30th June, 2012.

e) The Balance Sheet, Profit & Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of accounts maintained.

f) In our opinion, the Balance Sheet, Profit & Loss Account and Cash Flow Statement dealt with by this report comply with the Accounting Standards referred to in s/s. (3C) of Section 211 of the Companies’ Act, 1956;

g) On the basis of the written representations received from the directors and taken on record by the Board of Directors, none of the directors of the Company is disqualified as on 30th June, 2012 from being appointed as a director in terms of clause (g) of s/s. (1) of Section 274 of the Companies Act, 1956;

h) In our opinion and to the best of our information and according to the explanation given to us, the said statement of accounts, read with the Accounting Policies & Notes thereon, give the information required by the Companies Act, 1956 in the manner so required and give a true and fair view in conformity with the accounting principle generally accepted in India:

1) in the case of the Balance Sheet, of the state of affairs as on 30th June, 2012,

2) in the case of the Profit and Loss Account, of the Company for the period from 01-04-2011 to 30-06-2012, and

3) in the case of the Cash Flow Statement, of the cash flows of the Company for the period from 01-04-2011 to 30-06-2012.

From Published Accounts

Section B: Disclosure on Financial Information in Management Discussion and Analysis

Compiler’s Note
Management Discussion and Analysis (MD&A) is a very important element of an annual report. Most companies as part of MD&A give adequate disclosures on the company’s overall performance, future prospects, SWOT analysis, etc. However, very few companies give a detailed item-wise analysis of the financial performance in a easily readable language. Given below is an extract the disclosure on various items of the Balance Sheet given in the Financial Condition section MD&A of Infosys Ltd for 31st March 2013. The full disclosures are available in the MD&A section of the annual report for 2012-13.

Infosys Ltd (Year ended 31-03-2013)

Financial Condition

Sources of Funds

1. Share Capital

At present, we have only one class of share – equity shares of par value Rs. 5/- each. Our authorized share capital is Rs. 300 crore, divided into 60 crore equity shares of Rs. 5/- each. The issued, subscribed and paid up capital stood at Rs. 287 crore as at 31st March, 2013 (same as the previous year).

During the year, employees exercised 6,165 equity shares issued under the 1999 Stock Option Plan. Consequently, the issued, subscribed and outstanding shares increased by 6,165. The details of options granted, outstanding and vested as at 31st March, 2013, are provided in the Notes to the consolidated financial statements section in the Annual Reports.

2. Reserves and Surplus

Capital Reserve
The balance as at 31st March, 2013 amounted to Rs. 54 crore, same as the previous year.

Securities Premium

The addition to the securities premium account of Rs. 1 crore during the year is on account of premium received on issue of 6,165 equity shares, on exercise of options under the 1999 Stock Option Plan.

General Reserves
An amount of Rs. 911 crore representing 0 of the net profit for the year ended 31st March, 2013 (previous year Rs. 847 crore) was transferred to the general reserves account from the Statement of Profit and Loss.

Statement of Profit and Loss
The balance retained in the Statement of Profit and Loss as at 31st March, 2013 is Rs. 25,383 crore, after providing the interim and final dividend for the year of Rs. 862 crore and Rs. 1,550 crore, respectively; and dividend tax of Rs. 403 crore thereon. He total amount of profits appropriated to dividend including dividend tax was Rs. 2,815 crore, as compared to Rs. 3,137 crore in the previous year.

On 7th October, 2011, the Board of Directors of Infosys Consulting Inc., approved the termination and winding down of the entity, entered into a scheme of amalgamation and initiated its merger with Infosys Limited. The termination of Infosys Consulting Inc., became effective on 12th January, 2012. Consequent to this, there was a reduction of Rs. 84 crore in the Statement of Profit and Loss of the previous year.

Shareholders Funds
The total shareholders funds increased to Rs. 36,059 crore as at 31st March, 2013 from Rs. 29,757 crore as at 31st March, 2012.

The book value per share increased to Rs. 627.95 as at 31st March, 213 compared to Rs. 518.21 as at 31st March, 2012.

Application of Funds

3. Fixed Assets

Capital Expenditure
We incurred a capital expenditure of Rs. 1,847 crore (Rs. 1,296 crore in the previous year) comprising additions to gross block of Rs. 1,422 crore for the year ended 31st March, 2013. The entire capital expenditure was funded out of internal accruals.

Additions to gross block
During the year, we capitalised Rs. 1,422 crore to our gross block comprising Rs. 640 crore for investment in computer equipment, Rs. 30 crore on Intellectual Property Rights, Rs. 1 crore on vehicles and the balance of Rs. 751 crore on infrastructure investments. We invested Rs. 145 crore to acquire 119.35 acres of land in Bangalore, Mysore, Thiruvananthapuram and Hubli. The expenditure on buildings, plant and machinery, office equipments and furniture and fixtures, were Rs. 326 crore, Rs. 114 crore, Rs. 58 crore and Rs. 108 crore, respectively for the year.

During the previous year, we capitalised Rs. 807 crore to our gross block, including investment in computer equipment of Rs. 245 crore (includes computer equipment having gross book value of Rs. 10 crore transferred from Infosys Consulting Inc. on its termination), Rs. 17 crore on Intellectual Property Rights, Rs. 543 crore on infrastructure investments and Rs. 2 crore on vehicles. We invested Rs. 158 crore to acquire 371 acres of land in Bangalore, Bhubhaneshwar, Mangalore, Nagpur and Indore.

Deductions to gross block
During the year, we deducted Rs. 521 crore (net book value of Rs. Nil) from the gross block on retirement of assets and Rs. 14 crore on disposal of various assets. During the previous year, we retired/ transferred various assets with a gross block of Rs. 559 crore (net book value of Rs. Nil) and Rs. 9 crore on disposal of various assets.

Capital expenditure commitments
We have a capital expenditure commitment of Rs. 1,139 crore, as at 31st March, 2013 as compared to Rs. 949 crore as at 31st March, 2012.

4. Investments

We made several strategic investments during the past years aimed at procuring business benefits and operational efficiency.

Majority-owned subsidiary
Infosys BPO Limited as a majority-owned and controlled subsidiary on 3rd April, 2002. To provide BPM services. Infosys BPO seeks to leverage the benefits of service delivery globalisation, process redesign and technology to drive efficiency and cost effectiveness in customer business processes.

On 4th January, 2012, Infosys BPO acquired 100% voting interest in Portland Group Pty. Limited, a leading strategic sourcing and category management service provider based in Sydney, Australia for a cash consideration of Rs. 200 crore.

Lodestone Holding AG
On 22nd October, 2012, Infosys acquired 100% of outstanding share capital of Lodestone Holding AG. A global management consultancy firm headquartered in in Zurich, Switzerland. The acquisition was executed through a share purchase agreement for an upfront cash consideration of Rs. 1,187 crore and a deferred consideration of Rs. 608 crore.

Wholly-owned subsidiaries
During the year, we invested in our subsidiaries, for the purpose of operations and expansion, as follows:

Please refer statement pursuant to Section 212 of the Companies Act. 1956 for the summary financial performance of our subsidiaries. The audited financial statements and related information of subsidiaries will be available on our website, www. infosys.com.

During the year the assets and liabilities of Infosys Australia were transferred to the company.

5. Deferred tax assets / liabilities

We recorded deferred tax assets of Rs. 640 crore as at 31st March, 2013 (Rs. 459 crore as at 31st March, 2012) and deferred tax liability of Rs. 318 crore as at 31st March, 2013 (Rs. 270 crore as at 31st March, 2012).

Deferred tax assets primarily comprises of deferred taxes on fixed assets, unavailed leave, trade receivables, and other provisions which are not tax deductible in the current year.

The movement in deferred tax liabilities is on account of the increase in provision for branch profit tax for our overseas branches.

We assess the likelihood that our deferred tax assets will be recovered from future taxable income. We believe it is more likely than not that we will realize the benefits of these deductible differences.

6. Trade receivables

Trade receivables amounted to Rs. 6,365 crore (net of provision for doubtful debts amounting to Rs. 85 crore) as at 31st March, 2013, compared to Rs. 5,404 crore (net of provision for doubtful debts amounting to Rs. 80 crore) as at 31st March, 2012. These debts are considered good and realisable. Debtors are at 17.3% of revenues for the year ended 31st March, 2013, same as the previous year, representing a Days Sales Outstanding of 63 days, same as in the previous year. The age profile of debtors is as follows:

Provisions are generally made of all debtors’ outstanding for more than 180 days as also for others, depending on the Management’s perception of the risk. The need for provision is assessed based on various factors, including collectability of specific dues, risk perceptions of the industry in which the customer operates and general economic factors that could affect the customer’s ability to settle. The movement in provisions for doubtful debts during the year is as follows:

Provision for bad and doubtful debts as a percentage of revenue is 0.08% for the year ended 31st March, 2013, as against 0.19% for the year ended 31st March, 2012. The unbilled revenues as at 31st March, 2013 and 31st March, 2012, amounted to Rs. 2,217 crore and Rs. 1,766 crore, respectively.

7. Cash and cash equivalents

The bank balances in India include both rupee accounts and foreign currency accounts. The bank balances in overseas current accounts are maintained to meet the expenditure of the overseas branches and project related expenditure overseas.

Deposits with financial institutions and corporate bodies represent surplus money deployed in the form of short- term deposits.

Our treasury policy calls for investing cash surplus in a combination of instruments. (a) Deposits in highly-rated scheduled banks and financial institutions (b) Debt mutual funds (c) Tax free bonds in highly-rated and Government-backed entities (d) Certificate of deposits, Commercial paper or any other similar instrument issued by highly-rated banks and financial institutions.

8. Loans and Advances

An amount of Rs. 724 crore (Rs. 461 crore as at 31st March, 2012) deposited with the Life Insurance Corporation of India to settle leave obligations as and when they arise during the normal course of business. The amount is considered as restricted cash and hence not considered as ‘cash and cash equivalents’.

Loans to subsidiaries comprised of Rs. 116 crore to Lodestone Holding AG and Rs. 68 crore to Infosys Public Services Inc.

The withholding and other taxes receivable represents transaction taxes paid in various domestic and overseas jurisdictions which are recoverable.

Unbilled revenues consist primarily of costs and earnings in excess of billings to the client on fixed-price, fixed time-frame, and time-and-material contracts.

Capital advances represent amount paid in advance on capital expenditure.

The details of advance income tax are as follows:

Our loan schemes provide for personal loans and salary advances that are provided primarily to employees in India who are not executive officers or directors. The loans and advances are recoverable in 24 months.

Electricity and other deposits represent electricity deposits, telephone deposits, insurance deposits and advances of similar nature. Rent deposits are for buildings taken on lease by us for our software development centers and marketing offices located across the world.

9. Liabilities

Liabilities for accrued salaries and benefits include the provision for bonus and incentive payable to staff. Provision for expenses represent amounts accrued for other operational expenses. Retention monies represent monies withheld on contractor payments pending final acceptance of their work. Withholding and other taxes payable represent local taxes payable in various countries in which we operate and the same will be paid in due course.

Effective 1st July, 2007, we revised the employee death benefits provided under the gratuity plan, and included all eligible employees under consolidated term insurance cover. Accordingly, the obligations under gratuity plan reduced by Rs. 37 crore, which is being amortised on straight line basis to the Statement of Profit and Loss over 10 years representing the average future service period of employees. An amount of Rs. 3 crore was amortised during the year. The unamortised balance as at 31st March, 2013 was Rs. 15 crore.

Payable for acquisition of business represents deferred consideration, payable to shareholders of Lodestone at the end of three years of acqui-sition, contingent upon employment for a period of three years and is recognised proportionately.

Advances received from clients represent monies received for the delivery of future services. Unearned revenue consists primarily of advanced client billing on fixed-price, and fixed-time frame contracts for which related costs were not yet incurred. Unclaimed dividends represent dividends paid, but not encashed by shareholders, and are represented by bank balance of an equivalent amount.

10. Provisions

Proposed dividend includes the final dividend recommended. On approval by our shareholders, this will be paid after the Annual General Meeting.

Provision for taxation represent estimated income tax liabilities, both in India and overseas. Provisions for taxations as at 31st March, 2013 is Rs. 1,274 crore compared to Rs. 967 crore as at 31st March, 2012.

Provisions for unavailed leave is towards our liability for leave encashment valued on an actuarial basis. The provisions for post-sales-client support and warranties is towards likely expenses for providing post-sales-client support on fixed-price contracts.

Representation

21st October 2013
To,
The Chief Commissioner of lncome Tax (CCA),
Mumbai.
Dear Sir,
Re: Implementation of the CBDT lnstructions of July 2013 in relation to CPC Demands

Pursuant to the directions of the Delhi High Court in the case of Court on its Own Motion V Commissioner of lncome Tax, the Central Board of Direct Taxes (CBDT) had issued five instructions containing various directions to implement the directives of the court, instruction numbers 3,4,5,6 and 7 of 2013.

Under these instructions, assessing officers were directed to carry out the following in relation to CPC demands:

1. Give application number to the assessee for rectification applications when they are filed, and maintain a register of such applications online;
2. Dispose of applications for rectification within two months from the date that they are filed; 3. Serve unserved intimations where demands were raised by 31st August 2013;
4. Grant credit for mismatched credits on production of TDS certificate after verification of TDS payment;
5. Grant refunds by 31st August 2013, where refunds u/s.143(1) have been adjusted by CPC against demands of earlier years without following the procedure laid down u/s.245;
6. Grant interest u/s.244A where refunds are granted after rectification u/s.154 without excluding the period taken to file rectification application u/s.154.

Unfortunately, it has been noticed that, other than issue of notices u/s.245 by CPC proposing to adjust the refunds determined u/s.143(1), the other aspects of the instructions have by and large not been given effect to. Refunds wrongly adjusted are yet to be received by assessees. Unserved intimations with demands are yet pending service. Application Numbers are not being given to assessees at the time of filing rectification applications except in offices where ASK is operational, and are not being disposed of within two months.

One of the reasons noticed for pending rectifications is that in many cases, migration of PAN is pending from lncome Tax officers to Assistant commissioners. We understand that lncome Tax Officers are reluctant to transfer high tax paying cases to Assistant commissioners, where the assessments u/s.143(3) are actually being carried out and where rectifications are pending, as they would not get credit for advance tax paid by such taxpayers if they were to do so, and would then fall short of their tax collection targets.

We submit that proper follow up by Commissioners and Chief commissioners is essential, to see that all Such cases are disposed of and instructions scrupulously followed, as taxpayers are finding that while tax recoveries are being followed up on an emergency basis, refunds due are being totally ignored. Almost 2 months have elapsed since the deadline given by the CBDT.

We would request you to kindly look into the matter, and set up a proper monitoring mechanism to ensure that taxpayers are able to get the benefit of the CBDT instructions.

Thanking You,
Yours sincerely,
For Bombay Chartered Accountants’ Society
Naushad Panjwani                                                                                   Gautam Nayak
President                                                                                                 Chairman
                                                                                                               Taxation Committee

Direct Taxes

Reverse Mortgage (Amendment) Scheme, 2013 notified to amend the Reverse Mortgage Scheme 2008–Notification No.79 /2013 dated 7th October, 2013

Extension of time to furnish Audit Report electronically

The CBDT has issued an order dated 26th September, 2013, extending time limit from 30th September, 2013 to 31st October, 2013 for electronically furnishing of various Audit Reports.

CBDT extends due date for furnishing of Tax Audit Report for A.Y. 2013-14

The CBDT has issued an order dated 24th October, 2013 u/s. 119 of the Act in continuation of the order dated 26th September, 2013 directing that in cases where the ‘due date’ of furnishing reports of audit and corresponding income-tax returns was 30th September 2013 and where the same are furnished electronically on or before 31st October 2013, such reports of audit and returns of income shall be deemed to have been furnished within the ‘due date’ prescribed u/s. 139(1) of the Income-tax Act, 1961

The Directorate of Income-tax (Systems) has issued a letter dated 22nd October, 2013 stating that pursuant to the decision of the Board the process has been initiated to issue refunds without adjustment of demand as an interim measure in certain cases. The AOs have been requested to carry out necessary verification following the procedure prescribed in section 245 of the Act.

Protocol amending the DTAA between India and Australia signed on the 16th day of December, 2011 shall enter into force on the 2nd day of April, 2013-Notification No .74 dated 20th September, 2013.

Income tax (17th amendment) Rules, 2013 – Introduction of General Anti Avoidance Rules, which will come into force from 1st April, 2016- Notification no-75/2013 dated 23rd September, 2013

Income-Tax Deduction from Salaries during the Financial Year 2013-14 u/s. 192 of the Income-Tax Act, 1961.-Circular No. 8 dated 10th October, 2013

Lecture Meetings

Search, Settlement &
Income Tax Issues Arising Out of Purchases from Suspicious Dealers as
Declared by Sales Tax Department, 22nd May 2013, at the Indian
Merchants’ Chamber, Churchgate

L to R: Mr. Samir Kapadia, Mr. Chetan Karia (Speaker), Mr. Deepak Shah (President), Mr. Ankit Shah

Mr.
Chetan Karia, Chartered Accountant, highlighted various issues raised
by the Income Tax authorities Maharashtra VAT based on information from
bogus purchases including tax requirements of law pertaining to
genuineness of purchases and the significance of statements
recorded/affidavits obtained by VAT Dept. The 400 participants included
professionals from industry, senior members & students. The video
recording of the same is available at the www.bcasonline.tv to all
subscribers.

Service Tax Voluntary Compliance Encouragement Scheme, 5th June 2013, at the Indian Merchants’ Chamber, Churchgate

L to R: Mr. Mukesh Trivedi , Mr. Sunil Gabhawalla (Speaker), Mr. Deepak Shah (President), Mr. Suhas Paranjape

Mr.
Sunil Gabhawalla, Chartered Accountant, introduced the Voluntary
Compliance Encouragement Scheme (VCES) to the participants. He explained
the Process, Pivots, and the eligibility of VCES. He also talked about
the Tax Dues & Immunity of VCES under various sections and gave a
bird’s eye view of the newly introduced scheme. The full house audience
consisting of senior and junior members of the profession as well as
students, gained immensely from the knowledge shared by the learned
speaker. The presentation of the Speaker is available at www.bcasonline.
org for members’ benefit and the video recording of the same is
available at the www.bcasonline. tv to all subscribers.

Recent
Important Issues in Corporate Taxation including Domestic Transfer
Pricing, 12th June 2013 at the Indian Merchants’ Chamber, Churchgate

The
lecture by Mr. Rajan Vora, Chartered Accountant, and past president of
the Society began with an overview on the provisions, implications of
the amendment, challenges faced by taxpayers. Initiated & organised
by our International Taxation Committee, the topics deliberated at the
Meeting were based on the developments on Key amendments made by the
Finance Act 2013, covering Implications of increase in tax rate of
royalty and FTS – section 115A, Implications of amendment pertaining to
Real estate transactions – section 43CA, 56(2)(vii) (b), 194LA,
Taxability of buy back of shares of unlisted companies, investment
allowance section 32AC. Also the topic on recent judicial precedents on
various issues –issues arising on taxation of intangibles, Taxability of
lease transactions/ finance transactions/ sale and lease back
transactions, issues on disallowance u/s. 14A, Penalty u/s. 271(1)(c),
reopening u/s. 147, stay of demand. More than 350 people had the
opportunity to be enlightened by the speakers’s in-depth and vast
knowledge on

L to R: Mr. Deepak Shah (President), Mr. Chetan Shah , Mr. Rajan Vora (Speaker), Mr. Jagdish Punjabi

Taxation
provisions, implications, and challenges that a tax payer would face.
The presentation of the Speaker is made available at www.bcasonline. org
for members’ benefit and the video recording of the same is available
at the www.bcasonline.tv to all subscribers.

Other Programs

BCAS
Referencer 2013-14 Release Function with BCAS Variety Performance Show,
7th June 2013, at Navinbhai Thakkar Auditorium, Vile Parle (E)

Inauguration of 7th Residential Study Course on Service & VAT by lighting a lamp

Membership
& Public Relations Committee organised the BCAS Referencer 2013-14
Release function. The launch programme saw an overwhelming response with
above 350 participants including BCAS Members, their families and
Students.The release of the Referencer was at the hands of Padma Bhushan
Dr. Suresh Advani, Oncologist. He also delivered a very encouraging and
motivating speech. The programme included well packed variety show
performed by BCAS members and their families. Talented individuals
presented songs, dances, a skit and played instruments. The host took
the audience on an entertainment spree with one minute games to offer
spot prizes to the participants. The programme concluded with a
sumptuous dinner. The video recording of the same is available at the
www. bcasonline.tv to all subscribers.

L
to R : Mr. Narayan Pasari, Mr. Rajesh Muni, Dr. Suresh Advani (Chief
Guest), Mr. Deepak Shah (President), Mr. Naushad Panjwani, Mr. Ashish
Fafadia

Train the speaker within, 4th, 11th, 18th & 25th May 2013 at Direct-i-plex, Andheri (E)
The
Human Resources Committee organised this workshop under the auspices of
the Amita Memorial Trust. The workshop was inaugurated by Mr. Pradeep
Shah, Past President of BCAS, along with Mr. Mayur Nayak, Chairman HR
Committee. Both motivated the participants through their brief but
effective speeches.

Mr. Vivek Patki in his unique way explained
the theory and practice of the subject and covered a range of
communication situations, giving valuable insight to the participants.

It
was an enjoyable learning time for the 32 participants who benefited
from attending this unique workshop. The learning came through speech
writing, practicing delivery, video recordings, observing replays, and
coach feedback. A request for more such programmes to boost their
knowledge and confidence in Communication and other Personality
Development and Management Skills was voiced. The participants were also
interested in meeting at regular intervals to share their speaking and
communication experience.

7th RSC on Service Tax & VAT, 14th June to 16th June 2013, at Hotel Express INN, Nashik

The
Indirect Taxes and Allied Laws Committee organised this Residential
Study Course which was attended by nearly 150 participants from various
cities like Nashik, Mumbai, Hyderabad, Secunderabad, Chennai, Ahmedabad,
Indore & Pune.

The conference was inaugurated by Shri
Sushil Solanki, Commissioner – Service Tax – I, Mumbai. In the
inauguration speech, he presented his thoughts on VCES, 2013 and other
issues.

The paper writers presented 3 discussion papers and 2 presentation papers on various subjects as mentioned in the Table.

Felicitation of BCAS Past Presidents’, 10th June 2013, at Indian Merchants’ Chamber, Churchgate

The
Society arranged a felicitation programme where Past Presidents who had
or were about to cross 75 years of age, and yet continue to be young at
heart and full of energy when it comes to their association with BCAS
were felicitated as a token of deep sense of gratitude and respect.

The
glorious superstructure of BCAS is built on the pillars of values and
vision that were created by these early leaders of BCAS. On this event
Shri S. E. Dastur, Senior Advocate graced the occasion by delivering his
Key note address and sharing his experience with the fellAAow members. The audience enjoyed the words of wisdom by the Keynote speaker and also the experiences shared by each felicitated past president. The programme ended with a sumptuous dinner.

Table : Papers at RSC on Service and Vat

PART A: Orders of CIC

Political parties: Section 2(h) of the RTI Act:

Three-member-bench of CIC [Satyananda Mishra (Chief IC), Mrs. Annapurna Dixit (IC) & M. L. Sharma (IC)] passed an order dated 03-06-2013 in the case where the Respondents were six political parties:

1. Indian National Congress/All India Congress Committee (AICC);
2. Bhartiya Janata Party (BJP);
3. Communist Party of India (Marxist) (CPM);
4. Communist Party of India (CPI);
5. Nationalist Congress Party (NCP) and
6. Bahujan Samaj Party (BSP).

The main issues raised by the complainants were: Disclosure of accounts and funding of political parties.

Some political parties in response to RTI applications of complainants stated that they were not “public authority” and hence not covered under RTI.

Chief Information Commissioner noted that the matters in hand raised complex issues of law and hence constituted a full bench as noted above.

Before the Commission, the complainants made extensive submissions to contend that Political Parties fall under the ambit of section 2(h) of RTI Act.

Above submissions were supported by various arguments including

(i) That section 80 GGB of the Income-tax Act which provides that contribution made by an individual or a company to a Political Party is deductible from the total income of the assessee. This provision is exclusively applicable to the Political Parties and is suggestive of indirect financing of the Political Parties by the State.

(ii) After various RTI applications were filed with the Central Agencies, it was discovered that Political Parties enjoy a number of “facilities” provided to them by the government. This is a clear instance of being “financed indirectly by funds provided by the appropriate governments” which puts Political Parties squarely under the definition of ‘public authority’ as provided for in section 2(h)(d) (ii) of RTI Act.

(iii) If closely monitored and totalled, the total public funds spent on Political Parties would possibly amount to hundreds of crores.

In its decision, Commission quoted Harold Laski:

“The life of the democratic State is built upon the party-system and it is important at the outset to discuss the part played by party in the arrangement of affairs. Briefly, that part may be best described by saying that parties arrange the issues upon which people are to vote. It is obvious that in the confused welter of the modern State, there must be some selection of problems as more urgent than others. It is necessary to select them as urgent and to present solution of them which may be acceptable to the citizen-body. It is that task of selection, the party undertakes. It acts, in Mr. Lowell’s phrase, as the broker of ideas. From the mass of opinions, sentiments, beliefs, by which the electorate moves, it chooses out those it judges most likely to meet with general acceptance. It organises persons to advocate its own view of their meaning. It states that view as the issue upon which the voter has to make up his mind. Its power enables it to put forward for election candidates who are willing to identity themselves with its view. Since its opponents will do the same, the electorate, thereby, is enabled to vote as a mass and decision that would otherwise be chaotic, assumes some coherency and direction. What, at least, is certain, is that without parties there would be no means available to us of enlisting the popular decision in such a way as to secure solutions capable of being interpreted as politically satisfactory.”

The Commission then notes:

The question before the Commission is whether INC/AICC, BJP, CPI(M), CPI, NCP and BSP can be held to be Public Authorities u/s. 2(h) of the RTI Act. The complainants have adduced the following three principal grounds to persuade the Commission to hold that the aforesaid Political Parties are Public Authorities, viz:-

(i) Indirect substantial financing by the Central Government;

(ii) Performance of public duty by the Political Parties; and

(iii) Constitutional/legal provisions vesting Political Parties with rights and liabilities

Substantial financing of Political Parties by the Central Govt.

After considering various basis of state financing political parties, the Commission concluded, we are of the considered opinion that Central Government has contributed significantly to the indirect financing of Political Parties in-question.

On the issue of “substantially financed” again it noted:

Large tracts of land in prime areas of Delhi have been placed at the disposal of the Political Parties in-question at exceptionally low rates. Besides, huge Government accommodations have been placed at the disposal of Political Parties at hugely cheap rates thereby bestowing financial benefits on them. The Income Tax exemptions granted and the free air time on AIR and Doordarshan at the time of elections also has substantially contributed to the financing of the Political Parties by the Central Government. We have, therefore, no hesitation in concluding that INC/AICC, BJP, CPI(M), CPI, NCP and BSP have been substantially financed by the Central Government and, therefore, they are held to be the public authorities u/s. 2(h) of the RTI Act.

Performance of Public Duty
Political Parties are the unique institution of the modern constitutional State. These are essentially political institutions and are non-governmental. Their uniqueness lies in the fact that inspite of being non-governmental, they come to wield or directly or indirectly influence exercise of governmental power. It would be odd to argue that transparency is good for all State organs but not so good for Political Parties, which, in reality, control all the vital organs of the State.

The people of India must know the source of expenditure incurred by Political Parties and by the candidates in the process of election. These judicial pronouncements unmistakably commend progressively higher level of transparency in the functioning of Political Parties in general and their funding in particular.

We may also add that the preamble to the Constitution of India aims at securing to all its citizens: JUSTICE, social, economic and political; LIBERTY of thought, expression, belief, faith and worship; and EQUALITY of status and of opportunity. Coincidentally, the preamble of the RTI Act also aims to promote these principles in the form of transparency and accountability in the working of the every public authority. It also aims to create an ‘informed citizenry’ and to contain corruption and to hold government and their instrumentalities accountable to the governed. Needless to say, Political Parties are important political institutions and can play a critical role in heralding transparency in public life. Political Parties continuously perform public functions which define parameters of governance and socio-economic development in the country.

In view of the nature of public functions performed by Political Parties, we conclude that Political Parties in question are Public Authorities u/s. 2(h) of the RTI Act.

Constitutional/legal provisions vesting Political Parties with rights and liabilities

The appellants have also contended that Political Parties have constitutional and legal rights and liabilities and therefore, need to be held to be Public Authorities. The argument runs thus. Political parties are required to be registered with the ECI u/s. 29A of R.P. Act, 1951-a Central Legislation. An association or body gets the status of a political party on its registration. ECI awards symbols to Political Parties under the Election Symbols (Reservation and Allotment) Order, 1968, only after registration. The ECI calls for details of expenses made by Political Parties in the elections. Contributions of the value of Rs. 20,000/- and above received from any person or a Company by a Political Party are required to be intimated to ECI u/s. 29C of the R.P. Act. ECI is vested with superintendence, direction and control of elections under Article 324 of the Constitution. ECI is also vested with the authority to suspend or withdraw recognition of a political party in certain contingencies. More importantly, Political Parties can recommend disqualification of Members of the House in certain contingencies under the Tenth Schedule. The contention is that the aforesaid constitutional/statutory powers of Political Parties bring them under the ambit of section 2(h).

We find the above submissions quite compelling and unerringly pointing towards their character as public authority.

It may be recalled that the INC/AICC and the BJP have made a bland assertion that they are not Public Authorities under the RTI Act. CPI(M) has disclosed some information to the Commission regarding allotment of land to it by the Central Government on certain terms and conditions but has not conceded that it is a Public Authority u/s. 2(h) of the RTI Act. The contentions of the above parties have to be rejected in the light of findings recorded herein above.

Based on above discussion, the Commission concluded:

In view of the above discussion, we hold that INC, BJP, CPM, CPI, NCP and BSP have been substantially financed by the Central Government u/s. 2(h) (ii) of the RTI Act. The criticality of the role being played by these Political Parties in our democratic set up and the nature of duties performed by them also point towards their public character, bringing them under the ambit of section 2(h). The constitutional and legal provisions discussed herein above also point towards their character as public authorities.

The Presidents, General/Secretaries of the Political Parties are hereby directed to designate CPIOs and the Appellate Authorities at their headquarters in 6 weeks time. The CPIOs so appointed will respond to the RTI applications extracted in this order in 4 weeks time. Besides, the Presidents/General Secretaries of the above mentioned Political Parties are also directed to comply with the provisions of section 4(1) (b) of the RTI Act by way of making voluntary disclosures on the subjects mentioned in the said clause.

[Complaints: (1) Shri Subhash Chandra Aggarwal (2) Shri Anil Bairwal vs. Respondents 6 Political Parties as noted above: CIC/SM/C/2011/00138 &000838 decided on 3rd June 2013]

Note: Many paragraphs as above are reproduction of the order.

PART D: Good Governance

How Does One Shame the Shameless in India

It took a horrific rape to expose our politicians. Suddenly the netas of Delhi were stripped naked. And there was no place to hide. Years of strutting around pompously and grand standing during one crisis after another, provided zero protection to these people as enraged citizenry took to the streets crying out for better governance, sickened by the apathy and abuse of power.

Excerpts from the Address of Narendra Modi:

“Development won today,” “There was thinking in our politics thatgood economics is bad politics. It was as if good governance did not suit on politics.”

He quickly added that the people of the country too needed good governance and economic development of the kind seen in Gujarat.

PART C: Information on & Around

Pratibha Patil on Africa Trip

A month before she left office, the Centre spent a whopping Rs. 18.08 crore on the then president Pratibha Patil’s 10-day official visit to South Africa and Seychelles.

A reply to a RTI query has revealed that the Centre paid Rs. 16.38 crore to Air India for the special aircraft used for the two-nation trip from 29th April to 7th May last year.

The RTI reply revealed that an expenditure of Rs. 1.46 crore was incurred during her visit to the South African capital Pretoria, of which Rs. 71.82 lakh was spent on her local stay, Rs. 52.33 lakh on transportation and Rs. 22.12 lakh on other expenses. In Durban Rs. 23.55 lakh was spent on her visit, with Rs. 18 lakh going towards hotel stay and Rs. 5.27 lakh on transportation.

During her tenure at Rashtrapati Bhavan, Patil incurred expenses of Rs. 205 Crore on 12 trips to 22 countries.

School Principal

An RTI query filed by an activist might lead to the ouster of the current principal of a south Mumbai school. The reply to the RTI shows that the current principal of St Mary’s High School (ICSE) in Mazgaon is still at the post at 68 years of age while the state rules make it clear that school teaching staff and principal have to retire at the age of 58 years.

“I filed an RTI to check the status of 39 nonstate- board schools in the city, and found out that most are not following the rules as prescribed by the state education department,” said Nanasaheb Kute Patil, who filed the RTI query. The questions included whether the schools have all permissions prescribed by the government, annual fees demanded by them, age and qualification of teachers/principals, etc. “My aim is to make sure students don’t suffer because of school authorities,” he added. Following this, the south zone education department has sent a notice to the school asking them to remove the principal from his post.

Ajit Pawar

Ajit Pawar tendered his resignation on 25th September on moral grounds, after allegations of massive irregularities in irrigation projects in Vidharbha during his stint in previous cabinet as Water Resources minister. The governor accepted his resignation on 29th September.

From 30th September to 14th October, the state offered him facilities without any charge, according to the reply to an RTI application filed by Anil Galgali. A government resolution dated 12th October stated that after 14th October, Pawar was to be charged Rs. 5 a square foot if he wanted to avail of accommodation in the bungalow in Malabar Hill with an uninterrupted supply of all amenities – gas, water, power and telephone at state expenses. Officials from the general administration department said the rule/procedure was applicable on all cabinet ministers to allow them find new residences to ensure smooth transition from power.

But Galgali feels otherwise. “The high-voltage drama related to Pawar’s resignation was a well-planned political move,” he said. “If Pawar resigned from his ministerial post on moral grounds, then he should have shown the same morality and should have given back the Devgiri bungalow to the government. In the city’s slums, no one even gets a hut on rent for Rs. 5 a sq ft. If a government regulation (GR) states that outgoing ministers to be charged Rs. 5 a sq. ft for accommodation in a posh area like Malabar Hill, there is something fundamentally wrong and the GR must be amended.”

Security Firm

High-profile private security firm, NISA, with 45,000 guards on its payroll, has failed to file with Mumbai police with basic yet crucial details like how many of its personnel carry firearms. Yogesh Hilkar, a member of the NGO ‘Swabhiman’ run by Congress MLA Nitesh Narayan Rane, has uncovered these facts through a RTI plea.

“It is shocking that the company has not supplied details of all the armed men working with it. This is, potentially, a huge security threat,” when the Deputy Commissioner of Police, Headquarter (II) – who is responsible for maintaining a database of all the security agencies in the city and the Assistant Commissioner of Police from DN Nagar division, where NISA has its corporate office, have failed to furnish any details in this respect.

The company’s website (http://www.nisaeye.com/) notes that it is having 45,000 security personnel in its ranks, based at over 3,500 installations in India, and managed through about 45 branches.

It claims that it’s been administering security to some of the biggest names in the corporate world since 1973.

PART B: RTI Act , 2005

The Government has decided to conduct a study on the implementation of the Right to Information Act to know the cost to the government in providing information to citizens under the UPA’s showpiece initiative and whether it has helped improve its “public perception about the extent of reduction in corruption”.

As per the RTI Act of 2005, only Rs. 10 fee is required to seek information from any public authority, but various government officials have complained of the huge cost they have to bear to divert resources and effort to answer RTI pleas.

The government has earlier got a study conducted from PricewaterhouseCoopers (PwC) in 2009 on the key issues and constraints in implementing the RTI Act. But, for the first time, the government is attempting to “calculate the cost to government in providing the formation under RTI”, as per the scope of work of the new study for which the Department of Personnel and Training has invited bids on 4th January. “To further strengthen the RTI regime, it has been decided to do a 360-degree study of the implementation of the RTI Act. The study will cover both states and the central government, across various sectors, and will cover public authorities at centre, state, district and panchayat level,” the bid document says. The scope of the study also involves assessing public perception about the extent of reduction in corruption. “Since the implementation of the Act there has been a significant and perceptible change in the level of transparency in the working of the governments at the Centre, state and the sub-state level,” the bid document claims. The scope of the study includes a study of trends in filing of RTI applications or appeals across the country. The government also wants an institution or organisation to study the use of the RTI Act by different types of applicants – in cases where applicant type is identifiable from the application. The study will assess the type of information sought and its classification into “personal information” sought by employees, procurement-related information sought “without any apparent objective/purpose” and general information sought without specificity across sections.

“The implementation of the provisions of the Act has to be studied from the perspective of both the demand and supply side. The approach to achieving the above is viewing RTI applications and their responses from the information seekers’ and providers’ angle,” the bid document says. The study will hence, determine the level of satisfaction among the people with functioning of the Act and the experience of public authorities at different levels in dealing with RTI applications and appeals, the document has mentioned.

[Extracts from ET dated 7-1-2013]

Good News for Mumbai RTI Applicants:

The office of the State Chief Information Commissioner will go paperless in less than a month. “If all goes well then our office will be paperless and we have developed a software for the purpose,” State Chief Information Commissioner, Ratnakar Gaikwad said.

Soon after his appointment in June, when Gaikwad visited the office of the Central Information Commissioner Shailesh Gandhi, he was surprised to see that there were no files on his table.

“I studied his working pattern and felt that it was possible to introduce a paperless office in Mumbai too,” he added. Gaikwad, who has set a target of disposing of 25 complaints/appeals daily, said no purpose will be served if information is not provided to an applicant as early as possible. “I am sure that we will be able to clear all the 2,098 appeals by March, 2013. Once the backlog is cleared, we will clear the appeals within 15days,” he said.

From the President

Dear Members,

Human rights are today a buzzword.

The basic rights to which all humans are entitled, include the right to life, liberty, freedom of thought and expression, and equality before the law. These rights exist in theory at the national and international levels. The rights of its citizens are to be protected by governments. This requires compliance with laws by the people and the enforcement thereof by the authorities.

It is interesting to note that in the ancient world, the concept of universal human rights was not prevalent. Ancient societies had “elaborate systems of duties, concepts of justice, political legitimacy, that sought to treat human dignity, as being entirely independent of human rights”.

But today, what is meant by a “right”, is itself controversial, and the subject of continued philosophical debate. The strong claims made that human rights are universal, or that they exist independently of legal enactments, has provoked skepticism and criticism.

I thought of this topic on Human Rights for obvious reason of recent rape incidents in the capital. The incident received international coverage and was condemned by one and all. It was a horrendous act.

I fail to understand that when all human beings are born free and equal, why do persons show such scant regard for the dignity of others? Why does a person at the slightest provocation turn into a beast?

The abuse of women is probably a universal phenomenon. It exists virtually everywhere, breaking barriers of caste, creed, religion and geographical barriers of nations. The extent and degree may differ but its existence cannot be denied.

I believe that the story of women’s struggle for equality belongs to no single feminist nor to any one organisation, but to the collective efforts of all those who care about human rights.

The Judicial committee set up by the Central Government on 22.12.12, headed by J.S Verma, a former Chief Justice of India, to suggest amendments to criminal law to sternly deal with sexual assault cases, has urged the public in general and particularly eminent jurists, legal professionals, NGOs, women’s groups and civil society to share “their views, knowledge and experience, suggesting possible amendments in the criminal and other relevant laws to provide for quicker investigation, prosecution and trial, as also enhanced punishment for criminals accused of committing sexual assault of an extreme nature against women”.

It’s time to understand that it is our responsibility to nurture the younger generation and imbibe in them a mindset that treats the other gender with dignity and respect. Let us act in bringing about a change.

The real solution lies in making women aware of their rights and getting them into the habit of exercising them regularly. In fact, in our country, it is not only women’s rights, but so many others are trampled over with impunity. The result is not a revolt but meek, passive acceptance. For example, I would like all our members to ponder whether we as CAs exercise our Rights?

There are various occasions/situations when we get frustrated over many issues that we face day in day out during our practice, may be in the Tax department or dealing with clients.

Let me try to lista few of the areas where we don’t exercise our rights:

• We CAs most of the time are shy to raise our bills in advance or send reminders for our fees.

• We in the Tax Departments read the Citizen’s Charter displayed on the walls, but we don’t raise any voices to get it implemented.
• We often wait for hours and hours in the Tax Department, and still don’t convey our anguish on time being wasted.
• We don’t resist where timings of duty are not adhered to, or internal meetings of tax officials are called at their convenience in spite of noticing a big queue outside, and still we patiently sit on benches.
• We fight and visit for months and years for our client’s refunds with a smiling face, for their legitimate dues, but still cannot enforce those rights.
• We CAs sacrifice our Rights and don’t raise our voices in a fear of harassment to our clients.

I am not sure whether you will agree that, we ourselves are to be blamed. I strongly feel that young CAs have perceived such plight, and that is why they prefer industry or jobs rather than traditional practice. So what is the solution? Is there any, or it is our fate to see the same thing happen again and again? This can change only after we all start practicing what we preach and exercise as our rights.

So this New Year let’s talk about what we want or how do we live our professional Life. I believe it’s time to change. You can’t expect to do things the same way for the rest of your life. Sometimes, we forget that in order to change something, we ourselves need to change. For example you cannot get a new job by not looking or not developing your skills, and you cannot lose weight if you continue doing no exercise or by not having a nutritious diet.

I will end by quoting Max Dupree – “We can’t become what we need by remaining what we are”.

Wish you all a Happy, fearless and rightful New Year.

With Warm Regards,
Yours truly,
Deepak R. Shah

Direct Taxes

Government notifies Cyprus as a “notified jurisdictional area under Section 94A – Notification No. 86/2013 dated 1st November, 2013

The CBDT has issued Order No. 5/FT&TR/2013 dated 04-11-2013 specifying the jurisdiction of the Dispute Resolution Panel at Delhi and Mumbai and the cases or classes of cases that they are assigned. The CBDT has also issued Order No. 6/FT&TR/2013 dated 04-11- 2013 specifying the reserve members of the DRP at Delhi and Mumbai. Both these orders are available at www.bcasonline.org

Procedure for dealing with Revenue objections – CBDT Instruction No. 16/ 2013 dated 31-10-2013

E-returns filed with payment of self-assessment tax to be treated as deemed defective and standard operating procedure notified by CBDT. – F.No. DIT(S)/II/CPC/2013-14/Unpaid self assessment tax/13798 dated 13th November 2013 – available on www.bcasonline.org

Circular clarifying DRP law under section 144C of the Act – Circular no. 9/2013 dated 19th November 2013

On analysis of the existing track record where there are unsatisfactory settlements, despite detailed procedure laid down by the CBDT, it has now fine tuned the procedure by awarding more powers to the supervisory authorities to fasten the process of settlement and prevent revenue loss for the Government as well as harassment to the tax payers.

CBDT has rectified its mistake made in Circular no. 5/2010 where it was inadvertently mentioned that Section 144C would apply from AY 2010-11 onwards. It is now clarified that section 144C is applicable to any order which proposes to make variation in income or loss returned by an eligible assessee, on or after 1st October, 2009 irrespective of the assessment year to which it pertains. Amendments to other sections of the Income-tax Act referred to in para 45.3 of the circular no. 5/2010 dated 3rd June, 2010 shall also apply from 1st October, 2009

From the President

Dear members of BCAS family,

1. Economists (businessmen) use politics to further their conflicts.
2. Conflicting groups use economics to further their politics.
3. Politicians use conflicts to further their economics (Conflict could read as anything from religion, caste, creed, race, region (domestic or international), gender, economic groups, ethnicity, cultural and many more.) Which of these statements rings a bell for you?

For me the third statement makes a lot of sense. To this statement let me add a couple of other beliefs.

1. In the Indian context, until 1947 all public figures were freedom fighters. Post independence the freedom fighters either sank into oblivion or became politicians. The freedom fighters may have differed in their ideologies but had the same purpose at heart; that of independence. Nation before self was the way of life that they lived. This breed, in my opinion, is extinct. Those who call themselves freedom fighters are in reality separatists being guided and funded by those with vested interest.

2. A politician can achieve the best of what he wants only if he is elected. To be elected he needs funds. These funds are huge (official and otherwise). These funds come from somewhere and there are no free lunches. Hence it’s a debt to be repaid with interest at a later date. An elected politician controls assets (tangible and intangible) for which many businessmen would potentially be willing to give gifts for favours. This power is too tempting for most to fritter away. Somehow he is obliged to grant favours in lieu of the funds that he had received for his election. Now it’s payback time.

One may argue that there would be those who would pump in their own money. For what purpose I would ask? Love of the country and public service are laughable reasons. It is an investment!

Hence in my opinion no politician can claim to be 100% clean. Taking money for self or for party is one and the same.

What is my point?

My point is that they function just like corporates. Corporates have a direct agenda of economic furtherance. Politicians need “conflicts” to further their economics. And hence, I’m not taken in by this pro or anti wave that’s building up pre-election. I am following the developments and observing the conduct of these politicians, as our constitution needs us to elect somebody to run this country. So I have to choose that party which appeals to me the most or I should say, I have to select the party that I detest the least. Just like I would choose between Pepsi and Coke or between Colgate or Pepsodent. But though these products are marketed aggressively there are boundaries, rules, laws and consumer protection norms. The companies fight it out and not the consumers. I haven’t seen a single instance of a fan of a particular brand fanatically arguing with his friend who uses some other brand.

Also I’m disturbed by the fact that people so easily give their destinies and pin their hopes on these politicians to come and bring prosperity to them.

Now take the sentence “Politicians use conflicts to further their economics”. Take your favourite politician and see if this is true or not. If there is any such political partyor following this norm please do let me know and I will vote for it blindly. If there isn’t a single party like that, then let’s choose our respective parties quietly and vote on the day of the election and be done with it. Why do we want to be their salesmen? Why should this salesmanship be so aggressive? Why should it brew hatred? Why should we spew venom on behalf of these corporate political parties? Why try convincing each other about which is a better party? Instead why not convince a non voter to vote? And then allow him to choose who he wants to vote for. You are intelligent. You are controlled. You know where to draw the line after a heated argument. But the line is thin. The threshold is too low. Circumstances arise and lives are lost in this mindless “salesmanship” and we have played our role in it. You may console yourself by saying that you didn’t yourself resort to violence. But can you keep your hand on the heart and say that your intensity of “salesmanship” was less than of that of the person who partook in the actual violence. Even when the violence has occurred and you are reading the newspaper, do you look for identifying the victims and the aggressor to see to which ideology they belonged and form your opinion based on that? If the victim matches your beliefs then the victim deserves your sympathy. And if he had beliefs contrary to yours then he must have been the instigator and deserved the death. If the aggressor is from your belief, then he is innocently framed and if from a contrary belief to yours then he is guilty without trial. You and I are not bad people in our day to day lives. This is the low of inhumanity these corporate political parties have dragged us to. For their cause, for furthering their economic growth and at the cost of your humanity. Please ponder. Please go to the depth of the matter. Please understand the power and lure of economic greed before you get sucked into their agenda of self development. Nobody cares for you and me.

Is this true of Indian politics alone? I am sure you agree that it’s universal. If greed is universal then so is politics. Let me give you an example of how naive we are in the context of politics and here let me talk about cross border politics. Players: India, China and Pakistan. India and Pakistan have been in conflict from the time the two-nation theory was born. If anybody has been along the LOC you will realise that a large chunk of this region is barren wasteland. No economic value to either. Yet both these countries are spending huge amounts in fortifying and manning these lands. Countless lives on both sides are lost every year on skirmishes that occur time and again. So where does economics come into this? Before we understand this let’s see how China is placed. For all it’s economic might, China has a very circular and long connectivity to the Middle East and West. It is completely landlocked on its western side. It has no access to any sea on its west. It’s cargo has to go from its eastern coast on a long route past the Indian Ocean. Hence they are building a road from their western borders through a willing Pakistan straight to the Middle East. Cutting down on time and cost. China has already annexed a large portion of land from India and the rest of the access that it needs falls in the Pakistan side of the LOC. Hence conflict between India and Pakistan must not be resolved lest India denies access for this road. For China’s economic growth it will buy Pakistan’s support by way of aid, alms and arms to strengthen them militarily against India. What ideology? What belief? What conflict? Pure economics!

So what’s the solution? Choose that party that spews no hatred. Talks of uniting Indians. The difficult part is that all are the same. Just the degree changes from time to time.

Cast your vote without costing any lives.

Here’s wishing everyone happiness and love.

With Warm Regards
Naushad A. Panjwani

From the President

Dear Members,

The judiciary is a vital organ of any democratic setup responsible to provide, fair and expeditious justice to all. We citizens of India look upon our constitution for ensuring “Justice to all“. Everyone wishes that Justice which is the soul of a democratic society must be administered without fear or favour. Integrity, impartiality and intelligence are some of the important characteristics of the independent judiciary in a democratic setup.”

For many decades the Indian judicial system was considered to be above all forms of corruption and was expected to the last bastion of truth in a country that is plagued with lies and deceit. Can we say it is still the same?

The general impression is that Indian Judicial System is hostile towards the common man and general public but hospitable to rich, powerful and dishonest. When caught, a rich and powerful criminal would say, “I am innocent and I have full faith in our judiciary. It would do justice to me.” Do you call that justice is done, when he goes scot free from the courts, despite every bit of evidence against him. This has been state of affairs with all the scams and scandals, which came into public domain, in the recent years. As an ordinary citizen one always wonders – Why should a technicality allow an apparent crime to go unpunished, and if that is so why should one waste taxpayers money spent on investigation for years on end? Should we take it that Legal system in India favours the powerful people? A few known cases, like bail to Kalmadi and A. Raja , the lenient treatment to two MLAs who thrashed a cop, and the cop was suspended seem to strengthen the belief.

There is also the attitude of Society that dissuades persons from going to law enforcers. Even today, a visit from the police at your home for any reason encourages gossip in the entire locality. This negative societal bias coupled with the lack of reach has contributed to such negative thoughts for the judicial system. The responsibility for this cannot be attributed to any one individual or party, but must lie with the system itself which is not alive to local needs and problems.

Indian judicial system has been facing many problems and challenges in the course of dispensing justice. The major problem is the proceedings are lengthy and this delays the disposal which in turn leads to accumulation of cases and corresponding delay. The other problems are lack of efficiency in proper interpretation as well as implementation of laws. Apart from shortage of Judges the division of jurisdiction is also not proper and this is leading to an increase in the burden of the higher judicial forums including the Supreme Court. There are many other challenges and problems faced by the Indian legal system, which makes us think :

Whether our judicial system is turning weak ?

Are there any prospects of reform?

Despite all the above questions bothering us, we have a tremendous faith in Indian judiciary. Most of us believe that our judiciary is responsible and will provide fair and expeditious justice, and is the guardian of fundamental rights of the citizen. To me a legislation like the RTI Act gives much needed confidence.

It is the need of hour that legal and judicial setup be streamlined right from lower level so that the gradually deteriorating confidence of common man in the judiciary could be restored.

Over the past few years we do find increase in use of technology for in the judiciary for Data Storage. There are also structural reforms which might help in recruiting more judges and also spreading the reach of the courts to the remotest regions. Substantial improvement is required in the functioning of the courts, in order to minimise the time in disposing off the cases. Practically seen, there is no time limit fixed for arguing cases. Cases are being argued for months altogether in Indian Courts, while in USA, counsels are given exact time to argue the case. The number of holidays in India is far too much not only in judiciary, but in almost all departments.

Also it’s time to adopt and look at Alternate dispute resolution forums. Many structural reforms are required to improve the working standard of the judiciary so that the importance of this vital organ is not reduced and the confidence of people is not eroded further.

Lest you feel depressed by the thoughts that I have expressed let me end on a more cheerful note. Friends, there is a misconception people have about CAs, that we are of a very serious type, shy, reserved, and only workaholics. In reality this is not true, but we are only labelled as such. Many of us have great talent in other fields like instrumental music, singing, dance, dramatics, mimicry etc., but which is not known to the world. I am sure you all will agree that we professionals should showcase our hidden talents and show others that we are not only bookworms. Thinking How & When ?

Membership & Public Relations Committee of your Society has planned a BCAS Variety Programme on Friday, 7th June 2013 on the occasion of release of BCAS Referencer 2013-14. So let’s make the beginning and prove that we can do lot more than finance and calculations. I appeal to all of you to participate and also motivate your family members, fellow professionals or students to take part in the Variety performance show. Let’s prove to the world in this New financial Year that we are different !

With warm regards,
Yours truly,
Deepak R. Shah

Lecture Meeting

Risk & Rewards of Practice – A Guide for New and Young CAs in Practice, 23rd January 2013, at the Indian Merchants’ ChamberMr. Nilesh S. Vikamsey, Chartered Accountant, presented an informative analysis of Risks & Rewards of Practice and covered the following areas:

• Present scenario of CAs in practice and in the industry along with relative advantages and disadvantages

• Traditional and emerging areas of practice

• Major challenges in practice: Economic, Regulatory, Technological, Human Resources and Personal

• Strategies and thought process for practice: specialisation, positioning, right sizing,

• Problems of remuneration/fees and how to overcome the same.

• Clients’ rating/profiling

• Requisites of successful practice

• Growth strategies through networking, merger and demerger, practice in corporate form.

The audience included many young and newly qualified Chartered Accountants who benefitted tremendously. The webcast of the meeting is made available on BCAS Web TV to the subscribers.

Future without Fear, 11the February 2013, at the Rama Watumall Auditorium, K.C College under the auspices of Amita Memorial Trust

At this 17th Lecture Meeting organised under the auspices of Amita Memorial Trust jointly with the Chamber of Tax Consultants, Sister Bramha Kumari Shivani addressed the overflowing audience about why and how we should not fear about future and how to better equip ourselves to face the future without fear by doing good deeds.

Noted film actor Mr. Suresh Oberoi also addressed the audience and narrated his own life transforming experience. Shri Pradeep Shah welcomed the learned speaker and refreshed his daughter Amita’s memories. Ms. Nandita Parekh expressed a very well deserved vote of thanks and heartfelt gratitude to Sister Shivani. The webcast of the meeting is made available free on BCAS Web TV for everyone.

Recent Developments in SEBI Regulations, 6th February 2013, at the Indian Merchants’ Chambers

Mr. Somasekhar Sundareshan, Advocate, presented a masterly analysis of recent developments in SEBI Regulations such as draft Scheme of Arrangement involving listed company to require SEBI’s approval, investment by the Employee Welfare Trusts, SEBI’s new reporting requirement to monitor audit qualifications and revised consent settlement norms among others. The webcast of the meeting is made available on BCAS Web TV for subscribers.

Other Programmes

Seminar on Transfer Pricing, 19th January 2013, at the Indian Merchants’ Chamber

The International Taxation Committee organised this Seminar where the following learned faculties explained various aspects of transfer pricing specifically applicable to domestic transaction: The seminar elicited response from over 200 participants, both from the Industry & the Profession.

Seminar on Certification under the Income tax Act, 1961, 25th January 2013, at the Indian Merchants’ Chamber

This Seminar organised by the Taxation Committee, was attended by nearly 150 participants where the following speakers shared their knowledge on the topics allotted: The participants gained immensely from the wealth of knowledge and experience shared by the learned faculties.

Workshop on Risk Management, 7th February 2013, at Hotel Orchid, Mumbai

The Accounting & Auditing Committee organised this workshop where the following learned faculty explained Basics of Risk Management and Challenges in Implementing Risk Management, with focus on small and medium sized firms implementing risk management activities amongst their clients followed by a Panel Discussion on Risk Management in Indian context:

• Dr. Dale F. Cooper, Member of the Risk Management Committee of Council of the University of New South Wales

• Mr. Ravindra Rao, Chartered Accountant

• Mr. Huzefa Unwalla, Chartered Accountant

• Mr. Deepjee Singhal, Chartered Accountant

The participants gained immensely from the knowledge and experience shared by the learned faculties.

Seminar on the Companies Bill, 2012, 30th January 2013, at the Indian Merchants’ Chamber

The Accounting and Auditing Committee organised this seminar where the following learned faculties dealt with the topics allotted to them:

The participants benefitted immensely from the detailed analysis of various provisions of the new Companies Bill, 2012 by the learned faculties.

Real Estate Summit, 1st and 2nd February 2013, at J. W. Marriott, Mumbai

The BCAS jointly with the IMC organised unique industry specific Real Estate Summit covering various aspects of Real Estate Business and Investment covering following topics addressed by learned speakers:

A publication titled “Real Estate Laws” authored by Naushad Panjwani, Chartered Accountant and Ameet Hariani, Advocate, was also released at the Summit.

The content and coverage of topics and the overall arrangement at the Summit were appreciated by the participants. The event also received coverage by leading newspapers and media.

Workshop on ‘Personal Victory’ for CA Students, 10th February 2013, at the Society’s Office

The Human Resources Committee jointly with Amita Memorial Trust organised this workshop for CA Students where Mr. M. K. Ramanujam explained the following concepts:

• Goal setting

• Understanding responsibilities

• Working within the circle of influence, i.e. qualities, abilities and capacities

• Time management

The Student participants found the training at this workshop as a life changing experience. 11th Leadership Training Camp, 8th and 9th February 2013, at the Rambhau Mhalgi Prabodhini, Bhayander

The Human Resources Committee had organised this Residential camp which was based on the theme ‘Living in Harmony’. The faculty, Mr. M. K. Ramanujam shared his experience and knowledge and related the same to the concepts of:

• Flourishing

• Living

• Serving

• Understanding meaning of life

• Accomplishing and maintaining positive relations

The objective of the camp was well achieved as it helped the participants to improve their ability to bring more joy and presence to their daily lives.

Third Intensive Study Course on Transfer Pricing, 9th February 2013 onwards, at the Indian Merchants’ Chamber

The course organised by the International Taxation Committee of the Society was inaugurated by the Chairman of the Committee, Mr. Kishor Karia, Chartered Accountant. Vice President, Mr. Naushad Panjwani, Chartered Accountant welcomed the 111 participants in his address and congratulated them for having enrolled for this course spread over 10 Saturdays. Mr. T.P. Ostwal, Chartered Accountant delivered the first session covering an Overview of Transfer Pricing.

2nd Advance Computer Training Program for Senior Chartered Accountants, 22nd January 2013 onwards, at the HR College

The course spread over 12 days with 35 hours of training, jointly organised with HR College of Commerce & Economics, was inaugurated by the Chairman of the Infotech & 4i Committee, Mr. Ameet Patel, Chartered Accountant. President of the Society, Mr. Deepak Shah, Chartered Accountant welcomed the participants and explained the objective of the course. Professor Ruzbeh Raja, delivered the first session covering an Overview on Excel to the participants.

PART D: good governance

E-governance:

E-governance equals good governance for the citizens of a country. The scale and ambition of the National e-Governance Plan (NeGP) is impressive. Some important projects that are at various stages of implementation include Passport Seva, India Post, income tax services, ESIC, setting up 2,50,000 common service centers (CSC) across 6,00,000 and more villages; the National Population Register (NPR) and the Unique Identification (UID) project. A state wide area network (SWAN) and state data centers (SDCs) are being set up to support the implementation of these and other projects. The government has also initiated ‘GI Cloud’ initiative to keep pace with technological advancements.

Making public services conveniently accessible to over 1.2 billion people in India spread across a vast geography is not an easy task, but is nonetheless vital for India’s continued growth. The success of e-governance initiatives is pegged in the timely implementation and smooth running. Technology is not a constant and it is important that policy guidelines and framework give scope for deployment of innovative IT infrastructure, like engineered system that can easily scale and adapt to the changing governance and public needs.

(Mr. Mahadeo P. Jaiswal in Transparency Review, Journal of Transparency Studies)

Ms Aruna Roy:

“The crisis in credibility today is at all levels of government. Effective implementation is as important as the legislations themselves. Our solutions do not lie in thoughts between one election and another but in addressing the lack of transparency and accountability in governance structures. My politics has always been to enhance the participation of people with in the democratic frameworks so that their voices are heard not just once in five years but every today.”

PART C: Information on & Around

RTI AND & BMC:

The Brihanmumbai Municipal Corporation (BMC), the country’s largest civic body, has been fielding the most Right to Information (RTI) queries of any public institution across the state. Observers said this indicates the desire of Mumbai’s citizens to have greater participation in public affairs.

Following are the number of applications received by various P. As in Maharashtra and at BMC:

Year

State

BMC

2008

4.16L

46967

11.3%

2009

4.40L

59018

13.4%

2010

5.48L

72789

13.3%

2011

6.45L

90419

14.0%

2012

6.50L

plus*

1.02L

15.7%

*estimated

Activists said the BMC shouldn’t pride itself on getting such a high number of queries, as this indicates a lack of transparency. “This means that BMC has failed to put up information on its website suo moto. The BMC must understand that Mumbai is an active city, with greater citizens’ participation. So there are bound to be more RTI applications in the absence of data from the BMC,” said Shailesh Gandhi, former Central Information Commissioner and chairman of the Technical Advisory Committee (TAC) on RTI set up by the BMC.

Jinnah’s Speeches:

The Central Information Commission has asked the government to take a view on disclosure of two speeches made by Pakistan founder Mohammad Ali Jinnah during the pre-Independence era, which are in the archives of All India Radio and explain the reasons for withholding them if it intends to do so. Chief Information Commissioner Satyananda Mishra said more than 60 years after the country’s independence, the time has come when all concerned must decide what information relating to the pre-Independence period should be made available to public.

Mr. Robert Vadra:

The PMO has turned down an RTI request seeking records of an affidavit it filled in connection with the probe into the alleged land deals made by Congress chief Sonia Gandhi’s son-in-law Robert Vadra on grounds of “confidentiality”.

Nutan Thakur of Lucknow, through an RTI application, wanted to know all the file notings related to the PMO affidavit placed before the HC. She also wanted to know about the action taken after her petition was received. In its first reply in April, the PMO claimed that since the matter is sub-judice, records cannot be disclosed. Thakur then argued that such details can only be withheld when there is an explicit order from the court.

Later, in a reply on June 6, the PMO said, “The office, keeping in view the SC ruling, has sought exemption as the matter has been treated as confidential.”

It quoted a Supreme Court order which said that exception u/s. 8(1)(e) (of the RTI Act) is available not only in regard to information held by a public authority in a fiduciary capacity, but also to any information given or made available by a public authority to anyone else for being held in a fiduciary capacity.

PART B: RTI Act, 2005

Maharashtra Government has drafted Information Commission (Appeal Procedure) Rules, 2012. Same are in internal circulation but RTI Activists have managed to get the copy thereof.

These rules are complicated and all RTI Activists (signed by 89 RTI Activists) have opposed them and have made out a detailed letter to the Chief Minister with copies to

1) Shri Jayant Banthia, Chief Secretary, Govt. of Maharashtra

2) Principal Secretary – General Administration Dept.

3) Principal Secretary – Law and Judiciary Dept.

There are 11 sub-rules. Presently, there are no separate rules for appeal procedure. The Maharashtra Right to Information Rules contain one clause for Appeal Procedure (sub-rule 5).

Sub-rule 4 of the draft rules is the most objectionable. The same reads as under:

“Accompaniments to memorandum of appeal: – Every memorandum of appeal made to the Commission shall be accompanied by the following documents namely:-

(i) copy of application made to the State Public Information Officer;
(ii) self-attested copies of the order, letter, documents, or correspondence received from the State Public Information Officer and the first appellate authority;
(iii) copy of the first appeal;
(iv) copy of order if any, given by the first appellate authority against which the appeal is being preferred;
(v) date-wise list (Index) of the documents referred to in the appeal;
(vi) affidavit in the format given in Annexure “B” affixed with Rs. 2 court fee stamp;
(vii) any other document, as deemed fit by the appellant.” Objections raised by RTI Activists read as under:

The affidavit as referred to in rule 4 requires the RTI appellant to include additional personal details e.g. “name of father/husband, age – yrs., service /business”. This rule is a blatant violation of Section 6(2) of RTI Act 2005, which states, “An applicant making request for information shall not be required to give… any other personal details except those that may be necessary for contacting him.” Also, this affidavit only burdens the RTI appellant (who is quite often a common man, and not an experienced RTI activist) with a meaningless, difficult and costly legal procedure. Change needed: Provision for affidavit should be deleted. In compliance with the RTI Act, no extra personal details must be asked, other than the ones needed to contact him.

FROM THE PRESIDENT

Dear members of BCAS family,

It is a great honour to be elected the 64th President of the Bombay Chartered Accountants’ Society. Amongst the many projects, programmes and activities that I shall be leading, I particularly look forward to the privilege of contributing to BCAJ which is one of the most prestigious professional Journals, subscribed by many and read by many more.

The arrival of monsoons every year brings happiness all across. Unfortunately this year, the monsoons have wreaked havoc in Uttarakhand. It is one of the larger national tragedies in recent times and the largest the Himalayan ranges have ever witnessed. The rescue operation is over and relief has started. Those stranded have been rescued, the missing found and the dead accounted for. The rehabilitation work will start now but the redevelopment will take a long time; maybe years. BCAS Foundation has made an appeal for donations towards redevelopment work and the funds have started trickling in. In the past, the Foundation has conducted some exemplary rehab work in Gujarat for the earthquake and for the tsunami work in Tamil Nadu & Pondicherry. Like in the past,the Foundation will identify a school or two that need rebuilding and take responsibility to help resume education. I have no doubt that all of you will contribute generously in helping the poorest of the poor.

We all saw what happened in Uttarakhand. We witnessed nature’s fury and the devastation that it can cause. Nature is impartial. The most advanced nations witness earthquakes, floods, tsunamis, tornados, cloudbursts, droughts and what not. These are natural phenomena. But what happens thereafter many a times is a shame on humanity. And that demonstrates the true evolution of a nation. I have a few questions in mind:

1. Have we lost our sensitivity? Are we so accustomed to death, devastation and tragedies of this scale that we have stopped feeling for those affected? Have we become immune? Are we moving from one”breaking news” to another at breakneck speed? What about some feelings, sensitivity, compassion and the urge to lend a helping hand? Are we clannish, casteist, communist and think in terms of “our people” and “theirs”? This is the land of Gods where some go to pray and wash away their sins. Alas, the lives and livelihood of the locals have been washed away.

2. In times of calamity, people come together forgetting their differences and join hands to tackle the disaster calmly, collectively, selflessly and effectively. But what I saw and read coming from the political class was a tragedy of equal proportion. Blaming, criticising and wasting time and resources. Shameful! The politicians indulging in this is not surprising. But we citizens getting dragged into this and mouthing our lines and displaying our political leanings rather than our human side is sickening. It is a time to do good. To share a small fraction from our wealth with those who have lost everything. I’m getting to hear about a few citizens who have rushed there to personally take part in rehabilitation. But those of us who cannot go personally must send our contribution. If you believe in the government then contribute to the Prime Minister or Chief Minister’s Funds. If you feel for the selfless services of the armed forces and appreciate the yeoman’s work done by them, even at the risk of their own lives, then contribute to the army welfare funds. Or else, find a good organisation like BCA Foundation and contribute to their efforts. Those of us who have contributed will know what I mean when I say that there is immense satisfaction when we give. Then the need to be part of unnecessary criticism just disappears.

3. Then there is this thing about comparing our redevelopment efforts with those of advanced nations like the USA and Japan. Most of us come from modest to middle class backgrounds. Don’t we know the difference between the haves and the have-nots? Obviously, the wealthy have better options and opportunities. Same is the case with nations. We are a developing nation. We do not even have enough resources to provide for the hungry and malnutritioned in normal times. It was not a long time ago that we were dependent on aid from the developed nations. Let us stop expecting our governments to have endless resources for rehabilitation for such tragedies. It will happen one day, but that day is not today. It may take a little longer if you factor in the corruption, misgovernance and ineffiencies. Let us recognise this and do what we have to do ourselves.

4. It is sadly comical to see the poor management of rescue operations. It is frustrating. It is heartbreaking. It is disgusting. It is the kind of politicians we elect who form these inefficient governments. There are things we are dependent on the government for. But there are so many things for which we ourselves are responsible for. Our businesses, our communities and our families much more. The question is, are we good managers? Have we prepared ourselves against any calamity? Do we have our disaster recovery plans in place? Have we provided for business continuity plans? What will we do if there is a fire in the office? Or a heart attack in the family? No government here. Us. Think about it. It is scary. Time to change our outlook and approach.

Amongst all the mayhem, one great positive visual was that of the youth from all walks of life rising to the occasion and taking a lead in most activities connected to rescue and rehabilitation. It is estimated that in 7 years the median age of India’s population will be 29 years and that we will be a country with the largest youth population. 29 is an age when we are in our prime. Bodies are young, minds are fresh, energies are high and ideals pure. But this brings with it the necessity to provide a conducive environment to flourish and go in the positive direction. Give them the opportunity and guidance and we will see China-like results, give them angst and rob them of the opportunities and you will have the Taliban.

While the median age of India is getting younger, BCAS’s average membership is growing older. New CAs need to become our members. They need to be drawn in to do voluntary work. Their views, ideas and contribution are necessary for BCAS’s growth. Their needs have to be identified and fulfilled. The organisation must reach out. It is only when we extend our hand can we expect a handshake. I am happy to note that there are a few enterprising young members in the thick of action at BCAS and I look upon them to grow their tribe and take BCAS to the next level.

Here’s wishing everyone happiness and love.

With Warm Regards
Naushad A. Panjwani

From published accounts

Section B:
Gain on sale of Investments in subsidiaries considered in books of account in Consolidated Financial Statements

Adani Enterprises Ltd (CFS) (31-3-2013)

From Notes to Financial Statements
Exceptional Items

(a)
The Company has disposed off its investment in a wholly owned
subsidiary, ‘Adani Infrastructure and Developers Private Limited
(‘AIDPL’) representing the Real Estate Business, to its promoters at a
valuation done by an independent valuer. The Company has accounted a
gain of Rs. 453.63 crore against the disposal of the above said
Investment.

(b) During the financial year 2012-13, during the
year, Adani Ports & Special Economic Zone Limited (APSEZ) a
subsidiary of the Company had initiated and recorded the divestment of
its entire equity holding in Adani Abbot Point Terminal Holdings Pty
Limited (AAPTHPL) and entire Redeemable Preference Shares holding in
Mudra Port Pty Ltd (MPPL) representing Australia Abbot Point operations
to promoter Company, Abbot Point Port Holdings Pte Ltd, Singapore for
consideration of AUD 235.71 million. The Company entered Share Purchase
Agreement (‘SPA’) on 30th March, 2013 to sell its holdings in AAPTHPL
and MPPL. In terms of the SPA the conditionality as regards regulatory
and lenders approvals was obtained except in respect of approval from
one of the lenders who have given specific line of credit to MPPL, which
the APSEZ is following up with lender and is confident of obtaining the
same.

The Company, based on the legal counsel opinion,
concluded that on the date of signing of SPA, AAPTHPL and MPPL cease to
be subsidiaries of the Company w.e.f. 31st March, 2013 and accordingly
not been consolidated as per provisions of Accounting Standard 21
“Consolidated Financial Statements” notified in Companies (Accounting
Standards), Rules, 2006. Adani Ports & Special Economic Zone Limited
(APSEZ) has accounted gain of Rs. 419.57 crore against disposal of
investment.

From Auditors Report
We draw attention to
Note 41(b) to the consolidated financial statements recording sale of
investments in Australia step down subsidiaries, on the basis indicated
in the note, whereby gain of Rs. 419.57 crore have been recognised in
the books. Our opinion is not qualified in respect of this matter.

Reliance placed on judgement of the management on various matters

Lok Housing & Constructions Ltd (31-3-2013) From Notes to Financial Statements Accounting Policies Revenue Recognition

a)
The Company in respect of its construction activity follows substantial
completed contract method of accounting. Under this method profit in
respect of units sold is recognised only when work in respect of the
relevant units is substantially completed which is determined on
technical estimates as certified by management. The auditors have relied
upon such management certificate.

b) Revenue recognition in
respect of transactions for sale of properties/development rights is
done on the date on the date of execution of agreement and the same are
subject to conclusion of formalities such as conveyance and compliance
of applicable legal formalities.

c) Revenue recognition in
respect of constructed premises is on the basis of booking done by the
prospective customers and the same is subject to execution of registered
sale deed under the Maharashtra Ownership Flats Act (MOFA) and payment
of consideration.

d) Sales in respect of a particular project are accounted net of cancellation during the same accounting period.

e)
The completion status of a project at the end of each accounting
period, the estimated cost for completion of the construction and
development work relating to the units sold, which are considered for
profit are estimated on the basis of technical evaluation and are so
certified by the management. The auditors have relied upon such
management certificate.

Other Notes (extracts)

a) The
Company is in the process of restructuring and renegotiating its
outstanding unsecured loans. Consequently provision for interest due on
the outstanding unsecured loans has been made on simple interest basis
@18% p.a. Interest is not provided on the original/ last contracted rate
and also no provision for interest is made on the unpaid interest
amount. On account payments made by the Company to its lenders, this
practice results in reduction in the provision.

b) The Company
has entered into debt resettlement with Ranbaxy Laboratories Ltd.
However the Company has failed in its re-structured debt obligations to
Ranbaxy Laboratories Ltd. At the time of resettlement the Company has
received benefit of interest waiver amounting to Rs. 21.77 lakh which
was credited to Work in Progress account. In the opinion of the Company
the revised liabilities as per the settlement with Ranbaxy Laboratories
Ltd is valid and subsisting, because the Company has not received any
legal notice from the concerned Lender for termination of the
settlement. The liability in respect of Ranbaxy Laboratories Ltd., as
reflected in the Books of Accounts of the Company is Rs. 70.77 lakh
(previous year Rs. 60 lakh).

c) In case of disputed/defaulted
loans taken by the Company, provision for interest due on the
outstanding secured loans has been made at the last contractual rate of
interest. No provision is being made for interest on unpaid interest as
also for any penal interest and other charges.

d) The balances
in overdue secured and unsecured loans are subject to confirmation. The
management has been advised that for tactical reasons not to obtain
confirmations from its lenders as the same would impact the ongoing
negotiations of the Company. The Company has also requested the auditors
not to directly write to the lenders to obtain confirmations. The
auditors have relied on the judgement of the management in this regard.

e)
The balances in trade payables, secured and unsecured loans are subject
to confirmation. During the year under review balances in the accounts
of the several trade payables and other current liabilities have been
written off, as in the opinion of the management the same are no longer
payable. The auditors have relied on the judgment of the management in
this regard.

f) The balances in receivables are subject to
confirmation. The management is of the opinion that all the receivables
reflected in the financial statements are fully realisable and that
there is no impairment in them. During the year under review balances in
the accounts of the several receivables have been written off because
in the opinion of the management the same are no longer receivable. The
auditors have relied on the judgement of the management in this regard.

ICAI and its members

1. Conversion of C.A. Firm into LLP

The Ministry of Corporate Affairs has issued a General Circular (F.No.1/10 2012- CL-VI) giving the following clarifications (Refer P.1853 of C.A. Journal for June, 2013).

(i) The provisions of sections 55 and 58 of the LLP Act, 2008 read with Second Schedule thereto, inter-alia provide for requirements in respect of convertion of a single partnership firm into a single LLP. The LLP Act, 2008, does not provide for conversation of two or more firms into a single LLP.

(ii) The provisions of section 58(4) (b) of the LLP Act, 2008 provide that on convertion of a firm into an LLP, as per the provisions of the said Act, all property, assets, interests, rights, privileges, liabilities, obligations relating to the firm and the whole of the undertaking of the firm shall be transferred to and shall vest in the LLP without further assurance, act or deed. Accordingly, if a CA audit firm, being an auditor in a company under the companies Act, 1956, gets converted into an LLP after complying with relevant provisions of the LLP Act, 2008, then such an LLP, in accordance with the provisions of section 58(4)(b) of the LLP Act, 2008 would be deemed to be the auditor of the said company. Reference is also drawn to the notification number SO 1152(E) dated 23rd May, 2011 and General Circular 30A dated 26th May, 2011 of the Ministry in this regard. The relevant appointee company may take note of such change in status of the auditor through a resolution of the Board. The concerned stakeholders, Registrar of Companies, and the appointee companies should take note of the above clarifications and comply accordingly.

In the President’s message to the Members on page 1820 of CA Journal, it is stated that the CA Firms may now convert into LLPs. However, he has not clarified whether under the Companies Act, 1956, a LLP can audit the accounts of a company. In the P. N. Shah H. N. Motiwalla Chartered Accountants icai and its members Companies Bill, 2012, as passed by the Lok Sabha in December, 2012, there is a specific provision in Section 139 that LLP, in which majority of partners are Chartered Accountants, can be appointed as statutory auditor. There is no similar provision in the existing Companies Act.

Further, there is no exemption from Capital Gains Tax if a CA Firm is converted into LLP. Sections 47(xiii) and 47(x iii b) of the Income tax Act provide for exemption in cases of conversion of a Firm into company or conversion of a company into LLP subject to certain conditions. There is no similar provision giving exemption to a Firm converting itself into LLP. Therefore, it is not clear as to how the above notification of MCA can be put into practice.

2. General Management and Communication Skills. ( GMCS)

On page 1821 of CA Journal for June, 2013, ICAI has made the following announcement for students.

ICAI has always been conscious of the fact that the students pursuing CA Course who are potential members of the profession, must undergo the rigorous practical training and also develop an all-round personality so as to meet the contemporary challenges of the economic environment. As a consequence, ICAI had recently implemented the decision to impart GMCS Course in two parts. The Board of Studies has completely revised the syllabus for both the courses and brought out the new training material both for the students and the trainers. A number of programmers are also being organised for the trainers throughout the country. This would also ensure the standardisation in the delivery of the course throughout the country. The GMCS fee has been increased from Rs.4,000/- to Rs.5,500/- per participant per course, to be conducted from 1st July, 2013 onwards.

3. Recognition of Expenditure incurred on Branding and Advertisement.

EAC opinion

Facts :
The company is engaged in the business of news paper publishing and radio broadcasting. The company operates through the different brand names. The company is one of the leading media houses of the country. Being in the media industry, the brand/goodwill of the products of the company is of utmost importance as that is the major driving factor behind the growth. To become successful, it is very important to build the strong goodwill in the market, particularly in the times of slow-down in the economy.

The Company has stated that during the efforts to build the brand/goodwill, the company undertakes various activities. The company incurs substantial amount of expenditure on these activities which are necessary to build the brand in public, which is the key to success in the business. The benefits of such expenses are accrued to the company for a period of more than one year and sometimes, these extend to a longer period. The goodwill/brand developed through these activities also helps the company to attract new customers for long term.

Query :
The company has sought the opinion of the Expert Advisory Committee (EAC) on deferring and amortising the branding expenses over the future years instead of charging the same in the year when these were incurred.

Opinion:
The Committee notes the definition of the term ‘asset’ as contained in paragraph 49 of the ‘Framework for the Preparation and Presentation of Financial Statements’, issued by the Institute of Chartered Accountants of India, and after considering paragraphs 35, 36, 50, 51 and 56 of AS 26, it is of the view that taking into account the specific provisions of the Standard, the said expenditure on branding and advertising cannot be recognised as an asset, though it may be providing future economic benefits to the enterprise. Accordingly, such expenditure should be charged off to the statement of profit and loss of the period in which it is incurred. [Refer Pages 1865 and 1866 of C.A. Journal for June, 2013.]

4. ICAI News

(Note: Page Numbers given below are from CA Journal of June, 2013)

(i) Insurance Protection for Members and CA Fir ms.

ICAI has arranged insurance protection for members in practice/firms in the form of specially designed professional indemnity insurance at a reasonable premium i.e. 85% discount in market rate. The scheme has become effective from 12th March, 2013 for the Members in practice/Firms of the ICAI.

The policy covers all sums which the insured professional becomes legally liable to pay as damages to third party in respect of any error and/or omission on his/her part committed whilst rendering professional service. Legal cost and expenses incurred in defense of the case, with the prior consent of the insurance company, are also payable, subject to the overall limit of indemnity selected.

Only civil liability claims are covered. Any liability arising out of any criminal act or act committed in violation of any law or ordinance is not covered.

(ii) New Branches of ICAI

The following five Branches of ICAI have been established. With this addition, there are 133 Branches of ICAI in India now. (P. 1961-1963)

(a) Kishangarh (Rajasthan) – CIRC.
(b) Jhansi (UP) – CIRC
(c) Chittorgah (Rajasthan) – CIRC
(d) Satara (Maharashtra) – WIRC
(e) Navsari (Maharashtra) – WIRC

(iii) New Publications of ICAI

(a) Guidance Note on Report u/s 92E of the Income tax Act (Revised)
(b) Technical Guide to Audit in a Shared Service Centre Structure (P.1970)
(c) Technical Guide on Internal Audit of Pharmaceutical Industry (P 1971).

Society News

Workshop on ‘How to conduct a Tax Audit’, 2nd August 2013

L to R: Mr. Himanshu Kishnadwala (Speaker), Ms. Nina Kapasi (Speaker), Mr. Gautam Nayak, Mr. Naushad Panjwani (President) and Mr. Jagdish Punjabi

The Taxation Committee at BCAS had organised a full-day workshop for students and fresh Chartered Accountants on “How to conduct a Tax Audit”. This workshop was intended to revisit the nuances of Tax Audit in light of the revised Guidance Note issued by the ICAI as well as the e-filing procedures recently prescribed. The speakers amplified the knowledge of the audience with their rich experience and case studies.

Himanshu V. Kishnadwala

Overview and expert

observations on the
audit-

related clauses of
Form 3CD

including the recent
guidance

note issued by the
ICAI

Anil J. Sathe

Overview and expert

observations on the
tax-related

clauses of Form 3CD
including

the recent guidance
note issued

by the ICAI

Sonalee A. Godbole

Tax Audit – Clause – 12A to 21, 25

to 27

Nina P. Kapasi

Discussion on 3CD Clauses – 1 to

12, 22-24

Samir L. Kapadia

E-filing of Tax Audit Report

The Brains Trust session chaired by the Trustees Anil J. Sathe and Himanshu V. Kishnadwala was very ably managed with a threadbare analysis of the provisions of law vis-a-vis the question bank circulated to the participants. Nina P. Kapasi and Sonalee A. Godbole covered all the clauses of Form 3CD with examples and solutions for practical issues faced while conducting such audit. The handy tips and virtual experience of e-filing of the Tax Audit report conducted by Samir L. Kapadia was very interesting and the audience had a large number of queries sorted out in this session. For the

first time, a practical demonstration was given for e-filing of the tax audit report which was appreciated. Considering the popularity of this workshop held in the past, this year a bigger venue was chosen in the western suburbs (Vile Parle) wherein more than 400 participants benefitted from the workshop.

The video recording of the same is available at www.bcasonline.tv to all subscribers.

Tree Plantation-Visit to Dharampur, 2nd August 2013

The Human Resource Committee of the Society, in their pursuit to contribute to the conservation of nature and rural economic development, organised a tree-plantation programme at Dharampur – Pindval on 2nd and 3rd August 2013, with the support of the Sarvodaya Parivar Trust.

This was a landmark project of planting about 25,000 trees of different types with the twin purpose of developing Gram Vans on village land (to take care of environmental crises) as well as carrying out captive plantation on the land of farmers.

The members of BCAS and their friends donated generously for the project in their endeavour to contribute to this noble task. The group of 15 members from BCAS, looking ahead for active participation in the venture, visited Dharampur.

They distributed 1,500 saplings of mango trees to the farmers. Along with the farmers of village, they planted some mango trees. It was indeed a most satisfying feeling to be with those farmers on the field for a few hours and touch the roots of their life.

They had also great opportunity of sparing time at Nandigram and had a chance of sharing time with Smt. Kundanikaben Kapadia who is the founder trustee of Nandigram. Along with the earlier efforst of Respected Late Shri Makarandbhai Dave, she has also dedicated her life for the upliftment of this tribal area.

We learned about the fantastic contribution of these NGOs towards rural economic development, nursery developments, healthcare, education, environment and water management, among other areas.

It was an excellent, enriching, elevating and divine experience for the participants.

17th International Tax & Finance Conference, 2013

The 17th Residential International Tax & Finance Conference organised by the International Taxation Committee from 15th August to 18th August 2013 at ITC Rajputana, Jaipur, received an enthusiastic response from over 180 participants from various parts of India including Hyderabad, Bangalore, Chennai, Coimbatore, Delhi, Ahmedabad, Pune, Goa, Secunderabad, Jamnagar, Kolkata and Mumbai.

The following papers were presented by eminent faculties:

Papers for Group Discussion

• Recent trend in Indian Treaties including Tax Information Exchange Agreements by Mr. T. P. Ostwal who analysed recent trends in Indian tax treaties in respect of various topics such as taxation of partnership firms, persons covered, appropriate adjustments arising from transfer pricing additions, anti-abuse provisions, user-based royalty, service PE and automatic review of treaty provisions. The faculty also dealt with Tax Information Exchange Agreements including Foreseeable relevance and concept of Fishing Expedition.

• FII, Participatory Notes, Private Equity – Structuring, regulatory and taxation aspects by Mr. Siddharth Shah who dealt with regulatory framework of foreign investment into India such as FDI, FVCI, FII & QFI, indirect FDI, FVCI investment into VCF, FII regulations, FII investment under FDI route, investment in NCDs, Participatory Notes and Derivative Instruments, domestic PE investments, structuring for PE funds and key taxation issues.

• Cross border outsourcing— Tax aspects including transfer pricing—Case Studies by Mr. Padamchand Khincha who analysed intricate issues in respect of outbound outsourcing such as interplay of sections 5 and 9, detailed analysis of section 9, treaty provisions, other relevant areas of concerns such as reimbursement of expenses whether taxable as FTS, location savings, employee secondment or deputation, body shopping and transfer pricing.

• Cross Border Merger/ Demerger—Tax and relevant regulatory aspects by Mr. Pranav Sayta who presented intricate case studies involving issues such as indirect transfer, investments structured by way of CCPS or CCD, taxation of dividend, inbound and outbound mergers and demerger of a PE by a foreign company.

Papers for Presentation

• Real estate investment in India—Structuring, regulatory and taxation aspects presented by Mr. Nishchal Joshipura who covered regulatory milestones, various investment regimes, types of instruments, FDI policy on real estate, permitted investments, NCD structure & comparison with CCD, FII vs. QFI, Singapore listing, regulatory & tax challenges and key structuring issues.

• The Foreign Account Tax Compliance Act (FATCA) of the US including Bilateral FATCA Agreements presented by Mr. Sunil Kothare on behalf of Mr. David Weisner where the learned faculties highlighted key provisions of the FATCA and implications in India.

The participants gained rich knowledge from the knowledge and experience shared by eminent faculties, group discussions and informal interactions. The audience also appreciated the overall ambience and comfort at the venue.

Representation

13th August 2013
To,
The Hon’ble Chairperson
Central Board of Direct Taxes
North Block, Parliament Street,
New Delhi – 110001.

Madam,

subject : Representation in respect of hardships likely to be faced by assessees in respect of returns of income for AY 2013-14

We wish to draw your attention to the hardships likely to be caused while filing Return of Income for Assessment year 2013-14 and give our suggestions for your kind consideration:

1. Hardships in respect of Electronic furnishing of the report of audit under section 44AB, 92E or 115JB of the Act

1.1 Proviso to Rule 12(2) of the Income-tax Rules, 1961 [the Rules], inserted by IT (Third Amdt.) Rules, 2013 notified on 1-5-2013 w.r.e.f. 1-4-2013, provided as under:

“Provided that where an assessee is required to furnish a report of audit under section 44AB, 92E or 115JB of the Act, he shall furnish the same electronically.”

1.2 After the notification, the forms and the utility files were hosted on the efiling website in the month of July 2013 and have undergone several changes. After each change, an assessee, who has partly filled in a report but has not uploaded it, is required to re-feed the entire data, verify and then upload in the latest version for the report to be furnished on the website.

1.3 Considering the time involved in re-entering the voluminous data in the specified format for uploading the reports in Form 3CD, considerable time will be required by each assessee / tax practitioner / Chartered Accountant to upload a tax audit report.

1.4 In addition, there are many issues / difficulties in filling in the various clauses / columns of electronic Form 3CD, which requires immediate attention and clarification. For example:

i) Attachment of the Financial Statements – It is not clear as to whether the Financial Statements to be attached MUST BE A SCANNED COPY of manually signed statements or a PDF file digitally signed will be treated as sufficient compliance.

ii) Clause 14 – Depreciation – There is no column to give details of additional depreciation. Whether date wise details of all the minor items of additions to fixed assets are to be given? This data could run into a few thousands for many businesses, and would take substantial time to reenter. Is there any limitation on the number of items one can enter?

iii) Clause 15 – Under sub clauses a) & b) is it necessary to select each section & put ‘0’ in the amounts column if there is nothing to report under this clause? Or can we simply skip filling any information in this clause?

iv) Clause 17 & 17A – Under sub clauses a) & b), h)B) of Clause 17 & Clause 17A, it is normal practice to give appropriate comments by the assessee / tax auditor. But for e filing form, the space provided is not sufficient. So in that case is it proper for the assessee tax auditor to keep the appropriate comments / remarks / explanation in the hard copy but in the online form we only fill “NIL’ or ‘0’?

v) Clause 19 – Under this clause whether we have to select each section and fill NIL ‘0’ or we can skip filling this clause, if there is no information to be reported?

vi) Clause 21 – Under sub clause (i)(B) (b), normally the Tax Auditor fills the information till the date of signing of the Audit Report. If the payment is made after the date of Audit Report but before the due date of filing ITR u/s 139(1) of the Act the same is allowed u/s 43B of the Act. Now if the Tax Audit Report is signed on 20.6.2013 and the amounts unpaid are shown under the above sub clause and the Form 3CD is being uploaded on 16.8.2013, by which time the said amounts have already been paid, what information should be filled in this sub clause? Further suppose the payment is not yet made, and the Form 3CD is uploaded on 16.8.2013 and the assessee makes the payment after 16.8.2013 but before 30.9.2013, and while uploading the ITR does not disallow the amounts u/s 43B of the Act, will there be a problem of disallowance while processing the ITR by CPC, Bengaluru?

vii) Clause 24 – Under sub clauses a) & b) if the loan is accepted or repaid by way of any journal / transfer entry or electronic funds transfer, the remark to that effect is given in Tax Auditor’s report. However, in the e filing of the Form 3CD, the assessee/ tax auditor has to only state whether the amount was accepted / repaid by otherwise than by account payee cheque or demand draft, and options available are only ‘Yes’ or ‘No’. In this case, selection of option ‘No’ without appropriate remarks may lead to penal proceedings under the Act.

viii) Clause 27 – Under sub clause a), the tax auditor normally gives the appropriate remarks/comments/explanation in this regard. But in the online form 3CD, only ‘Yes’ or ‘No’ options are provided under this sub clause. So in that case is it proper that in tax auditor’s hard copy he keeps the appropriate remarks / comments / explanation, but in the online form he only fills “Yes’ or ‘No’?

ix) Clause 27-Sub clause b)(ii) – Besides the normal short deduction, a Tax Auditor normally reports the cases wherein the tax is deducted under wrong section resulting in short deduction, e.g. if tax is deducted u/s 194C instead of u/s 194J. However, in the online form 3CD, short deduction only in the respective section can be reported. Under these circumstances, how does one report the fact of short deduction due to wrong section?

x) Clause 27 – Sub clause b)(iii) – In addition to the late deduction, the tax auditor normally gives the information about tax deducted but paid late i.e. after the due date of payment. However, there is no such option in the online form 3CD. In that case is it proper that the tax auditor gives this information in the hard copy but no reporting is done in the online form3CD?

xi) Clause 27 (b)(iv) – Normally nowadays there is no such situation wherein tax is deducted but not paid to the Central Govt. as in such a situation the entire expense gets disallowed. However, it is possible that till conclusion of the Tax Audit Report, the TDS may not have been paid. So in a situation wherein the Tax Audit Report is finalized on 20.6.2013, and under this clause a default is reported. Till uploading of the online Form 3CD, say on 16.8.2013, the TDS is not paid. The assessee pays the TDS after 16.8.2013 but before 30.9.2013 and uploads the ITR without disallowing any amount U/S 40(a)(ia). What will be the consequences?

xii) Clause 28 – This clause deals with quantitative details. In case of Trading / Manufacturing Unit normally the data is available. But if the same is not available, the tax auditor simply reports “Information Not Available”. Now the questions are 1) If the data is not available at all till uploading of the report, can a tax auditor skip this clause? 2) If the data is made available after signing of the Tax Audit Report but before uploading the Form 3CD, whether the same should be filled in? In that case, whether the signed Tax Audit Report needs to be revised?

xiii) Clause 28(b)(A) – In case of manufacturing assessees, if yield is more than 100%, the utility does not accept it.

xiv) Clause 32 – In case of service industry or professionals, normally the tax auditors report states that “The activity of the assessee is neither trading nor manufacturing – as such these ratios are not applicable.”

In the online filing there is no space for this comment. In this situation can a tax auditor simply skip this clause? In that case, is it proper that a tax auditor gives this statement in the hard copy but no reporting is done in the online form3CD?

xv) In addition, many other clauses of Form 3CD need appropriate disclosures by way of Notes etc. No disclosure can be made unless space is provided in required fields, e.g. Disclosure of section 145A, Payments made by cheque or bank draft for section 40A(3), 269SS and 269T, etc.

xvi) The Annexure II is still part of the Form 3CD. However, from A.Y. 2010-11 the provisions of FBT are made ineffective. The online Form 3CD also does not provide this Annexure II. What is the exact position? Are tax auditors supposed to report NIL under this annexure? Normally, tax auditors report NIL and the fact that provisions of FBT are made ineffective from A.Y. 2010-11 is also reported.

1.5 Certain voluminous data needs to be keyed in into the utility, such as asset wise addition to fixed assets, which would take a considerable amount of time for many assessees. Presently, no software is readily available which will automatically convert existing tax audit reports in word or excel format into xml files.

1.6 Suggestions

a. In view of the above difficulties/issues, it is suggested that the requirement of furnishing report of audit electronically be made applicable from Assessment Year 2014-15 (i.e. next year) onwards, by which time appropriate software would be available for conversion.

b. Alternatively, the due date for furnishing the report of audit be extended to 31st December 2013 instead of 30th September 2013 (i.e. extension of three months for furnishing the report), while the return can still be uploaded by the due date of 30th September/30th November, as the case may be.

c. Clarification should be issued immediately in respect of various issues arising in respect of electronic filing of Form 3CA/3CB/3CD, as pointed out above.

2. Schedule AL in Form ITR-3 & ITR-4

2.1 From Assessment Year 2013-14, in Return Forms ITR 3 and ITR 4, an additional Schedule AL is inserted. In cases, where the assessee’s total income exceeds Rs. 25 Lakh, he is required to disclose the cost of certain assets, which are not business assets, which includes cost of Land, building, balance in bank, shares and securities, Insurance policies, loans and advances given, cash in hand, jewellery, bullion, drawings, painting, vehicles, yachts, air crafts, etc.

2.2 There are various issues / difficulties in giving the cost of certain assets mentioned above, some of which are as under:

i) Insurance policies: What is the meaning of ‘cost’ of life insurance policy? Whether bonus to be included? It is not clear whether the premiums paid, or the surrender value or the maturity value is to be mentioned. Premiums may have been paid by either parent or spouse, and may not necessarily have been paid by the assessee. It is not clear as to what the cost should be taken as in such cases. Whether only life insurance or also general insurance?

In cases of partial cash back received, whether cost to be reduced? By amount of cash back or proportionately?

ii) Land/ building and Jewellery / bullion: These may have been acquired by way of gift or inheritance. The cost would be zero in such cases. In case of self acquired assets, the exact cost may not be known if the property is old and same is not shown in personal Balance Sheet of the assessee. It is also not clear whether it includes property agreed to be purchased – possession & conveyance pending? Whether includes property agreed to be purchased & possession taken – conveyance pending? Cost – whether payment yet to be made to be included? In relation to Cost – whether includes stamp duty, registration fee, transfer fee, brokerage? Whether pre-EMI interest on housing loan forms part of cost? Whether interest on loan for purchase of land forms part of cost? All this need clarification.

iii) Archaeological Collections, Drawings, Paintings, Sculptures, Works of Art: Many works of art may have been received as gifts, etc. from friends or relatives. The schedule does not draw any distinction between works of art costing a few hundred rupees, and works of art costing a few thousand rupees. Assessees may not have details of the cost of inexpensive works of art. It is also not clear whether the following have to be included:

• Stamp Collections

• Coins/Currency Note Collections

• Valuable Old Edition Books, Maps

• Photographic Collections etc.

iv) Deposit in banks: It is not clear whether the Savings bank balances to be mentioned have to be – as per bank passbook/ statements or as per personal accounts of assessee? Fixed Deposits – whether interest accrued to be added? PPF Account/ Senior Citizens Savings Scheme Account with banks – whether to be included? Whether Post Office MIS Deposits or Savings Accounts to be included?

v) Loans and Advances given: Interest bearing as well as interest free loans to be taken.

Whether to include loans to partnership firm by partner? Advances for purchase of property/other assets – whether to be taken?

vi) Whether in case of non-residents, foreign assets and liabilities are to be included in this schedule? How to disclose assets received as gift/inheritance?

In addition, there are various other practical difficulties in filling up this schedule.

2.3 Suggestions:

a. It is therefore strongly suggested that further thought needs to be given to the applicability of this schedule and hence Schedule AL should not be mandatory for Assessment Year 2013-14.

b. Schedule AL should be made applicable from Assessment Year 2014-15 to all taxpayers with income exceeding Rs. 50 lakh.

c. Clarifications should be issued in respect of various issues in this regard particularly, what is meant by cost in different situations, with an additional column of remarks in the ITR, so that the assessee can make appropriate disclosure.

3. Today there is no provision for making disclosure of certain debatable claims while filing the income tax returns. At times, this gives rise to unnecessary litigation regarding levy of penalty u/s.271(1)(c) for concealment. In such cases, though there is no intention to conceal, no disclosure can be made on account of the e return format.

Just as in the case of tax audit report, where scanned copies of signed accounts have to be annexed, provision should also be made in the e return for attaching a pdf statement making disclosures which the assessee desires to make. This will avoid unnecessary litigation.

In view of above, we therefore request you to grant extension of time for filing Report u/s 44AB & 115JB at the earliest, to defer the applicability of the Schedule AL to AY 2014-15 and to permit filing of disclosures in pdf format as attachments to the e return. Your early action in this regard shall be highly appreciated.

Yours truly,

For Bombay Chartered Accountants’ Society

Naushad Panjwani
President

Gautam Nayak
Chairman
Taxation Committee

ICAI and its members

1. Code of Ethics:

The Ethical Standards Board of ICAI has given answers to some ethical issues raised by our members. These are published on pages 226 to 228 of C. A. Journal for August, 2013. Some of these issues are as under:

Issue:

What is Code of Ethics?

Every profession has its own Code of Ethics. The Chartered Accountants Act, 1949 has been enacted by Parliament for the regulation of the profession of Chartered Accountants and for the purpose of carrying out the object of the Act, the Chartered Accountants Regulations, 1988 have been enacted. The Act has two schedules i.e., First Schedule and Second Schedule.

The first Schedule has four parts:

Part I – Professional misconduct in relation to Chartered Accountants in Practice.

Part II – Professional misconduct in relation to Members of the Institute in Service.

Part III – Professional misconduct in relation to Members of the Institute generally.

Part IV – Other Misconduct in relation to the Members of the Institute generally.

The Second Schedule has three parts:

Part I – Professional misconduct in relation to Chartered Accountants in Practice.

Part II – Professional misconduct in relation to Members of the Institute generally.

Part III – Other misconduct in relation to members of the Institute generally

These two schedules along with the decisions of the Courts on profession misconducts, decisions, directions, guidelines, statement, clarifications and also interpretations of the Council on the various clauses of these two schedules constitute the Code of Ethics for the accountancy profession.

Issue:

What is Professional or other misconduct?

Section 2 of the Act defines professional or other misconduct as follows:

For the purposes of this Act, the expression “professional or other misconduct” shall be deemed to include any act or omission specified in any of the Schedules, but nothing in this section shall be constructed to limit or abridged in any way the power conferred or duty cast on the Director (Discipline) u/s.s. (1) of Section 21 to inquire into the conduct of any members of the Institute under any other circumstances.

What constitutes “misconduct under any other circumstances” has to be determined on a caseto- case basis keeping in view the facts of the circumstances of each case. Fraud, intention to deceive and committing an act which affects the public or society at large could be in the ambit of such misconduct. Following are few examples of “misconduct under any other circumstances” by a member:

1. Conviction by a competent Court for an offence involving moral turpitude punishable with imprisonment or for an offence not of a technical nature committed by a member in his professional capacity.

2. Retention of books and documents of the client and failure to return these to the client on request without a reasonable cause.

3. Material misrepresentation e.g. misrepresenting to a firm, while seeking employment as an accountant, that he has worked for three years as a senior assistant with another firm.

4. Publishing an advertisement in a newspaper with mala fide intention to malign any person.

5. Using objectionable, derogatory and abusive language or/and making irrelevant, incoherent, irresponsible and insane statements in his correspondence with a person.

Issue:
Whether a member in practice is permitted to undertake the management of NRI funds?

No, the member is not permitted to undertake such assignment because the same is not covered under “Management Consultancy and Other Services” permitted to be rendered by the practicing members of the Institute.

Issue:

Can a Chartered Accountant provide ‘Portfolio Management Services’ (PMS) as part of CA practice?

No, the Explanation to Clause (xix) of the definition of “Management Consultancy and other Services” expressly bars the activities of broking, underwriting and Portfolio Management.

Issue:

Whether a Chartered Accountant in practice is not required to obtain any trade license for practicing?

No, a Chartered Accountant in practice is not required to obtain any trade license for practicing as a professional. The certificate issued by the Institute is the only requirement to practice as a Chartered Accountant.

Issue:

Can a Chartered Accountant in practice work as a Collection Agent/Recovery Agent?

No, a Chartered Accountant in practice cannot work as a Collection Agent. However, he can act as a Recovery Consultant as provided in clause (xxv) of “Management Consultancy and other Services”.

2. EAC Opinion:

Adjustment of losses on Sale of Fixed Assets, Writing-Off Inventory and Doubtful receivables against Capital Reserves Arising Out of Acquisition of Business, Capital Redemption Reserves and Revaluation Reserves.

Facts
A company (hereinafter referred to as ‘the company’) is a 50:50 joint venture between two companies. The company is in the business of manufacture and sale of power/telecom cable joining kits, transformers, gas meters, energy meters & corrosion protection products and providing services. During the financial year 2010- 11 (i.e., w.e.f. 24th September, 2010), the company acquired the energy business, consisting of manufacture and sale of connectors, fittings and insulation products from another company, ‘A’ Pvt. Ltd, Bangalore, on a going concern basis under slump sale agreement. Based on valuation report from an independent valuer, the company has recognised fixed assets, inventories and liabilities at fair value and a capital reserve of Rs. 1476.72 lakh being excess of assets acquired over purchase consideration paid. A part from the above-mentioned capital reserve, the company also has capital redemption reserve and revaluation reserve in its books as on 31-03- 2011. This break-up is as follows:

Rs. in lakh

Capital reserve created as above 1,476.72
Revaluation reserve 82.17
Capital redemption reserve 250.00

1,808.89

2. During the financial year 2012-13, the company has passed the following two entries by debiting the above capital reserve:

(i) Non-moving inventory acquired out of the above acquisition amounting to Rs. 1,06,813.10 written off by debiting the above capital reserve.
(ii) Fixed assets acquired out of the above acquisition have been scrapped and loss amounting to Rs. 1,04,117.81 has been debited to the above capital reserve.

Query
In this context, the querist has sought the opinion of the EAC as to whether the correct accounting treatment has been applied by the company by debiting the above-mentioned reserves as per the provisions of the Accounting Standards and the Companies Act or any other law?

Opinion:
The Committee noted that the basic issue raised by the querist relates to adjustment of losses on sale/disposal of fixed assets, writing-off inventories and old and doubtful receivables against capital reserves created from business acquisition, and capital redemption reserves and revaluation reserves already standing in the books of the company.

The Committee notes that the Companies Act, 1956, does not specifically contain any provision for utilisation of capital reserve and revaluation reserve, Further, the Companies Act, 1956, does not envisage utilisation of capital redemption reserve for writing-off losses on sale of fixed assets as well as for writing-off inventory and doubtful receivables.

As regards accounting for non-moving inventories, the Committee is of the view that these represent obsolescence of inventories which would be reflected in the determination of net realisable value of the inventories. In the context of writing down the inventories to their net realisable value, the Committee after considering paragraphs 5 and 12 of Accounting Standard (AS) 5, ‘Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies’, notified under the ‘Rules’, is of the view that write-off of non-moving inventory should be included in the statement of profit and loss.

Further, as regards write-off of inventories due to shortages observed in the acquisition of business and writing off of old and doubtful receivables, the Committee is of the view that these represent losses. The Committee after considering paragraphs of the Framework for the Preparation and Presentation of Financial Statements, issued by the Institute of Chartered Accountants of India, is of the view that losses also represent expenses and accordingly, these should be charged to the statement of profit and loss as per the requirements of paragraph 5 of AS 5.

Accordingly, the Committee is of the view that any write-off of inventories and receivables cannot be adjusted against capital reserves, capital redemption reserves and revaluation reserves.

[Please refer to pages 263 to 265 of C.A. Journal, August vbn, 2013]

3. ICAI News:

a) Non-applicability of SA 700 on Tax Audit Reports:

The members are well aware that all audit reports in respect of audits of financial statements for the period beginning on or after 1st April, 2012 have to be issued in accordance with the requirement of SA 700 (Revised) – “Forming on opinion and Reporting on Financial Statements”. The ICAI has clarified that since all the tax audit reports i.e., Form No./3CA/3CB are now mandatorily required to be filed online and that format of tax audit report is prescribed by the Central Government requires suitable changes in the forms, the applicability of SA 700 (Revised) on tax audit report is deferred by one year.

[Refer Page 203 & 204 of C. A. Journal, August, 2013]

b) Examination Results:

Results of C. A. final and CPT examinations held in May, 2013 have been declared in July 2013. The details of percentage of candidates passed along with percentage are given below:

[Refer pages 329 & 330 of C. A. Journal, August, 2013]

c) Certificate course on concurrent Audit of Banks:

Members can take advantage of certificate course conducted by ICAI on Concurrent Audit of banks

[For details, refer Page 341 of C. A. Journal, August, 2013]

d) New ICAI Publications:

i) Compendium of Implementation Guides to Engagements and Quality Control Standard

ii) Implementation Guide to Standard on Auditing (SA) 501 “Audit Evidence – Specific Consideration for Selected Items”

iii) Compendium of Technical Guides on Internal Audit (Five volumes)

iv) Compendium of Standards on Internal Audit

[Please refer pages 347 & 348 of C.A. Journal, August, 2013]

Lecture Meeting

Inquiry by ROC u/s 234 of Companies Act, 27th February 2013, at the Indian Merchants’ Chamber

Mr. C. V. Sajeevan, Deputy Director Inspection, Registrar of Companies (ROC), explained provisions of Section 234 and 234A of the Companies Act 1956, which deal with the power of the Registrar to call for information and seizure of documents respectively. He also elaborated circumstances that may lead to inspection u/s. 209 or investigation u/s. 235 or 237. The learned faculty also responded to questions on the subject raised by members of the audience which included senior members of the profession. The webcast of the meeting is available on BCAS Web TV to the subscribers.

Direct Tax Provisions of the Finance Bill, 2013, 4th March 2013, at the Yogi Sabhagrah, Dadar, Mumbai

Mr. S. E. Dastur, Senior Advocate, addressed this annual lecture meeting on Direct Tax Provisions of the Finance Bill, 2013 with an audience of over 2,500 packed in the auditorium and many more through Live Webcast that witnessed approx. 4,800 Log-ins. In this landmark 25th annual meeting on the Finance Bill, Mr. Dastur presented a masterly and meticulous analysis of the various direct tax proposals of the Finance Bill 2013 which was blended with wit and humour. The live webcast attracted viewers from 65 cities including cities outside India from countries such as Bahrain, Germany, Netherlands, New Zealand, Romania, Singapore, the UK and the US. The webcast of the meeting is available free on BCAS Web TV for everyone.

Indirect Tax Provisions of the Finance Bill, 2013 jointly with Forum of Free Enterprise on 6th March 2013, at the Indian Merchants’ Chamber

Ms. Bhavana Doshi, Chartered Accountant, and Mr. Dadi B. Engineer, Solicitor and Advocate, analysed various Indirect Tax provisions of the Finance Bill, 2013 at this lecture meeting held jointly with the Forum of Free Enterprise. The audience included many young professionals and senior members of the profession who gained immensely from the analytical insights given by the learned speakers.

Service Tax and Other Indirect Tax Provisions of the Finance Bill, 2013 on 13th March 2013, at the Indian Merchants’ Chamber

Mr. Vikram Nankani, Advocate, presented an expert analysis of Service Tax and various other Indirect Tax provisions of the Finance Bill, 2013 at this lecture meeting to an audience of approx. 250 present, which benefitted from the critical analysis presented by the Learned Speaker. The Webcast of the meeting is available on BCAS Web TV to the subscribers.

Other Programmes

Seminar on SAP Security Audit & Control, 21st & 22nd February 2013, at the Society’s Office

The Infotech & 4i Committee organised this workshop on new and emerging areas, where the following Learned Faculties explained various aspects of SAP Security Audit & Control.

Topics	coverage	Speakers
SAP Audit & Control Overview	SAP Environment & Audit Challenges SAP Control & Risks	Mr. Babu Jayendran, IIT, CA, CISA
User Management, Authorisations	SAP Authorisation Concept & Challenges Roles,Authorisation Objects, Authorisation Values Segregation of Duties Access Control	Girish B S, Post Graduate Diploma in Advance Systems Management from NIIT
Security	Overview BASIS Audit (sample audit checklist)
Business Process Audit & Challenges	Finance: Audit & Control Purchase to Pay Cycle: Audit & Control Order to Cash Cycle: Audit & Control Inventory: Audit & Control Retail Business Process, GRC 10 Concepts	Mr. Babu Jayendran, IIT, CA, CISA & Mr. Ravi Kumar, B.E. ( Computer Science)

The workshop received enthusiastic response from 49 participants, including members from the Industry as well as the Profession, who appreciated the wealth of knowledge and experience shared by the Learned Faculties.

Workshop on Partnership of Firms, 23rd February 2013, at the Society Office

The Indirect Taxes & Allied Laws Committee organised this workshop where the Learned Faculties dealt with various aspects of Formation, Registration and Taxation of Partnership Firms.

Faculty	Topic
Mr. Chandrashekhar N. Vaze, CA	Drafting of Partnership Deeds
Mr. Uday V. Sathaye, CA	Procedural Aspects
Mr. Manish Shah, cA	Taxation of Firm

The participants appreciated the immense knowledge and experience shared by the Learned Faculties.

Workshop on Continuous Control Monitoring, 12th March 2013, at the Hotel Orchid, Mumbai

The Accounting & Auditing Committee organised this workshop where the following Learned Faculties explained various aspects of Continuous Control Monitoring, with focus on Internal Audit as a Tool.

• Mr. Andrew Simpson, Chief Operating Officer, Caseware RCM Inc

• Mr. Deepjee Singhal, Chartered Accountant

The participants appreciated the valuable knowledge and experience shared by the Learned Faculties.

Indirect Taxes

10. ST 3-Due date for October to March 13 extended to 10th September, 2013 Order No. 4/2013-ST

Due to difficulties faced by some assesses in uploading the offline utilities, due date for submission of the Form ST-3 for the period from 1st October 2012 to 31st March 2013, has been extended from 31st August, 2013 to 10th September, 2013.

MVAT UPDATE

11.Amendments in Audit Form 704

Notification No VAT/AMD-2013 /1B/Adm-8 dated 23-08-2013

Vide this notification amendments are made in MVAT Audit Form 704.

12.TDS Return to be E-filed

Notification No VAT/AMD-2013/1B/Adm-8 dated 01- 07-2013

Vide this notification, it is provided that return in Form 424 regarding TDS shall be uploaded in electronic form.

13.Norms to qualify as Tribunal Member relaxed

Notification No VAT-1513/CR.96/Taxation-1 dated 07-08-2013

Vide this notification, eligibility requirement for appointment of tribunal member is changed. Now a person who has for a continuous period of not less than two years (earlier three years) held an office, not below the rank of Joint Commissioner of Sales Tax, in the Sales Tax Department of the State Government can be appointed as tribunal member.

14.Administrative Instructions in respect of Assessment/ Audit Plan for the periods 2006-07 to 2010-11

Circular No. 10A OF 2013 dated 28-08-2013

The Commissioner has given administrative instructions in respect of assessment and audit plan for the periods 2006-07 to 2010-11.

Indirect Taxes

SERVICE TAX UPDATE
Reg. Exemption for services provided in SEZ for authorised operations

61. Notification No. 12/2013 – Service Tax dated 01-07-2013

This notification has been issued in supersession of earlier Notification No. 40/2012 dated 20th June, 2012 to provide exemption from whole of the service tax for services provided to SEZ unit or Developer of SEZ and used for authorised operations. This exemption shall be provided either by way of refund of service tax paid on the specified services received by the SEZ Unit for the authorised operations or ab initio exemption to the person liable to pay service tax subject to the conditions and procedures prescribed in detail in the said notification. SEZ Unit has also been given the option not to avail the exemption under this notification and instead take CENVAT credit on the specified services in accordance with the CENVAT Credit Rules, 2004.

MVAT UPDATE

62. Amendments to the Maharashtra Value Added Tax Act, 2002. Trade Circular 4T of 2013 dated 26-06-2013

In this circular, the Commissioner has briefly explained the salient features of the amendments in the MVAT Act, 2002 by Maharashtra Act No. VIII of 2013 dated 20-04-2013.

Representation

7th January 2013

To,
Mr. P. Chidambaram Finance Minister Government of India, North Block, Vijay Chowk, New Delhi – 110 001.

Dear Sir,

Sub: Pre-Budget Memorandum 2013-14

We take this opportunity to present a Pre-Budget Memorandum on Direct Taxes with a request to consider the same while framing proposals in Finance Bill, 2013 for amendments to the Income-tax Act 1961.

We request your honour to consider the suggestions favourably. We will be pleased to present ourselves for any explanation and clarification that may be required by your honour.

Thanking you,
We remain,

Yours truly,
For Bombay Chartered Accountants ’ Society
Deepak R. Shah
President
Gautam S. Nayak
Chairman, Taxation Committee

Pre budget suggestions, 2013-14 On direct tax laws

Index

Sr. No.	Particulars	Page Nos.
1	Amendments required in Section 10(23FB)	2
2	Representation on Section 40A(2)(a)	3
3	Amendments required in Section 47(xiii), (xiiib) and (xiv)	6
4	Deemed speculation loss in case of companies – Explanation to Sec 73	6
5	Provisions Relating to Gift: Section 2(24)(xv) & 56(2)(vii)	7
6	Taxation of Share Premium – Section 56(2)(viib)	8
7	Tax on Long Term Capital Gains-Section 112(1)(c)(iii)-Clarification required	9
8	Tax on Distributed Profits-Sec 115-O – Effect on Non-Resident shareholder	11
9	Increase in threshold limit for TDS – Section 194A	11
10	TDS in respect of Payment to Nonresidents– Section 195(7)	11
11	Clarification required through an amendment to the provisions of Section 269SS & Section 269T	12

Substantial Amendments

1. Amendments required in Section 10(23FB)
1.1 SEBI has notified the SEBI (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”) replacing the extant SEBI (Venture Capital Funds) Regulations, 1996 (“VCF Regulations”) w.e.f May 21, 2012.

1.2 Every fund established in India for the purpose of pooling moneys from investors, Indian or foreign, on a private basis, for investing it further shall fall within the ambit of the AIF Regulations and would have to be registered under these regulations; unless a fund has been specifically excluded in the said regulations.

1.3 With the intention of distinguishing the investment criteria and relevant regulatory concessions that are allowed to AIFs, SEBI has classified AIFs into three categories. The following are the three categories of AIFs: Category I AIF [Venture Capital Fund (VCF), Social Venture Fund, SME Fund, Infrastructure Fund, Other Funds which have a positive spillover effect on the economy]; Category II AIF [Private Equity Fund, Debt Fund, Real Estate Fund] and Category III AIF [Hedge Fund].

1.4 Prior to 2007, VCFs that were registered with SEBI under the VCF Regulations were provided a tax “pass-through” benefit on their entire income. Under Section 10 (23FB) read with Section 115U of the Indian Incometax Act, 1961 (“ITA”), the income of a venture capital fund was exempt from tax in the hands of the fund and was only taxable in the hands of the investors of the fund.

1.5 In 2007, the ITA was amended and this tax “pass-through” benefit was restricted only to income from venture capital undertakings that operated in nine specified sectors. However, in a welcome move, the Finance Act, 2012, has once again reverted to the pre-2007 position by extending this tax “pass-through” benefit to income of a venture capital fund arising from investment in any venture capital undertaking, regardless of the sector in which the venture capital undertaking operates.

1.6 The PE and VC industry lauded this move as a step in the right direction and it was expected that this benefit was to be extended to all AIFs as well. This also appeared to be SEBI’s intent, as gathered from the previous version of the AIF Regulations which specified that SEBI “may represent that similar provision for tax pass through may be provided for AIFs once the VCF Regulations are repealed and the AIF Regulations are notified”. However, at this stage, unfortunately neither the Finance Act, 2012 nor the AIF Regulations extend clarity as to whether the much desired ‘pass-through’ will be available to other categories of AIF other than Category I, for which the AIF Regulation specifically clarify the eligibility under section 10(23FB) of the Income-tax Act, 1961. The assured pass-through is almost a must and right on top of the expectations from the Industry.

A spill-over effect of this restrictive interpretation may also mean that the provisions of section 56(2)(viib) inserted by the Finance Act, 2012, to tax consideration received by a company for issue of shares which exceeds fair market value, will also apply where the payer is a Category II AIF or a Category III AIF. The Finance Act, 2012 has exempted, from such levy, payments made by a “venture capital fund” to a “venture capital undertaking”, an exemption which, given the lack of clarity, may now apply only to Category I AIFs.

1.7 Further, section 10(23FB) of the Income-tax Act has not been amended to refer to AIF Category I Funds, instead of VCFs. Also, the benefit of the pass-through is available only to the income from VCUs. Most Funds also invest their funds in bank deposits, pending investment in companies, and therefore have interest income. This results in a peculiar situation where part of the income by way of bank interest is taxed in the hands of the Fund, while the other income from VCUs is taxed in the hands of the investors.

1.8 It is therefore, strongly suggested that section 10(23FB) should be suitably amended to:

a.    replace the reference to VCFs by AIFs;

b.    extend the provisions to category II & category III AIFs;

c.    extend the pass through status to all income of an AIF.

1.9 Similarly, clause (i) of the proviso to section 56(2)(viib) should be suitably amended to extend the exemption to category II & category III AIFs also.

2. Representation on Section 40A(2)(a)

2.1 The Finance Act, 1968 had introduced a new section 40A in the Income-tax Act, 1961 (‘ITA’) with effect from 1 April 1968. Section 40A(2) provides that an expenditure incurred in business or profession for which payment has been or is to be made to the tax-payer’s relatives or associate concerns is liable to be disallowed in computing the profits of the business or profession to the extent the expenditure is considered to be excessive or unreasonable. The reasonableness of any expenditure is to be judged having regard to the fair market value of the goods, services or facilities for which the payment is made for the legitimate needs of the business or profession or the benefit delivered by, or accruing to, the tax-payer from the expenditure. Such portion of the expenditure which, in the opinion of the Income-tax Officer, is excessive or unreasonable is to be disallowed in computing the profits of the business or profession.

2.2 The Section was inserted with the object to check evasion of tax through excessive or unreasonable payments to relative or any other specified person. The relevant extracts of the Departmental Circular – Circular No. 6-P, Dated 6-7-1968, whereby this Section was introduced, are as under: “Where payment for any expenditure is found to have been made to a relative or associate concern falling within the specified categories, it will be necessary for the Income-tax Officer to scrutinise the reasonableness of the expenditure with reference to the criteria mentioned in the section.

The Income-tax Officer is expected to exercise his judgment in a reasonable and fair manner. It should be borne in mind that the provision is meant to check evasion of tax through excessive or unreasonable payments to relatives and associate concerns and should not be applied in a manner which will cause hardship in bona fide cases.”

2.3 The Assessing officer had all discretion to ensure that payment made or expenditure incurred is based on fair market rates and hence there was no warrant to amend the stated position.

2.4 With the recent insertion of Proviso to sub section (2)(a) of Section 40A by the Finance Act, 2012, w.e.f. 1-4-2013, no disallowance under this clause on account of expenditure being excessive or unreasonable having regard to the fair market value of good, services or facilities shall be made in respect of Specified Domestic Transaction [SDT] referred to in section 92BA, if such transaction is at arm’s length price (‘ALP’) as defined in clause (ii) of section 92F. Hence, with the insertion of this proviso, the section has extended the applicability of the specific concept of arm’s length price instead of a fair market value to determine the value of domestic related party transactions.

2.5 The principles of ALP as propagated by OECD in the context of International Transfer Pricing are purely theoretical and far from reality.

All the methods recommended to achieve results are based on the data base available in public domain, which does not exist and such results are used for Rent-seeking and causes undue harassment to the taxpayers and also increases the compliance costs on the tax payer.

2.6 The limit of payment in excess of Rs. 5 crores is absolutely unrealistic and burdensome as such payment would include even purchase of goods.

2.7 The Administration in India even is not geared up to handle such matters as the law requires reference to T.P.O. which is a specialized wing, which does not exist all over India.

2.8 Finally, domestic Transfer Pricing provisions are introduced in various jurisdictions which are concerned with allocation of Income-tax between Federal and State Governments. India does not have such a system of taxation. In India, Income-tax is recovered only under an all India enactment, administered by Central Government alone and hence there is no allocation of taxing rights granted to various States. It is only after collection of taxes, such collections are distributed amongst the States based on the recommendations of Finance Commission and this has been working well. If at all Domestic Transfer Pricing provisions are required then the principle to be followed should be to ensure that payment made by one tax payer, to another should be subject to full taxation at maximum marginal rate and there should not be any arbitrary apportionment to save taxes. If that is achieved, then the tax officer and tax payer should not be overburdened with compliance of documentation requirement.

2.9 It is therefore strongly recommended that only the transactions of purchase and sale of goods and services should be subject to benchmarking in accordance with the arm’s length methods prescribed under Indian Transfer Pricing regulations. Hence such provisions could be restricted to tax payers availing Chapter VIA deductions or exemptions u/s 10AA but should not be extended to payments covered by Section 40A(2) of the ITA. However, the extension of these provisions to all expenditure incurred by tax-payer on payments to its relatives or associate concerns leads to absurdity. One cannot determine the arm’s length price that should have been paid on various transactions, since the payment may be based on various factors and considerations, like the business market scenario, competition, each individual’s experiences, intellect, etc.

2.10 A few such examples have been listed below, wherein the benchmarking of such transactions may be impossible using arm’s length principle:

a) Managerial Remuneration

b) Services provided free of cost by tax holiday units

c) Applicability of SDT to Companies falling under Presumptive taxation

d) Allocation of expenses between the group entities, following consistent principles and allocation keys

e) Joint Development Agreement

f) Project Management Fees

g) ESOP

h) Corporate Guarantees for the group entities

i) Maintenance and Administrative charged and shares services

Alternatively, it is also suggested:

2.11 The second proviso to Section 92C(4) permits single track adjustment and prohibits consequential adjustment in the hands of the other party. This provision is made applicable to SDT as well. As a result, disallowance of expenditure in the hands of one related party does not mean that there would be co-relative reduction in the hands of recipient. Recipient will be assessed with reference to actual income as earned, even assuming entire expenditure is disallowed in hands of related party. This approach of revenue will lead to unjust enrichment of the State at the cost of the innocent taxpayer.

2.12 It is recommended that even if the above provisions are made applicable and deduction on account of payment to a related party is reduced by application of SDT provisions, the related party’s income should also automatically stand reduced to that extent.

3. Amendments required in Section 47(xiii), (xiiib) and (xiv)

3.1 Section 47 contains provisions in respect of Transactions not regarded as ‘transfer’ for the purposes of capital gains.

3.2 Section 47(xiii) provides that any transfer of a capital asset or intangible asset by a firm to a company as a result of succession of the firm by a company in the business carried on by the firm, would be an exempt transfer:

provided that the aggregate of the shareholding in the company of the partners of the firm is not less than fifty per cent of the total voting power in the company and their shareholding continues to be as such for a period of five years from the date of the succession;

3.3 A similar condition regarding period of five years is provided in section 47(xiiib) and Section 47(xiv).

3.4 It is submitted that in today’s fast changing business environment, no useful purpose is being served by keeping a long period of five years for continuing shareholding.

3.5 It is, therefore, strongly suggested that the period of continuing shareholding should be reduced to 2 years from 5 years presently prescribed. This would help the reorganisation / restructuring of small and medium enterprises without fear of losing the exemption.

4. Deemed speculation loss in case of companies – Explanation to Section 73

4.1 As per the provisions of section 73 of the Act, any loss, computed in respect of a speculation business carried on by the assessee, cannot be set off except against profits and gains, if any, of another speculation business.

4.2 As per Explanation 2 to section 28 of the Act, where speculative transactions carried on by an assessee are of a nature so as to constitute a business, the business (referred to as “speculation business”) shall be deemed to be distinct and separate from any other business.

4.3 As per Section 43(5) of the Act, “speculative transaction” means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips.

4.4 Accordingly, speculative business is normally understood as business in respect of transactions where settlement takes place without actual delivery.

4.5 However, as per Explanation to section 73 of the Act, where any part of the business of a company (other than a company whose gross total income consists mainly of income which is chargeable under the heads, “Interest on securities”, “Income from house property”, “Capital gains” and “Income from other sources” or the company the principal business of which is the business of banking or the granting of loans and advances) consists in the purchase and sale of shares of other companies, such company shall be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares.

4.6 Accordingly, as per the Explanation to Section 73, in case of most companies, even delivery based share transactions are deemed to be speculative. The present provisions deeming even delivery based purchase and sale of shares as speculative business discriminate between corporate and non-corporate assessees.

4.7 Automation of the trading mechanism, screen based trading, controls on reporting of capital market transactions by share brokers, submission of AIRs, dematerialization and other measures initiated by SEBI over the last few years have brought total transparency in share trading, leaving little scope for manipulation of share trades by transfer of profits/losses from one person to another. In any case, corporates are more regulated compared to non-corporates and hence, disadvantage to companies in terms of the discriminatory tax provision as described above can hardly be justified.

4.8 The need of the hour is to encourage corporatisation which could bring about more transparency and healthy business practices. However, the present provisions act as a disincentive for corporatisation.

4.9 Further, when derivatives which are in the nature of speculative transactions are not considered as speculative transactions, there is no logic in continuing the deeming fiction of treating the transactions in shares entered into by a company as speculative transactions.

4.10 It is, therefore, suggested that the aforesaid Explanation to section 73 of the Act be deleted.

5. Provisions Relating to Gift: Section 2(24)(xv) & 56(2)(vii)

5.1 As per Section 56(2)(vii) and Section 2(24) (xv), any receipt in the nature of gift, subject to certain exceptions, is taxed as income if the aggregate receipts during the year exceed Rs. 50,000/-. Similarly, receipt of certain specified assets without any consideration or for consideration less than fair market value, is also taxed as income, if the difference between the fair market value and the consideration is more than Rs. 50,000/-.

5.2 The gift related provisions were sought to be introduced twice over in the past – but were, for valid reasons, withdrawn after due consideration.

5.3 The Government should not be shy of reconsidering the wisdom and should restore the earlier position. Therefore, the earlier position whereby gifts were not taxed in the hands of the donees unless the said gifts were proved to be bogus should be restored.

5.4 Measures of Rationalisation

In case for any reason, the provision has to remain on the statute, it should be rationalised appropriately. The measures of rationalization suggested are as under:

A) The following receipts should be exempted from the charge:

a) Any receipt which is in the nature of damages or accident compensation or which is received on compassionate grounds.

b) Any receipt which is in the nature of prize or reward for performance at state, national or international level.

c) Any receipt, which is not in the nature of a gift.

d) Such other receipts as may be notified by the CBDT.

B) Further, there is an anomaly in the existing provisions in as much as a gift received by a person from his father’s brother is exempted from tax but if the same person (i.e. the nephew) makes a gift to his father’s brother, then the latter would have to pay tax on the gifted amount if the aggregate gifts received by him exceed Rs. 50,000 in a year. This anomaly needs to be removed immediately.

C) An unintended outcome of the amendment made to Section 56 by the Taxation Laws (Amendment) Act, 2006 is that if a person receives gifts aggregating to more than Rs. 50,000 in a year from persons other than relatives then the entire amount of gifts would be taxed as income in his hands instead of only the amount in excess of Rs. 50,000. It is suggested in order to avoid ambiguity and resulting disputes and litigation, the section be amended to clearly lay down a basic threshold limit for exemption of Rs. 50,000 per year.

6. Taxation of Share Premium – Section 56(2)(viib)

6.1 A new clause (viib) has been added to section 56(2) by the Finance Act, 2012, under which the share premium received by a closely held company from a resident in excess of the fair market value of the shares is deemed to be the income of the company. The fair market value has to be substantiated based on the value of the assets of the company or as per the prescribed method. Exemption has been provided to amounts received by a venture capital undertaking from a venture capital fund or a venture capital company.

6.2 It appears that this provision is intended to target the practice of obtaining investment in a company at a high premium in exchange for other favours granted by the promoters of such company, through the other positions held by them. It is submitted that such misuse has been by only a few companies, but the remedy provided would adversely affect a significantly large number of promising companies all over the country.

6.3 This provision will seriously impact genuine small start-ups and other small and medium-size companies looking to grow rapidly, particularly in the services sector, which depend upon angel investors or private equity funds for their funding. Such funding normally depends upon future prospects of the company, rather than the current value of the assets of the company. This provision would completely destroy the developing culture of angel investors and private equity funds funding promising entrepreneurs, who have the skills, but very few assets.

6.4 There are already sufficient safeguards under section 68 to tax undisclosed income received by companies in the form of share capital. Further, the GAAR provisions are sufficient to check such misuse. It is therefore suggested that such a harsh provision should be deleted.

6.5 Alternatively, an exemption should be provided for such shares allotted at a premium, where the shares are held by the allottee for not less than 3 years from the date of allotment.

7. Tax on Long Term Capital Gains – Section 112(1)(c) (iii) – Clarification required

7.1 Clauses (ii) & (iii) of Section 112(1)(c) substituted by Finance Act, 2012 reads as under:

“(ii) the amount of income-tax calculated on long-term capital gains [except where such gain arises from transfer of capital asset referred to in sub-clause (iii)] at the rate of twenty per cent; and

(iii) the amount of income-tax on long-term capital gains arising from the transfer of a capital asset, being unlisted securities, calculated at the rate of ten per cent on the capital gains in respect of such asset as computed without giving effect to the first and second proviso to section 48;”

7.2 Circular No. 3/2012, dated June 12, 2012 containing Supplementary Memorandum Explaining the Official Amendments moved to the Finance Bill, 2012 as reflected in the Finance Act, 2012, clarifies in this regard as under:

“Concessional rate of taxation on long term capital gain in case of non-resident investors Currently, under the Income-tax Act, a long term capital gain arising from sale of unlisted securities in the case of Foreign Institutional Investors (FIIs) is taxed at the rate of 10% without giving benefit of indexation or of currency fluctuation.

In the case of other non-resident investors, including Private Equity investors, such capital gains are taxable at the rate of 20% with the benefit of currency fluctuation but without indexation. In order to give parity to such non-resident investors, the Finance Act reduces the rate of tax on long term capital gains arising from transfer of unlisted securities from 20% to 10% on the gains computed without giving benefit of currency fluctuations and indexation by amending section 112 of the Income-tax Act.”

7.3 Explanation to Section 112 defines securities, listed securities and unlisted securities as under:

“(a) the expression “securities” shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (32 of 1956);

(aa) “listed securities” means the securities which are listed on any recognised stock exchange in India;

(ab) “unlisted securities” means securities other than listed securities;”

7.4 Section 2(h) of the Securities Contracts (Regulation) Act, 1956 [SCRA] defines ‘Securities’ as under:

(h) “securities” include –

(i) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate; …..”

7.5 Thus, the intention of the legislature, as clearly mentioned in the memorandum explaining the aforesaid provisions, is to give parity in the case of other non-resident investors [other than the FIIs], including Private Equity investors, where long term capital gains are taxable at the rate of 20% with the benefit of currency fluctuation but without indexation, by reducing the rate of tax on long term capital gains arising from transfer of unlisted securities from 20% to 10% on the gains computed without giving benefit of currency fluctuations and indexation by amending section 112 of the Income-tax Act.

7.6 Based on the literal interpretation of the definition of securities as per SCRA, only shares which are ‘marketable’ i.e. freely transferable, in the nature are covered under the Act. Thus, since the shares of a private company normally have restrictions on the free transferability of shares, they would fail to meet the ‘marketable’ test and hence may not be covered within the ambit if the definition of unlisted securities and would be liable for the higher rate of tax of 20% instead of 10%, as provided in the newly inserted clause (iii) of section 112(1)(c).

7.7 A large number of non-resident investors including private equity investors [other than FIIs] invest in the shares of private limited companies and the aforesaid provisions of section 112(1)(c)(iii) should be applicable to them. However, in view of the import of the definition of securities from SCRA and appearance of the word ‘marketable’, the benefit of the lower rate of tax @ 10% could be denied in such cases, which is contrary to the purpose and intention of insertion of aforesaid clause (iii).

7.8 It is therefore, strongly suggested that suitable amendments should be made to clearly provide that even in the cases of transfer of shares of private limited companies resulting in long term capital gains, the rate of tax applicable would be 10% and not 20%. This would avoid unnecessary and costly litigation and provided much need clarity to the non-residents.

8. Tax on Distributed Profits – Section 115-O – Effect on Non-Resident shareholder

Tax on distributed profits is the liability of the company. Therefore, non-resident shareholders find it difficult to get credit of such tax in tax assessments in their respective countries especially when there is no direct or indirect provision for such credit either in the domestic law of their countries or in the relevant Double Tax Avoidance Agreement. In view of this, effectively, this method of collecting tax on dividend results in a benefit to the Government of the country of the non-resident rather than the non-resident investor. It is therefore, suggested that appropriate specific provisions should be made in the Act to treat such DDT as tax on dividend receipt of non-resident shareholders.

9. Increase in threshold limit for TDS – Section 194A

The threshold limits in respect of payments not subject to deduction of tax at source should be reviewed every 3 years, and should be revised upwards taking into account the impact of inflation. In particular, the limits of Rs. 5,000 and Rs. 10,000 under section 194A for interest have not been revised since June 2007 though limits under other sections were increased in July 2010. It is, therefore, suggested that these limits be revised upwards to Rs. 15,000 and Rs. 30,000 respectively.

10. Tax Deduction at Source in respect of Payment to Non-residents – Section 195(7)

10.1 The new sub-section 195(7) inserted by Fin ance Act, 2012 provides as under:

“(7) Notwithstanding anything contained in sub-section (1) and sub-section (2), the Board may, by notification in the Official Gazette, specify a class of persons or cases, where the person responsible for paying to a non-resident, not being a company, or to a foreign company, any sum, whether or not chargeable under the provisions of this Act, shall make an application to the Assessing Officer to determine, by general or special order, the appropriate proportion of sum chargeable, and upon such determination, tax shall be deducted under sub-section (1) on that proportion of the sum which is so chargeable.”[Emphasis supplied]

10.2 From the language of the aforesaid sub-section, it is evident that the same is self contradictory and would lead to further litigation in respect of an issue which has been very well settled by the Supreme Court that where the sum payable to a non-resident is not chargeable to income-tax in India, there is no question of deduction of tax source from the same, at the time of making payment to the non-resident.

10.3 It is not quite clear as to how an assessing officer can, by a general or special order, ‘determine the appropriate proportion of sum chargeable’ where the sum is ‘not chargeable under the provisions of this Act’, as provided in the sub-section 7.

10.4 It is strongly suggested that the Board should not be empowered to notify those cases where the sum payable to a non-resident is not chargeable to tax in India under the Act. Otherwise, the same would lead to avoidable harassment, hardships and would also lead to delays in payments and litigation.

11. Clarification required through an amendment to the provisions of Section 269SS & Section 269T

11.1 The provisions of Section 269SS were introduced for deterring taxpayers from introducing unaccounted money by way of small loans or deposits in cash in their activities. But the Section provides that if deposits or loans are accept by a mode other than account payee cheque or demand draft the provision shall be attracted resulting in imposition of penalty u/s 271D. The clarification circular that was issued by CBDT following the introduction of section 269SS had clearly stated that the provisions were introduced to deter attempts to explain sources of cash deposits or loans or to offer an explanation for apparently unaccounted cash found during a search.

11.2 Lately however, there is a tendency among Assessing Officers [AOs] to invoke the provisions for payments made or settlements effected by other mode like Real Time Gross Settlement [RTGS] National Electronic Funds Transfer [NEFT] and direct wire transfers and to even transfer by journal entries within the sister concerns for normal and effective business needs. The AOs take a very narrow view that such transfers are not by way of a/c payee cheques or Demand Drafts [DDs] for various reasons overlooking the fundamental fact that the source of the money/fund or finance involved is fully accounted for. The AO is solely guided by the fact that the quantum of transfer is large and he should avoid any career risk and most of the times for rent seeking.

11.3 The quantum being usually big results in a large tax/penalty demand that prompts the AO and supervisory authorities to go for coercive recoveries. The large quantum involved also weighs very heavy in the mind of CIT(A) as well. A number of courts and ITAT have held the issue in favour of the taxpayer. For example, the Delhi ITAT in the case of Ruchika Chemicals 88 TTJ 85 clearly held that Section 269SS does not apply to transfer or journal entries. The Delhi High Court [HC] decision in Noida Toll Bridge 262 ITR 260 in this regard has been accepted by the Department and no SLP had been filed. But this stand of the Dept has not been circulated. Present day complex and competitive business compels business entities to transfer funds, rights or liabilities and lack of clarity compels the AO to penalize the business entity even for a genuine business transaction.

11.4 Taxpayers are facing equally hard times in respect of the provisions of Section 269T, that mandates mode of repayment of loans or deposits, violation of which leads to imposition of penalty u/s 271E. If a business credit is squared off or settled by a journal entry, AOs are interpreting it as a repayment of a loan /deposit not by the prescribed mode and hence imposing penalty.

11.5 So common business or trade practices authorized by Accounting Standards are treated as violations of statutory provisions, leading to imposition of penalties, affecting a business entity very drastically. The confusion apparently has been created by incorrect interpretation of different court decisions. In CIT v/s Noida Toll Bridge Co. Ltd., the Delhi HC held clearly that merely because payment was settled by a book entry and not by the mode prescribed u/s 269SS, penalty u/s 271D cannot be attracted. The HC held that this provision shall be attracted only if payment is made in cash. The said decision is accepted by the Dept and no SLP has been filed. But unfortunately this has not been brought to the notice of the officers of the department.

11.6 Subsequently the Bombay HC decided in the case CIT vs Triumph International Finance Ltd. 345 ITR 273 in respect of Section 269T and Section 271E. The HC gave the opinion that repayment of a loan/deposit through journal entries did violate the provisions of Section 269T. However, if it is done for business requirement, that would be a reasonable cause u/s 273B for not imposing penalty u/s 271E. If the AO fails to give a finding that it was not for a business requirement, penalty cannot be levied. But unfortunately AOs tend to come to such a conclusion without giving any finding on facts. They are overawed by the quantum involved or the number of entrees. So either way the Tax payer is hard pressed for recovery and forced to go through various layers of appeal from the department point of view of the entire process only leads to creation of very high uncollectible demands, till the level of appeals before the HC.

11.7 It is therefore strongly suggested that a clarificatory circular as a sequel to the one issued by the CBDT while introducing Section 269SS may be issued that the provisions shall not apply to transfer or journal entries transferring funds, financial rights or liabilities. A similar clarification in respect of repayment of loan or deposit referred to in Section 269T also needs to be issued. The existing circular even did not consider fund transfers by RTGS/NEFT or transfer from one account to another and mentioned only of cheques and DDs and that perhaps has created the confusion. If however, it is decided by the CBDT that the desired clarification can be brought about only by an amendment of the provision, it is submitted that it should be effected at the earliest available opportunity so that the hardship caused to business entities is set to rest at the earliest.

Lecture Meetings

Subject : Developments in Accounting Standards—In India and Globally

Speaker : Shri Narendra P. Sarda
Day and Date : Wednesday, 4th September, 2013
Venue : K. C. College, Mumbai

Objective of the lecture: To take participants through a journey of the world of accounting developments internationally and in India.

The speaker first dealt broadly with the journey of Accounting Standards formation in India:

Year 1973 – IASC was formed

Year 1977 – ICAI issued the Preface to Accounting Standards.

Year 1977-1993 – 15 Accounting Standards were notified. The pace was slow as India was an insulated economy.

Year 1993-2000 – This was a period of lull, when there were no new AS notified.

Year 2000 – There was a pressure from regulators to keep pace with the international developments in the accounting world, as India had liberalised its policies and there was expectation from the international community to have financial statements prepared at par with international best practices.

Year 2000-2007 – New Accounting Standards formulated included standards on Consolidation, Segment Reporting, Related Parties, etc. There were not only recognition standards, but also standards on disclosures.

Year 2007 – As India was moving fast towards raising resources from foreign countries and there was a flow of foreign companies setting up operations in India, there was a debate as to whether IFRS should be adopted in totality or whether there should be convergence with IFRS. India decided to converge with IFRS.

The speaker highlighted that 95% of countries have decided to converge with IFRS. He also detailed the difference of adoption and convergence with IFRS.

Adoption – Adopt IFRS in totality.

Convergence – Formulate these as such that they are almost on par with IFRS, with some departures considering local business and legal requirements.

Most of the countries in Europe apply IFRS only for Consolidated Financial Statements (CFS), whereas Standalone Financial Statements (SFS) are allowed to be prepared as per local GAAP.

The speaker was of the opinion that India should have done the same; however, India took a decision of applying converged Indian Accounting Standards to CFS as well as SFS.

A set of 35 converged Accounting Standards was prepared and NACAS reviewed the same and these have been put up on MCA’s website. However, the applicability of the same has not yet been announced.

The speaker informed that at present there are three sets of Accounting Standards in India.

• Converged Accounting Standards (IndAS), which are not yet applicable;

• Mandatory Accounting Standards, which are applicable as per the Companies Act, 1956; and

• ICAI-promulgated Accounting Standards, which are applicable to all the other entities.

The speaker then discussed the carve-outs in converged Accounting Standards (IndAS) which are not part of IFRS.

He listed and discussed in detail the carve-outs on the following standards:

• IndAS 21 – The Effects of Changes in Foreign Exchange Rates;

• IndAS103 – Business Combinations;

• IndAS 19 – Employee Benefits;

• IndAS 11 – Construction Contracts;

• IndAS101 – First Time Adoption of Indian Accounting Standards;

• IndAS 27 – Consolidated and Separate Financial Statements;

• IndAS 20 – Accounting for Government Grants and Disclosure of Government Assistance;

The speaker also informed the participants about the Revised Schedule VI which is based on IAS 1 and IndAS 1 – Presentation of Financial Statements. As per Revised Schedule VI, Accounting Standards are supreme and if there is any variance between the Revised Schedule VI and Accounting Standards, the Accounting Standards will have to be followed. In view of the same, AS-1 which was based on the Old Schedule VI has been under revision to fall in line with the reporting requirements as prescribed in Revised Schedule VI.

While dealing with the Financial Instruments standards, he brought out an interesting fact that IndAS 39–Financial Instruments–Recognition and Measurement is promulgated but not yet applicable. Similarly AS 30, 31 & 32 dealing with Financial Instruments are also not applicable. Hence at present only AS 13–Accounting for Investments is mandatory and there are no applicable standards for Derivative Contracts. However, on the concept of prudence, ICAI came out with an announcement for accounting and recognising losses on Derivative Contracts though there is no standard made applicable.

The speaker then dealt with the conceptual differences between IFRS and Indian Accounting Standards. He highlighted the main differences as follows:

• IFRS is more focused on Fair Value Accounting;

• Under IFRS, more importance is attached to the balance sheet, whereas in India, importance is to assess the profitability;

• IFRS provides importance to Time Value of Money and hence there is discounting approach;

• IFRS gives more importance to the substance of the transaction than to the form of the same; and

• IFRS is based more on judgments.

He also briefly discussed the draft Tax Accounting Standards (TAS) proposed by the Indian tax authorities. He said that the committee formed to prepare draft TAS, has identified 14 AS where there is a requirement to have separate TAS.

After discussing specifics of the Accounting Standards, the speaker dealt with global developments. He elaborated that earlier there was a competition in drafting Accounting Standards between US GAAP and IASB. However, of late, the approach is that of coordination. There are five specific areas where both the organisations are working on joint projects. The same are as follows:

• Financial Instruments;

• FV Measurement;

• Revenue Recognition;

• Lease Accounting; and

• Insurance Contracts.

He also dealt with the economic crisis of the year 2008, which made all the accounting bodies to accept the fact that there is a need for globally accepted Accounting Standards. There has to be more clarity and guidance for accounting and disclosure of Complex Financial Instruments and Off-Balance Sheet items should be examined thoroughly and to the maximum extent avoided.

Before concluding, he also provided an overview of the developments and progress on various joint projects between FASB and IASB.

The lecture was very well appreciated by the audience and concluded with a well deserved vote of thanks to the speaker.

ICAI and its members

1. Code of Ethics:

The Ethical Standards Board of ICAI has given answers to some ethical issues raised by our members. These are published on pages 388 to 390 of C. A. Journal for September, 2013. Some of these issues are as under:

Issue:
Can a Chartered Accountant in practice allow any person to practice in his name as a Chartered Accountant?

No, clause (1) of Part-I of the First Schedule to the CA Act prohibits a Chartered Accountant in practice to allow any person to practice in his name as a Chartered Accountant unless such person is also a Chartered Accountant in practice and is in partnership with or employed by him.

Issue:
Can a Chartered Accountant in practice pay to any person any share, commission or brokerage in the fees or profits of his professional business?

No, clause (2) of Part-I of the First Schedule to the CA Act prohibits a Chartered Accountant from paying or allowing any share, commission or brokerage in the fees or profits of his professional business, to any person other than a member of the Institute or a partner or a retired partner or the legal representative of the deceased partner or a member of any other professional body or with such other persons having such qualifications as may be prescribed, for the purpose of rendering such professional services from time to time in or outside India.

Issue:
Can a Chartered Accountant in practice share his fees with the Government in respect of Government Audit?

The Council considered the issue and while noting that the Government is asking auditors to deposit such percentage of their audit fee for recovering the administrative and other expenses incurred in the process, the Council decided that as such there is no bar in the Code of Ethics to accept such assignment wherein a percentage of professional fees is deducted by the Government to meet administrative and other expenditure.

Issue:
Can goodwill of a Chartered Accountant firm be purchased?

Yes. The Council of the Institute considered the issue whether the goodwill of a proprietary firm of a Chartered Accountant can be sold/transferred to another eligible member of the Institute, after the death of the proprietor concerned and came to the view that the same is permissible. Accordingly, the Council passed the Resolution that the sale/transfer of goodwill in the case of a proprietary firm of Chartered Accountants to another eligible member of the Institute, shall be permitted.

Issue:
Can a practicing Chartered Accountant secure any professional business through the services of a person who is not his employee or partner?

No, clause (5) of Part-I of the First Schedule to the C. A. Act prohibits a practicing Chartered Accountant from securing any professional business, either through the services of a person who is not an employee of such Chartered Accountants or who is not his partner.

Issue:
Can a practicing Chartered Accountant solicit clients or professional work by advertisement?

No. Clause (6) of Part-I of the First Schedule to the CA Act prohibits a practicing Chartered Accountant from soliciting clients or professional work either directly or indirectly by circular, advertisement, personal communication or interview or by any other means.

However, there are the following exceptions to it:

(i) A member can respond to tenders or enquiries issued by various users of professional services or organisations from time to time and securing professional work as a consequence.

(ii) A member may advertise changes in partnerships or dissolution of a firm, o r of any change in the address of practice and telephone numbers, the advertisement being limited to a bare statement of facts and consideration given to the appropriateness of the area of distribution of the newspaper or magazine and number of insertions.

(iii) A member is permitted to issue a classified advertisement in the Journal/Newspaper of the Institute intended to give information for sharing professional work on assignment basis or for seeking professional work on p a r t n e r s h i p basis or salaried employment in the field of accounting profession provided it only contains the accountant’s name, address, telephone, fax number and e-mail address.

Issue:
Whether member in practice is permitted to respond to announcement for empanelment for allotment of audit and other professional work and quote fees on enquiries being received?

It has been clarified by the Council under proviso (ii) to clause (6) of part-I of the first schedule of the CA Act that if announcements are made for empanelment by the Government, Corporations, Courts, Cooperative Societies, Banks and other similar institutions, members may respond to such announcements provided the existence of the panel is within their knowledge. The Council has further clarified that the quotations of fees can be sent, if enquiries are received by the members in this regard.

Issue:
Can a member in practice indicate in a book or an article, authored/contributed/published by him, his association with any firm of Chartered Accountants?

No, as per Para (e) under Clause(6) of Part I of First Schedule to the CA Act as appearing in the Code of Ethics, 2009, a member is not permitted to indicate in a book or an article, authored/contributed/ published by him, the association with any firm of Chartered Accountants.

EAC Opinion:

Amortisation of Land Right of Way:

Facts:
A company (hereinafter referred to as ‘the company’) is a Government company within the meaning of section 617 of the Companies Act, 1956. The shares of the company are listed with recognised stock exchanges. The company is engaged in the business of refining of crude oil and marketing of petroleum products. It has two refineries and lube blending/ filling plants. The company also has depots, installation and LPG plants across India, besides having administrative offices at Delhi, Chennai, Kolkata, Mumbai and other major cities.

The company owns pipelines for movement of petroleum products from one location to another for the purpose of stock transfer/sale. These pipelines are underground pipelines having sectionalising valve stations/intermediate pigging stations/ booster pumping stations in between. Products are pumped through these pipelines as and when movement of product is required and at any point of time, the pipeline is filled with the product. For the purpose of laying the pipelines, the company acquires ‘right of way’, i.e., right of use in land (ROU) under which such pipeline is to be laid. The right is acquired under the Petroleum and Minerals Pipelines (Acquisition of Right of User in a Land) Act, 1962, and vests absolutely with the company free from all encumbrances.

Though the ownership of the land under which the pipeline is laid continues with the land owner, the pipeline remains the property of the company. The company also has perpetual and absolute right to enter the land under which pipeline has been laid for the purpose of maintaining, examining, repairing, altering or removing any such pipeline or for doing any other acts necessary for any of the aforesaid purposes or for the utilisation of such pipeline. This enables the company to lay one or more pipelines. The land owner cannot construct any permanent structure or plant any tree having deep roots on this piece of land, though he can raise crops. According to the company, the ROU is an independent fixed asset as this right is absolute and perpetual as per the Petroleum and Minerals Pipelines (Acquisition of Right of User in Land) Act, 1962.

Query
In view of the above, the company has sought the opinion of the EAC on the issues: (i) Whether the current practice of the company not to amortise the land right of way as it is perennial in nature is correct; (ii) In case it is not correct, what should be the useful life to be considered for computing the amortisation in view of the fact that the right of way is perennial in nature?

Opinion
The Committee notes from the facts of the case and the Petroleum and Minerals Pipelines (Acquisition of Right of User in Land) Act, 1962 that the user’s right is restrictive for laying down and maintaining the pipelines and not unlimited for any purpose. Further, after considering AS–26 “Intangible Assets” particularly paragraph 68, the Committee is of the view that the useful life of an intangible asset is always finite, howsoever long and indefinite it may be. AS 26 does not justify non-amortisation; it only requires disclosures where the useful life is considered more than 10 years. It stipulates that the life has to be determined on a prudent and rational basis. The Committee also does not agree with the view of the company that the useful life of land right of way is infinite. In the view of the Committee, the useful life of the land right of way may be determined considering various technical, legal and economic factors, such as, useful life of petroleum reserves from which the petroleum products are being produced and then transported, technological changes in the transportation modes, alternative resources of energy, etc. The Committee is further of the view that as per the Standard, the useful life of the land right of way may be indefinite but it is not finite and, accordingly, the depreciable amount should be allocated on a systematic basis over the best estimate of its useful life. Therefore, the Committee is of the view that the current practice of the company not to amortise the land right of way is not correct. The Committee also wishes to point out that in case useful life of the intangible assets is determined to exceed more than 10 years, the company should provide reasons for such presumption as per the requirements of paragraph 94 of AS 26.

ICAI News:
The result of the Chartered Accountants Intermediate (IPC) Examination was declared on 31st July, 2013. The details of percentage of candidates passed in the said examinations are given below:

New Publications of ICAI

1. Handbook of Auditing Pronouncements 2013 Edition

2. Revised–Guidance Note on Report under Section 92E of the Income-tax Act, 1961 (Transfer Pricing)

3. Trends and patterns in Public Finance: Theoretical and Empirical Aspect.

4. Technical Guide on Auditing Waste Management.

Ethics and u

Gross negligence – Clause 7 of Part I of Second Schedule (contd.)

Series 5

Shrikrishna (S) –Arey Arjun, I am aware that this is the time of acute pressure of work for you. But why don’t you plan the work properly? Why such last minute rush every year?

Arjuna (A)– Hey Bhagwan! We are continuously into fire-fighting. There is no peaceful time at all! Every month, some deadline or the other. Our time-planning becomes a myth. The tax department also makes us dance to their tune any time.

S – Why? Don’t you have assistants? Why don’t you delegate some of the work?

A – Our trained articles always go on leave for exams exactly when we need them. Clients’ data is never ready when our staff is available.

S – Yours is a seasonal work due to common deadline for all tax-audits. So pressure is bound to be there. But in the Mahabharata War, it was fiercer. Death was constantly hovering around you. Still, you always looked fresh and cheerful.

A – True. But then, in that war, the fighting was only up to sunset. We could relax at nights. But in this war of tax-audits, we are fighting day and night.

S – But now everything is on computers. And there is e-filing. Then what is the problem?

A – This year, we need to upload our tax audit and other reports also. Upto last year, we were comfortable. After the returns were e-filed, we could peacefully complete the reports! Again, they are changing the forms and software every now and then. It is just chaotic!

S – You mean, fighting with a pen is more tiring than fighting with the bow and arrows. But, how do you ensure that the accounts you sign are alright?

A – Everything is Ram Bharose! Who has time to see all those things! Many of the audits we sign just like that! Now take these audits of other CA firms. All the partners of those firms are my good friends. Who has time to check their accounts? And it doesn’t look good also.

S – I remember, one Chartered Accountant signed another CA firm’s accounts in good faith like this. But unfortunately, in their scrutiny assessment, it was noticed that there was a small negative balance of cash on one day!

A – Oh God! Then what happened?

S – The tax officer simply forwarded it to your Institute as a case of negligence! Poor fellow suffered like anything.

A – But the regulation is too much. One friend of mine checked the accounts thoroughly. When that unit became NPA, the bank filed a complaint for negligence. It was revealed that he did not enquire about contingent liability. And there were many such liabilities of contingent nature. Taxation, labour litigations and what not!

S – Last time I told you, there is no end to the forms in which negligence takes place. Now, I am sure, all those company balance sheets you are signing now will carry a date of 31st August or 1st September. And I am also sure that in between, you must have sent e-mails about pending queries. That means you have created evidence of negligence against yourself!

A – No. You had once told me that a senior member of a very reputed firm was held guilty for such back-dating. So I take maximum care.

S – Good, another area of negligence is physical verification of fixed assets and stocks. Do you remember, in the Mahabharata, you used to take inventory of all weaponry—swords, bows, arrows, and also of horses, elephants, food grains and many other things. Are you doing it as an auditor?

A – We had studied all about stock-taking for the exam. In my friend’s enquiry of misconduct, there was no record at all of his ever visiting client’s office, or factory. No one from the auditor’s office ever went for stocks. And many items of machinery were not there. He used to just ‘rely on management’s certificate’.

S – I doubt whether he was obtaining any certificate. You people just mechanically mention in the report that you obtained certificates.

A – I agree. We are very much lax in taking the Management Representation Letter. I have heard stories of all such lapses being treated as misconduct.

S – Are you aware, nowadays, ROC’s inspection has been activated and there are many lapses in audit being reported? ROC is forwarding its observations directly to your Institute. And it is being treated as ‘information’ to initiate disciplinary proceedings.

A – Baap Re! I have heard many of my friends received notices from ROC’s office. They used to think that no one sees the audit reports of private limited companies. But what you say is alarming!

S – Another very important point—you people are under a sweet impression that if two directors sign the balance sheet, it is enough. But read section 215 of the Companies Act. It says what is necessary and important is the Board’s approval.

A – You had told me this once. But our friends sign in good faith, when even directors have not signed. And I know a case where the auditor signed it when only one director signed. Later on, the other director who was his brother, refused to sign the balance sheet. He wanted to take revenge on the CA since the CA had refused to take that director’s daughter as a ‘dummy’ article! So, one should never sign in good faith.

S – Quite strangely, many people argue that there was no mala fide intention. Remember, the Council is not concerned with your intentions but it wants to see whether you discharged the duties diligently. And quite often, those who claim to have clear conscience have a weak memory!

A – You started your philosophy again. Now I make a new year resolution from 1st October that I will prepare for next year’s audits right now!

S – That’s great! But let it not be the usual ‘New Year Resolution”!

Om Shanti !

Company Law

1) Commencement of Companies Act 2013:

The Companies Bill, 2012, received the President’s assent on 29th August 2013 and became the Companies Act, 2013 (new Act). The new Act was published in the Official Gazette on 30th August 2013. The same can be accessed at www.egazette.nic.in/WriteReadData/20 13/E_27_2013_425.pdf

Different sections of the new Act will become effective on different dates as may be appointed by the Central Government by notification in the Official Gazette. On 12th September 2013, the Ministry of Corporate Affairs (MCA) issued a Notification for commencement of 98 sections of the new Act, making them effective from 12th September 2013, the details of which areavailable on the MCA website.

The Ministry of Corporate Affairs has vide Circular 16/2013 Dated 18th September 2013 clarified that with effect from 12-9-2013, the relevant sections of the Companies Act 1956 which correspond to the 98 sections of the Companies Act 2013 brought into effect from 12-09-2013 have ceased to have effect from that date. The Circular can be accessed at www.mac.gov.in/pdf/ General_Circular_16_2013.pdf

The Ministry of Corporate Affairs has vide Circular No. 15 dated 13th September 2013, clarified that:

a) Section 2 (68) the Registrar of Companies may register those Memorandum and Articles of Association received till 11-09-2013 as per the definition clause of the Private Company under the Companies Act 1956 without referring to the definition of Private Company under the “said Act”.
b) Section 102 – Companies which have issued notices of General Meeting on or after 12-09-2013, the statement to be annexed to the Notice shall comply with additional requirements as prescribed in Section 102 of the Companies Act 2013.
c) Section 133 – Till the Standards of Accounting or any addendum thereto are prescribed by the Central Government, the existing Accounting Standards as notified under Companies Act 1956 shall continue to apply.
d) Section 180 – For notices for General Meeting issued prior to 12-09-2013, matters requiring special resolution under section 180 of the Companies Act 2013 as against ordinary resolution required under Companies Act 1956 may be passed in accordance to the requirement of Companies Act 1956.

2) Companies Removal of Difficulties Order 2013

The Ministry of Corporate Affairs has vide its Companies (Removal of Difficulties) Order 2013 dated 20th September 2013, notified for the transfer of all matters, proceedings or cases to the Tribunal constituted under Chapter XXVII of the Companies Act 2013, that the Board or Company Law Administration shall exercise the powers of the Tribunal under sections 24, 58 and 59 of the Act namely – section 24: Power of Securities and Exchange Board to regulate issue and transfer of securities, etc., and sections 58 and 59 pertaining to share capital and debentures: Refusal of registration and appeal against refusal and rectification of register of members respectively. The order can be accessed at

3) Relaxation of Last Date and Additional Fee in Filing E-Form 23C for Appointment of Cost Auditor

Vide general Circular No. 14/2013 dated 3rd September 2013, the Ministry of Corporate Affairs has decide to extend the last date of filing and to relax the additional fess applicable on e-form 23C up to 31st October 2013 i.e., the form can be filed up to 31st October 2013 or within 90 days of the commencement of a company’s financial year to which the appointment relates, whichever is later.

4) Draft Rules under the Companies Act 2013

The Ministry of Corporate Affairs has made the draft Rules for 16 chapters under the Companies Act 2013, live for public comments in the 1st phase to be received by 8th October 2013 and those in the 2nd Phase by 19th October 2013. The stakeholders can use the platform at www.ncbfeedback.mca.gov.in/ for providing their suggestions and comments on the draft rules.

INDEPENDENT DIRECTORS UNDER THE COMPANIES BIL, 2012

“Freethinkers are those who are willing to use their minds without
prejudice and without fearing to understand things that clash with their
own customs, privileges or beliefs. This state of mind is not common,
but it is essential for right thinking…”

— Leo Tolstoy

Introduction

Leo
Tolstoy captures the essence of independent thinking and maybe, it is
this essence which led companies across the globe to adopt and
incorporate the concept of appointment of independent directors on their
Boards. This concept was first introduced in the United States of
America and slowly spread across the globe, both in developed and
developing countries. The recent Companies Bill, 2012 (Bill) has made an
attempt to match the current global standard vis-à-vis appointment and
role of independent directors. This article makes an attempt to briefly
discuss the provisions relating to independent directors in the Bill and
provide a perspective on the laudatory efforts as well as the
shortcomings of the provisions.

Brief history of independent directors in India

The
importance and role of independent directors in the Indian scenario was
brought to the forefront by the Kumarmangalam Birla Committee (KBC) in
the year 1999. The recommendations of the KBC Report lead to the
introduction of Clause 49 of the Listing Agreement (which deals with
appointment and role of independent directors of listed companies) by
the Securities and Exchange Board of India (SEBI) in the year 2000.
Subsequently in 2003, another committee chaired by Mr. Narayan Murthy
suggested further changes to Clause 49 of the Listing Agreement and the
current clause is mostly based on the recommendations made by the
Narayan Murthy Committee (NMC). Another committee set up by the Ministry
of Corporate Affairs called the JJ Irani Committee in 2005 further
recommended certain changes contrary to those suggested by the NMC,
which were incorporated in the previous bills introduced in the
Parliament, in an attempt to replace the Companies Act, 1956 (Act).
Unfortunately, the Companies Bill, 2009 was not approved by the
Parliament and therefore, another attempt has been made to replace the
Act in 2012. In the meanwhile, the Ministry of Corporate Affairs had
also introduced some voluntary guidelines in 2009 relating to
independent directors, but since it did not have any binding effect,
many of these guidelines are not being followed by most of the
companies.

Companies Bill, 2012

Whilst a detailed
comprehensive analysis of all the provisions in the Bill relating to
independent directors is beyond the scope of this article, an effort has
been made to highlight some of the important provisions and discuss
their implications.

Qualifications and Neutrality

The
Bill has prescribed detailed qualification criteria for independent
directors, which were not set out in so much detail in the Listing
Agreement. It is evident from the provisions in the Bill regarding
independent directors that much emphasis has been placed on ensuring
complete independence of independent directors. The effect of these
provisions is to ensure that an independent director has neither any
relationship with or any interest in the company and/or its group
companies, nor is he incentivised by them in any manner, which may lead
to bias in favour of the company where he is so appointed. Certain
criteria which a person must satisfy in order to be eligible for
appointment as an independent director have been discussed below.

An
existing or past promoter, key managerial personnel, or employee of the
company or its holding/ subsidiary/ associate companies (Group
Companies) cannot be an independent director. Despite the wide
definition of associate companies, an argument may be made that this
restriction is reasonable, since promoters, key managerial personnel and
employees of these associate companies may have vested interests in the
company. However, the Bill also prohibits relatives of promoters and
directors of the company or it’s Group Companies from being independent
directors. Further, persons whose relatives are key managerial persons
or employees of the company or its Group Companies are also not
permitted to be independent directors. Considering the broad scope of
the definitions of the terms “relative” and “associate company”, the
list of people who are barred from being independent directors in listed
companies may become huge, especially if the group structure is
multilayered or complicated.

Another restriction in the Bill is
that the independent director, along with his relatives, may not hold
more than 2 % of the voting power of the company. It is not clear
whether indirect holdings (through companies controlled by the
director/relatives) would be aggregated or only direct holdings would be
considered for this purpose. In case of the former, identification of
all such entities/persons and verification of their shareholding in the
company would be an extremely tedious process and may lead to an
enormous work overload for the compliance/ secretarial teams.

An
independent director must not have had “any pecuniary relationship”
with the company, its Group Companies, or their promoters or directors
for a period of two years prior to appointment, or during his term. This
provision is significantly more restrictive than the requirements under
the Listing Agreement at present, which state that an independent
director must not have any material pecuniary relationship or
transaction, which could affect his independence. Therefore, minor
transactions and pecuniary relationships between the company and an
independent director currently do not disqualify him. The proposed ban
on any pecuniary relationship for independent directors in the Bill may
be unreasonably restrictive, as there are situations where a transaction
or relationship of the director may safely be considered to be of a
nature which cannot affect the director’s independence. For example, a
proposed director may have a standard fixed deposit with a banking
company, on the rates applicable to the general public, which may be
ordinarily considered to be a perfectly mundane and ordinary transaction
which cannot possibly lead to any bias. However, this would be
considered to be a pecuniary relationship with the banking company and
would prevent the person from being appointed as an independent
director. Also, the broad definition of the term “associate company”
further exacerbates the restrictive nature of the provision, which
prohibits pecuniary relationships with such companies as well as their
promoters and directors. A proposed independent director may have some
on-going transactions with a director of an associate company, which may
not contribute significantly to the director’s income, and even
otherwise, may not be very significant for him. However, due to the
provisions of the Bill, which prohibit “any pecuniary relationship”,
such a person is disqualified from being appointed as an independent
director.

Several other restrictions have been built into the
Bill to ensure that there is no financial nexus between the independent
director and the company. For example, the Bill prohibits independent
directors from receiving stock options of the company. This is also a
change from the provisions of Clause 49 of the Listing Agreement, read
with relevant SEBI regulations, under which independent directors are
presently allowed to hold stock options in the company. Apart from the
restriction on stock options, the remuneration of independent directors
has also been limited to sitting fees, reimbursement of expenses for
participation in the Board and other meetings and profit related
commission as may be approved by the shareholders. Independent directors
also cannot be the chief executive or director or hold any other
similar position in any nonprofit organisation that receives twenty-five
percent or more of its receipts from the company, its promoters,
directors, Group Company or that holds two percent or more of the voting
rights of the company.

The fact that nominee directors are
excluded from being independent directors is another example of the
emphasis placed by the Bill on ensuring absolute neutrality of the
independent director. Under the Listing Agreement, nominee directors of
lenders/investors are deemed to be independent directors. However, the
Bill also expands the scope of the term ‘nominee director’ to mean any
director nominated by “any financial institution in pursuance of the
provisions of any law for the time being in force, or of any agreement,
or appointed by any Government, or any other person to represent its
interests”, and states that all such nominee directors may not be
classified as independent directors. It is true that a nominee director
may only be concerned about the decisions of the company which may
affect the interests of the entity/person who has nominated him.
Considering that, it may not be proper to deem such a director to be an
independent director, since the very nature of his position indicates
that he would put the interests of the nominating entity above the
interests of the company. Therefore, in this regard, the changes
introduced by the Bill may be considered necessary and appropriate.

Process of appointment and due diligence
The
Bill mandates that prospective independent directors may be selected
from databanks maintained by institutions to be notified by the ?entral
Government. It is not clear on what basis would people be permitted to
register themselves in this database, although the Bill states that
rules would be prescribed for maintenance of such databases. Further,
the Bill provides that the terms of appointment of an independent
director must be approved by a resolution of the shareholders.

The
Code for Independent Directors in Schedule IV of the Bill (Code) also
prescribes that the terms of appointment of the director must be
formalised through a letter of appointment that inter alia sets out the
fiduciary duties that come with such an appointment along with
accompanying liabilities. The concept of “fiduciary duty” being a broad
and subjective one, it is not clear what duties and liabilities would
have to be set out in the appointment letter. Further, it is also not
clear whether these fiduciary duties are in addition to the duties of
directors already prescribed under Clause 166 of the Bill, which are by
themselves quite burdensome and broad in scope. The fact that several
subjectively worded fiduciary duties have to be reduced to writing in
their appointment letter would not be a very appealing prospect for
independent directors.

The Bill further states that the company
is responsible for conducting due diligence on the candidate to ensure
that such person is not disqualified from being an independent director,
thus putting the onus for selection of a fit and proper person on the
company. There are two aspects to this due diligence exercise that
companies will have to conduct. Firstly, they would have to check
internally and with Group Companies regarding matters such as the
candidate’s shareholding, employment or association with them. This
aspect of the due diligence may be relatively simpler. However, to do a
complete diligence on the candidate, the provisions of the Bill require
the company to source information from several external entities and
sources. Listed companies must identify each auditing, consulting and
legal firm in which the proposed independent director is or was an
employee, or partner or proprietor of, and then ensure that such firms
have had no relationship with the company or its Group Companies.
Further, a comprehensive list of the relatives of the independent
directors, and all companies and other entities controlled by them would
have to be prepared and it must be verified that none of them hold more
than 2% of the share capital of the company, or its Group Companies or
have pecuniary relationships with such companies which go beyond the
prescribed thresholds in the Bill.

It is obvious that these
background checking and verification procedures would be extremely
onerous, resource-intensive and time-consuming for any company to carry
out.

The provisions of the Bill are unclear on whether listed
companies are required to constantly verify on an ongoing basis that the
independent director does not fall afoul of the prescribed criteria.
The Bill merely states that company must conduct the due diligence on a
proposed independent director “before appointment” of such director.
However, the provisions of Clause 149 (8), which state that the company
and independent director must comply with the Code, read with the terms
of the Code itself, may be interpreted to mean that the company and the
director are jointly and severally responsible for ensuring that the
independent director is not disqualified. This view may lead to several
absurd situations, where the company may be held responsible and
penalised for events entirely beyond its control. For instance, an
associate company, over whose decisions or actions a company may not
have control, may appoint a firm of auditors where an independent
director of the concerned company is a partner, thus disqualifying him
from being an independent director. In the ordinary course today, a
company may not even be aware of the auditors of its associate
companies, but the provisions of the Bill may require it to constantly
monitor such matters completely irrelevant to its business for the
purposes of ensuring compliance.

Participation

Certain
provisions of the Bill are aimed at preventing situations existing
presently, where independent directors are often appointed by companies
merely to be a rubber stamp for decisions taken by the Board. One such
provision is the mandatory presence of independent director on a number
of committees of listed companies. One third of the audit committee,
half of the nomination and remuneration committee, and at least one
member of the newly conceptualised corporate social responsibility
committee, must be independent directors.

The Code prescribes
that independent directors are required to hold at least one meeting
each year, without the attendance of non-independent directors and
members of management. In such meetings the independent directors shall
review the performance of the other directors, the Chairman and the
Board as a whole and asses the information flow between the management
and the Board. While there is no obligation on the Board to accept any
recommendations which may emerge from such a meeting, this provision is
welcome as it encourages discussion among the independent directors and
greater awareness of and participation in the functioning of the Board.
Another example of provisions encouraging participation by independent
directors is relating to Board meeting notices. The Bill provides that
Board meetings may be called by notice shorter than seven days only if
at least one independent director (if any) on the Board is present at
such meeting.

With regard to the composition of the Board, the
Bill mandates that one third of the Board of listed companies is
required to be independent directors. It may be pertinent to note that
this obligation is actually less strict than the one currently imposed
by the Listing Agreement, where if the Chairman of a listed company is
an executive director, half of the Board is required to be independent
directors. Finally, the re-appointment of independent directors is
required to be made on the basis of a report of performance evaluation
by the Board. However, the manner and criteria for such evaluation has
not been prescribed in detail.

The aggregate effect of the above
mentioned provisions would hopefully put a stop to the phenomenon of
token independent directors who are appointed by companies merely for
compliance with the Listing Agreement provisions, and who are
essentially proxies for the promoters.

Rotation

As
per the Bill, independent directors are not subject to the annual
rotation procedure applicable to other directors on the Board. They are
permitted to have a term of five years, with a limit of two consecutive
terms. After two such terms, a mandatory break of three years is
prescribed, during which the director again must not have any
association with the concerned company. It appears that the five year
term and exclusion from annual rotation is intended to protect
independent directors and prevent promoters and major shareholders from
forcing retirement onto directors who do not toe the line. Nevertheless,
it does not mean that a non-performing and non-cooperative independent
director can be complacent about his position, as his re-appointment by
the members is subject to the results of a performance evaluation, as
mentioned above. However, on Boards where the majority of directors are
independent, provisions relating to compulsory rotation and fixed term
may prove to be an issue, as the executive directors may need to retire
to meet the quota of directors required to retire by rotation.

Analysis

Upon a reading of the above, it is evident that:

• There is an expectation that there will be an increased level of active participation by independent directors;

•
The duties of independent directors are quite onerous, and in certain
cases, rather ill-defined and vague, such as the wide and subjective
nature of the Code;

• The terms of appointment and penal
consequences for non-compliance with fiduciary duties are reduced to
writing in the terms of appointment of the independent director;

•
Independent directors are required to constantly monitor their
relationships and transactions, including those of their relatives and
related entities in order to ensure that they don’t fall afoul of the
prescribed qualifications; and

• There are several
restrictions on the remuneration allowed to be provided to independent
directors, including a prohibition on stock options.

Apart from
the fact that companies are required to test persons against all the
criteria laid down in the Bill to ensure that they qualify as
‘independent directors’, it will be difficult to convince people to
become independent directors on the Boards of companies in light of the
stringent and onerous responsibilities, duties and penalties listed
above. These harsh and inflexible provisions will deter people from
becoming independent directors, creating a scarcity of persons
interested in being appointed on Boards as independent directors.

Conclusion

While
the provisions of the Bill regarding independent directors may have
been drafted with noble and laudable intentions, it is evident that
compliance with such a restrictive regime would prove to be a nightmare
for companies. Indeed, as set out above, in certain situations
compliance may be impossible. The move towards a corporate governance
environment where independent directors are neutral and ‘independent’ in
the true sense of the term, is an effort which needs to be appreciated.
However, the provisions require a fair amount of tweaking in order to
ensure that they are effective without being unduly onerous or in some
cases impossible to achieve.

Companies Bill, 2012

It was said that any minister holding the charge of Ministry of Corporate Affairs who tries to enact new a Companies Act loses his job. Ultimately, the Companies Bill, 2012, has been passed by the Lok Sabha and the jinx has been broken. Hopefully, the Rajya Sabha will also pass the Bill and a new Companies Act, replacing a more than half a century old Act, will come into force.

The Companies Bill as passed by the Lok Sabha has many new features, some of them welcome while others controversial. The Bill introduces the concept of One Person Company, rotation of auditors, introduces bar on auditors from rendering certain services to auditee companies, makes detailed provisions for appointment of independent directors, requires certain companies to spend 2% of its average profits towards Corporate Social Responsibility, etc. The Bill provides for stiff penalties and fines for various defaults.

The provision relating to rotation of auditors has always generated a debate. Views have been expressed for and against such a provision. In practice, one will have to see how this provision works, whether it will bring about improvement in the quality of audits, equitable distribution of the audit work or will only result in ‘rotation’ of audits amongst `networked’ auditing firms. It would be of interest to see how the new provision impacts the size of audit firms.

The Bill provides for the constitution of a National Financial Reporting Authority (NFRA). This will replace NACAS. NFRA is vested with the power to investigate into professional or other misconduct by chartered accountants and impose stiff monetary penalties. Slowly but steadily, the autonomy vested in the Institute of Chartered Accountants to govern the profession is being diluted. While this is a disturbing trend, it also calls for introspection on our part.

Another disturbing feature of the Bill is the large number of provisions, where power has been given to the Government to frame rules. While delegated legislation provides necessary flexibility, its excess leads to possible abuse and uncertainty. Provisions dealing with the appointment of auditors as well as independent directors are fairly in detail in the Bill itself. Yet, there are provisions empowering the Government to prescribe the manner in which companies shall rotate auditors and the manner and the procedure of selection of independent directors. There are many such instances.

The Bill makes various provisions which are applicable to listed companies. SEBI has already made various Regulations applicable to listed companies. To that extent, there is an overlap. There may be situations where SEBI Regulations and provisions in the Bill may not be in sync. This will have to be sorted out.

Chartered accountants, other professionals, company executives and directors, will have to spend time in unlearning the old law and learning the new one.

On 28th December, 2012, Mr. Ratan Tata stepped down as the chairman of the Tata Group on attaining 75 years of age and handed over the reins to Cyrus Mistry nearly 30 years his junior. During the two decades that Ratan Tata presided, the Group revenues increased to $ 100 billion, 40 times the 1991 level. Today, many companies in the Group are headed by young CEOs. Tata had the courage and conviction to replace old hands, acquire corporations and brands outside India. Certainly, he faced some failures and disappointments. But he took them in his stride, gave the Group international recognition and earned respect of the industry. It was not easy for Ratan Tata to step into the shoes of J R D Tata and it is not going to be easy for Cyrus Mistry to step into the shoes of Ratan Tata.

In the year 2011, the issue of corruption prompted youth to come out in large numbers and protest in Delhi and elsewhere. The government had to take note of that. In the year 2012, the country witnessed similar protests by youth condemning crime against women. Causes for crime against women are many. It requires a change of mindset of the society alongwith other measures. But that is a long and slow process. The government needs to take the initiative and at act quickly to ensure the safety of women. Merely increasing the quantum of punishment will not solve the problem when the conviction rate itself is abysmally low. What is important is to convey the message that crime will certainly invite punishment and that too swiftly. We need to think if we have gone too far with the adage `Let hundred guilty be acquitted but one innocent should not be convicted’? Alongwith better investigation of the crime, we possibly need a change in the judicial process and the implementation of the Evidence Act. Let us hope that the death of the young girl who fell victim to the atrocities of few men and has become a symbol is not forgotten, the protests of youth do not go in vain and the New Year brings a change for the better.

Wishing all readers a very Happy and Joyous New Year.

Economic Assessment – Raghuram Rajan: A case for India

Such bipolar behaviour seems to apply to assessments of India’s economy as well, with foreign analysts joining Indians in swings between overexuberance and self-flagellation. A few years ago, India could do no wrong. Commentators talked of “Chindia”, elevating India’s performance to that of its northern neighbour. Today, India can do no right.

India does have serious problems. Every commentator today highlights India’s poor infrastructure, excessive regulation, small manufacturing sector, and a workforce that lacks adequate education and skills.

These are indeed deficiencies, and they must be addressed if India is to grow strongly and stably. But the same deficiencies existed when India was growing rapidly. To appreciate what needs to be done in the short run, we must understand what dampened the Indian success story.

In part, India’s slowdown paradoxically reflects the substantial fiscal and monetary stimulus that its policymakers injected into its economy in the aftermath of the 2008 financial crisis. The resulting growth spurt led to inflation, especially because the world did not slide into a second Great Depression, as was originally feared. So monetary policy has since remained tight, with high interest rates contributing to slowing investment and consumption.

Moreover, India’s institutions for allocating natural resources, granting clearances and acquiring land were overwhelmed during the period of strong growth. India’s investigative agencies, judiciary and press began examining allegations of largescale corruption. As bureaucratic decision-making became more risk-averse, many large projects ground to a halt.

Only now, as the government creates new institutions to accelerate decision-making and implement transparent processes, are these projects being cleared to proceed. Once restarted, it will take time for these projects to be completed, at which point output will increase significantly.

Finally, export growth slowed, not primarily because Indian goods suddenly became uncompetitive, but because growth in the country’s traditional export markets decelerated.

The consequences have been high internal and external deficits. The post-crisis fiscal stimulus packages sent the government budget deficit soaring from what had been a very responsible level in 2007-08. Similarly, as large mining projects stalled, India had to resort to higher imports of coal and scrap iron, while its exports of iron ore dwindled.

An increase in gold imports placed further pressure on the current-account balance.

For the most part, India’s current growth slowdown and its fiscal and current account deficits are not structural problems. They can all be fixed by means of modest reforms. This is not to say that ambitious reform is not good, or is not warranted to sustain growth for the next decade. But India does not need to become a manufacturing giant overnight to fix its current problems.

The immediate tasks are more mundane, but they are also more feasible: clearing projects, reducing poorly targeted subsidies and finding more ways to narrow the current account deficit and ease its financing.

Every small step helps, and the combination of small steps adds up to large strides. But, while the government certainly should have acted faster and earlier, the public mood is turning to depression amid a cacophony of criticism and self-doubt that has obscured the forward movement.

Indeed, despite its shortcomings, India’s GDP will probably grow by 5-5.5% this year—not great, but certainly not bad for what is likely to be a low point in economic performance. The monsoon has been good and will spur consumption, especially in rural areas. The banking sector has undoubtedly experienced an increase in bad loans; but this has often resulted from delays in investment projects that are otherwise viable. As these projects come onstream, they will generate the revenue needed to repay loans. In the meantime, India’s banks have enough capital to absorb losses.

Likewise, India’s public finances are stronger than they are in most emerging-market countries, let alone emerging-market countries in crisis. India’s external debt burden is even more favourable, at only 21.2% of GDP (much of it owed by the private sector), while short-term external debt is only 5.2% of GDP. India’s foreign-exchange reserves stand at $278 billion (about 15% of GDP), enough to finance the entire current account deficit for several years.

That said, India can do better—much better. The path to a more open, competitive, efficient, and humane economy will surely be bumpy in the years to come. But, in the short term, there is much low-hanging fruit to be plucked. Stripping out both the euphoria and the despair from what is said about India—and from what we Indians say about ourselves—will probably bring us closer to the truth.

(Source: Extracts from an article by Shri Raghuram Rajan, Governor of the Reserve Bank of India, in Mint Newspaper dated 12-09- 2013, written before he took office.)

PART A: SUPREME COURT Decisions

In BCAJ of October 2012, I had reported the Order of the Supreme Court in the writ petition in the matter of Namit Sharma vs. Union of India decided on 13-09-2012.

The said order had annihilated RTI operations in India. It was criticised by a large number of RTI activists, many retired judges and also by the Government itself. In BCAJ of November 2012, I had reported that the Government has applied for its review. Mr. Shailesh Gandhi and Mrs. Aruna Roy had intervened in this review petition.

Now the said review petition has been heard and the judgment dated 03-09-2013 (of 55 pages) is delivered by two judges, Justice A. K. Sikri and A. K. Patnaik (who was also one of the two judges in the writ along with Justice S. P. Sampath Kumar).

The Supreme Court held as under:

32. Under Order XL of the Supreme Court Rules, 1966 this court can review its judgment or order on the ground of error apparent on the face of record and on an application for review can reverse or modify its decision on the ground of mistake of law or fact. As the judgment under review suffers from mistake of law, we allow the Review Petitions, recall the directions and declarations in the judgment under review and dispose of Writ Petition (C) No. 210 of 2012 with the following declarations and directions:

(i) We declare that sections 12(5) and 15(5) of the Act are not ultra vires the Constitution.

(ii) We declare that sections 12(6) and 15(6) of the Act do not debar a Member of Parliament or Member of the Legislature of any State or Union Territory, as the case may be, or a person holding any other office of profit or connected with any political party or carrying on any business or pursuing any profession from being considered for appointment as Chief Information Commissioner or Information Commissioner, but after such person is appointed as Chief Information Commissioner or Information Commissioner, he has to discontinue as Member of Parliament or Member of the Legislature of any State or Union Territory, or discontinue to hold any other office of profit or remain connected with any political party or carry on any business or pursue any profession during the period he functions as Chief Information Commissioner or Information Commissioner.

(iii) We direct that only persons of eminence in public life with wide knowledge and experience in the fields mentioned in sections 12(5) and 15(5) of the Act be considered for appointment as Information Commissioner and Chief Information Commissioner.

(iv) We further direct that persons of eminence in public life with wide knowledge and experience in all the fields mentioned in sections 12(5) and 15(5) of the Act, namely, law, science and technology, social service, management, journalism, mass media or administration and governance, be considered by the Committees u/s. 12(3) and 15(3) of the Act for appointment as Chief Information Commissioner or Information Commissioners.

(v) We further direct that the Committees u/s. 12(3) and 15(3) of the Act while making recommendations to the President or to the Governor as the case may be, for appointment of Chief Information Commissioner and Information Commissioners must mention against the name of each candidate recommended, the facts to indicate his eminence in public life, his knowledge in the particular field and his experience in the particular field and these facts must be accessible to the citizens as part of their right to information under the Act after the appointment is made.

(vi) We also direct that wherever Chief Information Commissioner is of the opinion that intricate questions of law will have to be decided in a matter coming up before the Information Commission, he will ensure that the matter is heard by an Information Commissioner who has wide knowledge and experience in the field of law.

[Review petition (C) No. 2309 and (c) No. 2675 of 2012 in Writ Petition (C) No. 210 of 2012: State of Rajasthan & Anr vs. Namit Sharma, decided on 03-09-2013]

Regulators must promote not strangulate industry

India has several “regulators”, trying to “regulate” several sectors of the economy. There is SEBI keeping a check on the stock markets, TRAI doing the same for the telecom and broadcasting sectors, IRDA for the insurance sector, PFRDA for pensions, DGCA for civil aviation and CERC for electricity.

By their very nomenclature regulators regulate, which many mock to mean strangulate industries. In many cases, regulators focus on keeping private players in check, thinking of them as rapacious booty hunters who need to be tamed, confirming the suspicion that the government never really accepted the private sector as a dynamo of growth. What India needs in the form of regulators are bodies that focus on promoting and developing industry. For if industries develop, there are more tax revenues for the government, more jobs for the people, and more social and economic goals.

This would in turn propel industrial growth and start a virtuous cycle of prosperity. Regulation cannot become shorthand for controlling power tariffs. Equally, the proposed coal regulator should overhaul the defunct and destructive policy of reserving coal production for the inefficient public sector and not become an excuse to “regulate” prices, production capacities, import quotas and the like.

The primary role of regulators must be to ensure that the country’s resources are exploited efficiently and transparently for the benefit of industry and thereby people. Transparency demands that resources are allocated using ascending or single-step auctions, or tenders, not via opaque “administered methods” or “First Come First Served” which lead to corruption and hence must be banned.

Pricing must be remunerative, for only a profitable company can continue investing and exploring. Keeping prices and margins low, and crippling industry doesn’t serve anyone’s purpose, least of all the government’s. Domestic production of gas will increase, lowering the need for imports and easing the balance of payments position.

Regulators must of course always protect consumers. For if consumers suffer, industry suffers. Indeed, the whole reason for setting up SEBI came from the securities fraud of the early 1990s.

A fine balance between protecting consumer and corporate interests is required. The regulator often has to shield industry from the government’s faulty policies, just like the Supreme Court has to shield people from laws that violate the Constitution. A development oriented regulator must have the authority to question government policy, forcing it to make amends as and when required.

(Source: Extracts from an Article by Shri Anil Shinde in the Times of India dated 11.09.2013).

A. P. (DIR Series) Circular No. 43 dated 13th September, 2013

Export of Goods and Services–Simplification and Revision of Declaration Form for Exports of Goods/ Software

Presently, every exporter of goods or software has to give declaration in one of the forms (GR/PP/SDF/ SOFTEX/Bulk SOFTEX) and submit the same to the specified authority for certification.

This circular prescribes a common form called “Export Declaration Form” (EDF) for declaring all types of export of goods from Non-EDI ports and a common “SOFTEX Form” to declare single as well as bulk software exports. The EDF will replace the existing GR/PP form used for declaration of export of goods and as to be used on and from 1st October, 2013. Further, all exporters will have to declare all the export transactions, including those less than $25000, in the applicable form. The procedure relating to the exports of goods through EDI ports will remain the same and SDF form will be applicable as hitherto. The EDF and SOFTEX form have been given in Annex I and Annex II respectively. RBI will extend facilities to exporters for online generation of SOFTEX Form No. (Single as well as Bulk) for use in offsite software exports, in addition to EDF Form No. (Present web-based process of generation of GR Form No. gets replaced) through its website www.rbi.org.in. The specimen of online form and the advice are given in Annex III. Exporters have to complete the EDF/SOFTEX Form using the number so allotted and submit them to the specified authority first for certification and then to AD for necessary action as hitherto.

A. P. (DIR Series) Circular No. 42 dated 12th September, 2013

Notification No.FEMA.284/2013-RB dated 27th August, 2013 notified vide G.S.R.596 (E) dated 6th September, 2013

Foreign Investment in India–Guidelines for calculation of total foreign investment in Indian companies, transfer of ownership and control of Indian companies and downstream investment by Indian companies

This circular has amended condition at (d) regarding downstream investments by an Indian company which is not owned and/or controlled by resident entity/entities. The amended condition is given in the table below:

c.f. Annex to A.P.(DIR Series) Circular No. 1 dated 4th July, 2013

Earlier Condition

Revised Condition

ParaE 6 (ii) (d)

For the purpose of downstream investment, the Indian companies making the downstream investments would have to bring in requisite funds from abroad and not use funds borrowed in the domestic market. This: would, however, not preclude downstream operating companies from raising debt in the domestic market. Downstream investments through internal accruals are permissible by an Indian company engaged only in activity of investing in the capital of another Indian company/ ies, subject to the provisions above and as also elaborated below:

For the purpose of downstream investment, the Indian companies making the d o w n s t r e a m investments would have to bring in requisite funds from abroad and not use funds borrowed in the domestic market. This would, however, not preclude d o w n s t r e a m operating companies from raising debt in the domestic market. Downstream investments through internal accruals are permissible by an Indian company, subject to the provisions of clause 6(i) and as also elaborated below:

A. P. (DIR Series) Circular No. 41 dated 10th September, 2013

Overseas Direct Investment–Amendment
This circular has modified condition of clause (b) relating to obtaining prior permission under the Approval Route from the RBI for providing corporate guarantee by an Indian Party on behalf of second generation or subsequent level step down operating subsidiaries. The original and revised provisions are in the table:

Table regarding Overseas Direct Investment

Original Provision

Revised Provision

(b) Further, it has also been decided that issue of corporate guarantee on behalf of second generation or subsequent level step down operating subsidiaries will be considered under the Approval Route, provided the Indian Party directly or indirectly holds 51% or more stake in the overseas subsidiary for which such guarantee is intended to be issued.

(b) Further, it has also been decided that issue of corporate guarantee on behalf of second generation or subsequent level step down operating subsidiaries will be considered under the Approval Route, provided the Indian Party indirectly holds 51% or more stake in the overseas subsidiary for which such guarantee is intended to be issued.