2020 Archives

GLIMPSES OF SUPREME COURT RULINGS

5. Pr. CIT vs. NRA Iron and Steel Pvt. Ltd. (2019) 418 ITR 449 (SC)

Notice – Service of notice – Application for recall of ex parte
order – Service of notice on authorised representative – Section 2(35) defines
‘principal officer’ which includes agent of the company and the term ‘agent’
would certainly include a power of attorney holder – No ground for recall of
judgment

An application was filed for recall of the judgment for the A.Y. 2009-10
passed by the Supreme Court on the ground that the applicant company was not
served with the notice of the SLP at its registered office, nor was a copy of
the SLP served on the applicant company.

The applicants submitted that the court notices
were sent to the earlier registered office address of the company, i.e., at
310, 3rd Floor, B-Block, International Trade Tower, Nehru Place, New Delhi.
However, on 19^th May, 2014, the company had changed its registered
office to 211, Somdutt Chambers II, 9, Bhikaji Cama Place, New Delhi 110066.

Thereafter, on 23^rd January, 2019, the registered office was
again changed to 1205, Cabin No. 1, 89 Hemkunt Chambers, Nehru Place, New
Delhi.

The applicants submitted that they learnt of the judgment dated 5^thMarch, 2019 passed by the Court from a news clipping published in The
Economic Times on 7^th March, 2019. Subsequently, the application
for recall was filed on 12^th March, 2019.

The company submitted that on an inspection of the court record it
learnt that the affidavit of dasti service filed by the Revenue
Department on 19^th December, 2018 showed an acknowledgement receipt
by Mr. Sanjeev Narayan, the chartered accountant of the applicant company, on
13^th December, 2018.

The company also placed on record the affidavit of Mr. Sanjeev Narayan
wherein he had stated that he was the authorised representative of the company
before the Income Tax authorities but was not engaged before the High Court or
the Supreme Court. He submitted that he had received service on 13^th
December, 2018 from one of the Inspectors of the Income Tax Department, but he bona
fide believed that the documents were ‘some Income Tax return documents
from Income Tax Department.’ He further submitted that he was suffering from an
advanced stage of cataract and had undergone surgery in both eyes, on 4^th
January, 2019 and 23^rd January, 2019, respectively.

The Department in its counter affidavit submitted that the dasti
notice was duly served on Mr. Narayan at his office address, in his capacity as
the authorised representative of the company who was holding a power of
attorney of the company for the A.Y. 2009-10. The POA appointed all four
partners of the firm, i.e., Mr. Mohan Lal, Advocate, Mr. Ashwani Kumar,
Chartered Accountant, Mr. Sanjeev Narayan, Chartered Accountant, and Mr.
Surender Kumar, FCA, as their counsel and authorised them to represent the
company at all stages of the proceedings. The POA executed by the company in
favour of Mr. Sanjeev Narayan was placed on record.

It was further submitted on behalf of the Revenue that even though Mr.
Narayan had stated that he underwent the cataract surgery on 4^th
January, 2019 and 23^rd January, 2019, this was much after the notice
had been served on 13^th December, 2018. Further, Mr. Narayan had
appeared before the tax authorities after the date of service on 13^thDecember,
2018, and prior to his surgery, to represent the company and its sister
concerns on the 14^th, 21^st, 28^th and 29^th
of December, 2018. In these circumstances, it was pointed out, there was no
merit in the contention raised by the company, and hence no ground was made out
to recall the judgment passed by the Supreme Court.

During oral hearing on the recall application, a submission was made by
the counsel for the company that Mr. Sanjeev Narayan was not the ‘principal
officer’ of the company and hence service could not have been effected upon
him.

* The Supreme Court noted that section 2(35) defines ‘principal
officer’, which includes agent of the company and the term ‘agent’ would
certainly include a power of attorney holder {State of Rajasthan vs.
Basant Nehata [2005 (12) SCC 77]}.

* It held that Mr. Narayan admittedly being the power of attorney holder
of the applicant (M/s. NRA Iron & Steel Pvt. Ltd.) for the A.Y. 2009-10,
was the agent of the company and hence notice could be served on him as the
agent of the company in this case.

* The Supreme Court observed that the ground taken by Mr. Narayan that
even though notice was served on 13^th December, 2018, he assumed
that they were ‘some Income Tax return documents’ lacked credibility. It was
difficult to accept that the envelope containing the dasti notice from
this Court was considered to be ‘some Income Tax return documents’. Also, the
deponent had not disclosed as to whether the envelope containing the dasti notice
was ever opened. Further, the ground urged that the chartered accountant was
suffering from an advanced stage of cataract and hence was constrained from
informing his clients, was again not worthy of credence. The dasti notice
was served on him at his office on 13^thDecember, 2018 which was
much prior to his surgery which took place on 4^th January, 2019.
Furthermore, Mr. Narayan appeared before the Income Tax authorities to
represent the company and its sister concerns on various dates prior to his
surgery, i.e., on 14^th, 21^st, 28^thand 29^thDecember, 2018.

The Supreme Court stated that keeping in view the above-mentioned facts
and circumstances, it was satisfied that the applicant company was duly served
through its authorised representative and was provided sufficient opportunities
to appear before the Court and contest the matter. The company chose to let the
matter proceed ex parte. The grounds for recall of the judgment were
therefore devoid of any merit whatsoever.

The Supreme Court dismissed the application for recall.

6. Pr CIT vs. I-Ven Interactive Limited (2019) 418 ITR 662 (SC)

Assessment – Change of address – Notice – In absence of any application
for change in address and/or change in the name of the assessee in the
Permanent Account Number database, the assessing officer would be justified in
sending the notice at the available address mentioned in the PAN database of
the assessee, more particularly when the return has been filed under e-module
scheme – Mere mentioning the new address in the return of income is not enough
– The change of address in the database of the PAN is a must

The assessee filed return of income for the A.Y.
2006-07 on 28^th November, 2006 declaring total income of Rs.
3,38,71,716. The said return was filed under the e-module scheme and thereafter
a hard copy of the same was filed on 5^th December, 2006. The return
of income was accompanied with the balance sheet and profit and loss account.
The return was processed u/s 143(1) of the Act. A notice u/s 143(2) of the Act
was issued to the assessee on 5^th October, 2007. The notice was sent
at the assessee’s address available as per the PAN database. A further
opportunity was provided to the assessee vide notice u/s 143(2) on 25^th
July, 2008. This notice was also issued at the available address as per the PAN
database. Thereafter, further notices u/s 142(1) were issued to the assessee on
23^rdJanuary, 2008, 25^th July, 2008 and 5^th
October, 2008 along with questionnaires calling for various details and were
duly served on the assessee company.

In response to the said notice, the representative
of the company appeared on 28^th November, 2008 and 4^th
December, 2008. The assessee participated in the proceedings before the AO.
However, the assessee challenged the notice under sections 143(2) and 142(1) on
the ground that the said notices were not served upon the assessee as the assessee
never received those notices and the subsequent notices served and received by
the assessee were beyond the period of limitation prescribed under proviso to
section 143(2) of the Act.

The AO vide assessment order dated 24^th
December, 2008 completed the assessment u/s 143(3) by making disallowance of
Rs. 8,91,17,643 u/s 14A, read with Rule 8 of the Rules, and computed the total
income at Rs. 5,52,45,930.

Being aggrieved by the assessment order dated 24^th
December, 2008, the assessee preferred an appeal before the learned C.I.T.
(Appeals). The C.I.T. (Appeals) allowed the appeal vide order dated 23^rd
December, 2010 holding, inter alia, that the AO completed the assessment
u/s 143(3) without assuming valid jurisdiction u/s 143(2), and therefore the
assessment framed u/s 143(3) was invalid. The C.I.T. (Appeals) observed that as
the subsequent service of notice u/s 143(2) was beyond the period of limitation
prescribed under the proviso to section 143(2) and earlier no notices
were served upon the assessee and / or received by the assessee as the same
were sent at the old address, and in the meantime the assessee changed its
address, therefore the assessment order was bad in law. The Revenue preferred
an appeal before the Income Tax Appellate Tribunal which came to be dismissed
by the I.T.A.T. vide order dated 19^th January, 2015. The orders
passed by the C.I.T. (Appeals) as well as the I.T.A.T. were confirmed by the
High Court.

Hence, the Revenue preferred an appeal before the
Supreme Court.

The Supreme Court noted at the outset that the
notice u/s 143(2) was sent by the AO to the assessee at the address as
mentioned in the PAN database on 5^thOctober, 2007 and the same was
within the time limit prescribed in the proviso to section 143(2) of the
Act.

It recorded, however, that it was the case of the
assessee that the said notice was not served as the assessee had changed its
name and address and shifted to a new address prior thereto and therefore the
said notice was not served upon the assessee, and by the time when subsequent
notices were served, notice u/s 143(2) was barred by the period prescribed in proviso
to section 143(2). Therefore, the assessment order was bad in law. It was the
case on behalf of the assessee that vide communication dated 6^th
December, 2005 the assessee had intimated to the AO about the new address and
despite this, the AO sent the notice at the old address.

The Supreme Court observed that the alleged
communication dated 6^th December, 2005 was not forthcoming. Neither
was it produced before the AO nor before the Supreme Court. In the affidavit,
too, filed in compliance with the order dated 21^st August, 2019, the
assessee has stated that the alleged communication dated 6^th
December, 2005 was not available. Thus, the assessee had failed to prove the
alleged communication of that date. The only document available was Form No. 18
filed with the ROC.

The Supreme Court held that the filing of Form-18
with the ROC could not be said to be intimation to the AO with respect to
intimation of change in address. According to the Court, it appeared that no
application was made by the assessee to change the address in the PAN database
and in the PAN database the old address continued. Therefore, in absence of any
intimation to the AO with respect to change in address, the AO was justified in
issuing the notice at the address available as per the PAN database. Hence, the
AO could not be said to have committed any error; in fact, the AO was justified
in sending the notice at the address as per the PAN database. If that was so,
the notice dated 5^th October, 2007 could be said to be within the
period prescribed in proviso to section 143(2) of the Act. Once the
notice is issued within the period prescribed as per the said proviso,
the same can be said to be sufficient compliance of section 143(2) of the Act.
And once the notice is sent within the period prescribed in the proviso
to section 143(2), in that case, the actual service of the notice upon the
assessee thereafter would be immaterial.

In a given case it may happen that though the
notice is sent within the period prescribed, the assessee may avoid actual
service of the notice till the period prescribed expired. Even in the case
relied upon by the Assessee [Asst. CIT vs. Hotel Blue Moon (2010) 321 ITR
362 (SC)], it was observed that the AO must necessarily issue notice
u/s 143(2) within the time prescribed in the proviso to section 143(2)
of the Act.

The Supreme Court, therefore, in the facts and
circumstances of the case, held that the High Court was not justified in
dismissing the appeal and confirming the orders passed by the C.I.T. (Appeals)
and the I.T.A.T. setting aside the assessment order solely on the ground that
the assessment order was bad in law on the ground that subsequent service of
notice upon the assessee u/s 143(2) was beyond the time prescribed in the
proviso to section 143(2) of the 1961 Act.

The Supreme Court, in the context of the
observations made by the High Court while concurring with the view of the
Tribunal that merely by filing of return of income with the new address it
shall be enough for the assessee to discharge its legal responsibility for
observing proper procedural steps as per the Companies Act and the Income Tax
Act is concerned, held that mere mentioning of the new address in the return of
income without specifically intimating the AO with respect to change of address
and without getting the PAN database changed, is not enough and sufficient.

In the absence of any specific intimation to the AO
with respect to change in address and / or change in the name of the assessee,
the AO would be justified in sending the notice at the available address
mentioned in the PAN database, more particularly when the return has been filed
under the e-module scheme. It is required to be noted that notices u/s 143(2)
are issued on selection of cases generated under the automated system of the
Department which picks up the address of the assessee from the database of the
PAN. Therefore, the change of address in the database of PAN is a must; in case
of change in the name of the company and / or any change in the registered
office or the corporate office, the same has to be intimated to the Registrar
of Companies in the prescribed format (Form 18) and after completing the said
requirement, the assessee is required to approach the Department with the copy
of the said document and the assessee is also required to make an application
for change of address in the Departmental database of PAN, which in the present case the assessee had failed to do.

Accordingly, the appeal was allowed by the Supreme
Court. The impugned judgment and order passed by the High Court, as well as the
orders passed by the C.I.T. (Appeals) and the I.T.A.T., were quashed and set
aside. The matter was remanded to the C.I.T. (Appeals) to consider the appeal
on merits on other grounds, in accordance with the law.

BCAJ Admin

FROM THE PRESIDENT

Dear Members,

Wishing you and your loved ones a very
Happy, Healthy and Prosperous New Year!

It’s New Year, friends! As the New Year
stands before us, it’s another 366 days of opportunities and reasons to be
happy. It’s like a new chapter waiting to be written in the book called LIFE.
So let’s all of us resolve to seize this opportunity and promise ourselves that
we will strive towards happiness and make this world a better place to live in
for ourselves and others around us.

I hope 2020 will mark the beginning of a new
decade of hope, trust and well-being of our profession. As I communicate with you
for the first time at the beginning of this decade, I would like to emphasise
certain recent developments in our profession that will have a great impact on
the way we discharge our professional responsibilities and obligations.

ICAI Code of Ethics: The Code of Ethics issued by the ICAI was aligned with the
International Ethics Standards Board for Accountants (IESBA) Code of Ethics
2005 for the first time in 2009. Now, after a gap of ten years, the ICAI has
decided to revise the Code of Ethics applicable to the profession with effect
from 1^st April, 2020. As in the case of the code issued in 2009,
this edition, too, is divided into two parts, Part A representing provisions of
the IESBA Code of Ethics as suitably incorporated after modification, and Part B
representing the domestic provisions of India governing the Chartered
Accountants’ Act, 1949.

Part A of the Code of Ethics was revised in
2018 on the basis of the IESBA Code of Ethics, 2018 edition; and now the ICAI
has proposed a revision of Part B of the Code of Ethics, 2019.

Since the past decade (when this code was
last revised), multiple changes have taken place in the domestic rules and
regulations governing our profession. Changes in the CA Act, 1949, ICAI Council guidelines and decisions and clarifications
of the Ethical Standards Board have been incorporated in the new code. Further,
other developments and contemporary requirements like New Companies Act, 2013,
revision of Accounting Standards (AS) and Standards of Auditing (SA) also
mandated compilatory updating and upgrading Part B of the code.

Various new provisions, clauses, sections
have been proposed to be inserted in Part B such as: Responding to
Non-Compliance of Laws and Regulations; provision of taxation services to the
audit clients; prohibition on management responsibilities to the audit clients;
restrictions on total fees from a client; duty of accountant in case of breach
of Independence Standards; advertisement guidelines; guidelines on website and
social networking sites; affiliations with networks; long association with
firms and so on.

The ICAI will carry out mass awareness and
educational programmes but it is important for us to be aware of the changes to
maintain the inclusive and ethical culture of our profession and ensure that
none of us is caught unaware of these changes.

Report on Audit Quality Review (2018-19): Cases of financial irregularities continue to haunt the corporate
world, both domestically and internationally, bringing to the forefront
concerns on the need to improve the quality of audit services carried out by
auditors. Last year, the Financial Reporting Council of the UK expressed
concern over falling audit quality and partly attributed this deterioration to
a failure to challenge management and show appropriate professional scepticism.
So far, the Quality Review Board (QRB) of ICAI has being carrying out reviews
of listed and other public interest entities and issuing a report on the
observations from the Audit Quality Review carried out by them annually. This report
of the QRB for reviews carried out during financial year 2018-19 was issued in
October, 2019. It highlights the key findings and observations from reviews
carried out on audit quality of 51 entities (which included 51 audit firms, 64
audit files and 22 industries) indicating the QRB’s approach, key trends, their
expectations and other focus areas.

Though the reported observations are from
reviews carried out on the said 51 entities, these deficiencies can act as
check-points for others to improve their audit quality. The report highlights
in detail non-compliance of SA, AS (standard wise) and other relevant
regulatory requirements. Out of the total observations, 66% required
improvements, 33% were generally acceptable and 1% required significant improvement.
I am sure this will make for interesting reading and help in improving the
quality of audit services rendered by us.

Audit Quality Review (AQR) by NFRA: More recently, the NFRA carried out its first AQR on the statutory
audit of IL&FS Financial Services Limited for F.Y. 2017-18. NFRA has
verified the compliance of SA, assessing the audit quality control system of
the audit firm and the extent to which the same was complied with in the
performance of the audit. This report has made some startling observations and
comments on the compliance of independence requirements, role of engagement
partner, communication with those charged with governance, evaluation of risk
of material misstatement, management’s written representations, evaluation of
going concern assumptions and documentation of the audit quality control
system. A reading of this report will also go a long way in overall improvement
in the quality of services rendered by us.

‘Professionalism: It’s NOT the job you
DO, It’s HOW you DO the job.’

With Best Regards,

CA Manish Sampat

President

BCAJ Admin

FROM PUBLISHED ACCOUNTS

REPORTING AND DISCLOSURES IN QUARTERLY CONSOLIDATED
RESULTS FOR A MATERIAL EVENT OCCURRING AFTER THE END OF THE QUARTER (PERIOD AND
QUARTER ENDED 30^th SEPTEMBER, 2019)

BHARTI AIRTEL LTD.

From: Notes below statement of audited consolidated
results

(A) Details of the specific
event and implications of these on these financial results

On October 24, 2019, the Honourable Supreme Court of India delivered a
judgment in relation to a long outstanding industry-wide case upholding the
view considered by Department of Telecommunications (‘DoT’) in respect of the
definition of Adjusted Gross Revenue (‘AGR’) (‘Court Judgment’). The Hon’ble
Supreme Court has allowed a period of three months to the affected parties to
pay the amounts due to DoT. This Court Judgment has significant financial
implications on the group.

The management is reviewing its options and remedies available,
including but not limited to filing petitions before the Supreme Court and
seeking other reliefs, with others affected in the industry, from the
government. As on the date, the management understands that the government has
formed a high-level Committee of Secretaries across Ministries to assess the
stress in the industry and recommend suitable measures.

In the absence of available reliefs, the group has, in these financial
results, provided for an additional amount of Rs. 168,150 million (comprising
of principal of Rs. 32,070 million, interest of Rs. 70,000 million, penalty of
Rs. 24,920 million, and interest on penalty of Rs. 41,160 million) as a charge
to the statement of profit and loss, with respect to the license fee payable as
estimated based on the Court Judgment. In addition, an amount of Rs. 116,350
million (comprising of principal of Rs. 29,570 million, interest of Rs. 52,190
million, penalty of Rs. 12,680 million, and interest on penalty of Rs. 21,910
million) with respect to spectrum usage charges (‘SUC’), based on the
definition of AGR, has further been provided as a charge to the statement of
profit and loss as estimated, albeit the group believes SUC is a charge
related to use of spectrum and should be levied only on the AGR earned from
wireless access subscribers / services. These provisions have been made without
prejudice to the group’s right to
contest DoT’s demands on facts as well as on rights available in law.

Accordingly, in the absence of available reliefs, with respect to the
operations of the group, the liabilities / provisions as at September 30, 2019
aggregate Rs. 342,600 million (comprising of principal of Rs. 87,470 million,
interest of Rs. 154,460 million, penalty of Rs. 37,600 million, and interest on
penalty of Rs. 63,070 million).

Management plan
to deal with this event and the material uncertainty related to the event

The group will require significant additional financing to discharge its
obligations under the Court Judgment… the management’s actions include, inter
alia, accessing diversified sources of finance. The group has an
established track record of accessing diversified sources of finance across
markets and currencies. However, there can be no assurance of the success of
management’s plans to access additional sources of finance to the extent
required, on terms acceptable to the group, and to raise these amounts in a
timely manner. This represents a material uncertainty whereby it may be unable
to realise its assets and discharge its liabilities in the normal course of
business, and accordingly may cast significant doubt on the group’s ability to
continue as a going concern.

From: Independent auditors’ report on audit of
interim consolidated financial results

Material
uncertainty related to going concern

The accompanying Consolidated Financial Results have been prepared
assuming that the group will continue as a going concern. As discussed in Note
3 to the Consolidated Financial Results, the company has referred to a judgment
delivered by the Honourable Supreme Court of India on October 24, 2019 in
relation to a long outstanding industry-wide case upholding the view considered
by the Department of Telecommunications in respect of definition of Adjusted
Gross Revenue which, along with other matters as stated in the said Note,
indicates that a material uncertainty exists that may cast significant doubt
about its ability to continue as a going concern. Management evaluation of the
events and conditions and management’s plans regarding these matters are also
described in Note 3.

Our opinion on the Statement is not modified in respect of this matter.

Emphasis of matter

(i) …………..

(ii) …………..

Our opinion on the Statement is not modified in respect of these
matters.

VODAFONE IDEA LTD.

From: Notes below statement of unaudited
consolidated results

(A) Subsequent to the quarter end, the Hon’ble Supreme
Court on 24^th October, 2019 passed the judgment (SC AGR Judgment) on
cross appeals against the Hon’ble TDSAT judgment dated 23^rd April, 2015
wherein it has held that the definition of Gross Revenue under Clause 19 of the
UASL is all-encompassing and comprehensive. The Hon’ble Supreme Court has
further held that the gross revenue definition shall prevail over the
accounting standards and is binding on the parties to the contract / license
agreement. The Hon’ble Supreme Court has then dealt with different heads of
revenue / inflow and has held that these will fall within the definition of
adjusted gross revenue. Further, the Hon’ble Supreme Court has upheld the levy
of interest, penalty and interest on penalty stating that the levy is as per
the terms and conditions of the license agreement.

Consequent to the above, the company has estimated license fee of Rs.
276,100 million and Spectrum Usage Charges (SUC) of Rs. 165,400 million
(including interest, penalty and interest thereon of Rs. 330,050 million) (‘AGR
liability’) based on the DoT demands received till date and estimation for
periods for which demands have not been raised by DoT, together with interest
and penalty, all taken for periods up to 30^thSeptember, 2019 and
adjusted for certain computational errors. Whilst the company has provided for
SUC, considering that no spectrum is used for generating non-telecom income,
the company is evaluating the levy of SUC on such income. Accordingly, during
the quarter, the company has recognised a charge of Rs. 256,779 million as an
exceptional item after adjusting the available provisions and adjustments for
potential payments under a mechanism on satisfaction of contractual conditions
as per the implementation agreement dated 20^th March, 2017 entered
on merger of erstwhile VInL and ICL in relation to the crystallisation of
certain contingent liabilities which existed at the time of merger. Also, the
company has informed the lenders and bond holders about the SC AGR judgment, as
required under the financing agreements entered with them and also notified the
stock exchanges.

The Hon’ble Supreme Court has directed the telecom operators to pay the
dues within 90 days from the date of the SC AGR Judgment. By its letter of 13^thNovember, 2019, the DoT has directed the company to make payment in
accordance with SC AGR judgment based on its own assessment with requisite
documents. The company would complete its assessment, reconcile / validate the
DoT demands and true up the estimates considered in accordance with SC AGR
judgment.

The company is in the process of filing a review petition with the
Hon’ble Supreme Court. Further, the company through Cellular Operators
Association of India (‘COAI’) has made representations to the government to
provide relief to the telecom sector, including but not limited to requesting
to not press for the AGR liability payment and grant waivers, not levy spectrum
usage charges on non-licensed revenue / income, reduction of licence fee and
SUC rates, use of GST credit for payment of government levies and allow payment
to be made in instalments after some moratorium and grant a moratorium of two
years for the payment of spectrum dues beyond 1^stApril, 2020 up to
31^st March, 2022. The Government has taken cognisance of these
representations and has recently set up a Committee of Secretaries (‘COS’) to
evaluate the telecom operator’s plea and suggest measures to mitigate the financial
stress.

(B) During the year ended 31^st
March, 2019, the company had classified Rs. 102,062 million from non-current
borrowings to current maturities of long-term debt for not meeting certain
covenant clauses under the financial agreements for specified financial ratios
as at 31^st March, 2019. The company had exchanged correspondence /
been in discussions with these lenders for the next steps / waivers.

Based on the above waiver and / or grant of deferred payment terms for
the AGR liability by the government, reduction of license fee and / or SUC
rates and a moratorium on payment of DoT spectrum instalments are essential to
meet the funding requirement for the aforesaid payments. The above factors
indicate that material uncertainty exists that casts significant doubt on the
company’s ability to continue as a going concern and its ability to generate
the cash flow that it needs to settle, or refinance its liabilities and
guarantees as they fall due, including those relating to the SC AGR judgment. The
company’s ability to continue as going concern is dependent on obtaining the
reliefs from the government, as discussed in Note 5(A) above and positive
outcome of the proposed legal remedy. Pending the outcome of the above matters,
these financial results have been prepared on a going concern basis.

From: Independent auditors’ review report on
unaudited consolidated financial results

We draw attention to Note 5 to the financial results regarding the
Hon’ble Supreme Court judgment dated 24^thOctober, 2019 on the
definition of gross revenue as per the UASL agreement and the liability on
licence fee and spectrum usage charges of Rs. 441,500 million payable within 90
days from the Supreme Court judgment and breach of debt covenants, its ability
to generate the cash flow that it needs to settle, or refinance its liabilities
and guarantees as they fall due resulting in a material uncertainty that casts
significant doubt on the holding company’s ability to make the payments
mentioned therein and continue as a going concern.

The said assumption of going concern is dependent upon the holding
company obtaining the reliefs from the government as discussed in Note 5,
positive outcome of the proposed legal remedy. Our conclusion is not modified
in respect of this matter.

BCAJ Admin

ETHICS AND U

Shrikrishna: Yes, my dear
Arjun, you seem to be in a relaxed mood today. All tension over?

Arjun: Hmm! I wish I could be
really relaxed. But in our profession there is no room for relaxation. It is
not in a CA’s destiny at all.

Shrikrishna: Why are you so
sceptical? All professions, or rather, all people are sailing in the same boat
today.

Arjun: That is true. But almost
all practising CAs I know are fed up with practise. Many are giving up their
COP. Their next generation is keeping itself away from traditional practice.

Shrikrishna: I am told even
the large firms are shying away from assurance function. Then who will do the
audits?

Arjun: That is really a problem.
Government should think about it seriously. Many of us feel that all small and
medium entities should be exempted from audit. That the turnover limit should
be respectably high. Other criteria also should be liberal.

Shrikrishna: Arjun, you
feel so because you are staying in a metro city. Have you thought of your
professional brothers staying upcountry? They will literally starve if audit
work is gone.

Arjun: Yes. That’s a point. But
then, what’s the solution? We slog so much even for a small audit and take so
much tension, but there is no proportionate remuneration. The regulations are
too strict for a small entity to comply.

Shrikrishna: I agree. For
this I feel you should be more serious about collective thinking and action
among your members. In your study circles, you brainstorm only on academics.
Instead, you should devote more time to think about how to tackle this chronic
issue. Think of the fate of the profession.

Arjun: True. And on the top of it,
the sword of disciplinary action is always hanging on our heads. I don’t see
any ray of hope. Everything is gloomy.

Shrikrishna: That’s another
problem. You people are very keen to learn all other laws that you are dealing
with in the practice but you are not that serious about knowing and updating
yourself about your own CA Act!

Arjun: Why? What happened? Is
there any change?

Shrikrishna: Yes. There is
a change in both the parts of your Code of Ethics.

Arjun: Both the parts? I didn’t
even know that there are two parts! I only know that COE is very frightening.

Shrikrishna: Ha! Ha! Ha! Arey,
Arjun, Part A is more about principles applicable internationally. New
concepts, new thinking, new principles which are universally recognised. Our
Indian Code is expected to be in tune with this international thinking. That’s
in Part B.

Arjun: Ahh! Who is bothered about
such philosophy? Let them change Part A as many times as they like. Tell me
what matters to me.

Shrikrishna: That’s the
problem! You are not awakened enough about your profession. Part A has already
been changed and your Institute has already published it a few months ago. Now,
they are changing Part B – i.e., your Indian Code of Ethics.

Arjun: Where is that new thing?
When is it applicable?

Shrikrishna: They have
already circulated the Exposure Draft for your comments. The Institute cannot
change the provisions of law or the schedules. That is to be done by
Parliament. The Institute expresses its views and interpretations in its
commentary. That is sought to be changed.

Arjun: I will see when it becomes
applicable.

Shrikrishna: Arjun,
this approach is wrong. You are sleeping over such things. Not awakened about
the proposed changes. And then you keep
crying after it becom-es applicable – when it is too late! You need to be
proactive.

Arjun: I agree.
So what should we do?

Shrikrishna: You
should sit in a group and study the proposed changes and their impact. And send
representations to the Institute.

Arjun: Let me
first study it for myself. I’m sure none of my friends would know about it. But
next time we will discuss the changes so that I can take more care.

Shrikrishna: Sure.

Om Shanti.

(This dialogue is based on the need to study
the exposure draft on changes in the Code of Ethics – Part B. Details will be
discussed in the next write-up)

BCAJ Admin

CORPORATE LAW CORNER

9. Neena Somani vs. Jaiprakash Associates Ltd.[2019] 111 taxmann.com 293 (NCLT, All.) Date of order: 13^thSeptember, 2019

Petition filed by depositors u/s 73 of the
Companies Act 2013 (CA 2013) for recovery of interest due is maintainable in
case of deposits accepted by company even prior to 1^st April, 2014,
i.e., date on which section 73 of CA 2013 is notified – Depositors entitled to
interest payment from the date of maturity till actual payment is made

FACTS

‘N’ had invested her money in the company J
in different fixed deposit receipts (FDRs). However, company J had not repaid
the FDRs on the date of maturity and also not paid the interest for additional
time period for which the money of the investors was kept with it.

‘N’ had sent some claim letters to
company J about non-payment of due interest after maturity period of FDRs and
approached company J several times, but had not received any satisfactory
response.

‘N’ filed petition u/s 73(4) of CA 2013
seeking direction to company J to make repayment of the interest due from the
date of maturity till the date actual payment was released.

Company J contended that the deposits in
respect of which the present petition had been filed were accepted by the
company before the commencement of the Companies Act, 2013, i.e., prior to 1^stApril, 2014. It was also submitted that the repayment of these deposits,
after the enforcement of CA 2013, was now governed by section 74 of CA 2013 and
not by section 73 of CA 2013 under which the present petition had been filed.

HELD

It was observed that NCLT has held in the
past that it is not the intention of the legislature to differentiate between
depositors prior to or after 1^stApril, 2014. The remedies cannot be
any different nor can they be categorised into two separate groups. Rule 19 of
the Companies (Acceptance of Deposits) Rules, 2014 clarifies the applicability
of the provisions of sections 73 and 74 of CA 2013 to deposits accepted from
the public by eligible companies, prior to or after the coming into force of
the 2013 Act. The term deposit would mean and include all previous deposits
accepted by the company.

In Jaiprakash Associates vs. Jainendra
Sahai Sinha (in the matter of another depositor of company J) the
Supreme Court had held company J liable to pay interest at the rate of 12/12.5%
per annum from the date of maturity till the actual payment.

As per section 74(2) of CA 2013, the
Tribunal may, on an application made by the company, after considering the
financial condition of the company, the amount of deposit or part thereof and
the interest payable thereon and such other matters, allow further time as
considered reasonable to the company to repay the deposit.

A mere plain reading of the provision shows
that by exercising the power, the Tribunal allows time as it may consider
reasonable to the company to repay the deposit, and since the Tribunal simply
regularised the belated payment which was made by company J to the depositors
by extending the time to make the payment u/s 74(2) of CA 2013, the order of
the Tribunal will not debar ‘N’ from getting the interest after the maturity
till the date the actual payment is made.

Therefore, the Tribunal held that in view of
the order passed by the Supreme Court in another case, the petitioners were
entitled to get the interest at the rate of 12/12.5% p.a. from the date of
maturity till the date the actual payment is released to the depositors. Hence,
‘N’ and other depositors are entitled to get the interest at the rate of
12/12.5% p.a. from the date of maturity till the date payment is released to
‘N’ and other depositors.

Thus, company J was directed to make the
payment to ‘N’ at the rate of 12/12.5% p.a. from the date of maturity till the date the actual payment is released to ‘N’ and other depositors.

BCAJ Admin

REPRESENTATIONS

1. Dated: 2^nd
December, 2019

To: The
International Co-operation and Tax Administration Division Centre for Tax
policy and Administration OECD

Subject: Comments
and Suggestions for Pillar 2-Global Anti-Base Erosion (‘GloBE’) Proposal

Representation by:
International Taxation Committee of Bombay Chartered Accountants Society

2. Dated: 19^th
December, 2019

To: Shri Pramod
Chandra Mody, Chairman, Central Board of Direct Taxes, New Delhi

Subject:
Representation on Processing Returns for A.Y. 2019-20; Ref: Section 143(1)(a)
and section 139(9)

Representation by:
International Taxation Committee of Bombay Chartered Accountants Society

Note: For full Text of the above
Representation, visit our website www.bcasonline.org

BCAJ Admin

GOODS AND SERVICES TAX (GST)

I. HIGH COURT

21. [2019] (29) GSTL 5 (Ker.) Hyundai Construction Equipment India Pvt.
Ltd. vs. State Tax Officer, Kasargod Date of order: 9^th August, 2019

Bank guarantee cannot be encashed before expiry of the
time period to file the appeal is over

FACTS

A
writ petition was filed by the petitioner on the grounds that the respondent
had invoked extraordinary jurisdiction by not accounting for the submissions
and explanation in the records and by ordering encashment of the bank guarantee
before the period for filing the appeal expired.

HELD

The
Hon’ble Court perused the facts of the case and held that the respondent should
have recorded the explanations offered under any given circumstances, even in
case of any delay. Further, that the invocation of bank guarantee even before
the expiry of period of appeal can be deferred by passing appropriate orders,
and thus directed the respondent to not encash the bank guarantee for a period
of 90 days.

22. [2019]
(29) GSTL 29 (Mad.) Assistant Commr. of CGST & C. Ex. vs.
Daejung Moparts Pvt. Ltd. Date of order: 23^rd July, 2019

Interest on delayed payment of tax to be calculated on
net tax payable by cash only

FACTS

A
writ petition was filed by the petitioner because the AO calculated interest
amount on gross output tax liability without considering the balance in the
electronic credit ledger and the bank account was sealed for the amount
calculated by the AO. The petition was allowed by the learned Single Judge
observing that the AO was bound to hear the aforesaid objections of the
assessee in determining the correct liability of interest. Further, the Judge
directed the bank to deposit the admitted liability for interest u/s 50 of the
Act to the extent calculated by the assessee. Revenue filed an intra-court
appeal against the judgment passed by the Single Judge.

HELD

The
Hon’ble Chief Justice held that the judgment passed by the Single Judge was
correct. The liability of interest arises on net tax liability and the bank
account was operative with the exception of aforementioned admitted sum which
shall be paid by the bank to the Assistant Commissioner of CGST and Central
Excise.

23. [2019] (29) GSTL 6 (Bom.) Ashish Jain vs. Union of India Date of order: 13^th July, 2019

Offences like issue of fake invoices without supplying
goods and fraudulent availment of input tax credit are cognisable and
non-bailable as per section 132(5) of CGST Act

FACTS

In
the given case, the assessee fraudulently availed input tax credit by issuing
fake invoices to fictitious companies without supplying any goods. For this the
Department issued summons under the CGST Act, 2017. The petitioner contended
that investigation cannot be commenced without following the procedure of
section 154 or 155 of the Criminal Code, i.e., the authority first has to
register an FIR and then investigate the case.

HELD

The
Hon’ble High Court relied on the decision of the Union of India vs. Sapna
Jain (Supreme Court) wherein it was held that the Apex Court had
refused to entertain the special leave petition. In the present case, the order
of the Apex Court in the case of Sapna Jain (Supra) was
considered final and thus did not grant any relaxation to the assessee from the
arrest warrant.

24. [2019-TIOL-3411-CESTAT-CHD.] M/s Fresenius KabiOnclogy Ltd. vs. Commissioner, CGST Date of order: 6^th November, 2019

Subsequent reversal of credit in TRAN-1 is sufficient
compliance of refund claimed under Notification No. 27/2012-ST which requires
reversal of service tax claimed as refund

FACTS

The
appellant availed input services for export of goods. It filed a refund claim
under Rule 5 of the CENVAT Credit Rules, 2004 read with Notification No. 27/2012-ST
dated 18^th June, 2012. As per the condition of the notification, the
CENVAT credit availed on the services is required to be reversed. It is alleged
that since the credit availed on the services is not reversed, the refund is
liable for rejection. Both the authorities below have rejected the claim and
therefore the present appeal is filed.

HELD

The
Tribunal, relying on the decision in the case of Global Analytics India
Pvt. Ltd – Final Order No. 40942-40943/2019 dated 22^nd July, 2010
holding that there was no provision in the ACES system to debit the value of
refund and also the fact that the entire credit which was carried forward in
TRAN-1 stood reversed by the appellant voluntarily in its GSTR3B filed for the
month of April, 2018, is sufficient compliance of the condition of the
Notification. The refund is accordingly allowed.

II. AUTHORITY FOR ADVANCE RULING
[AAR]

25. [2019]
(29) GSTL 778 (AAR – Mah.) Jotun India Pvt. Ltd. Date of order: 4^th October, 2019

Recovery of insurance premium from the employees is not
an activity in the course or furtherance of business as applicant was not
involved in business of insurance

FACTS

The
applicant, a manufacturer, supplier and exporter of paints and powder coating,
introduced an optional parental insurance scheme for employees’ parents. It
initially paid the entire premium and then recovered 50% of the premium from
their salary in instalments. The scheme was not the business of the applicant.
The insurance was taken with the Oriental Insurance Company Ltd. Besides,
providing parental insurance cover was not mandatory under any law.
Non-provision of parental insurance would not affect the business of the
applicant by any means.

HELD

The
term ‘supply’ u/s 7 and ‘business’ u/s 2(17) of the CGST Act, 2017 were
referred for analysing the activity of the applicant and it was found that
provision of mediclaim policy for the employees’ parents was not mandatory
under any law. Non-provision of parental insurance would not affect the
business of applicant by any means. ARA of ‘Posco India Pune Processing
Center Private Limited-AAR 2019 (21) G.S.T.L. 351’ was confirmed
wherein it was held that ‘they are not rendering any service of health insurance
to its employees, hence there is no supply of service in instant case’. Thus,
the activity of recovery of 50% of cost of insurance premium was not treated as
an activity done in the course or furtherance of business.

26. [2019-TIOL-493-AAR-GST] Ex-Servicemen’s Resettlement Society Date of order: 29^th November, 2019

GST is payable on the bonus paid by the recipient of the
service to provider of service as the persons deployed are not the employees of
the service receiver

FACTS

The
applicant is a registered society providing security services and scavenging
services to various hospitals under the State Government. They seek a ruling as
to whether they are liable to pay GST on the portion of the payment received on
account of the bonus paid or payable to the persons it deploys as security
personnel.

HELD

The
Authority noted that the security personnel engaged are at no point of time
employees of the State Government. The assessee is an employer of the security
personnel deployed and is responsible for paying all statutory dues and payment
of bonus at the Government approved rate. Since the agreement does not create a
master and servant relationship between the recipient of service and the
security personnel, payment received from recipient on account of bonus is not
guided by paragraph 1 of Schedule III. The applicant is, therefore, liable to
pay GST on the portion of the payment received on account of bonus paid or
payable to the persons it deploys as security personnel.

27. [2019-TIOL-448-AAR-GST] M/s Santosh Distributors Date of order: 16^th September,
2019

Since prices are determined by the principal company, the
discounts reimbursed are liable to be added to the value of supply. Further,
input credit is not required to be reversed for commercial credit notes
received

FACTS

The
applicant is paying the tax due as per the invoice value issued and availing
the input credit of GST shown in the inward invoice received from the principal
company or their stockist. The question before the Authority is whether
additional discount provided by the principal company attracts GST and whether
the amount shown in the commercial credit note requires any proportionate
reversal of credit.

HELD

The
Authority noted that the price of the products supplied is determined by the
supplier / principal company and they have no control over the same. Therefore,
it is evident that the additional discount given by the supplier which is
reimbursed to the applicant is a special reduced price and such additional
discount is liable to be added to the consideration payable by the customer to
the distributor / applicant to arrive at the value of supply in terms of
section 15 of the Act. Further, the supplier of goods / principal company
issuing the commercial credit note is not eligible to reduce its original tax
liability and hence applicant will not be liable to reverse the input tax
credit.

III. APPELLATE AUTHORITY FOR ADVANCE RULING [AAAR]

28. [2019 (29) GSTL 773 (App. AAR – GST)] Malli Ramalingam Mothilal Date of order: 7^th August, 2019

Payment of shortfall of statutory fees for filing appeal
before appellate authority sufficient cause for condoning the delay

FACTS

The
appellant filed an appeal before the Appellate Advance Ruling Authority along
with fees of Rs. 5,000 each under CGST and SGST instead of Rs. 10,000 each
under CGST & SGST. Subsequently, the appellant paid additional amount of
Rs. 5,000 each under CGST and SGST.

HELD

The
Appellate Authority accepted the appeal holding that deficiency was made good
within the further period of 30 days as provided in the law. Therefore, the
lacuna was condonable.

BCAJ Admin

SERVICE TAX

I. TRIBUNAL

16.
[2019-TIOL-3424-CESTAT-Del.] M/s Gurnani Infra Developers Pvt. Ltd. vs. The
Commissioner, Central Goods and Services Tax Date of order: 1^st October, 2019

Balance sheet shows
an advance recoverable in cash as being paid towards the service tax, there is
therefore no question of unjust enrichment

FACTS

The appellant
received a taxable service and had been depositing the service tax under
reverse charge mechanism. Since they were not liable to discharge the liability
under reverse charge mechanism, they filed a refund claim. The claim was
acknowledged but it was held that the same was hit by unjust enrichment and
therefore the amount was to be transferred to the Consumer Welfare Fund.
Accordingly, the present appeal was filed.

HELD

The Tribunal, on
perusal of the balance sheet, noted that till the time of filing the impugned
refund claim, an advance recoverable in cash as being paid towards the service
tax is shown. There is, therefore, sufficient evidence otherwise on record to
falsify any charge of unjust enrichment. The order is accordingly set aside and
the appeal is allowed.

17. [2019
(29) GSTL 441 (Tri.-Del.)] IDP Education India Pvt. Ltd. vs. Commissioner of
C. Ex., Delhi-IV Date of order: 8^th May, 2019

Conducting test does
not amount to commercial training or coaching services

FACTS

The present appeal
was filed by the appellant who operates the business of International English
Language Test Centres from various locations in India under license agreement with
IELTS Australia. The practice material was available on the website of the
appellant who was not engaged in training and coaching for preparation for the
said test. The test was required to be conducted in two modules, namely,
academic module and general training module. The appellant had sub-contracted
the services for conducting the tests. He received the fees for the test
directly from the students and remitted the respective share to IELTS Australia
and the sub-contractor after retaining certain amount. No service tax was paid
for the period April, 2012 to June, 2012. The Department passed an order
confirming demand of service tax treating the activity of the appellant to be
coaching and training services.

HELD

The Hon’ble Tribunal
held that the agreement clearly stipulated that holding of the IELTS Test by
the appellant was itself a skill and nothing in the agreement required the
appellant to coach or train the candidates. Besides, no consideration was
earmarked for such test. Conducting the test cannot be considered as imparting
skill or knowledge by any stretch of imagination. Therefore, the order was set
aside, thus allowing the appeal.

18.
[2019-TIOL-3393-CESTAT-Hyd.] M/s ArunExcello Foundation vs. Commissioner of GST
and Central Excise Date of order: 8^th November, 2019

Excess payment of
service tax can be adjusted in any month or quarter within a reasonable time as
per Rule 6(4A) of the Service Tax Rules, 1994

FACTS

The appellants made
excess payment of service tax from April, 2015 to June, 2016. This was adjusted
in the return of September, 2016. A show-cause notice was issued to them
alleging that the adjustment of the excess service tax made is against the
provisions of law and not in order. Since the appeal was rejected by Commissioner
(Appeals), the present appeal was filed.

HELD

The Tribunal held
that the Rule intends to adjust excess payment in order to avoid the hassles of
a refund claim. When there is already an excess amount in the hands of the
Revenue, while making such adjustment there is no revenue loss and, in fact,
the Revenue is enriched by the interest on the excess amount till the
adjustment. The word ‘immediate’ being absent in the Rule, the only
interpretation possible is that the assessee can adjust the excess payment to
any succeeding month or quarter when he has service tax liability. Further,
such adjustment should be made within reasonable time. The adjustment is in
accordance with Rule 6(4A) of the Service Tax Rules, 1994 and therefore
allowed.

19. [2019-TIOL-3327-CESTAT-Kol.] M/s Etrans Solutions Pvt. Ltd. vs. Commissioner of
CGST and Central Excise Date of order: 30^th July, 2019

When credit
attributable to exempted services is reversed, Revenue cannot insist that
option (3)(i) under Rule 6 of the CENVAT Credit Rules, 2004 of payment of 6% of
the value of exempted services should be followed by the assessee

FACTS

The assessee is
engaged in the provision of services as well as trading of goods. It maintains
a common balance sheet for its manufacturing as well as trading activity. The
short issue that arises for consideration is whether the assessee is required
to pay 6% of total sale value of the goods traded by it in terms of Rule
6(3)(i) of the CENVAT Credit Rules, 2004 when it paid the actual credit
attributed to the quantum trading sale in terms of Rule 6(3A) along with
interest following the option available under Rule 6(3)(ii) of the Rules.

HELD

The
Tribunal, relying on the decision in the case of M/s Mercedes Benz India
(P) Limited vs. Commissioner of Central Excise, Pune-I
[2015-TIOL-1550-CESTAT-Mum.], held that the main objective of Rule 6 is
to ensure that the assessee should not avail the CENVAT Credit in respect of
input or input services which are used in or in relation to the manufacture of
the exempted goods, or for exempted services. If this is the objective, then at
the most the amount which is to be recovered shall not be in any case more than
the CENVAT Credit attributed to the input or input services used in the
exempted goods. The Tribunal noted that the appellant reversed the
proportionate common credit taken on input services used in trading of goods
along with interest thereon. Therefore, Rule 6(3)(i) will not have any
application. The appeal is accordingly allowed.

BCAJ Admin

MISCELLANEA

I. Technology

10. What
are the most promising technologies for software development?

Software is the
driving force of the world today. With an estimated 9 trillion devices in use,
software is the glue that connects people from all around the globe. The
software developers that build and develop these software products are shaping
and building the modern technological world. The developer population had been
estimated to hit approximately 26.4 million by this year. Yet, even after the
increasing number of developers, there seems to be a talent shortage.

Change is the only
constant on this planet. The software industry is one of those sectors in
contemporary times that witnesses a constant change in practices due to the
ever-growing technological landscape. Software developers and professionals
need to keep themselves updated with the latest technologies and innovations in
order to compete and get the best possible position and pay.

In recent years, the
IT industry has seen tremendous growth. In a report by Gartner in 2018, it is
predicted that the industry will witness a growth of 8.3% in 2019 in its
spending.

Some of the
technologies that seem to have the most promising future are:

Mixed
Reality

Mixed reality is a
combination of the twin technologies of virtual reality (VR) and augmented
reality (AR). Experts predict that by 2025 the market size of mixed reality
will reach US $3.7 billion.

AR has seen a
tremendous amount of growth recently and the credit for this goes solely to its
applications on smartphones. The popularity of smartphones is one of the major
reasons why companies are hiring AR developers in large numbers and investing
in their own AR applications.

Many people assume
that the applications and the scope of VR are limited to gaming and
entertainment. But effective applications by companies and armies around the
world have proved this notion wrong. The US Army has used Microsoft’s HoloLens
mixed reality technology for military training purposes. Similarly, Walmart is
also planning to utilise VR technology to train employees in customer service
and compliance.

Progressive
web applications

Progressive web
applications (PWAs) are a hybrid of mobile and web applications. They differ a
lot from the regular mobile application. The service worker script is an
integral part of PWAs on which they majorly work. PWAs have a number of
features such as responsiveness, connectivity independence, safety,
linkability, etc. The main feature of PWAs includes its offline support, where
the application is supposed to be able to work without a connection. These
applications can be loaded very fast even with low internet speed. For example,
Uber’s PWA was designed to run even on 2G speeds. The core app is a mere 50KB
and takes just three seconds to load on 2G speeds. PWAs are also very good for
customer engagement. Trivago saw an increase of 150% for the people who add its
PWA on their home screen. Trivago also observed a 97% increase in hotel offer
clickouts owing to the increased customer engagement.

Additionally, they
are very easy to develop and maintain. This, in particular, has attracted many
mobile developer companies in the past few years.

Machine
Learning and Artificial Intelligence

A total of 91 machine
learning deals were carried out last year with a business value of US $16.9
billion. According to Deloitte, approximately 100,000 legal jobs will be automated
by 2036. Automation and machine learning are here to stay and are going to make
a huge difference and change the way organisations operate.

Machine learning
allows organisations to customise the customer experience and helps target the
company’s efforts. For example, Facebook implements statistical analysis and
predictive analytics together to find patterns based on data. It helps Facebook
to personalise the newsfeed for each individual, suggest interesting content,
posts and to improve user engagement. In addition, Facebook uses neural
networks on images to suggest members to tag in the picture.

Artificial
intelligence aims to be able to improvise business tasks and make them simple.
The advent and popularity of artificial intelligence has provided the web app
developers brilliant support to experiment. This has broadened the reach of AI
to sectors like healthcare, banking, education, mathematics, etc.

IoT

Internet of Things
(IoT) covers various categories of devices that are connected to the internet
and communicate with each other. The applications of IoT are present in both
the consumer and the industrial domains. In areas such as security and customer
experience, IoT is experiencing exponential growth and demands.

According to David
Evan, a former researcher at Cisco, each second about 127 devices are being
connected to the internet. This clearly signifies the constantly increasing
reach of IoT.

Over 90% of
automobiles are expected to be IoT-enabled by 2020. In the coming years, IoT
will continue to grow in prevalence and get more sophisticated. From smart cars
to in-store smart assistants for customer personalisation, the future holds a
lot of value for IoT. Enterprises will come closer to an intelligently
connected future by embracing real-time visibility.

CONCLUSION

The evolution of
software technologies provides a clear insight into the type of developments
ongoing in the information technology industry. Developers all around the world
are working to improve the convenience and comfort level of humans. With
traditional developments like Java application development, .NET development,
etc., developers need to keep themselves updated with the emerging technologies
and trends.

Similarly, it is
vital for organisations to adopt these new technologies in order to expand and
compete with their competitors. Consultancy companies can provide greater
insights into these new technologies and help businesses become software
leaders.

(Source:
International Business Times – By IBTimes Staff Reporter, 18^thDecember,
2019)

11. New
mobile number portability rules kick in: All you need to know

The revised mobile
number portability or MNP rules issued by the telecom regulator TRAI came into
effect from December 16. The new rules are slated to make the porting process
fast and simple.

The revised process
comes with conditions for generation of Unique Porting Code (UPC). It entails
three working days’ timeline for port out requests within a service area, and
five working days for requests for port out from one circle to another.

Here are the other
details:

*For corporate mobile
connections, there is no change in the porting timelines, TRAI stated;

* Mobile users can
generate the UPC and avail the mobile number porting process;

* In the new process,
the UPC can be generated only when the subscriber is eligible to port out his /
her mobile number;

* Laying down the
rules for the new process, the Regulator said a positive validation of various
conditions will determine the generation of the UPC;

* For instance, in
case of post-paid mobile connection, the subscriber has to ensure clearance of
outstanding dues towards the existing telecom service provider for the issued
bills as per normal billing cycle;

* Some other
conditions include activation in the present operator’s network of not less
than 90 days; and no pending contractual obligations to be fulfilled by the
subscriber as per the exit clause provided in the subscriber agreement;

* Once UPC is
generated, it will be valid for four days for all ‘Licensed Service Areas
(LSAs)’ except the circles of Jammu & Kashmir, Assam and North-East, where
it will remain valid for 30 days.

* Users will need to
submit address and identity proof to the changing operator to begin the MNP
request.

(Source:
Times of India.com – 16^th December, 2019)

II. Economy

12. Government
imposes restrictions on import of gold, silver

According to a
notification issued by the Directorate-General of Foreign Trade (DGFT), import
of gold in any form has been placed in ‘restricted’ category from ‘free’
category.

Amid
rising inward shipments of gold, the Government imposed restrictions on the
import of precious metals. According to a notification issued by the
Directorate-General of Foreign Trade (DGFT), import of gold in any form has
been placed in ‘restricted’ category.

‘Import
policy of gold in any form, other than monetary gold and silver in any form, is
amended from “Free” to “Restricted”; import is allowed only through nominated
agencies as notified by RBI (in case of banks) and DGFT (for other agencies),’
the Directorate said. However, import under advance authorisation and supply of
gold directly by foreign buyers to exporters against orders have been exempted.
The restrictions come in the backdrop of rising imports of gold, which rose by
6.59% to USD 2.94 billion in November from USD 2.76 billion a year-ago.

(Source: Financial
Express – By PTI, 18^th December, 20

BCAJ Admin

ALLIED LAWS

15. Advocate –A
client is not bound by a statement or admission which he or his lawyer was not
authorised to make – There is no estoppel against law [Advocates Act,
1961, S. 35]

Director of
Elementary Education, Odisha and Ors. vs. Pramod Kumar Sahoo; AIR 2019 SC 4755

The counsel for
the appellant conceded before the Tribunal that teachers having Intermediate
qualification are entitled to the scale of pay as is available to trained
Matric teachers. On the basis of such concession, the learned Tribunal allowed
the original application. The counsel for the appellant submitted that separate
pay scales are provided for untrained Matric teachers and for trained Matric
teachers. Merely because the respondent is Intermediate, that is, a higher
qualification than Matric does not make him a trained teacher. Therefore, the
concession given by the State counsel is an erroneous concession in law and
does not bind the appellant.

The Court
observed that generally, admissions of fact made by a counsel are binding upon
their principals as long as they are unequivocal; however, where doubt exists
as to a purported admission, the Court should be wary about accepting such
admissions until and unless the counsel or the advocate is authorised by his
principal to make such admissions. Furthermore, a client is not bound by a
statement or admission which he or his lawyer was not authorised to make. A
lawyer generally has no implied or apparent authority to make an admission or
statement which would directly surrender or conclude the substantial legal
rights of the client unless such an admission or statement is clearly a proper
step in accomplishing the purpose for which the lawyer was employed. The Court
added that neither the client nor the Court is bound by the lawyer’s statements
or admissions as to matters of law or legal conclusions.

Accordingly, it
was held that the concession given by the State counsel before the Tribunal was
a concession in law and contrary to the statutory rules. Such concession is not
binding on the State for the reason that there cannot be any estoppel
against law. The rules provide for a specific grade of pay; therefore, the
concession given by the learned State counsel before the Tribunal is not
binding on the appellant. The original application filed by the respondent was
dismissed on merits.

16. Advocate –
Legal advice – Negligence – Advocate is not liable unless guilt proved [Indian
Penal Code, S. 420, 467, 468, 471 & 120B]

Subha Jakkanwar W/o Arun Jakkanwar vs. State of Chhattisgarh, Criminal
Misc. petition No. 1614 of 2017; Date of order: 26^th November, 2019
(CHH)(HC)

Ten borrowers
made an application to a bank for a loan. The bank requisitioned a
non-encumbrance certificate, which was provided by the petitioner who was the
empanelled advocate of the bank. The petitioner certified the application qua
the lands held by the borrowers for the grant of loan. The borrowers failed to
repay the loan. It was seen that the borrowers had submitted false and
fabricated documents. The question arose as to whether the advocate
(petitioner) could be incriminated for issuing a non-encumbrance certificate
negligently.

The High Court
observed that extending of a legal opinion for granting loan has become an
integral component of an advocate’s work in the banking sector. A lawyer on his
part has a responsibility to act to the best of his knowledge and skills and to
exhibit an unending loyalty to the interests of his clients. He has to exercise
his knowledge in a manner that would advance the interest of his clients.
However, while doing so, the advocate does not assure his client that the
opinion so rendered by him is flawless and must in all possibility act to his
benefit. Just as in any other profession, the only assurance which can be
given, and may even be implied from an advocate so acting in his professional
capacity, is that he possesses the requisite skills in his field of practice
and while undertaking the performance of a task entrusted to him, he would
exercise his skills with reasonable competence.

The only
liability that may be imputed to an advocate while so acting in his
professional capacity is that of negligence in application of legal skills, or
due exercise of such skills, or when an opining advocate is an active
participant in a plan to defraud the bank. Merely because his opinion may not
be acceptable he cannot be criminally prosecuted, particularly in the absence
of direct evidence against him.

It was held
that in the instant case the petitioner was neither named in the written
complaint nor in the FIR. Only in the statements of three branch managers for
the first time was the advocate’s name indicated stating that with an intention
to extend pecuniary advantage to the farmers, the non-encumbrance certificate
was issued in their favour which was found to be not acceptable by the bank and
also found to be untrue. There is no basis on record for making such a
statement except that the non-encumbrance certificate was not found proper.
There is no evidence on record to hold that the petitioner met the accused
persons at any point of time and there is no allegation that she gained any
pecuniary benefit as a result of preparing such a report; except for the
statements of three branch managers of Dena Bank that the report was false,
there is no material to show that the petitioner at any point of time was
involved in any criminal conspiracy with any of the accused persons to commit
the offence alleged against her.

Accordingly, even
if the allegations are taken at their face value and accepted in their
entirety, the same do not disclose any commission of offence nor do they make
out a case against the petitioner. The Honourable Court relied upon the case of
K. Narayana Rao (2012) 9 SCC 512. Accordingly, the entire
charge-sheet as framed and filed against the petitioner was quashed.

17. Joint
family property – Inherited property – Any conveyance or compromise regarding
inherited property by few coparceners would not affect and bind the shares of
the other coparceners who were not a party to such conveyance / compromise
[Hindu Law]

Doddamuniyappa
(Dead) through L.R.S. vs. Muniswamy and Ors.; (2019) 7 SCC 193

The property
was originally purchased by propositus (sic) of the family, namely,
Chikkanna. After the death of Chikkanna, the property devolved to his three
sons who jointly sold the property in 1950 and the sale deed contained the
clause of re-conveyance requiring the purchaser to re-convey the property in
the event of sale. After the appellant purchased the subject property in 1962,
a civil suit was instituted for the re-conveyance of the property by the sons
of Chikkanna in the first instance which was dismissed by the trial court. On
the order of the High Court, the respondents put the decree to execution and a
deed of re-conveyance was executed and possession of the property was restored
to the respondents on execution of the decree; it assumed the character of a
joint family property in the hands of the respondents.

At the stage of
execution appeal, which was preferred at the instance of the appellant, a
compromise was executed between the parties and accordingly, part of the
possession of the subject property was restored to the appellant. After the
restoration of possession of the subject property, the title of the property
re-assumed its original character of joint family property and created the
right of inheritance in the joint family property; all the coparceners were
neither consulted nor made parties to the said compromise.

The Court held
that the respondents were not parties to the compromise and the subject
property at that time was joint family property and the compromise entered into
between the parties would not bind the rights of the respondents. It would be
an ancestral property in their hands and the respondents are neither party to
the proceedings nor consented when the compromise decree was executed in the
execution appeal; admittedly, the same would not be binding upon their share of
the property. It goes without saying that the compromise would bind the share
of the respondents as they are party to the compromise which was entered into
in the execution appeal and has been rightly recorded by the High Court under its impugned judgment.
Accordingly, the order of the High Court was upheld.

18. Limitation
– Residuary section of Limitation Act will apply when no limitation under any
other Act provided [Hindu Succession Act, 1925, S. 263; Limitation Act, 1963,
Article 137]

Jethmal Soni
vs. Hariom Soni and Ors.; AIR 2019 (CHH) 172 (HC)

An application
under section 263 of the Indian Succession Act, 1925 was filed for revoking a
probate granted by a probate court in favour of the petitioners. A preliminary
objection against the said application was filed before the trial court that
there was a delay of more than 90 days due to which the application was barred
by limitation. The trial court rejected the said preliminary objection finding
no merit in it and held that limitation for revocation of probate will be
governed by Article 137 of the Limitation Act, 1963; the date of knowledge
admittedly is 20^th December, 2013, and therefore the application so
filed is within the period of limitation. A writ petition was filed challenging
the order of rejecting the preliminary objection.

The Court in
the present petition held that the learned District Judge while dealing with
the application in question was acting as a civil court and, therefore, the
provisions of Article 137 of the Act of 1963 clearly govern the situation. In
view of the same, in case of application u/s 263 of the Act of 1925 for
revocation of probate, which is not governed by any specific Article of the Act
of 1963, the residuary Article 137 of the Act of 1963 would apply. It was held
that the correct position was that ‘the right to apply’ accrued to the
respondents only on 20^th December, 2013 and they filed an
application for revocation of probate on 27^th January, 2014, well
within the period of three years when the right to apply for setting aside
accrued to them. Thus, the learned District Judge was absolutely justified in rejecting
the preliminary objection filed by the petitioner.

BCAJ Admin

STATISTICALLY SPEAKING

BCAJ Admin

ALLIED LAWS

20. Securitisation
and Reconstruction of Financial Assets and Enforcement of Security Interest
(SARFAESI) Act, 2002, sections 2(c) and 5(c), Banking Regulation Act, 1949,
sections 5(b) and 6(1) – Co-operative banks – Definition of ‘banks’ – SARFAESI
Act – Power of the Central Government to legislate

Pandurang
Ganpati Chaugule vs. Vishwasrao Patil Murgud Sahakari Bank Limited; Civil
Appeal No. 5674 of 2009 (SC); Date of order: 5^thMay, 2020

Bench: Arun
Mishra J., Indira Banerjee J., Vineet Saran J., M.R. Shah J., Aniruddha Bose J.

FACTS

A question
arose with respect to the legislative field covered by Entry 45 of List I, viz.
‘Banking’ and Entry 32 of List II of the Seventh Schedule of the Constitution
of India, consequentially the power of the Parliament to legislate and the
applicability of the SARFAESI Act to co-operative banks.

HELD

The Supreme Court held that the
co-operative banks under the State legislation and multi-state co-operative
banks are ‘banks’ u/s 2(1)(c) of the SARFAESI Act and while state laws might
regulate co-operative societies regarding their incorporation, regulation and
winding up, the Parliament was competent to enact laws to regulate their
banking function.

Further,
recovery is an essential part of banking; as such, the recovery procedure
prescribed u/s 13 of the SARFAESI Act, a legislation relatable to Entry 45 List
I of the Seventh Schedule to the Constitution of India, is applicable.
Parliament has legislative competence under Entry 45 of List I of the Seventh
Schedule of the Constitution of India to provide additional procedures for
recovery u/s 13 of the SARFAESI Act with respect to co-operative banks.

21. Covid-19 –
Period of limitation – Applicable to Arbitration & Conciliation Act, 1996,
and Negotiable Instruments Act, 1881

Suo Motu
Writ Petition by the Hon’ble Supreme Court; Suo Motu Writ Petition No. 3
of 2020 (SC); Date of order: 6^th May, 2020

Bench: Chief Justice S.A. Bobde, Deepak
Gupta J., Hrishikesh Roy J.

Counsel: K.K. Venugopal, Tushar Mehta

FACTS

The Hon’ble
Supreme Court had in the same petition vide order dated 23^rd
March, 2020 held that to ease the difficulties faced by the litigants and their
lawyers across the country in filing their petitions / applications / suits /
appeals, irrespective of the limitation prescribed under the general law or
Special Laws whether condonable or not, shall stand extended w.e.f. 15^th
March, 2020 till further order/s to be passed by the Court in the present
proceedings. A clarification was sought with respect to the applicability of
the order to the Arbitration and Conciliation Act, 1996 and the Negotiable
Instruments Act, 1881.

HELD

The Supreme
Court has clarified that all periods of limitation prescribed under the
Arbitration and Conciliation Act, 1996 and u/s 138 of the Negotiable
Instruments Act, 1881 shall be extended with effect from 15^th March,
2020 till further orders.

It further held
that in case the limitation has expired after 15^th March, 2020, then
the period from 15^th March, 2020 till the date on which the lockdown
is lifted in the jurisdictional area where the dispute lies or where the cause
of action arises, shall be extended for a period of 15 days after the lifting
of the lockdown.

22. Partnership Act, 1932, sections 37 and 42 – Partnership firm – Only
two partners – Retirement of one partner – Dissolution – Accounts to be settled
accordingly

Guru Nanak Industries vs. Amar Singh
(deceased) through LR

Civil Appeal No. 6659-6660 of 2010 (SC);
Date of order: 26^th May, 2020

Bench: Sanjiv Khanna J., N.V. Ramana J.,
Krishna Murari J.

FACTS

The firm had two partners and one of them
agreed to retire. The dispute arose as to whether the same amounted to ‘dissolution of a partnership firm’ or ‘retirement of a partner’ as
the same would have a direct bearing on the accounting treatment for settling
of the accounts.

HELD

The Supreme Court held that there is a clear
distinction between ‘retirement of a partner’ and ‘dissolution of a partnership
firm’. On retirement of the partner, the reconstituted firm continues and the
retiring partner is to be paid his dues in terms of section 37 of the
Partnership Act. In case of dissolution, the accounts have to be settled and
distributed as per the mode prescribed in section 48 of the Partnership Act. In
the present case, there being only two partners, the partnership firm could not
have continued to carry on business as a firm. A partnership firm must have at
least two partners. When there are only two partners and one has agreed to
retire, the retirement amounts to dissolution of the firm.

23. Indian
Evidence Act 1872, sections 65 and 66 – Wills – Existence of a Will – Secondary
evidence to establish its existence

Jagmail Singh vs. Karamjit Singh; Civil
Appeal No. 1889 of 2020 (SC); Date of order: 13^th May, 2020 Bench: Navin Sinha J., Krishna Murari J.

FACTS

During the pendency of a land dispute, an
application under sections 65 and 66 of the Evidence Act was moved by the
appellants seeking permission to prove a copy of a Will dated 24^th
January, 1989 by way of secondary evidence. The application was made on the
ground that the said original Will was handed over by the appellants to revenue
officials for sanctioning the mutation in their favour. The revenue officials
were issued notice for production of the original Will dated 24^th
January, 1989 but they failed to produce the said Will. The application was
then dismissed.

HELD

The Supreme Court held that a perusal of
section 65 makes it clear that secondary evidence may be given with regard to
the existence, condition or the contents of a document when the original is
shown or appears to be in possession or power against whom the document is
sought to be produced, or of any person out of reach of, or not subject to, the
process of the Court, or of any person legally bound to produce it, and when,
after notice mentioned in section 66 such person does not produce it. It is a
settled position of law that for secondary evidence to be admitted foundational
evidence has to be given being the reasons as to why the original evidence has
not been furnished.

Further, during cross-examination the
(revenue) officials did not unequivocally deny the existence of the Will and
the scribe of the Will and another witness had admitted the existence of such a
Will. Therefore, the appellants would be entitled to lead secondary evidence in
respect of the Will in question. However, such admission of secondary evidence
does not automatically attest to its authenticity, truthfulness or genuineness
which will have to be established during the course of the trial in accordance with
law.

24. Covid-19 –
General law – Service of notices, summons and exchange of pleadings / documents

Suo Motu
Writ Petition by the Hon’ble Supreme Court; Suo Motu Writ Petition No. 3
of 2020 (SC); Date of order: 10^th July, 2020

Bench: Chief Justice S.A. Bobde, R. Subhash
Reddy J., A.S. Bopanna J.

Counsel: K. K. Venugopal, Tushar Mehta

FACTS

Service of notices, summons and exchange of
pleadings / documents is a requirement of virtually every legal proceeding.
Services of notices, summons and pleadings etc. have not been possible during
the period of lockdown because this involves visits to post offices, courier
companies or physical delivery of notices, summons and pleadings. The Supreme
Court took cognisance of this fact.

HELD

The Hon’ble Supreme Court held that such
services may be effected by e-mail, FAX, commonly used instant messaging
services, such as WhatsApp, Telegram, Signal, etc. However, if a party intends
to effect service by means of said instant messaging services, the party must
also effect service of the same document / documents by e-mail simultaneously
on the same date.

BCAJ Admin

REGULATORY REFERENCER

(BCAJ
earlier carried a feature called SPOTLIGHT for several years. Ever since
updates became nearly instant from several sources, it was stopped. However,
today the problem is of too many regulatory changes too frequently. Keeping
track of important updates is becoming increasingly difficult. This feature, in
this new avatar, seeks to bring a curated set of changes in Tax, Accounting and
Audit, and FEMA at one place every month)

DIRECT TAX

1. Employees, who have donated to PM CARES Fund,
can claim deduction u/s 80G based on the Form 16 issued by employer, since one
consolidated donation receipt will be issued by PM CARES Fund in the name of
the employer [F. No. 178/7/2020 – ITA – 1 dated 9^th April, 2020].

2. Clarification regarding short deduction of TDS
/ TCS due to increase in rates of surcharge by Finance (No. 2) Act, 20l9
[Circular No. 8/2020 dated 13^th April, 2020].

3. Clarification for employers for deduction of
tax from salary paid to employees, in respect of option u/s
115BAC of the Income-tax Act, 1961 [Circular No. C1/2020 dated 13^th
April, 2020].

4. In view of the prevailing situation due to the
Covid-19 pandemic across the country, reporting under clause 30C and
clause 44 of the Tax Audit Report kept in abeyance till 31^st
March, 2021 [Circular No. 10 /2020 dated 24^thApril, 2020].

5. Clarification on provisions of Direct Tax Vivad
se Vishwas Act, 2020 – Circular No. 9/2020 dated 22^ndApril,
2020 [Corrigendum to Circular No. 9/2020 – dated 27^th April,
2020].

6. Clarification in respect of exclusion of
number of days of stay in India for the purpose of determining residency
u/s 6 of the Act [Circular No. 11/2020 dated 8^th May, 2020].

7. The rates of Tax Deduction at Source (TDS) for
the non-salaried specified payments made to residents
have been reduced by 25% for the period from 14^th May, 2020 to 31^st
March, 2021 [Press Release dated 13^th May, 2020].

ACCOUNTS AND AUDIT

A. Extension
of the last date of filing of Form NFRA-2 – The time
limit for filing of Form NFRA-2 for FY 2018-19 will be 210 days from the date
of deployment of the form on the NFRA Website. [MCA General Circular No.
19/2020 dated 30^th April, 2020.]

B.
Communication with Retiring Auditor through E-mail – During
the lockdown period, members may communicate with the retiring auditor vide
e-mail. Acknowledgement must be received from the retiring auditor’s
Institute-registered / official e-mail address in which case the same would be
deemed to be valid evidence of positive delivery of communication. [ICAI’s
Decision dated 1^st May, 2020.]

C. Going
Concern – Key Considerations for Auditors amid Covid-19 – Auditing guidance
that focuses on implications of the pandemic for the auditor’s work related to
going concern and includes specific FAQs to deal with various situations in the
current environment. [ICAI’s Guidance dated 10^thMay, 2020.]

D.
Relaxation from publishing quarterly consolidated financial results under Reg
33(3)(b) of SEBI LODR – Listed entities that are banking
/ insurance companies or having subsidiaries that are banking / insurance
companies may submit consolidated financial results for the quarter ending 30^th
June, 2020 on a voluntary basis. However, they shall continue to submit the
standalone results. If such listed entities choose to publish only standalone
financial results, they shall give reasons for the same. [SEBI Circular No.
SEBI/HO/CFD/CMD1/CIR/P/2020/79 dated 12^th May, 2020.]

E. Physical Inventory Verification – Key Audit
Considerations amid Covid-19 – Auditing guidance covering
alternative audit procedures where it is impracticable for auditors to attend
physical inventory counting and related implications for the Auditor’s Report. [ICAI’s
Guidance dated 13^th May, 2020.]

F. Auditor’s Reporting – Key Audit Considerations
amid Covid-19 – Auditing Guidance covering impact of
Covid-19 pandemic on (i) the auditor’s report, (ii) reporting under CARO 2016,
and (iii) reporting on Internal Financial Controls with reference to Financial
Statements. [ICAI’s Guidance dated 17^th May, 2020.]

G. Advisory on disclosure of material impact of
Covid-19 pandemic on listed entities under SEBI (LODR) Regulations
– Listed entities encouraged to disclose impact of the pandemic on their
business, performance and financials. Illustrative list of disclosures
includes, estimation of the future impact of Covid-19 on operations; details of
impact on capital and financial resources; profitability; liquidity; debt
servicing ability; internal financial reporting and control; etc. [SEBI
Circular No. SEBI/HO/CFD/CMD1/CIR/P/2020/84 dated 20^th
May, 2020.]

FEMA

(I) In view of the Covid-19 pandemic, the period
of realisation and repatriation of the full export value of goods or software
or services for exports made up to 31^st July, 2020 has been
increased by the Reserve Bank of India from nine months to 15 months. The
similar period for exports to warehouses, however, remains unchanged at 15
months. [A.P. (DIR Series) Circular No. 27 dated
1^stApril, 2020.] The FEM (Export of Goods and Services)
Amendment Regulations, 2020 enabled the Reserve Bank to specify the period of
realisation and repatriation in the above cases in consultation with the
Government [FEMA 23(R)/(3)/2020-RB dated 31^st March, 2020].

(II) As per the announcement made in Union
Budget 2020-21, certain specified
categories of Central Government Securities (G-Secs) were to be opened up fully
for non-resident investors without any restrictions. RBI has now introduced
a separate route – ‘Fully Accessible Route’ (FAR) for such investment by
non-residents in G-Secs from 1^stApril, 2020. Its main features
are the following:

(a) FAR is available to eligible investors which
are defined as any ‘person resident outside India’ as per section 2(w) of FEMA.

(b) Investment can be made in all securities as
periodically notified by the RBI. The securities covered for this purpose, with
effect from 1^st April, 2020 are notified vide Circular No.
FMRD.FMSD.No.25/14.01.006/2019-20 dated 30^th March, 2020.

(c) There shall be no quantitative limit on
investment. The minimum residual maturity requirement, security-wise limit and
concentration limit would also not apply to investors under FAR.

(d) Existing investments by eligible investors in
specified securities shall be considered under FAR.

(e) FPIs have been provided one year to readjust
their investments to comply with the revised requirements under the Medium Term
Framework (MTF). Further, the MTF itself has been revised for FY 2020-21 vide
A.P. (DIR Series) Circular No. 30 dated 15^th April, 2020.

[FAR
Directions – A.P. (DIR Series) Circular No. 25 dated 30^th March,
2020.]

(III) Existing facilities for
non-residents and residents to hedge their foreign exchange risk on account of
transactions permitted under FEMA have been revised following the
announcement in the Statement on Developmental and Regulatory Policies dated
5^thDecember, 2019. The revised facilities broadly provide for:

(a) A User Classification Framework has now been
provided and authorised dealers shall offer derivative contracts to a user as
this framework. The framework classifies users as retail and non-retail users.
Non-retail users are all entities regulated by a financial sector regulator;
EXIM Bank, NABARD, NHB and SIDBI; companies with minimum net worth of Rs. 500
crores; and persons resident outside India other than individuals. All other users
are classified as retail users. Complex derivative contracts are not available
to retail users.

(b) Amongst other conditions, users may undertake
over the counter (OTC) currency derivative transactions for derivative
contracts involving Indian rupees up to US$ 10 million without the need to
evidence underlying exposure.

(c) Banks shall be provided with the discretion, in
exceptional circumstances, to pass on net gains on hedge transactions booked on
anticipated exposures in case specified conditions are met.

[A.P. (DIR
Series) Circular No. 29 dated 7^th April, 2020.]

The revised
directions were supposed to come into effect from 1^st June, 2020,
but have been postponed to 1^st September, 2020 in view of the
pandemic. Directions on the participation of banks in Offshore Non-deliverable
Rupee Derivative Markets issued vide A.P. (DIR Series) Circular No. 23
dated 27^th March, 2020 will come into effect from 1^stJune,
2020 as hitherto [A.P. (DIR Series) Circular No. 31 dated 18^th
May, 2020].

(IV) To counter opportunistic
takeovers / acquisitions of Indian companies during the current pandemic by
China, Regulation 6(a) of Non-Debt Instrument Rules has been amended to
provide that investment into India under Schedule I (Foreign Direct Investment)
will be allowed only with Government approval in the following cases:

(a) By an entity from a country which shares a land
border with India;

(b) Where the beneficial owner of an investment into
India is situated in a country which shares a land border with India, or is a
citizen of such a country;

(c) By a citizen of Pakistan or an entity
incorporated in Pakistan in sectors or activities other than defence, space,
atomic energy and such other sectors or activities prohibited for foreign
investment;

(d) Where transfer of ownership of any existing or
future FDI in an entity results in beneficial ownership of such entity falling
within restricted categories as per all the provisos mentioned in points
(a) to (c) above.

[Notification No. S.O. 1278 (E)
dated 22^nd April, 2020. Similar
amendment made to Para 3.1.1 of Consolidated FDI Policy 2017 vide Press Note No. 3 dated 17^th
April, 2020.]

BCAJ Admin

FINANCIAL REPORTING DOSSIER

This article
provides (a) key recent updates in the financial reporting global space;
(b) insights into an accounting topic, viz. convenience translation; (c)
compliance aspects of transition disclosure under Ind AS 116 from the
lessee’s perspective; (d) a peek into an international reporting practice in
the Auditor’s report; and concludes with (e) an extract from a
regulator’s speech from the past on MD&A disclosure

KEY RECENT UPDATES

Revised International Standard on Auditing (ISA 315)

On 19^th December, 2019 the IAASB issued ISA 315 (Revised
2019), Identifying and Assessing the Risks of Material Misstatement.
ISA 315 (Revised) sets out enhanced requirements and application material
to support the auditor’s risk assessment process. The revised ISA has enhanced
requirements related to exercise of professional scepticism,
separate focus on understanding the applicable financial reporting
framework, clarifications on which controls need to be identified
for the purposes of evaluating the design of a control, and determining whether
the control has been implemented and also considerations for using automated
tools and techniques incorporated within the application material of the standard.
A new Appendix (Appendix 6) has also been added to provide the auditor with considerations
for understanding general IT controls.

The revised ISA is
effective for audits of financial statements for periods commencing on or after
15^th December, 2021.

SEC Guidance on Reporting KPIs and Metrics in MD&A

On 30^th January, 2020 the US SEC issued a Guidance on
Management Discussion and Analysis (MD&A) related to disclosure of
Key Performance Indicators (KPIs) and metrics. SEC registrants are required to
discuss and analyse statistical data in the MD&A section that in the
company’s judgement enhances a reader’s understanding. Such information could
constitute KPIs and other metrics.

The SEC, based on
the issued guidance, expects the following disclosures to accompany the metric:
(i) a clear definition of the metric and how it is calculated, (ii) a
statement indicating the reasons why the metric provides useful information
to investors, and (iii) a statement indicating how management uses the
metric in managing or monitoring the performance of the business. A company
should also consider whether there are any estimates / assumptions underlying
the metric or its calculation and whether disclosure of such items is necessary
for the metric not to be materially misleading.

It may be noted
that examples of metrics to which the guidance applies include operating
margin, same store sales, sales per square foot, average revenue per user,
active customers, total impressions, traffic growth, employee turnover rate, number
of data breaches, etc.

USGAAP – Simplifying the Accounting for Income Taxes

The FASB issued
Accounting Standards Update (ASU) No. 2019-12 in December, 2019, Simplifying
the Accounting for Income Taxes, amending Topic 740, Income Taxes.
The ASU makes a number of amendments and is part of the FASBs USGAAP
simplification initiative. One such amendment relates to intra-period tax
allocation.

Intra-period tax
allocation is the process of allocating income tax expense (or benefit) to
components of income statement, i.e. continuing and discontinuing operations,
other comprehensive income and equity. Under extant USGAAP, the general
accounting principle is that an entity determines the tax expense / benefit for
continuing operations and then proportionally allocates the remaining tax
expense / benefit to other items. USGAAP made an exception to this general
principle in a situation when there was a loss in continuing operations and a
gain / surplus in OCI / discontinuing operations. The ASU has removed the exception
and the amended position is that ‘the tax effect of pre-tax income or
loss from continuing operations should be determined by a computation that does
not consider the tax effects of items that are not included in continuing
operations’. This has an impact in situations when income from
continuing operations is subject to a tax rate that is different from the tax
rate applicable to chargeable / capital gains on discontinued operations / OCI.

The amendment is
effective for public companies for fiscal years commencing 15^th
December, 2020. It may be noted that IFRS (IAS 12, Income Taxes) does
not explicitly provide guidance on such intra-period tax allocation.

RESEARCH: CONVENIENCE TRANSLATION

Introduction

Convenience
translation is ‘a display of financial statements or selected
portions of financial statements in a currency other than the
presentation currency, as a convenience to some users’.

Setting the
Context

An analysis of a
sample of four companies’ data based on their annual reports filed with the US
Securities Exchange Commission (SEC) is provided below.

It may be noted
that the ‘functional currency’ is the currency of the primary
economic environment in which an entity operates.

The ‘presentation currency’ (or the reporting currency) is the
currency in which the financial statements are presented.

Case Study 1: Baidu Inc. (Listed on NASDAQ)

GAAP for SEC filing

USGAAP

Functional Currency

US $

Reporting Currency

RMB

Extracts from the Income Statement and Balance Sheet for
the Year ended 31^stDecember, 2018

(Amount in millions)

2016 (RMB)

2017 (RMB)

2018 (RMB)

2018 (US$)

(Convenience Translation)

Total revenue

70,549

84,809

102,277

14,876

Net income

11,596

18,288

22,582

3,284

Total assets

251,728

297,566

43,279

Total equity

119,350

175,036

25,459

Convenience Translation

Translations of amounts from RMB into US$ for the
convenience of the reader have been calculated at the exchange rate on 31^st
December, 2018, the last business day in fiscal year 2018

Case Study 2: Honda Motor Co. Limited (Listed on NYSE)

GAAP for SEC filing

IFRS

Functional Currency

Japanese Yen

Presentation Currency

Japanese Yen

Extracts from the Income Statement and Balance Sheet for
the Year ended 31^stMarch, 2019

(Amount in millions)

2017 (JPY)

2018 (JPY)

2019 (JPY)

Convenience Translation

Total revenue

13,999,200

15,361,146

15,888,617

Net income

679,394

1,128,639

676,286

Total assets

19,349,164

20,419,122

Total equity

8,234,095

8,565,790

Convenience Translation

Case Study 3: Wipro Limited (Listed on NYSE)

GAAP for SEC filing

IFRS

Functional Currency

Indian Rupees

Reporting Currency

Indian Rupees

Extracts from the Income Statement and Balance Sheet for
the Year ended 31^stMarch, 2019

(Amount in millions)

2017 (INR)

2018 (INR)

2019 (INR)

2019 (US$)

(Convenience Translation)

Total revenue

550,402

544,871

585,845

8,471

Net income

85,143

80,084

90,173

1,302

Total assets

760,640

833,171

12,045

Total equity

485,346

570,753

8,252

Convenience Translation

The accompanying consolidated financial
statements have been prepared and reported in Indian Rupees, the functional
currency of the parent company. Solely for the convenience of readers, the
consolidated financial statements as at and for the year ended 31^st
March, 2019 have been translated into US$ at the exchange rate on
31^st March, 2019

Case Study 4: Infosys Limited (Listed on NYSE)

GAAP for SEC filing

IFRS

Functional Currency

Indian Rupees

Presentation Currency

US Dollar

Extracts from the Income Statement and Balance Sheet
for the Year ended 31^st March, 2019

(Amount in millions)

2017 (US $)

2018 (US $)

2019 (US $)

Convenience Translation

Total revenue

10,208

10,939

11,799

Net income

2,140

2,486

2,200

Total assets

12,255

12,252

Total equity

9,960

9,400

Convenience Translation

As can be seen from
the above table, Company 1 presents its financial statements in RMB although
its functional currency is US$. It also presents US$ figures for the latest
financial year based on a convenience translation converting all balance sheet
and income statement items at the year-end exchange rate.

Company 3 and 4
are India listed entities whose functional currency is the INR. Company 4 presents
its financial statements in US$ (applying IAS 21) while the other company
presents its financial statements in INR with a convenience translation of only
the current period figures in US$ [based on year-end exchange rate (applying
SEC Regulation S-X)].

In the following
sections an attempt is made to address the following questions:

1. What is the current position with respect to
convenience translation under prominent GAAPs?

2. Is there consistency among GAAPs with respect
to convenience translation?

3. Is there a difference between displaying
financial statements in a presentation currency (that is different from an
entity’s functional currency) and convenience translation of financial
statements?

4. Is convenience translation an option or mandatory
for a US listed entity?

5. Why do entities adopt convenience translation
if it is optional?

The position
under prominent GAAPs

US GAAP

USGAAP does not
contain any guidance on convenience translation. Even the SEC
regulations do not permit full-fledged convenience translations for foreign
private issuers (FPIs) with the exception of a ‘limited convenience
translation’.

The Accounting
Standards Codification (ASC 830) that covers the accounting topic Foreign
Currency Matters in USGAAP states that, ‘this topic does not cover
translation of the financial statements of a reporting entity from its
reporting currency into another currency for the convenience of readers
accustomed to that other currency’. (ASC 830-10-15-7).

US-listed
entities that are subject to SEC regulations may
at their option present convenience translation of financial statements.
The salient aspects of the said rule [Regulation S-X, Rule 3-20 (b)] are
summarised below.

a. An FPI shall state amounts in its
primary financial statements in the currency which it deems appropriate.

b. If the reporting currency is not the US
dollar, dollar-equivalent financial statements or convenience translations
shall not be presented, except a translation may be presented of the
most recent fiscal year and any subsequent interim period presented using
the exchange rate as of the most recent balance sheet, except that a rate
as of the most recent practicable date shall be used if materially different.

IFRS and Ind AS

IAS 21 The
Effects of Changes in Foreign Exchange Rates permits an entity to present
its financial statements in any currency or currencies.

IFRS also does not prohibit an entity from providing, as
supplementary information, ‘a convenience translation’. Such a
‘convenience translation’ may display financial statements (or selected
portion of financial statements) in a currency other than the presentation
currency as a convenience to some users. The ‘convenience translation’ may be
prepared using a translation method other than that required by the
Standard. These types of ‘convenience translations’ should be clearly
identified as supplementary information to distinguish them from information
required by IFRSs and translated in accordance with IAS 21 (para 57 and BC14).

The position under IND
AS 21 The Effects of Changes in Foreign Exchange Rates is the same
as under IAS 21.

AS 11 The
Effects of Changes in Foreign Exchange Rates does not contain any explicit
guidance with respect to ‘convenience translation’. It also does not prohibit use
of a currency other than the currency of country of domicile as the reporting
currency:

This standard does not
specify the currency in which an enterprise presents its financial statements.
However, an enterprise normally uses the currency of the country in which it is
domiciled. If it uses a different currency, this standard requires disclosure
of the reason for using that currency (para 3).

Conclusion

At present there is
no consistent principle underlying the preparation and presentation of financial
statements applying convenience translation across GAAPs. USGAAP and AS do not
contain explicit guidance on this topic. IFRS (and Ind AS) does permit
convenience translation, albeit it does not contain the prescriptions
available when financial statements are translated into a presentation currency
(other than the functional currency). The SEC regulations provide the
methodology to be adopted for presenting convenience translation figures that
is very limited in scope.

Presenting
financial statements in a presentation currency (both under IFRS and USGAAP)
requires standard procedures to be adopted (with balance sheet items being
translated at closing rate and income statement figures at average rates and
resultant exchange differences accounted in other comprehensive income).
Convenience translation, on the other hand, under SEC regulations requires all
items in the balance sheet and income statement to be translated at closing
rate (with no comparatives). Some entities that have dual listing status opt for
providing additional information by way of such a translation for the
convenience of their investors. A summary of the case studies is provided in
the table below:

Global Listed Entities

Indian Listed Entities

US SEC reporting

Case Study 1

Case Study 2

Case Study 3

Case Study 4

GAAP adopted

USGAAP

IFRS

Functional currency

US $

JPY

INR

Presentation / reporting currency

RMB

JPY

INR

US$

Whether US$ figures are made available to
investors on face of financial statements?

Yes, with convenience translation

Yes. With convenience translation

Yes. Without convenience translation

GAAP literature adopted for convenience
translation

SEC Regulation S-X and not USGAAP ASC 830

SEC Regulation S-X and IAS 21

NA (IAS 21 adopted for translation to
presentation currency)

GLOBAL ANNUAL REPORT EXTRACTS: ‘APPLICATION OF
MATERIALITY’ IN
AUDIT REPORT

Background

Unlike SA 701 in
the Indian context, International Standard on Auditing (UK) 701 Communicating
Key Audit Matters in the Independent Auditor’s Report issued by the
Financial Reporting Council (FRC), UK also deals with the auditor’s
responsibility to communicate other audit planning and scoping matters
in the auditor’s report (paragraph 1-1).

As per para 16-1 of
ISA (UK) 701, Communicating other Audit Planning and Scoping Matters,
the auditor’s report is required to provide:

1 An explanation of how the auditor applied
the concept of materiality in planning and performing the audit. Such
explanation shall specify the threshold used by the auditor as
being materiality for the financial statements as a whole

2 An overview of the scope of the audit
including an explanation of how such scope: addressed each Key Audit Matter
relating to one of the most significant risks of material misstatement
disclosed and was influenced by the auditor’s application of the materiality
disclosed

It may be noted
that ISA (UK) 701 that was effective 2016 has undergone a revision in November,
2019 (further updated in January, 2020) and amendments require the auditor’s
report to specify the threshold used by the auditor as being materiality
for financial statement as a whole and performance materiality, and
to also provide an explanation of the significant judgements made by the
auditor in determining materiality and performance materiality. The revised ISA
is effective for audits of financial statements for periods commencing on or
after 15^th December, 2019.

Extracts from an
Independent Auditor’s Report

Company:
Whitbread PLC (2018/19 revenues: GBP 2.05 billion, FTSE 100)

Our Application of Materiality

We define
materiality as the magnitude of misstatement in the financial statements that
makes it probable that the economic decisions of a reasonably knowledgeable
person would be changed or influenced. We use materiality both in planning the
scope of our audit work and in evaluating the results of our work. Based on our
professional judgement, we determined materiality for the financial statements
as a whole as follows (refer to the table below):

We agreed with the Audit Committee that we
would report to the Committee all audit differences in excess of GBP
1.25 m (2018: GBP 1.3 m), as well as differences below that threshold that,
in our view, warranted reporting on qualitative grounds. We also report to the
Audit Committee on disclosure matters that we identified when assessing the
overall presentation of the financial statements.

Adjusted PBT

GBP 509 m

Group Materiality

GBP 25 m

Component Materiality range

GBP 10 m to 20 m

Audit Committee reporting threshold

GBP 1.25 m

COMPLIANCE: TRANSITION
DISCLOSURE UNDER IND AS 116

Background:

Ind AS 116 Leases became effective from 1^st April,
2019. The ensuing fiscal year ending 31^st March, 2020 financial statements of Ind AS preparers need to
incorporate disclosures mandated
by Appendix C – Effective Date and Transition of Ind AS
116.

The disclosure requirements from the lessee’s perspective is a
function of the transition option elected and a
ready reference to the same is provided in the table given below: (Disclosures – A Referencer)

FROM THE PAST – ‘DISCLOSURES ARE DRIVEN BY WHAT INVESTORS
WANT TO KNOW’

Extracts from a
speech made by Elisse B. Walter (former Commissioner, US SEC) at the
Stanford Directors’ College meeting in June, 2013 are reproduced below:

‘Regulations
are the floor but not the ceiling. They tell
companies what, at a minimum, should be covered, but it’s up to the company to
make sure the story gets told. That’s where MD&A
(Management’s Discussion and Analysis) becomes a real opportunity for
the company to tell shareholders what’s really going on. No MD&A
should be merely a recitation of the financial statements. Give
investors the when, the where, the why and, perhaps most importantly, the what’s
next. You should address your investors like they are your business
partners, and the MD&A should reflect that perspective. Disclosure isn’t driven
by what the company wants to disclose but by what the investors want to know.
That should be front and centre as you review the MD&A.

Group Financial Statements

Parent Company Financial
Statements

Materiality

GBP 25.0 m (2018: GBP 27.3 m)

GBP 10.0 m (2018: GBP 10.9 m)

Basis for determining
materiality

Group materiality was based on 5% of
statutory profit before tax excluding certain items related to the sale
of Costa, being costs associated with the restructure of the continuing
business and non-recurring pension scheme costs. The adjusted profit used in
our determination was GBP 509 m

Materiality was determined on the basis of the
parent company’s net assets. This was then capped at 40% of
group materiality

Rationale for the benchmark
applied

Profit before tax is a key metric for the users
of the financial statements and based on our judgement, we considered
this to be the most appropriate measure for business performance

Profit before tax was used
as the basis for our calculation in the prior year

The entity is non-trading and contains an
investment in all of the Group’s trading components and as a result, in line
with prior year, we have determined materiality on the basis of net assets
for the current year

Group Financial Statements

Parent Company Financial
Statements

The accounting choice to
transition to Ind AS 116

‘Rull Retrospective’ Transition Method (Ind AS 116 applied retrospectively to each
prior reporting period presented applying Ind AS 8)

‘Cumulative Catch-up’ Transition Method1

(New lease standard applied
retrospectively with the cumulative effect of initially applying Ind AS 116
recognised at the date of initial application2)

Para 40A, Ind AS 1

An entity is required to
present a third balance sheet (at the beginning of the preceding period) if
it applies an accounting policy retrospectively that has a material effect on
the balance sheet at the beginning of the preceding period

Para 28(f) of Ind AS 8 and
Para C12 of Ind AS 116

For the current period and
each prior period presented, to the extent practicable, the amount of the
adjustment:

(i) for each financial statement line item affected, and

(ii) if Ind AS 33 Earnings per Share applies to the entity, for basic
and diluted earnings per share.

(Para 28(f), Ind AS 8)

a) The weighted average
lessee’s incremental borrowing rate applied to the lease
liabilities recognised in the balance sheet at the date of initial
application

b) An explanation of any
difference between: (i) operating lease commitments disclosed applying Ind AS
17 at the end of the annual reporting period immediately preceding the date
of initial application, discounted using the incremental borrowing rate at
the date of initial application, and (ii) lease liabilities recognised in the
balance sheet at the date of initial application.

[Para C12, Ind AS 116
instead of para 28(f) of Ind AS 8)]

Para C13 and C10, Ind AS 116

An entity that uses one or
more of specified practical expedients needs to disclose
that fact

Specified practical
expedients (Para C10) include (i) lessee applying a single discount rate to a
portfolio of leases, and (ii) electing not to apply the new lease accounting
model to leases for which the lease term ends within 12 months of the date of
initial application

Disclosures applicable under
both methods w.r.t. change in accounting policy:

Para 28 of Ind AS 8

An entity is required to disclose:

a) The title of the Ind AS,

b) When applicable, that the
change in accounting policy is made in accordance with transitional
provisions,

c) The nature of the change
in accounting policy,

d) When applicable, a description of the transitional provisions,

e) When applicable, the
transitional provisions that might have an effect on future periods.

f) ….

g) The amount of the
adjustment relating to periods before those presented, to the extent
practicable.

h)If retrospective
application is impracticable, the circumstances that led to the existence of
that condition and a description of how and from when the change in
accounting policy has been applied.

Para C4 and C3, Ind AS 116

An entity that chooses the practical
expedient of not reassessing whether a contract is, or contains, a
lease at the date of initial application is required to disclose that fact

Ask yourself, what do I know about the company’s
performance that cannot be reasonably inferred from the financial statements?
You are the investor’s voice and as the company’s stewards, you should also be
their advocate as well. You play such a crucial role in ensuring that the company’s
true story is told, and that’s the story that investors deserve to
hear.’

_________________________________________________________________________

1 Para BC279, IFRS 16

2 The date of initial application is the
beginning of the annual reporting period in which an entity first applies Ind
AS 116. For Ind AS steady-state preparers, 1st April, 2019 is the date of
initial application (FY 2019-20).

BCAJ Admin

ALLIED LAWS

24. HUF – Rights of daughter – Coparcenary property – Partition
deed and settlement deed indicating that defendant’s son is absolute owner of
suit premises – Plaintiff having married prior to enforcement of Hindu
Succession Act – Not entitled to claim share in suit properties [Hindu
Succession Act, 1956, S. 6; Hindu Succession Amendment Act, 2005]

Amsaveni vs.
Viswanathan; AIR 2020 Madras 20

The plaintiff is the daughter and the
second defendant is the son of the first defendant. The plaintiff was married
to one Rajaram in the year 1987 and they had two children. The plaintiff’s
husband began to ill-treat the plaintiff and therefore she left the company of
her husband six years ago and came to her parents’ house along with the male
child. Subsequently, the male child was taken away by the plaintiff’s husband.
The plaintiff was provided a separate residence by the defendants and
accordingly the plaintiff was also enjoying the suit property as a joint family
member of the defendants and therefore, according to the plaintiff, she is
entitled to obtain her share in the suit properties.

The Court held that the plaintiff has
admitted that she was married to one Rajaram in the year 1987. Therefore, as
determined by the first appellate court, the plaintiff having got married prior
to the enactment of the Hindu Succession (Amendment) Act 1989 and the Hindu
Succession (Amendment) Act, 2005, she
would not be entitled to claim share in the suit properties claiming to be a
coparcener of the same.

25. Precedent – Two mutually irreconcilable decisions of co-equal
Benches of the Supreme Court – Earlier decision to prevail – Subsequent view
would be held as per incuriam [Constitution of India, Art. 141]

Vasanthi Shridhar
Bangera vs. Vishala Bokapatna Laxman; AIR 2020 Bom. 31

The plaintiff is the
younger sister of the respondent. She sued her elder sister and brother-in-law
for eviction. The suit was decreed. Vasanthi, the elder sister, and her husband
appealed, but without success. In the meanwhile, her husband died. So, along
with her children, the respondent filed this Civil Revision Application. The
issue No. 3 was pertaining to the retrospective applicability of the Benami
Transaction (Prohibition) Act, 1988.

A three-judge bench of the Hon’ble
Supreme Court in the case of R. Rajagopal Reddy, in principle, accepted that
the Act is prospective. However, the petitioners relied on a three-judge bench
of the Hon’ble Supreme Court in the case of K. Govindraj wherein, in a case
pertaining to Minor Mineral Concession Rules, it was held that the legislature
can legislate prospectively or retrospectively.

It was held that the decision in the
case of K. Govindraj, a co-equal bench of the Supreme Court upsets R. Rajagopal
Reddy’s proposition. However, firstly, a decision that deals with an
issue directly should take precedence over a decision which deals with the same
issue collaterally. Secondly, in the event of the two co-equal bench
decisions, the former prevails and the latter can also be per incuriam
if it is not possible for the Court to reconcile its ratio with that of
a previously pronounced judgment. It was further held that the former case does
not dilute nor overrule the latter case.

26. Registration – Compulsory – Unregistered agreement of mortgage
by conditional sale – No evidentiary value [Registration Act, 1908, S. 17, 49]

Tukaram S/o Shankar
Gondkar vs. Dnyaneshwar S/o Sopanrao; AIR 2020 (NOC) 123 (Bom.)

The petitioner is the original plaintiff
in Regular Civil Suit No. 80/1990. He claims to have purchased the land
admeasuring 40 R. out of Survey No. 167 vide sale deed dated 29^th
April, 1981. The petitioner, by preferring the suit for redemption of mortgage
of 40 R. land from Survey No. 167/5/A, contended that respondent No. 1 had
entered into a mortgage deed dated 30^th July, 1979 with the
petitioner for a period of five years. The said period ended on 30^th
July, 1984 and the mortgage was to be redeemed by respondent No. 1 in favour of
the petitioner. Since he failed to do so, the petitioner was constrained to
prefer the said suit.

It was held that the document at issue
was necessarily required to be registered. Since it was an unregistered
document, it was struck by section 49 of the Registration Act under which no
document required to be registered u/s 17 of the Act would have any evidentiary
value.

27. Website – Order/Judgment from official website has sanctity –
Should not be refused

Ibrahim Sk. Rasool
vs. Mohommad Zahir Mohammad Sharif and Ors.; Civil Application No. 411 of 2018
in Second Appeal No. 157 of 2017; Date of order: 19^th March, 2018
(Bom.)(HC)

The counsel for the applicant had
approached the office of the appellate court in order to deposit the amount of
Rs. 5,000 in terms of the judgment and order dated 4^th September,
2017, relying upon the copy of the said judgment and order obtained from the
official website of the Court. But the office of the Court below refused to
accept the said amount on the ground that it would do so only when an official
copy of the said order was received from the Court.

It was held that
the insistence on an official copy of the order of the Court was absolutely
uncalled for and the applicant / appellant ought to have been permitted to
deposit costs on the basis of the copy of the judgment and order obtained from
the official website of the Court. Further, a printout of the orders of the
Court from the official website has sanctity and the trial Courts are expected
to consider the said orders, if they are cited after taking a printout from the
official website. The said orders are also available before the trial Court
from the official website and there can be a counter verification to find out
whether such an order is actually uploaded to the official website or not.

BCAJ Admin

RECENT DEVELOPMENTS IN GST

(Recent Developments in GST is a new feature
starting this month. It will cover select important proposals, notifications,
amendments, circulars, advance rulings, etc. in the field of Goods and Services
Tax. The column by the same authors titled ‘VAT’ is discontinued)

DECISIONS TAKEN IN 39^THMEETING OF GST COUNCIL

The GST Council, on 14^th March, 2020, took several
important decisions. Here are some key ones:

® The E-invoice and QR code requirement deferred
to 1^st October, 2020. [Notification Nos. 13/2020 and 14/2020
dated 21^stMarch, 2020.]

® New returns implementation also deferred to 1^stOctober, 2020.

® Date of filing Annual Return in Form GSTR9 and
Audit Reconciliation Statement in GSTR9C for F.Y. 2018-19 extended till 30^th
June, 2020. [Notification No. 15/2020 dated 23^rd March, 2020.]

® New facility to ‘Know Your Supplier’ to be
introduced on site.

® Restrictions to be brought in on passing of
ITC in case of new registrations.

® Time for filing applications for revocation of
cancellation of registrations to be extended till 30^th June, 2020
for all cancellation orders passed on or before 14^th March, 2020.

® Refund claims allowed across financial years
to facilitate exporters.

® Extension of present exemptions from IGST and
Cess on the imports made under the AA/EPCG/EOU schemes extended up to 31^st
March, 2021.

® Special procedure for corporate debtors under
the provisions of the IBC, 2016 who are undergoing the Corporate Insolvency
Resolution Process so as to enable them to comply with the provisions of GST
laws during the CIRP period.

® Finalisation of e-Wallet scheme up to 31^st
March, 2021.

® A few changes are also proposed in the GST
rates.

CIRCULARS

(a) Apportionment of ITC in cases of
business reorganisation u/s 18(3) of the CGST Act read with Rule 41(1) of the
CGST Rules.

[Circular No. 133/03/2020 dated
23^rd March, 2020.]

(b) Appeals during non-constitution
of the Appellate Tribunal.

[Circular No. 132/02/2020 dated
18^th March, 2020.]

(c) Special procedure for corporate debtors
under the provisions of the IBC, 2016 undergoing the Corporate Insolvency
Resolution Process.

[Notification No. 11/2020 Central
Tax dated 21^st March, 2020 and Circular No. 134/04/2020 dated 23^rd
March, 2020.]

CGST RULES AMENDMENTS

(i) Procedure
for reversal of ITC in respect of capital goods partly used for affecting
taxable supplies and partly for exempt supplies under Rule 43(1)(c).

[Sub-Rule amended w.e.f. 1^stApril, 2020. See Notification No. 16/2020 dated 23^rd March,
2020.]

(ii) GSTR9C (furnishing of audited
annual accounts and reconciliation statement) for F.Y. 2018-19 applicable to
only those registered persons whose aggregate turnover during F.Y. 2018-19 has
exceeded Rs. 5 crores.

[Amendment to Rule 80(3) of CGST
Rules, 2017.]

(iii) Ceiling to be fixed for the
value of export supply for the purpose of calculation of refund on zero-rated
supplies.

[Amendment to Rule 89 of CGST
Rules, 2017.]

(iv) To allow for sanction of refund
in both cash and credit in case of excess payment of tax.

[Amendment to Rule 92 of CGST
Rules, 2017.]

(v) To provide for recovery of
refund on export of goods where export proceeds are not realised within the
time prescribed under FEMA.

[New Rule 96B inserted in CGST
Rules, 2017.]

(vi) To operationalise Aadhaar
authentication for new taxpayers.

[Sub-Rule 4A inserted in Rule 8
of the CGST Rules, 2017 w.e.f. 1st April, 2020. Rule 9 and Rule 25 also amended
from the same date.]

RELIEF MEASURES

A press release dated 24^th
March, 2020 announced certain relief measures relating to statutory compliances
in view of COVID-19:

1. Those
having aggregate annual turnover less than Rs. 5 crores can file GSTR3B due in
March, April and May, 2020 by the last week of June, 2020. No interest, late
fee or penalty to be charged.

2. Others
can file returns due in March, April and May, 2020 by the last week of June,
2020 but the same would attract reduced rate of interest @ 9 % per annum from
15 days after due date (current interest rate is 18 % per annum). No late fee
and penalty to be charged if complied before / till 30^th June, 2020.

3. Date
for opting for composition scheme is extended till the last week of June, 2020.
Further, the last date for making payments for the quarter ending 31^st
March, 2020 and filing of return for 2019-20 by the composition dealers will be
extended till the last week of June, 2020.

4. Due
date for issue of notice, notification, approval order, sanction order, filing
of appeal, furnishing of return, statements, applications, reports, any other
documents, the time limit for any compliance under the GST laws where the time
limit is expiring between 20^th March, 2020 and 29^th June,
2020, shall be extended to 30^th June, 2020.

5. Necessary
legal circulars and legislative amendments to give effect to the aforesaid GST
relief shall follow with the approval of the GST Council.

INTEREST ON NET CASH LIABILITY

One of the important decisions taken
at the 39^th meeting of the GST Council is about liability to pay
interest by registered persons. Under the GST laws, interest is levied u/s 50
of the CGST Act. Section 50 reads as under:

‘(1) Every person who is liable
to pay tax in accordance with the provisions of this Act or the rules made
thereunder but fails to pay the tax or any part thereof to the Government
within the period prescribed, shall for the period for which the tax or any
part thereof remains unpaid, pay, on his own, interest at such rate, not
exceeding eighteen per cent., as may be notified by the Government on the
recommendations of the Council.

(2) The interest under
sub-section (1) shall be calculated in such manner as may be prescribed from
the day succeeding the day on which such tax was due to be paid.

(3) A taxable person who makes an
undue or excess claim of input tax credit under sub-section (10) of section 42,
or undue or excess reduction in output tax liability under sub-section (10) of
section 43, shall pay interest on such undue or excess claim, or on such undue
or excess reduction, as the case may be, at such rate not exceeding twenty-four
per cent, as may be notified by the Government on the recommendations of the
Council.’

The issue arose mainly on the
interpretation of section 50(1) which contemplates the levy of interest on
failure to pay tax within the prescribed period. The GST authorities interpreted
the above section to mean that interest is payable on gross outward liability.

Due to adjustment of ITC against
outward liability, the actual cash payment may be nil or less than the outward
liability. However, the authorities (mis)interpreted this to levy interest on
gross outward liability, i.e., without adjustment of ITC, for delayed period.

The matter had gone to different
High Courts. The Telangana High Court in the case of Megha Engineering
& Infrastructures Ltd. (2019-TIOL-893-HC Telangana-GST) upheld the
view of the GST authorities. The Court was of the opinion that ITC becomes due
to the taxable person upon filing return and not before. Therefore, the Court
held that the gross tax remained payable till the filing of return and,
accordingly, upheld interest liability on gross outward liability.

However, the Madras High Court took
a different view in the case of Refex Industries Limited
(2020-TIOL-382-HC-Mad-GST) and, considering the amendment in section
50(1), held that the interest is payable on cash payment and not on the ITC
component.

In the CGST Act an amendment has
been effected in section 50(1) by inserting the following proviso in
2019; it reads as under:

‘Provided that the interest on
tax payable in respect of supplies made during a tax period and declared in the
return for the said period furnished after the due date in accordance with the
provisions of section 39, except where such return is furnished after
commencement of any proceedings under section 73 or section 74 in respect of
the said period, shall be levied on that portion of the tax that is paid by
debiting the electronic cash ledger.’

However, the said section has not
yet been brought into operation. Therefore, confusion prevailed, more
particularly about the period up to implementation of the above proviso
as there is no mention about the date of application of the same. Besides,
although the proviso debars the application of the said proviso
in case of proceedings under sections 73 and 74, it is felt that there should not
be such exclusion in the matter of interest.

In its above meeting, the GST
Council has taken the decision to make interest payable on net cash liability
and also clarified that the said position will apply from 1^stJuly,
2017.

CONCLUSION

The above decision about interest is
most welcome and has been long awaited. Taxable persons have already started
receiving notices for huge amounts as per interest calculated on gross
liability. However, now the issue has been cleared and will bring much-awaited
respite to taxable persons.

Keeping in view
the intention of charging interest on net cash liability, it is also expected
that the said position will be made applicable even if the proceedings are u/s
73 or 74. We have to wait for the actual provision for clarity. The authorities
should bring in the provision concerned or make necessary changes in the above proviso
at the earliest.

BCAJ Admin

GOODS AND SERVICEs TAX (GST)

I. HIGH COURT

1. [2019
(31) GSTL 397 (Ker.)]

Relcon
Foundations (P) Ltd. vs. Asst. State Tax Officer, Kasargod

Date
of order: 8^th November, 2019

Goods and vehicle cannot be
detained or seized on the ground of non-filing of Form GSTR1 and Form GSTR3B

FACTS

The writ
petition was filed against the order for detention and notice proposing
confiscation of goods belonging to the petitioner which were detained in
transit on the ground of non-filing of Form GSTR1 and Form GSTR3B.

HELD

The Hon’ble
High Court of Kerala held that non-filing of Form GSTR1 and Form GSTR3B cannot
form the basis for issue of an order for detention of goods u/s 129 as well as
notice proposing confiscation of the goods, since the ingredients of the
offence covered u/s 130 were not satisfied in the instant case.

2. [2019
(31) GSTL 60 (Guj.)]

Thermax
Ltd. vs. Union of India

Date
of order: 11^th February, 2019

Central Excise Duty paid
erroneously should be treated as voluntary deposit and refund thereof should be
made in cash during GST regime instead of crediting it in CENVAT account

FACTS

The
petitioner exported boilers and therefore claimed rebate of excise duty which
was not required to be paid. The rebate claim was rejected by the revisional
authority; however, on the ground that Government cannot retain an amount which
is not due to it, it was directed to re-credit the amount in the petitioner’s
CENVAT credit account. However, with the introduction of GST, the CENVAT credit
account has become redundant, and therefore, the petitioner contested that
CENVAT credit should have been paid in cash.

HELD

The Hon’ble
Court held that duty which was not required to be paid needs to be treated as a
voluntary deposit. Hence, the Court relied on section 142(3) of the CGST Act
and directed the sanctioning authority to refund the amount of duty, which was
erroneously paid, in cash instead of crediting the same in the petitioner’s
CENVAT account.

II.
ADVANCE RULINGS

3. [2019
(31) GSTL 554 (AAR-GST)]

In
Re. Maarq Spaces Pvt. Ltd.

Date
of order: 30^th September, 2019

Supply of services by way of
development of land provided under a joint development agreement where the
title of the land rests with the landowner, shall be liable for GST and the
value of supply shall be the total revenue share as per provisions of Rule 31
of the CGST Rules, 2017

FACTS

The
applicant, a private limited company engaged in the business of property
development, entered into a joint development agreement with the landowners for
development of plots which included survey of land, clearing and levelling the
site, laying sewage / water pipelines, etc. The revenue accrued from the sale
of the plots was agreed to be shared amongst the landowners and the applicant
in the ratio of 75% for the landowners and 25% for the applicant.

The
applicant sought advance ruling in respect of two questions: whether the
activity of land development along with sale of land is a taxable supply, and
if such activity is a taxable supply, whether provisions of Rule 31 are
applicable in ascertaining the value of the land and supply of service. The
applicant submitted that as per section 2(30) of the CGST Act, 2017 defining
composite supply, the sale of land being the principal supply and land and
developmental activity being incidental to the sale of land, the transaction
undertaken by the applicant is excluded from the scope of ‘supply’ under Entry
No. 5 of Schedule III. However, if at all the transaction attracts GST, then
the value can only be determined as per Rule 31 of the CGST Rules, 2017.

HELD

The
authority of advance ruling, placing reliance on the salient provisions of the
agreement, inferred that the activity actually carried out by the applicant is
that of development of land and not sale of land. The provisions of the
agreement clearly indicate that the applicant had a right only over the share
of revenue from the sale of the plot of land and not over the land. As the
applicant cannot be considered as the owner of the plot, the transaction cannot
be considered as ‘sale of land’; therefore, it is not covered under Entry No. 5
of Schedule III of the CGST Act, 2017.

Thus, the
activities undertaken by the applicant as provided in the agreement amount to
supply of service to the landowners and are a taxable supply under GST. It was
further inferred by the authority that Rule 31 applies in the instant case and
the taxable value of the supply of services by the applicant to the landowners
is equal to the consideration received by the applicant, i.e., 25% of the sale
value of the plots.

4. [2019
(31) GSTL 154 (AAR – West Bengal)]

Rabi
Sankar Tah

Date
of order: 21^st October, 2019

Co-owner’s share of rental income
in jointly-owned property cannot be clubbed for determining the threshold limit
for GST registration

FACTS

The
applicant, one of the co-owners of a jointly-owned property, received his share
of rental income. The total rent received by all co-owners together exceeded
the threshold limit for obtaining GST registration u/s 22(1) of the CGST Act,
2017 but the share of each of the three co-owners did not cross the said
threshold limit. The applicant sought advance ruling on whether he and the
other two co-owners were to be treated as an association of persons (AOP) or a
body of individuals and, therefore, were a ‘person’ defined u/s 2(84) of the
GST Act and liable for GST registration.

HELD

The Authority of Advance Ruling relied on the ruling
of Elambrancheri Khaldoon, 2018 (18) GSTL 152 (AAR – GST) and
held that the co-owners of the property cannot be treated as an AOP when income
from renting was separately ascertained and assessed for income tax
individually in the hands of each co-owner. Thus, the threshold limit is to be
ascertained separately, depending on the individual gross turnover for GST
registration.

BCAJ Admin

Service Tax

I.
HIGH COURT

1. [2019
(29) GSTL 199 (Mad.)]

Shanmugasundaram
vs. Assistant Commissioner of C.Ex., Karur

Date
of order: 15^th July, 2019

Recovery proceedings cannot be
initiated where the order passed by Commissioner (Appeals) has not been served
to the petitioner

FACTS

Recovery was initiated by the
Department even though the petitioner had not received the order passed by the
Commissioner of Customs and Central Excise (Appeals). The disposal of the
appeal came to the knowledge of the
assessee only when the assessing authority approached the assessee and
initiated coercive action for recovery of service tax and penalty. There was no
acknowledgement from the postal department for service of the order upon the
petitioner. Hence, the writ petition was filed.

HELD

The Hon’ble Madras High Court
provided relief to the petitioner by allowing him to file an appeal challenging
the order of the Commissioner (Appeals) dated 28^th September, 2009
within a period of four weeks. The Assistant Commissioner was directed to keep
the recovery proceedings in abeyance for eight weeks from the date of the High
Court’s order. Further, the Tribunal was directed to hear and dispose of the
case once the appeal was filed within the stipulated time.

2. [2019
(28) GSTL 545 (Mad.)]

Vendhar
Movies vs. Jt. Dir., DG of GST
Intelligence, Chennai

Date
of order: 16^th April, 2019

Permanent / perpetual transfer of
copyright is outside the purview of service tax. Assignment of copyright cannot
be equated with relinquishment

FACTS

The
petitioners entered into various agreements with distributors, exhibitors and
television channels for assignment of exclusive rights for broadcast and
exhibition of various cinematographic films, both produced as well as purchased
by them. The rights so assigned were perpetual in nature, conferred permanently
and absolutely without any restriction or limitation.

Show cause notices /
orders-in-original were issued by the Service Tax Department disputing the
nature of the transfer of copyright on the basis that only specific copyrights
were assigned and that other copyrights were retained in the same
cinematographic films. Besides, the rights were assigned for 99 years.
Therefore, the transfer was ‘temporary’ in nature, attracting service tax. The
Department also relied upon the judgment of AGS Entertainment Pvt. Ltd. [2013
(32) STR 129 (Mad.)] to substantiate its contentions. The
Department further contested that the agreement entered into between the
parties for transfer of copyright contains the word ‘revocable’. Therefore, the
agreements were only a sham, designed to camouflage, and the true intent of the
petitioners was to enter into a temporary transaction.

While examining the impugned show
cause notices and the orders-in-original, the Hon’ble High Court specifically
clarified that the same were taken up since the stand taken in such show cause
notices and orders-in-original were not in consonance with the Finance Act,
1994 or the Copyright Act, 1957. Besides, the Court was not concerned with any
factual particulars, except for the limited purpose of appreciating and
adjudicating upon the legality of the impugned notices and orders.

HELD

The Hon’ble Madras High Court
concluded that perpetual transfer or a transfer for 99 years is permanent in
nature as it is in excess of the period of 60 years as set out under the
Copyright Act. As regards the usage of the term ‘revocable’, it was solely
restricted to those situations where the consideration for the right was not
fully remitted by the purchaser. The interpretation accorded by the Department
was wholly misconceived as section 21 of the Copyright Act itself uses the
phrase ‘all or any of the rights comprised in the copyrights in the work’.
Therefore, copyright in work may either comprise of ‘single right’ or ‘bundle
or rights’, some may be relinquished and others pursued and survive and, thus,
the transaction clearly stands outside the ambit of service tax. The Department
was given directions to initiate proceedings afresh in accordance with section
73 of the Finance Act, 1994 after considering the observations of the Court.

II.
TRIBUNAL

3. [2020-TIOL-349-CESTAT-Mad.]

M/s
Altom and D India Limited vs.
Commissioner of Central Excise and Service Tax

Date
of order: 12^th December, 2019

CENVAT credit of service tax on
group mediclaim policy of employees and their dependants is allowed

FACTS

A show cause
notice was issued disallowing input tax credit on the group mediclaim policy
for employees and their dependants on the grounds that the same had no nexus
with the manufacture or clearance of final products or with the provision of
output service by the assessee. It was alleged that such services were intended
for the personal consumption of the employees and so were ineligible.

HELD

The Tribunal, relying on the
decision in the case of M/s. Ganesan Builders Ltd. vs. Commissioner of
Service Tax, Chennai [2018-TIOL-2303-HC-Mad-ST] held that the denial of
CENVAT credit on group medical insurance policy on the dependants of employees
is bad and consequently the credit is allowed.

4. [2020-TIOL-350-CESTAT-Del.]

M/s Prakash Associates vs. Commissioner of
CGST

Date of order: 18^th December, 2019

In absence of a definite
consideration defined in the contract of service, the demand of service tax on any
income received is not justified

FACTS

The assessee is engaged in the
collection of toll and royalty on behalf of the State and Central Governments.
The consideration is a lump sum amount for the given period. In such activity,
the assessee may either collect more amount than the bid amount and make a
profit in the process, or may also incur a loss by collecting less amount. The
Revenue is of the view that any surplus amount collected would be commission
earned for providing toll / royalty collecting service to the Government and as
such is liable to tax. The demand being confirmed, the present appeal was
filed.

HELD

The Tribunal primarily noted that
there is no defined consideration. Consideration is an essential element or
pre-requisite in a contract of service. Under the contract, the assessee is not
entitled to retain any amount by way of commission, irrespective of the total
royalty amount collected. The assessee would incur losses in some years or earn
profits in some and therefore the understanding is on principal-to-principal
basis. Therefore, the demand is not sustainable.

5. [2020-TIOL-255-CESTAT-Hyd.]

Bharat
Heavy Electricals Ltd. vs. Commissioner of Central Tax

Date
of order: 23^rdDecember, 2019

There is no provision in law for
refund of unutilised input tax credit in cash

FACTS

The assessee is a public sector
company engaged in manufacturing various products and avails benefit of CENVAT
credit. Upon introduction of GST, the assessee migrated to the new regime from
the erstwhile service tax and Central Excise regime. As per the new provisions,
CENVAT credit lying in balance at the time of transition could be taken as
input service credit and utilised accordingly. As on June, 2017 the credit of
Education Cess, Secondary and Higher Education Cess, Swachh Bharat Cess and
Krishi Kalyan Cess was lying unutilised. A refund application was filed u/s 11B
of the Central Excise Act, 1944. The application was rejected by the original
authority on the ground that there was no legal provision under which refund
could have been sanctioned.

HELD

The Tribunal
primarily noted that section 11B allows refund of duty paid and not of CENVAT
credit. There is no scheme under which CENVAT credit can be refunded except
under Rule 5 of CENVAT Credit Rules, 2004 in respect of CENVAT credit utilised
in manufacture of exported goods or exported services. Thus, there is no
provision in law where CENVAT credit can be refunded in cash.

6. [2019
(31) GSTL 102 (Tri. Mum.)]

Executive
Engineer, Nagpur vs. Commissioner of C.Ex. & Cus., Nagpur

Date
of order: 13^th December, 2018

Service provider being a
government department not liable for imposition of penalty under sections 77
and 78 of Finance Act, 1944. Non-payment caused by lack of understanding and
absence of motive

FACTS

The appellant, a department of
the Government of Maharashtra, fabricates and erects gates of various types and
carries out inspection of ‘parts of gate’ manufactured by outside entities. The
appellant collected inspection charges along with service tax, which was not
deposited with the Government. Penalties under sections 77 and 78 of the
Finance Act, 1944 were imposed. It was the contention of the appellant that the
activity undertaken by them is not a taxable service.

HELD

It
was held that service tax collected must be deposited with the government irrespective
of whether the services provided are taxable or not. However, the appellant
being a department of the Government of Maharashtra, owing to lack of
understanding and absence of motive, penalties under sections 77 and 78 of the
Finance Act, 1994 were set aside.

BCAJ Admin

FROM THE PRESIDENT

My Dear Members,

I feel
very proud and satisfied as I write to you for the last time as President of
our illustrious Society. It is an honour and a privilege to have led the
Bombay Chartered Accountants’ Society during a memorable and
unprecedented year. We continue to march ahead and strive to achieve greater
heights of performance year after year by building on the excellent work done
by all previous Presidents. The last three months have been challenging and unmatched
for us in terms of conducting our normal activities of education, training and
spreading knowledge. But we converted all the challenges that came our way into
opportunities and continued with our endeavour of spreading knowledge with even
more vigour and zeal.

I am
happy to inform you that we quickly transited to an online platform and were
able to reach a much wider audience and get high profile and knowledgeable
speakers for the BCAS platform. All this was possible since there were
no geographical restrictions. To our immense satisfaction, our internal
assessment actually shows that we have been successful in delivering more
man-hours of training by way of live attendance and follow-up hits on our
YouTube channel. We managed to clock almost half of the man-hours of training
(during the three months of lockdown) that we were usually clocking in an
entire year through physical meetings. Things worked out best for us because we
made the best of how things worked out. I expect this trend to continue for
some more time yet and I thank all of you for supporting BCAS during
these testing times. This success is only because of the faith and the
patronage of all of you.

A balanced approach is required

It has
been more than three months into the national lockdown and work from home (WFH)
has caught the fancy of many, including some marquee IT and multinational
companies. However, according to a reported survey, some of the employees want
to get back to office. ‘The lack of human interaction is a problem – there’s
something about face-to-face interaction that can’t be replaced.’ According to
some HR professionals, there are groups of employees who enjoy working from the
office and want to get back there. At the same time, there are several
companies mulling the possibility of shifting to a complete WFH mode on a
permanent basis. According to them, productivity has gone up and a lot of
travel time is saved. But the question remains: does work from home really
work? According to the survey, it is premature to conclude whether WFH has
succeeded. The survey adds that social capital is missing and this is built by
social interactions while working together and knowing co-workers well enough
to establish a bond of human relationships and emotions.

Success
is achieved by teamwork and because co-workers have known and have intimately
interacted with each other for years. Banter over a cup of coffee during a
break is very much part of team-building and camaraderie and this social
capital is missing while working remotely from home. People will continue to
work from home, but in my view if a balanced view is not taken, they will
become robots lacking the all-important human touch. In time, fatigue will set
in and productivity may actually come down in the longer run. So, at least till
normalcy returns, we will have to adopt a hybrid or mixed model of WFH by
allowing some people to choose their preferred option. However, follow-up with
physical interactions (with all required safety norms) at regular intervals
should be integrated into the work culture.

Final Good-Bye!

On 6^thJuly, 2020 I complete my term as President of this esteemed institution
and I bid farewell to all of you with a great sense of happiness, satisfaction
and achievement. In the past twelve months I have tried to deliver my best to
the Society and tried to strengthen its existing goodwill, brand value
and reputation built over the years. During the year gone by, we strove to
increase our reach by reaching out to a much wider range of constituents beyond
our traditional cycle of influence. We tried out new formats for our
educational events, invited trainers from across fields and from a
cross-section of professional backgrounds and tried out new mediums of
dissimilating knowledge. We also had focused events on specific sectors,
emerging areas of practice and various non-technical but important areas of
personal and professional development. Besides serving our members,
organisationally also, the Society consolidated its position by various
measures of financial prudence, cost savings and infrastructure building. We
also worked earnestly to harness talent and build future leaders. At a personal
level, this tenure as President helped me further to develop leadership skills
and I have learnt how to handle different people and different situations more
efficiently.

Finally,
I wish incoming President Suhas Paranjpe and the new team all the very
best for the coming year. I have no doubt that it will be full of events and
innovative programmes.I am sure under his leadership our Society will
successfully venture into uncharted territory while continuing to flourish in
its traditional areas.

I started
this journey with anxiety, not knowing how the year will pan out but I created
some beautiful memories, made wonderful friends on the way and now I say good-bye
and a big THANK YOU for all your love, support and affection.

With Best
Regards,

CA Manish
Sampat

President

BCAJ Admin

FROM PUBLISHED ACCOUNTS

DISCLOSURES
RELATED TO IMPLEMENTATION OF Ind AS 116 – ‘LEASES’ FOR THE YEAR ENDED 31^ST MARCH, 2020

Compiler’s Note

The Ministry of
Company Affairs on 30^th March, 2019 notified Ind AS 116 – Leases. Under Ind AS 116 lessees have to recognise a lease
liability reflecting future lease payments and a ‘right-of-use asset’ for
almost all lease contracts. This is a significant change compared to Ind AS 17,
under which lessees were required to make a distinction between a finance lease
(on balance sheet) and an operating lease (off balance sheet). Ind AS 116 also
gives lessees optional exemptions for certain short-term leases and leases of
low-value assets.

Given below are
disclosures by a few companies for the above.

TCS LTD. (consolidated)

From
Notes forming part of Financial Statements

LEASES

A contract is, or contains, a lease if the
contract conveys the right to control the use of an identified asset for a
period of time in exchange for consideration.

Group as a lessee

The Group accounts for each lease component
within the contract as a lease separately from non-lease components of the
contract and allocates the consideration in the contract to each lease
component on the basis of the relative stand-alone price of the lease component
and the aggregate stand-alone price of the non-lease components. The Group
recognises right-of-use asset representing its right to use the underlying
asset for the lease term at the lease commencement date. The cost of the
right-of-use asset measured at inception shall comprise of the amount of the
initial measurement of the lease liability adjusted for any lease payments made
at or before the commencement date less any lease incentives received, plus any
initial direct costs incurred and an estimate of costs to be incurred by the
lessee in dismantling and removing the underlying asset or restoring the
underlying asset or site on which it is located. The right-of-use asset is
subsequently measured at cost less any accumulated depreciation, accumulated
impairment losses, if any, and adjusted for any re-measurement of the lease
liability. The right-of-use asset is depreciated using the straight-line method
from the commencement date over the shorter of lease term or useful life of
right-of-use asset. The estimated useful lives of right-of-use assets are
determined on the same basis as those of property, plant and equipment.
Right-of-use assets are tested for impairment whenever there is any indication
that their carrying amounts may not be recoverable. Impairment loss, if any, is
recognised in the statement of profit and loss.

The Group measures the lease liability at
the present value of the lease payments that are not paid at the commencement
date of the lease. The lease payments are discounted using the interest rate
implicit in the lease, if that rate can be readily determined. If that rate
cannot be readily determined, the Group uses incremental borrowing rate. For
leases with reasonably similar characteristics, the Group, on a lease-by-lease
basis, may adopt either the incremental borrowing rate specific to the lease or
the incremental borrowing rate for the portfolio as a whole. The lease payments
shall include fixed payments, variable lease payments, residual value
guarantees, exercise price of a purchase option where the Group is reasonably
certain to exercise that option and payments of penalties for terminating the
lease, if the lease term reflects the lessee exercising an option to terminate
the lease. The lease liability is subsequently re-measured by increasing the
carrying amount to reflect interest on the lease liability, reducing the
carrying amount to reflect the lease payments made and re-measuring the
carrying amount to reflect any reassessment or lease modifications or to
reflect revised in-substance fixed lease payments.

The Group recognises the amount of the re-measurement
of lease liability due to modification as an adjustment to the right-of-use
asset and statement of profit and loss depending upon the nature of
modification. Where the carrying amount of the right-of-use asset is reduced to
zero and there is a further reduction in the measurement of the lease
liability, the Group recognises any remaining amount of the re-measurement in
statement of profit and loss. The Group has elected not to apply the
requirements of Ind AS 116 – Leases to short-term leases of all assets
that have a lease term of 12 months or less and leases for which the underlying
asset is of low value. The lease payments associated with these leases are
recognised as an expense on a straight-line basis over the lease term.

GROUP AS A LESSOR

At the inception of the lease the Group
classifies each of its leases as either an operating lease or a finance lease.
The Group recognises lease payments received under operating leases as income
on a straight-line basis over the lease term. In case of a finance lease,
finance income is recognised over the lease term based on a pattern reflecting
a constant periodic rate of return on the lessor’s net investment in the lease.
When the Group is an intermediate lessor, it accounts for its interests in the head
lease and the sub-lease separately. It assesses the lease classification of a
sub-lease with reference to the right-of-use asset arising from the head lease,
not with reference to the underlying asset. If a head lease is a short-term
lease to which the Group applies the exemption described above, then it
classifies the sub-lease as an operating lease. If an arrangement contains
lease and non-lease components, the Group applies Ind AS 115 – Revenue
from contracts with customers to allocate the consideration in the contract.

TRANSITION TO IND AS 116

The Ministry of Corporate Affairs (‘MCA’)
through the Companies (Indian Accounting Standards) Amendment Rules, 2019 and
the Companies (Indian Accounting Standards) Second Amendment Rules, has
notified Ind AS 116 – Leases which replaces the existing lease standard,
Ind AS 17 – Leases and other interpretations. Ind AS 116 sets out the
principles for the recognition, measurement, presentation and disclosure of
leases for both lessees and lessors. It introduces a single, on-balance sheet
lease accounting model for lessees. The Group has adopted Ind AS 116, effective
annual reporting period beginning 1^stApril, 2019 and applied the
standard to its leases retrospectively, with the cumulative effect of initially
applying the standard, recognised on the date of initial application (1^st
April, 2019). Accordingly, the Group has not restated comparative information;
instead, the cumulative effect of initially applying this standard has been
recognised as an adjustment to the opening balance of retained earnings as on 1^st
April, 2019. Refer Note 2(h) – Significant accounting policies – Leases in the
Annual report of the Group for the year ended 31^st March, 2019, for
the policy as per Ind AS 17.

GROUP AS A LESSEE

Operating leases

For transition, the Group has elected not to
apply the requirements of Ind AS 116 to leases which are expiring within 12
months from the date of transition by class of asset and leases for which the
underlying asset is of low value on a lease-by-lease basis. The Group has also
used the practical expedient provided by the standard when applying Ind AS 116
to leases previously classified as operating leases under Ind AS 17 and
therefore, has not reassessed whether a contract, is or contains a lease, at
the date of initial application, relied on its assessment of whether leases are
onerous, applying Ind AS 37 immediately before the date of initial application
as an alternative to performing an impairment review, excluded initial direct
costs from measuring the right-of-use asset at the date of initial application
and used hindsight when determining the lease term if the contract contains
options to extend or terminate the lease. The Group has used a single discount
rate to a portfolio of leases with similar characteristics.

On transition,
the Group recognised a lease liability measured at the present value of the
remaining lease payments. The right-of-use asset is recognised at its carrying
amount as if the standard had been applied since the commencement of the lease,
but discounted using the lessee’s incremental borrowing rate as at 1^stApril,
2019. Accordingly, a right-of-use asset of Rs. 6,360 crores and lease liability
of Rs. 6,831 crores has been recognised. The cumulative effect on transition in
retained earnings net of taxes is Rs. 359 crores (including the deferred tax of
Rs. 170 crores). The principal portion of the lease payments has been disclosed
under cash flow from financing activities. The lease payments for operating
leases as per Ind AS 17 – Leases were earlier reported under cash flow
from operating activities. The weighted average incremental borrowing rate of
6.78% has been applied to lease liabilities recognised in the balance sheet at
the date of initial application. On application of Ind AS 116, the nature of
expenses has changed from lease rent in previous periods to depreciation cost
for the right-of-use asset, and finance cost for interest accrued on lease
liability. The difference between the future minimum lease rental commitments
towards non-cancellable operating leases and finance leases reported as at 31^st
March, 2019 compared to the lease liability as accounted as at 1^st
April, 2019 is primarily due to inclusion of present value of the lease
payments for the cancellable term of the leases, reduction due to discounting
of the lease liabilities as per the requirement of Ind AS 116 and exclusion of
the commitments for the leases to which the Group has chosen to apply the
practical expedient as per the standard.

Finance lease

The Group has leases that were classified as
finance leases applying Ind AS 17. For such leases, the carrying amount of the
right-of-use asset and the lease liability at the date of initial application
of Ind AS 116 is the carrying amount of the lease asset and lease liability on
the transition date as measured applying Ind AS 17. Accordingly, an amount of
Rs. 31 crores has been reclassified from property, plant and equipment to
right-of-use assets. An amount of Rs. 18 crores has been reclassified from
other current financial liabilities to lease liability – current and an amount
of Rs. 44 crores has been reclassified from borrowings – non-current to lease
liability – non-current.

Group as a lessor

The Group is not required to make any
adjustments on transition to Ind AS 116 for leases in which it acts as a
lessor, except for a sub-lease. The Group accounted for its leases in
accordance with Ind AS 116 from the date of initial application. The Group does
not have any significant impact on account of sub-lease on the application of
this standard.

Details of the right-to-use assets held by
the Group are as follows:

(Rs. crores)

Particulars

Additions for the year
ended 31^st March, 2020

Net carrying amount as
at 31^st March, 2020

Leasehold Land

474

690

Buildings

2,443

7,218

Leasehold Improvements

Computer Equipment

Vehicles

Office Equipment

2,951

7,994

Depreciation on right-of-use assets is as
follows:

(Rs. crores)

Particulars

Year ended 31^stMarch,
2020

Leasehold Land

Buildings

1,225

Leasehold Improvements

Computer Equipment

Vehicles

Office Equipment

1,268

The Group incurred Rs. 392 crores for the
year ended 31^st March, 2020 towards expenses relating to short-term
leases and leases of low-value assets. The total cash outflow for leases is Rs.
2,465 crores for the year ended 31^st March, 2020, including cash
outflow of short-term leases and leases of low-value assets. The Group has
lease term extension options that are not reflected in the measurement of lease
liabilities. The present value of future cash outflows for such extension
periods as at
31^stMarch, 2020 is Rs. 457 crores.

Lease contracts entered by the Group majorly
pertain to buildings taken on lease to conduct its business in the ordinary
course. The Group does not have any lease restrictions and commitment towards
variable rent as per the contract.

IMPACT OF COVID-19

The Group does not foresee any large-scale
contraction in demand which could result in significant down-sizing of its
employee base rendering the physical infrastructure redundant. The leases that
the Group has entered with lessors towards properties used as delivery centres
/ sales offices are long term in nature and no changes in terms of those leases
are expected due to Covid-19.

From
Auditors’ Report (consolidated)

Key Audit
Matters

Key Audit Matters	How our audit addressed the key audit matter
Adoption of Ind AS 116 – Leases As described in Note 9 to the consolidated financial statements, the Group has adopted Ind AS 116 – Leases (Ind AS 116) in the current year. The application and transition to this accounting standard is complex and is an area of focus in our audit since	Our audit procedures on adoption of Ind AS 116 include: u Assessed and tested new processes and controls in respect of the lease accounting standard (Ind AS 116);
the Group has a large number of leases with different contractual terms Ind AS 116 introduces a new lease accounting model, wherein lessees are required to recognise a right-of-use (ROU) asset and a lease liability arising from a lease on the balance sheet. The lease liabilities are initially measured by discounting future lease payments during the lease term as per the contract / arrangement. Adoption of the standard involves significant judgements and estimates, including determination of the discount rates and the lease term Additionally, the standard mandates detailed disclosures in respect of transition Refer Note 5(h) and Note 9 to the consolidated financial statements	u Assessed the Group’s evaluation on the identification of leases based on the contractual agreements and our knowledge of the business; u Involved our specialists to evaluate the reasonableness of the discount rates applied in determining the lease liabilities; u Upon transition as at 1^st April, 2019: • Evaluated the method of transition and related adjustments; • Tested completeness of the lease data by reconciling the Group’s operating lease commitments to data used in computing ROU asset and the lease liabilities u On a statistical sample, we performed the following procedures: u assessed the key terms and conditions of each lease with the underlying lease contracts; and u evaluated computation of lease liabilities and challenged the key estimates, such as discount rates and the lease term u Assessed and tested the presentation and disclosures relating to Ind AS 116, including disclosures relating to transition

Key
Audit Matters

How
our audit addressed the key audit matter

Adoption of Ind AS 116 – Leases

As described in Note 9 to the consolidated financial
statements, the Group has adopted Ind AS 116 – Leases (Ind AS 116) in
the current year. The application and transition to this accounting standard
is complex and is an area of focus in our audit since

Our audit procedures on adoption of Ind AS 116 include:

u
Assessed and tested new processes and
controls in respect of the lease accounting standard (Ind AS 116);

the Group has a large number of leases with different
contractual terms

Ind AS 116 introduces a new lease accounting model, wherein
lessees are required to recognise a right-of-use (ROU) asset and a lease
liability arising from a lease on the balance sheet. The lease liabilities
are initially measured by discounting future lease payments during the lease
term as per the contract / arrangement. Adoption of the standard involves
significant judgements and estimates, including determination of the discount
rates and the lease term

Additionally, the standard mandates detailed disclosures in
respect of transition

Refer Note 5(h) and Note 9 to the consolidated financial
statements

u Assessed the Group’s evaluation on the
identification of leases based on the contractual agreements and our
knowledge of the business;

u Involved our specialists to evaluate
the reasonableness of the discount rates applied in determining the lease
liabilities;

u Upon transition as at 1^st
April, 2019:

• Evaluated the method of transition and related adjustments;

• Tested completeness of the lease data by reconciling the
Group’s operating lease commitments to data used in computing ROU asset and
the lease liabilities

u On a statistical sample, we performed
the following procedures:

u
assessed the key terms and conditions of
each lease with the underlying lease contracts; and

u evaluated computation of lease
liabilities and challenged the key estimates, such as discount rates and the
lease term

u Assessed and tested the presentation
and disclosures relating to Ind AS 116, including disclosures relating to
transition

HINDUSTAN UNILEVER LTD. (standalone)

From
Notes forming part of Financial Statements

LEASES

The Company has adopted Ind AS 116 – Leases
effective 1^st April, 2019 using the modified retrospective method.
The Company has applied the standard to its leases with the cumulative impact
recognised on the date of initial application (1^stApril, 2019).
Accordingly, previous period information has not been restated.

The Company’s lease asset classes primarily
consist of leases for Land and Buildings and Plant & Machinery. The Company
assesses whether a contract is or contains a lease at inception of a contract.
A contract is, or contains, a lease if the contract conveys the right to
control the use of an identified asset for a period of time in exchange for
consideration. To assess whether a contract conveys the right to control the
use of an identified asset, the Company assesses whether:

(i) the contract involves the use of an identified
asset,

(ii) the Company has substantially all of the
economic benefits from use of the asset through the period of the lease, and

(iii) the Company has the right to direct the use of
the asset.

At the date of commencement of the lease,
the Company recognises a right-of-use asset (‘ROU’) and a corresponding lease
liability for all lease arrangements in which it is a lessee, except for leases
with a term of twelve months or less (short-term leases) and leases of
low-value assets. For these short-term and leases of low-value assets, the
Company recognises the lease payments as an operating expense on a
straight-line basis over the term of the lease.

The right-of-use assets are initially
recognised at cost, which comprises the initial amount of the lease liability
adjusted for any lease payments made at or prior to the commencement date of
the lease plus any initial direct costs less any lease incentives. They are
subsequently measured at cost less accumulated depreciation and impairment
losses, if any. Right-of-use assets are depreciated from the commencement date
on a straight-line basis over the shorter of the lease term and useful life of
the underlying asset.

The lease liability is initially measured at
the present value of the future lease payments. The lease payments are
discounted using the interest rate implicit in the lease or, if not readily
determinable, using the incremental borrowing rates. The lease liability is
subsequently re-measured by increasing the carrying amount to reflect interest
on the lease liability, reducing the carrying amount to reflect the lease
payments made.

A lease liability is re-measured upon the
occurrence of certain events such as a change in the lease term or a change in
an index or rate used to determine lease payments. The re-measurement normally
also adjusts the leased assets.

Lease liability and ROU asset have been
separately presented in the balance sheet and lease payments have been
classified as financing cash flows.

Following are the lease assets of the
Company:

(Rs. crores)

Particulars

Leasehold Land

Land & Building

Plant & Equipment

Total

Movements during the year

Balance as at 31^st March, 2019

–

Addition on account of transition to Ind AS 116 –
1^st April, 2019

–

146

527

673

Additions

–

268

212

480

Disposals

(2)

(98)

(34)

(134)

Balance as at 31^st March, 2020

316

705

1,046

Accumulated Depreciation

Additions

159

196

355

Disposals

–

(82)

(27)

(109)

Balance as at 31^stMarch, 2020

169

246

Net Block as at 31^st March, 2020

239

536

800

Notes:

(a) The Company has adopted Ind AS 116
effective 1^stApril, 2019 using the modified retrospective method.
The Company has applied the standard to its leases with the cumulative impact
recognised on the date of initial application (1^st April, 2019).
Accordingly, previous period information has not been restated.

This has resulted in recognising a
right-of-use asset of Rs. 673 crores and a corresponding lease liability of Rs.
725 crores. The difference of Rs. 35 crores (net of deferred tax asset created
of Rs. 17 crores) has been adjusted to retained earnings as at 1^stApril,
2019.

In the statement of profit and loss for the
current year, operating lease expenses which were recognised as other expenses
in previous periods is now recognised as depreciation expense for the
right-of-use asset and finance cost for interest accrued on lease liability.
The adoption of this standard did not have any significant impact on the profit
for the year and earnings per share. The weighted average incremental borrowing
rate of 8.5% has been applied to lease liabilities recognised in the balance
sheet at the date of initial application.

(b) The Company incurred Rs. 102 crores for
the year ended 31^st March, 2020 towards expenses relating to
short-term leases and leases of low-value assets. The total cash outflow for
leases is Rs. 528 crores for the year ended 31^st March, 2020,
including cash outflow of short-term leases and leases of low-value assets.
Interest on lease liabilities is Rs. 74 crores for the year.

(c) The Company’s leases mainly comprise of
land and buildings and plant and equipment. The Company leases land and
buildings for manufacturing and warehouse facilities. The Company also has
leases for equipment.

(d) The title deeds of leasehold land, net
block aggregating Rs. 1 crore (31^st March, 2019: Rs. 1 crore) are in
the process of perfection of title.

INFOSYS LTD. (consolidated)

From
Notes forming part of Financial Statements

LEASES

Ind AS 116 requires lessees to determine the
lease term as the non-cancellable period of a lease adjusted with any option to
extend or terminate the lease, if the use of such option is reasonably certain.
The Group makes an assessment on the expected lease term on a lease-by-lease
basis and thereby assesses whether it is reasonably certain that any options to
extend or terminate the contract will be exercised. In evaluating the lease
term, the Company considers factors such as any significant leasehold
improvements undertaken over the lease term, costs relating to the termination
of the lease and the importance of the underlying asset to Infosys’s operations
taking into account the location of the underlying asset and the availability
of suitable alternatives. The lease term in future periods is reassessed to
ensure that it reflects the current economic circumstances. After considering current
and future economic conditions, the Group has concluded that no changes are
required to the lease periods relating to the existing lease contracts (refer
to Note 2.19).

Note 2.19 Leases

ACCOUNTING POLICY

The Group as a lessee

The Group’s lease asset classes primarily
consist of leases for land and buildings. The Group assesses whether a contract
contains a lease at the inception of a contract. A contract is, or contains, a
lease if the contract conveys the right to control the use of an identified asset
for a period of time in exchange for consideration. To assess whether a
contract conveys the right to control the use of an identified asset, the Group
assesses whether:

(i) the contract involves the use of an identified
asset;

(ii) the Group has substantially all of the economic
benefits from use of the asset through the period of the lease, and

(iii) the Group has the right to direct the use of
the asset.

At the date of commencement of the lease,
the Group recognises a right-of-use (ROU) asset and a corresponding lease
liability for all lease arrangements in which it is a lessee, except for leases
with a term of 12 months or less (short-term leases) and low-value leases. For
these short-term and low-value leases, the Group recognises the lease payments
as an operating expense on a straight-line basis over the term of the lease.

Certain lease arrangements include the
option to extend or terminate the lease before the end of the lease term. ROU
assets and lease liabilities include these options when it is reasonably
certain that they will be exercised.

The ROU assets are initially recognised at
cost, which comprises the initial amount of the lease liability adjusted for
any lease payments made at or prior to the commencement date of the lease plus
any initial direct costs less any lease incentives. They are subsequently
measured at cost less accumulated depreciation and impairment losses.

ROU assets are depreciated from the
commencement date on a straight-line basis over the shorter of the lease term
and useful life of the underlying asset. ROU assets are evaluated for
recoverability whenever events or changes in circumstances indicate that their
carrying amounts may not be recoverable. For the purpose of impairment testing,
the recoverable amount (i.e. the higher of the fair value less cost to sell and
the value-in-use) is determined on an individual asset basis unless the asset
does not generate cash flows that are largely independent of those from other
assets. In such cases, the recoverable amount is determined for the CGU to
which the asset belongs.

The lease liability is initially measured at
amortised cost at the present value of the future lease payments. The lease
payments are discounted using the interest rate implicit in the lease or, if
not readily determinable, using the incremental borrowing rates in the country
of domicile of the leases. Lease liabilities are re-measured with a
corresponding adjustment to the related right of use asset if the Group changes
its assessment of whether it will exercise an extension or a termination
option. Lease liability and ROU asset have been separately presented in the
balance sheet and lease payments have been classified as financing cash flows.

The Group as a lessor

Leases for which the Group is a lessor are
classified as a finance or operating lease. Whenever the terms of the lease
transfer substantially all the risks and rewards of ownership to the lessee,
the contract is classified as a finance lease. All other leases are classified
as operating leases.

When the Group is an intermediate lessor, it
accounts for its interests in the head lease and the sub-lease separately. The
sub-lease is classified as a finance or operating lease by reference to the ROU
asset arising from the head lease.

For operating leases, rental income is
recognised on a straight-line basis over the term of the relevant lease.

Transition

Effective 1^stApril, 2019, the
Group adopted Ind AS 116 – Leases and applied the standard to all lease
contracts existing on 1^st April, 2019 using the modified
retrospective method and has taken the cumulative adjustment to retained
earnings, on the date of initial application. Consequently, the Group recorded
the lease liability at the present value of the lease payments discounted at
the incremental borrowing rate and the ROU asset at its carrying amount as if
the standard had been applied since the commencement date of the lease, but
discounted at the lessee’s incremental borrowing rate at the date of initial
application. Comparatives as at and for the year ended 31^st March,
2019 have not been retrospectively adjusted and therefore will continue to be
reported under the accounting policies included as part of our Annual Report
for the year ended 31^st March, 2019.

On transition, the adoption of the new
standard resulted in recognition of ‘Right of Use’ asset of Rs. 2,907 crores,
‘Net investment in sub-lease’ of ROU asset of Rs. 430 crores and a lease
liability of Rs. 3,598 crores. The cumulative effect of applying the standard,
amounting to Rs. 40 crores was debited to retained earnings, net of taxes. The
effect of this adoption is insignificant on the profit before tax, profit for
the period and earnings per share. Ind AS 116 has resulted in an increase in
cash inflows from operating activities and an increase in cash outflows from
financing activities on account of lease payments.

The following is the summary of practical
expedients elected on initial application:

(1) Applied a single discount rate to a portfolio
of leases of similar assets in similar economic environment with a similar end
date;

(2) Applied the exemption not to recognise ROU
assets and liabilities for leases with less than 12 months of lease term on the
date of initial application;

(3) Excluded the initial direct costs from the
measurement of the right-of-use asset at the date of initial application;

(4) Applied the practical expedient to grandfather
the assessment of which transactions are leases. Accordingly, Ind AS 116 is
applied only to contracts that were previously identified as leases under Ind
AS 17.

The difference
between the lease obligation recorded as of 31^st March, 2019 under
Ind AS 17 disclosed under Note 2.19 of the 2019 Annual Report and the value of
the lease liability as of 1^st April, 2019 is primarily on account of
inclusion of extension and termination options reasonably certain to be
exercised, in measuring the lease liability in accordance with Ind AS 116 and
discounting the lease liabilities to the present value under Ind AS 116. The
weighted average incremental borrowing rate applied to lease liabilities as at
1^st April, 2019 is 4.5%. The changes in the carrying value of right
of use assets for the year ended 31^stMarch, 2020 are as follows:

(Rs. crores)
Balance as of 1^st April, 2019	–	2,898	9	–	2,907
Reclassified on account of adoption of Ind AS 116	634	–	–	–	634
Additions ⁽¹⁾	1	1,064	6	49	1,120
Additions through business combination	–	177	10	–	187
Deletions	(3)	(130)	(1)	–	(134)
Depreciation	(6)	(540)	(9)	(8)	(563)
Translation difference	–	16	–	1	17
Balance as of 31^st March, 2020	626	3,485	15	42	4,168

(Rs. crores)

Particulars

Category
of ROU asset

Total

Land

Buildings

Vehicles

Companies

Balance as of
1^st April, 2019

–

2,898

–

2,907

Reclassified on account of adoption of Ind AS 116

634

–

634

Additions ⁽¹⁾

1,064

1,120

Additions through business combination

–

177

–

187

Deletions

(3)

(130)

(1)

–

(134)

Depreciation

(6)

(540)

(9)

(8)

(563)

Translation difference

–

Balance as of 31^st March, 2020

626

3,485

4,168

⁽¹⁾ Net
of lease incentives of Rs. 115 crores related to lease of buildings

The break-up of current and non-current
lease liabilities as on 31^st March, 2020 is as follows:

(Rs. crores)

Particulars

Amount

Current lease liabilities

619

Non-current lease liabilities

4,014

Total

4,633

The movement in lease liabilities during the
year ended 31^st March, 2020 is as follows:

(Rs. crores)

Particulars

Year ended
31^st March, 2020

Balance at the beginning

3,598

Additions

1,241

Additions through business combination

224

Deletions

(145)

Finance cost accrued during the period

170

Payment of lease liabilities

(639)

Translation difference

184

Balance at the end

4,633

The details regarding the contractual
maturities of lease liabilities as of 31^st March, 2020 on an
undiscounted basis are as follows:

(Rs. crores)

Particulars

Amount

Less than one year

796

One to five years

2,599

More than five years

2,075

Total

5,470

The Group does not face a significant
liquidity risk with regard to its lease liabilities as the current assets are
sufficient to meet the obligations related to lease liabilities as and when
they fall due.

Rental expense recorded for short-term
leases was Rs. 89 crores for the year ended 31^st March, 2020.

The aggregate depreciation on ROU assets has
been included under depreciation and amortisation expense in the Consolidated
Statement of Profit and Loss.

The movement in
the net investment in sub-lease of ROU assets during the year ended 31^st
March, 2020 is as follows:

(Rs. crores)

Particulars

Year ended
31^st March, 2020

Balance at the beginning

430

Interest income accrued during the period

Lease receipts

(46)

Translation difference

Balance at the end

433

The details regarding the contractual
maturities of net investment in sub-lease of ROU asset as on 31^stMarch,
2020 on an undiscounted basis are as follows:

(Rs. crores)

Particulars

Amount

Less than one year

One to five years

217

More than five years

244

Total

511

Leases not yet commenced to which Group is
committed are Rs. 655 crores for a lease term ranging from two to thirteen
years.

BCAJ Admin

ETHICS AND U

Arjun: Hari
Om Hari! Hari Om Hari! Hey Bhagwan, when is this lockdown going to
end? When will this Corona go away?

Shrikrishna:
Arjun, open your eyes. You are chanting my bhajan and murmuring
something. Hope everything is fine at home?

Arjun:
At home? I am fed up of this house arrest. Both Draupadi and Subhadra are
making me do all the household work. Sweeping the floor, cleaning the utensils,
helping in cooking…

Shrikrishna:
But you are familiar with all this!

Arjun:
What do you mean?

Shrikrishna:
You yourself keep saying – in office, you have to clean up the mess in the
clients’ accounts, you have to window-dress them and make them presentable…

Arjun:
Ha! Ha! True. But tell me, when are our offices going to restart functioning?

Shrikrishna:
Why? Do you think that you cannot function from home? You people talk of Work
from Home, don’t you?

Arjun:
Yes, but there is a limit to that. Work cannot be completed sitting at home.
Our staff is not available, clients’ data is not coming since their accountants
are also not attending work. Everything is paralysed.

Shrikrishna:
But in your management studies, you talk of converting problems into
opportunities. Now why don’t you implement those great ideas?

Arjun: All
that is all right in seminars in posh hotels. In practical life, it is
difficult.

Shrikrishna:
But have you even applied your mind to what fruitful things could be done?
There are many new things coming up in the field of ethics. Those are all very
essential for you to understand.

Arjun:
Really? How can I know them? Tell me some highlights at least.

Shrikrishna:
Arjun, during this lockdown, I have been meeting people almost every day and
telling them the principles of ethics.

Arjun: Don’t tell me! Then why
didn’t you come to my house?

Shrikrishna:
Arjun, on your television sets I am coming so frequently in different forms and
characters, Vishnu, Ram, Krishna, Yudhishthira, Bhishma through all those
serials. There I teach nothing but ethics.

Arjun: Yes.
But those serials are meant for children and retired people. Practical life
mein uska koi fayda nahi!

Shrikrishna:
You are mistaken, Paarth. Now, even internationally your ethics are
getting strengthened. Finance field mein paap bahut badh gaya hai. It
was you peoples’ job to control it, but instead you encouraged it. In
Mahabharata you Pandavas fought against the Kauravas; but now you are acting
hand-in-glove with them.

Arjun: Just
as you preached me the Geeta in the Mahabharata war, please explain to
me what is the new Geeta in our Code of Ethics.

Shrikrishna:
For this, you should know that your Institute has come out with three new
volumes of books on New Code of Ethics. The First Volume covers the
International Ethical Standards adapted by the Institute. It was earlier known
as Part A.

Arjun:
And the other two volumes?

Shrikrishna:
The Second Volume is the old Part B, but significantly revised. It contains
your CA Act, Rules, Regulations, ICAI pronouncements, notifications, guidelines
and so on, on ethics. And Volume 3 is the compilation of case laws.

Arjun:
Oh! So much new literature! But tell me any single item which is very
important.

Shrikrishna: One point
directly relevant to you is that now you can communicate with the previous
auditor on email. Earlier, only registered post was allowed or recommended.

Arjun:
But which email ID?

Shrikrishna:
The ID which is registered with the ICAI. In case you mail on his
ID known to you, but the previous auditor does not respond to your email, you
can get the ID from the ICAI.

Arjun:
Anything more important on this formality?

Shrikrishna:
This is not a mere formality. It is to protect your own interest. Further, if
the incoming auditor inquires about any negative findings in the audit, the
previous auditor is duty-bound to supply the important points to the incoming
auditor.

Arjun: Oh!

Shrikrishna:
Are you aware that during the lockdown the focus of all your
webinars has been on Ethics and Standards on Auditing (SAs). This has become
mandatory in your CPE hours.

Arjun:
I heard of this. But who has time to listen to all these things!

Shrikrishna:
Arrey! Just now you were saying you are sitting idle at home. Then why
don’t you listen to these useful presentations? You people ‘manage’ even your
CPE hours by just joining the webinars but never seriously listening.

Arjun:
Yes, Lord. What you say is right. But in our next few meetings please tell me
the highlights of this new Code of Ethics.

Shrikrishna:
Yes, Paarth. It will be my pleasure to do so.

Om Shanti

This
dialogue is based on the basic idea of the New Code of Ethics which is expected
to be effective from 1^stJuly, 2020. The next few write-ups will be
on important contents of the New Code.

BCAJ Admin

CORPORATE LAW CORNER

6. Mahesh Sureka vs. Marathe Hospitality [2020] 116 taxmann.com 552 (NCLT-Mum.) C.P.(IB) No. 3603/(MB)/2018 Date of order: 20^th March, 2020

Section 238 of the Insolvency and
Bankruptcy Code, 2016 – Assets attached by EOW were to be released in favour of
RP as non-obstante clause appearing in the later legislation would
precede the former – Transfer of assets to a partnership firm (where one of the
partners was a tax adviser of the corporate debtor) for an inadequate
consideration without prior consent of the mortgagee was a fraudulent
transaction and was set aside

FACTS

Insolvency
proceedings were admitted against the corporate debtor P Co on 14^th
March, 2018 on an application filed by U Bank (the ‘Financial Creditor’). One
of the properties of the corporate debtor was financed by way of mortgage by U
Bank. The corporate debtor had leased the said property to MH (a partnership
firm) on a long-term basis for a sum of Rs. 25,000 per month vide lease
deed dated 18^th May, 2016. Mr. AN, who was a partner in MH, was also
a tax adviser to the corporate debtor. Further, the said property was leased to
MH without obtaining the prior approval of U Bank.

The Resolution Professional (RP) learned
that one of the directors of the corporate debtor was in jail (in judicial
custody) and that the Economic Offences Wing (EOW) had attached several of the
properties of the corporate debtor which included its registered office. The RP
mentioned that due to the attachment of the registered office of the corporate
debtor and unavailability of the Directors and other staff members, it was
impossible to prepare essential details of the assets and liabilities of the
corporate debtor. The property mentioned above was also attached by the EOW.

Mr. AN contended that although it was the
duty of the corporate debtor before giving the said property on lease to seek
prior permission of U Bank, MH could not be prejudiced for the wrong-doings of
the corporate debtor. Further, as per section 46 of the Insolvency and
Bankruptcy Code, 2016 (the Code) the relevant time for avoidance of undervalued
transaction was one year prior to commencement of the Corporate Insolvency
Resolution Process (CIRP) of the corporate debtor. It was pleaded that since
the said lease agreement was entered into on 18^th May, 2016, and
hence was beyond the one-year period from the CIRP commencement date, it could
not be covered u/s 46 of the Code.

HELD

The Tribunal heard both the parties at
length. It observed that the lease rental for a period of ten years was a
paltry sum of Rs. 25,000 per month payable by the 10th of the subsequent month
and that the lease could be renewed for a further period by the lessee as per
the said agreement. The fact that Mr. AN was a partner in MH and a tax adviser
to the corporate debtor indicated that it was a case of preferred transaction.
The fact that there was no provision for an annual increment and the extension
was only at the prerogative of the lessee, leads to the conclusion that the
transaction was a fraudulent one.

The Tribunal
relied on the provisions of section 65A(2)(c) of the Transfer of Property Act,
1882 which provided that no lease shall contain a covenant for ‘renewal’. It
was observed that the lease agreement of the corporate debtor with a related
party MH provided for a total rent of a sum of Rs. 25,000 per month in respect
of huge commercial property measuring about 2,310 sq. metres along with a
two-storey building structure with no increase in rental for a period of ten
years. In addition, as per the lease agreement, there was a provision for
further extension at the will of the lessee. In view of this, the lease
agreement entered into between the corporate debtor and MH was held to be
illegal as per the relevant provisions of the Transfer of Property Act, 1882.

Besides, the mortgage deed signed by the
corporate debtor with U Bank provided that the corporate debtor could not let
or license its interest in the said property, or part with its possession,
unless it obtained the written consent of U Bank. Since the said consent was
not obtained, the Tribunal held that the transaction of lease was invalid and mala
fide.

The NCLT observed that the attachment of the
assets of the corporate debtor by the EOW would hamper the claim of the
creditors of the corporate debtor. Thus, to protect the interest of the bank
and the present creditors, NCLT directed the EOW and other Government
Departments to release the property and assets of the corporate debtor
currently attached with them so that the CIRP of the corporate debtor could be
conducted in the substantial public interest.

In the context of section 238 of the Code
which has a non-obstante clause, the Tribunal relied on the decision of
the Supreme Court in the case of Solidaire India Ltd. vs. Fairgrowth
Financial Services Pvt. Ltd., wherein it was held that where two statutes
contain the non-obstante clause, the latest statute would prevail.

Thus, the lease agreement was held as null
and void and the attachment of assets by the EOW was directed to be released in
favour of the RP for carrying out the CIRP in the best interest of the
creditors of the corporate debtor.

7. American Road Technology & Solutions
(P) Ltd. vs. Central Government, Hyderabad [2020] 115 taxmann.com 16 (NCL-Beng.) Date of order: 31^st December,
2019

Where company filed application for
revision of financial statements in F.Y. 2017-18, three preceding years for
purpose of revision of financial statements would be 2016-17, 2015-16 and
2014-15 (which was one of the years in which incorrect financial reporting had
been detected and in respect of which approval for revision had been sought),
since a true and fair picture of company’s finances would not emerge for F.Y.
2014-15 unless financial statements for 2012-13 and 2013-14 were also revised –
Application for revision of financial statements for years 2012 to 2015 was to
be allowed

FACTS

Company A Pvt. Ltd., the applicant, was
incorporated in the year 2012 under the Companies Act, 1956 with the Registrar
of Companies, Karnataka at Bangalore. Its business was mainly carried out in
Bangalore.

During the year 2014-15, the majority
shareholder was informed by one of the ex-senior employees that the affairs of
A Pvt. Ltd. are not run as per the provisions of the Companies Act and the
applicable rules and regulations, and further that there were several financial
irregularities and even falsification of accounts has taken place.

The majority shareholder and A Pvt. Ltd.
decided to appoint an independent auditor to conduct a forensic audit of the
company. The independent auditor submitted his investigation report. This
report was examined internally and expert views were also taken in consultation
with the independent auditor and the statutory auditor.

The statutory auditors had opined that A
Pvt. Ltd.’s records need improvement to ensure controls which are not
commensurate with the size of the company and the nature of its business, with
regard to execution of contracts and raising invoices.

The findings of
the statutory auditor were incorporated in the annual returns filed for the
financial year 2014-15 and it was noted that suspicious transactions have taken
place and falsification of accounts has been done. It was noted that the annual
returns and balance sheets for the years 2012-13, 2013-14 and 2014-15 were
filed without even reconciling the bank statements with the actual activities
of the company that have taken place during the relevant period.

After consideration of the independent
auditor’s report, the management had lodged various criminal proceedings. The
statutory auditor has advised A Pvt. Ltd. to move u/s 131 of the Companies Act,
2013 for the accounts to be redrafted for the period and recasting of the books
for the periods 2015-16 and 2016-17 to incorporate the changes in the opening
balances, subject to ratification by members in a general meeting. Accordingly,
the present petition was filed before the Tribunal.

Based on above factual matrix, the Tribunal
ordered notices to be issued to the respondents, namely, the Registrar of
Companies, the Regional Director, the Income Tax Officer concerned and the
auditor of the company.

The regional director (RD) submitted that
the company has filed the application u/s 131 of the Companies Act, 2013 for
revision of financial statement and board reports for the Financial Years
2012-13, 2013-14 and 2014-15. The RD raised an interesting issue that the application is not made for revision of any of
the three immediately preceding financial years but for all the earlier
years. Hence the same does not fall under the provisions of section 131
of the Act and that, too, for revision of financial statements to reflect
suspicious transactions and falsification of accounts that had taken place in
the company.

As per the Regional Director, u/s 131(2) of
Companies Act, 2013 the revisions must be confined to – (a) The correction in
respect of which the previous financial statement or report do not comply with
the provisions of section 129 or section 134; and (b) The making of any necessary
consequential alteration. He further stated that the petitioner company has
sought blanket revision of financial statements for the years 2012-13, 2013-14
and 2014-15 without actually specifying or limiting itself to any particular
entry or disclosure. Hence the petition is not maintainable. Further, the RD
reiterated that it appears that the revision of financial statements based on
alleged fraud will not fall within the ambit of section 134 of the Companies
Act, 2013.

HELD

The Tribunal, after considering the
objections raised by the RD, observed as under:

(i) The petition seeks approval for
voluntary revision of financial statements and board reports for the financial
years 2012-13, 2013-14 and 2014-15.

(ii) It is the contention of A Pvt. Ltd. that
this provision permits it to voluntarily revise its accounts for any three
preceding financial years, whereas the other respondents in these proceedings
have opposed this view and stated that the same is permitted only for any of
the three immediately preceding financial years and not beyond.

Section 131 of the Act reads as under:

Voluntary Revision of Financial
Statements or Board’s Report:

(1) If it appears to the directors of a
company that –

(a) the financial statement of the
company; or

(b) the report of the Board

do not comply with the provisions of
section 129 or section 134 they may prepare revised financial statement or a
revised report in respect of any of the
three preceding financial years after obtaining approval of the
Tribunal on an application made by the company in such form and manner as may
be prescribed and a copy of the order passed by the Tribunal shall be filed
with the Registrar…:’ (emphasis added).

The Tribunal observed that the petition is
filed on 22^nd January, 2018 and falls within the F.Y. 2017-18.
Section 131, even going by the contention of the respondent that the words ‘in
respect of any of the three preceding financial years’ should mean
‘immediately’ preceding three financial years, then such preceding three
financial years would be 2016-17, 2015-16 and 2014-15. Thus, F.Y. 2014-15,
which is one of the years in which the incorrect financial reporting has been
detected and in respect of which approval for revision has been sought, is
squarely covered by section 131.

The Tribunal
further observed that when a balance sheet is drawn for a particular year, it
brings forward balances of the preceding year/s, and as such will necessarily
impact the balance sheet for the Y.E. 31^st March, 2015, i.e., for
F.Y. 2014-15, and for this reason the years 2012-13 and 2013-14 will
necessarily have to be considered for revision of the accounts that are not
giving a true and fair picture of the accounts for these years, for the reasons
mentioned herein above. This accounting compulsion cannot be ignored.
Once this is made clear, the issue whether the accounts of the three F.Y.s
referred to in the petition could be revised or not in view of an
interpretation of section 131, becomes redundant and of mere academic interest.

In section 131
the term ‘immediately preceding’ is not used. Instead, the section speaks of ‘any
of the three preceding financial years‘.

In order to
determine the intent of the Legislature, it is necessary to look into the 57^th
Report of the Standing Committee on Finance on the Companies Bill, 2011. The
relevant portion of the said Report of the Standing Committee is extracted
below:

‘The change
proposes to provide procedural requirement in respect of revision in
accounts in certain cases. The present law is silent in respect of re-opening
or re-casting of accounts. In certain cases, particularly in cases relating
to fraud, there may be need to re-open / re-cast accounts to reflect true and
fair accounts. In case of Satyam, such re-casting was ordered
by the Court. The provisions in the Bill mandate such re-opening on the order
of the Court or Tribunal. In other cases the re-opening is being permitted,
through order of Tribunal, with adequate safeguards.’ (Emphasis supplied.)

The Tribunal
further observed that considering that the thrust of several provisions of the
Act is either to prevent financial misdemeanour or oppression and
mismanagement, all such provisions need to be understood and interpreted in
this light.

Since the
instant case is prima facie that of mismanagement, misreporting and
alleged fraud, the Tribunal observed that the section has to be interpreted in
the spirit of the Act and the exercise of correcting the same cannot become a
victim of interpretation of allowable time. Such time limits can at best be considered
to be advisory and not mandatory, since the same is only a procedural
requirement, as mentioned in the Standing Committee Report.

Thus, the
Tribunal observed that the words ‘in respect of any of the three preceding
financial years’ have to be read as any three previous years. It
further elaborated that even otherwise, the Tribunal is competent to initiate
reopening / revision of accounts u/s 130 in cases of the kind in hand, for
which no time limit is prescribed. It cannot be the case that if an application
is made u/s 131 where the grounds are similar to section 130, the accounts
prepared incorrectly, or when the affairs are
mismanaged, the revision of accounts would be prevented by any one view on time
limitation. Hence, in view of the totality of facts and circumstances, all
three years, i.e. F.Y.s 2012-13, 2013-14 and 2014-15, would be covered for
revision, not only because of the accounting compulsion, since F.Y. 2014-15 is
in any case covered, and the earlier years’ accounts have a bearing on the
same, but also as per the provision contained in section 131 of the Act.

The Tribunal
accordingly held that in the facts and circumstances of the case, this is a fit
case for granting approval u/s 131 to prepare revised financial statements and
/ or revised reports in respect of the F.Y.s 2012-13, 2013-14 and 2014-15 in
the case of A Pvt. Ltd. and the same was accordingly granted.

BCAJ Admin

GLIMPSES OF SUPREME COURT RULINGS

4. Seshasayee
Steels P. Ltd. vs. ACIT

[2020]
421 ITR 46 (SC)

Capital
Gains – Transfer – In order that the provisions of section 53A of the T.P. Act
be attracted, first and foremost the transferee must, in part performance of
the contract, have taken possession of the property or any part thereof; and
secondly, the transferee must have performed or be willing to perform his part
of the agreement – The expression ‘enabling the enjoyment of’ in section
2(47)(vi) must take colour from the earlier expression ‘transferring’, so that
it can be stated on the facts of a case that a de facto transfer of
immovable property has, in fact, taken place, making it clear that the de
facto owner’s rights stand extinguished – On the facts of the case, the
assessee’s rights in the said immovable property were extinguished on the
receipt of the last cheque, as also that the compromise deed could be stated to
be a transaction which had the effect of transferring the immovable property in
question

The
appellant-assessee entered into an agreement with Vijay Santhi Builders Limited
on 15^th May, 1998 to sell a property for a total sale consideration
of Rs. 5.5 crores.

Pursuant to
this agreement, a Power of Attorney (PoA) was executed on 27^th
November, 1998 by which the assessee appointed one Chandan Kumar, Director of
M/s Vijay Santhi Builders Ltd., to execute and join in execution of the
necessary number of sale agreements and / or sale deeds in respect of the
schedule mentioned property after developing the same into flats. The PoA also
enabled the builder to present before all the competent authorities such
documents as were necessary to enable development of the same and the sale
thereof to various persons.

The
appellant did not file any return for A.Y. 2004-2005. Apparently, it was
detected later by the A.O. that the agreement to sell had been entered into and
that, subsequently, a memorandum of compromise had also been entered into
between the parties dated 19^th July, 2003. Based on the discovery of
this fact, a notice dated 4^th November, 2008 issued u/s 148 was
served on the appellant. Even in response to this notice, no Income tax return
was filed. A notice dated 8^th September, 2009 was then issued u/s
142(1) fixing the case for hearing on 20^thSeptember, 2009. Once
again, the appellant did not turn up, as a result of which another notice dated
23^rd October, 2009 was issued; but this time, too, the assessee did
not turn up. So a third letter was issued on 11^th December, 2009
fixing the case for hearing on 22^nd December, 2009. In response to
this letter, the assessee by a letter dated 29^th December, 2009
sought time for one month.

Since time
bar was foremost in the mind of the A.O., the limitation falling on this
transaction by 31^st December, 2009, a best judgment assessment order
was then passed u/s 144 dated 31^stDecember, 2009. Vide this
order, the entire sale consideration was treated as a capital gain and brought
to tax.

An appeal
was preferred against this order. The Commissioner of Income Tax (Appeals), by
an order dated 28^th October, 2010, examined the three documents in
question and ultimately dismissed the appeal. The Income Tax Appellate
Tribunal, by an order dated 24^thJune, 2011, agreed with the CIT(A)
and found that on or about the date of the agreement to sell the conditions
mentioned in section 2(47)(v) of the Act could not be stated to have been
complied with, in that the very fact that the compromise deed was entered into
on 19^th July, 2003 would show that the obligations under the
agreement to sell were not carried out in their true letter and spirit. As a
result of this, section 53A of the Transfer of Property Act, 1882 could not
possibly be said to be attracted. What was then referred to was the memorandum
of compromise dated 19^th July, 2003 under which various amounts had
to be paid by the builder to the owner so that a complete extinguishment of the
owner’s rights in the property would then take place. The last two payments
under the compromise deed were contingent upon M/s Pioneer Homes also being
paid off, which apparently was done. The Appellate Tribunal held that the
transfer therefore took place during the A.Y. 2004-05 as the last cheque was
dated 25^th January, 2004.

The High
Court, by the impugned judgment dated 25^th January, 2012, adverted
to the concurrent findings of the authorities and stated that the three questions
of law that were set out were all answered in favour of the Revenue and against
the assessee.

The Supreme
Court observed that in order that the provisions of section 53A of the T.P. Act
be attracted, first and foremost the transferee must, in part performance of
the contract, have taken possession of the property or any part thereof.
Secondly, the transferee must have performed or be willing to perform his part
of the agreement. It is only if these two important conditions, among others,
are satisfied that the provisions of section 53A can be said to be attracted on
the facts of a given case.

According to
the Supreme Court, on a reading of the agreement to sell dated 15^th
May, 1998 it was clear that both the parties were entitled to specific performance
(Clause 14). Clause 16 was crucial and the expression used was that ‘the party
of the first part hereby gives “permission” to the party of the second part to
start construction on the land’. Clause 16, therefore, leads to the position
that a license was given to another upon the land for the purpose of developing
the land into flats and selling the same. Such license could not be said to be
‘possession’ within the meaning of section 53A, which is a legal concept and
which denotes control over the land and not actual physical occupation of the
land. This being the case, section 53A of the T.P. Act was not attracted to the
facts of this case for this reason alone.

Turning to
the argument of the assessee based on section 2(47)(vi) of the Income-tax Act,
the Supreme Court made a reference to its judgment in Commissioner of
Income Tax vs. Balbir Singh Maini (2018) 12 SCC 354 and applying the
test given in the aforesaid judgment, observed that it was clear that the
expression ‘enabling the enjoyment of’ must take colour from the earlier
expression ‘transferring’, so that it can be stated on the facts of a case that
a de facto transfer of immovable property has, in fact, taken place
making it clear that the de facto owner’s rights stand extinguished.
According to the Supreme Court, as on the date of the agreement to sell, the
owner’s rights were completely intact both as to ownership and to possession
even de facto, so that this section equally could not be said to be
attracted.

Coming to
the third argument of the appellant, the Supreme Court was of the view that
what has to be seen is the compromise deed and as to which pigeonhole such a
deed can possibly be said to fall into u/s 2(47). According to the Supreme
Court, a perusal of the compromise deed showed that the agreement to sell and
the PoA were confirmed and a sum of Rs. 50 lakhs was reduced from the total
consideration of Rs. 6.10 crores. Clause 3 of the said compromise deed
confirmed that the party of the first part, that is, the appellant, had received
a sum of Rs. 4,68,25,644 out of the agreed sale consideration. Clause 4
recorded that the balance Rs. 1.05 crores towards full and final settlement in
respect of the agreement entered into would then be paid by seven post-dated
cheques. Clause 5 then stated that the last two cheques would be presented only
upon due receipt of the discharge certificate from one M/s Pioneer Homes. In
this context, the ITAT had found that all the cheques mentioned in the
compromise deed had, in fact, been encashed. This being the case, it was clear
that the assessee’s rights in the said immovable property were extinguished on
the receipt of the last cheque, as also that the compromise deed could be
stated to be a transaction which had the effect of transferring the immovable property
in question.

According to
the Supreme Court, the pigeonhole, therefore, that would support the orders
under appeal would be section 2(47)(ii) and (vi) of the Act in the facts of the
present case. This being the case, the Supreme Court dismissed the appeal but
for the reasons stated by this judgment.

5. Maruti
Suzuki India Ltd. vs. Commissioner of Income Tax, Delhi

(2020)
421 ITR 510 (SC)

Business
expenditure – Deduction only on actual payment – The unutilised credit under
MODVAT scheme does not qualify for deductions u/s 43B of the Income-tax Act –
The sales tax paid by the assessee was debited to a separate account titled
‘Sales Tax recoverable account’ which could have set off sales tax against his
liability on the sales of finished goods, i.e., vehicles – Assessee cannot
claim deduction of unutilised balance in ‘Sales Tax recoverable account’

The assessee
company was engaged in the manufacture and sale of various Maruti cars and also
traded in spares and components of the vehicles. It acquired excisable raw
materials and inputs which were used in the manufacture of the vehicles. The
assessee had also been taking benefit of MODVAT credit on the raw material and
inputs used in the manufacturing.

At the end
of A.Y. 1999-2000, an amount of Rs. 69,93,00,428 was left as unutilised MODVAT
credit. In the return it was claimed that the company was eligible for
deduction u/s 43B as an allowable deduction. Similarly, the company claimed
deduction u/s 43B of an amount of Rs. 3,08,99,171 in respect of Sales Tax
Recoverable Account.

The A.O.
passed an assessment order dated 28^th March, 2002 and disallowed the
claim of deduction of Rs. 69,93,00,428 as well as of Rs. 3,08,99,171. Aggrieved
by this order, the assessee filed an appeal before the Commissioner of Income
Tax who also sustained the disallowance. An appeal to ITAT met with the same
fate. The ITAT took the view that the advance payment of Excise Duty which
represented unutilised MODVAT credit without incurring the liability of such
payment, was not an allowable deduction u/s 43B. The assessee filed an appeal
u/s 260A in the High Court. The Court answered the question relating to the
above noted disallowance in favour of the Revenue. Aggrieved by this judgment,
the assessee filed appeals before the Supreme Court.

According to
the Supreme Court, the following two questions arose for its consideration:

(i) Whether the ITAT had committed an error of
law in upholding the disallowance of the amount of Rs. 69,93,00,428 which
represented MODVAT credit of Excise Duty that remained unutilised by 31^st
March, 1999, i.e., the end of the relevant accounting year?

(ii) Whether the ITAT committed an error of law in
upholding the disallowance of Rs. 3,08,99,171 in respect of Sales Tax
Recoverable Account u/s 43B?

The Supreme
Court noted that the unutilised MODVAT credit on 31^st March, 1999 to
the credit of the assessee was Rs. 69,93,00,428. This credit was accumulated to
the account of the assessee due to the payment of Excise Duty on raw materials
and inputs which were supplied to it by the suppliers and reflected in the
invoices by which raw materials and inputs were supplied. The appellant was
entitled to utilise this credit in payment of Excise Duty to which the assessee
was liable in payment of Excise Duty on manufacture of its products.

According to
the Supreme Court, an analysis of the provision of section 43B indicated that
deduction thereunder was to be allowed on fulfilment of the following
conditions:

(a) there should be an actual payment of Excise
Duty whether ‘by way of tax, duty, cess or fee, by whatever name’;

(b) such payment has to be ‘under any law for the
time being in force’;

(d) irrespective of the method of accounting
regularly employed by the assessee, deduction shall be allowed while computing
the income tax for the previous year ‘in which (the) sum is actually paid’ by
the assessee;

(e) the expression ‘any such sum payable’ refers
to a sum for which the assessee incurred liability in the previous year even
though such sum might not have been payable within that year under the relevant
law.

According to
the Supreme Court, the crucial words in section 43B(a) were ‘any sum payable by
the assessee by way of tax, duty, cess or fee…’. One had therefore to examine
as to whether unutilised credit under the MODVAT scheme was a sum payable by
the assessee.

The Supreme
Court noted that the Excise Duty is levied under the Central Excise Act, 1944
and collected as per the Central Excise Rules, 1944. The taxable event is
manufacture and production of excisable articles and payment of duty is
relatable to the date of removal of such article from the factory. When the
appellant purchases raw materials and inputs for manufacture of vehicles, it
maintains a separate account containing the Excise Duty as mentioned in the
sale invoices. The credit of such Excise Duty paid by the appellant is to be
given to the appellant by virtue of Rules 57A to 57F of the Central Excise
Rules, 1944 as it then existed. The appellant was fully entitled to discharge
his liability to pay Excise Duty on vehicles manufactured by adjusting the
credit of Excise Duty earned by it as per the MODVAT scheme. The liability to
pay Excise Duty on the raw materials and inputs which are used by the appellant
is on the manufacturers of such raw materials and inputs manufactured by them
and not on the assessee.

The Supreme
Court held that as per section 43B(a) of the Income-tax Act, deduction is
allowed on ‘any sum payable by the assessee by way of tax, duty, cess or fee’.
The credit of Excise Duty earned by the appellant under the MODVAT scheme as
per Central Excise Rules, 1944 is not the sum payable by the assessee by way of
tax, duty, cess, etc. The scheme, u/s 43B, is to allow deduction when a sum is
payable by the assessee by way of tax, duty and cess and had been actually paid
by him. Furthermore, the deduction u/s 43B is allowable only when the sum is
actually paid by the assessee. In the present case, the Excise Duty leviable on
the appellant on the manufacture of vehicles was already adjusted in the
assessment year concerned from the credit of Excise Duty under the MODVAT
scheme. The unutilised credit in the MODVAT scheme cannot be treated as a sum
actually paid by the appellant. When the assessee pays the cost of raw
materials where the duty is embedded, it does not ipso facto mean that
the assessee is the one who is liable to pay Excise Duty on such raw material /
inputs. It is merely the incidence of Excise Duty that has shifted from the
manufacturer to the purchaser and not the liability for the same. The Supreme
Court, thus, concluded that the unutilised credit under the MODVAT scheme does
not qualify for deductions u/s 43B of the Income Tax Act.

The Supreme
Court thereafter dealt with the authorities relied upon by the assessee.

The Supreme
Court, dealing with the observations in Eicher Motors Ltd. and Anr. vs.
Union of India and Ors., (1999) 2 SCC 361 that the facility of credit
is as good as tax paid till tax is adjusted on future goods made in context of
57-F(4-A) of the Central Excise Rules, 1944, held that the said observation
cannot be read to mean that payment of Excise Duty by the appellant which was a
component of the sales invoice purchasing the raw material / inputs by the
appellant is also payment of Excise Duty on raw material / inputs.

The Supreme
Court observed that the question which was answered in Collector of
Central Excise, Pune and Ors. vs. Dai Ichi Karkaria Ltd. and Ors. (1999) 7 SCC
448 was entirely different to the one which had arisen in the present
case. In the above case, it was held that in determining the cost of the
excisable product covered by the MODVAT scheme u/s 4(1)(b) read with Rule 6 of
the Valuation Rules, the Excise Duty paid on raw material covered by the MODVAT
scheme is not to be included. The Court in the above case has laid down that
credit for the Excise Duty paid for the raw material can be used at any time
when making payment of Excise Duty on excisable products. The use of such
credit is at the time of payment of Excise Duty on the excisable product, i.e.,
at the time when the appellant is to pay Excise Duty on its manufactured
vehicles.

The Court
observed that in Berger Paints India Ltd. vs. Commissioner of Income Tax
(2004) 266 ITR 99, the claim of the assessee was that the entire sum of
Rs. 5,85,87,181 was the duties actually paid during the relevant previous year.
The above was not a case for unutilised MODVAT credit; hence, the said case
cannot be held to lay down any ratio with respect to allowable deduction
u/s 43B in respect of unutilised MODVAT credit.

Coming to
the second question, i.e. with regard to disallowance of Rs. 3,08,99,171 in
respect of the sales tax recoverable amount, the Supreme Court noted the fact
that the assessee pays sales tax on the purchase of raw materials and computers
used in the manufacture of cars. Though the sales tax paid is part of the cost
of raw materials, the assessee debits the purchases net of sales tax; the sales
tax paid is debited to a separate account titled ‘Sales Tax Recoverable A/c’.
Under the Haryana General Sales Tax Act, 1973 the assessee could set off such
sales tax against its liability on the sales of the finished goods, i.e. the
cars. Whenever the goods are sold, the tax on such sales is credited to the
aforesaid account.

According to
the Supreme Court, the High Court had rightly answered the above question in
favour of the Revenue relying on its discussion with respect to Question No. 1.
The sales tax paid by the appellant was debited to a separate account titled
‘Sales Tax recoverable account’. The assessee could have set off sales tax
against his liability on the sales of finished goods, i.e. vehicles. There was
no infirmity in the view of the High Court answering the above question.

Lastly, it was contended by the
assessee that the return for the assessment year in question was to be filed
before 30^th September, 1999 and the unutilised credit was, in fact,
fully utilised by 30^thApril, 1999 itself. It was submitted that
since the unutilised credit was utilised for payment of Excise Duty on the
manufactured vehicles, the said amount ought to have been allowed as
permissible deduction u/s 43B.

The Supreme
Court held that there was no liability to adjust the unutilised MODVAT credit
in the year in question, because had there been liability to pay Excise Duty by
the appellant on manufacture of vehicles, the unutilised MODVAT credit could have
been adjusted against the payment of such Excise Duty. In the present case, the
liability to pay Excise Duty of the assessee was incurred on the removal of
finished goods in the subsequent year, i.e., the year beginning from 1^st
April, 1999 and the unutilised MODVAT Credit as it was on 31^st
March, 1999, on which date the assessee was not liable to pay any more Excise
Duty. Hence, it was not a case where the appellant could claim benefit of the proviso
to section 43B.

The appeal was therefore dismissed.

BCAJ Admin

From The President

Dear Members,

India continues to witness a
spike in new cases of Covid-19 and mounting casualties. The number of active
cases is close to 30,000 patients as of date. The silver lining in India’s
casualty number, however, is our low fatality rate of 3.3%, which is almost as
low as South Korea and China. Our Nation continues to battle bravely to cope
with and against the spread of this pandemic. I take this opportunity to salute
the real heroes, warriors who are fighting this war for us, all the sanitation
workers, medical staff, health workers, police and other officials continue to
put their own life at risk for the safety of others.

Social distancing and lockdown is
the best option available to control the spread of the virus. Lockdown hurts
the economy but saving lives is more important at this stage. But the lives of
millions of migrant workers and daily wage earners also depends upon their
livelihood, and they can survive this lockdown only if the Government can
provide for their basic sustenance.

We have entered the third phase
of the lockdown, and by the time this message reaches you, the country would
have gone through more than 40 days of lockdown. These lockdowns have brought
most of the economic activities, investments, exports, discretionary
consumption and spending to a standstill. Only essential goods and services and
public services are allowed to operate, resulting in a substantial economic
loss to the country. Our economic growth had already slowed down before the
outbreak of this pandemic and now we are faced with this unprecedented problem.
Hopefully, soon there will be some relaxations and opening up of normal
activity in a phased manner over time. According to World Bank, Indian economy
is expected to grow 1.5 per cent to 2.8 per cent (and even that sounds
optimistic) in the financial year 2020-2021, which will be the slowest growth
rate recorded since the economic reforms of 1991. It is not whether we get
knocked down; it’s more important whether we get up. Our future is in our
hands, and I am confident that we will emerge stronger after this crisis and
will be well on our way to recovery much before the advent of the monsoon.

We at the BCAS, have also
converted this challenge into an opportunity and have immediately moved into
action to stay connected with our members. We have organised various online
events, lectures, courses and panel discussions. I am happy to inform you that
during this phase on the lockdown, we have successfully held more than 30
online events reaching out to approximately 20,000 viewers resulting in almost
40,000 person-hours of training. The videos of all these events are available
for viewing on our YouTube channel, free of cost. In these challenging times,
we are committed to our members and would also like to thank all our members
and online viewers for their continuous love and support. It is also heartening
to know that we added more than 1,500 new social media followers, and now we
have close to 37,000 social media followers in all. I would request all of you
to stay updated and connected with BCAS on our social media platforms
of LinkedIn, YouTube, Twitter and Facebook at bcasglobal.

Another challenge to our
profession this year will be the conduct of bank branch audits of public sector
banks (PSB). April has been the month where many of our fellow professionals
have been busy with these bank audits. This year, due to the lockdown executing
these audits has not been possible. There were representations made by the
Indian Banks’ Association to RBI to restrict with the number of bank branch
under audit and relaxation in the audit coverage to 60% of bank’s portfolio in
the current year; however, ICAI made representation on this matter, on the
grounds of scope limitation to do an audit objectively, detrimental to public
faith and against the law of the land and the auditing principles. On 27^th
April 2020, RBI has communicated to all PSB and relaxed the guidelines for bank
branches to be audited for FY 2019-2020. The revised guidelines continue to
cover the 90% of all funded and non-funded exposure of the bank and all
branches with advances of Rs. 20 crores and above to be compulsorily audited
but has relaxed the requirement of compulsory auditing 1/5th of the remaining
branches. This, in my view, will leave a considerable number of branches out of
the audit scope and may adversely affect our fellow professionals. The
unfortunate reality is that Bank branch audit fees form a significant portion
of fees for the profession.

Another challenge this year will
also be to conduct the audit remotely without visiting the branches. The IT
systems of many of the PSB are not robust enough and do not allow access to
their CBS network to the auditors. ICAI has come out with a detailed advisory
for conducting an audit under these circumstances. However, conducting audits
will not be easy, and there will be challenges in getting records and data and
verifying the same. Auditors will have to adopt different ‘remote’ audit
procedures of accessing and checking data on a virtual platform and at the same
time continuing to comply with the requirements of standards on auditing. It
might seem like auditing remotely is indeed a promising opportunity – but it
comes with its own set of challenges. All this when the role of the auditor is
already under increased scrutiny, and his work is put constantly under the
spotlight by both the public and regulators. Yes, it is true that some of the
frontline listed companies have declared their audited results as per the
schedule, and many of our fellow professionals are also part of this. I am sure
we as Auditors will rise to the occasion and discharge our responsibility and
obligations with flying colours.

I want to end with an appeal to
all our members, who have not renewed their membership and journal subscription
fees, to do so immediately, so that you can continue to benefit from all the
knowledge enhancing activities of your Society.

Take care and stay safe until we
meet again.

Namaste!!

CA Manish Sampat

President

BCAJ Admin

GLIMPSES OF SUPREME COURT RULINGS

1.
Universal Cables Ltd. vs. Commissioner
of Income Tax

Jabalpur (2020) 420 ITR 111 (SC)

Refund – Interest on refund of
TDS deducted erroneously – Deductor to be paid interest u/s 244A of the Act

The appellant, M/s Universal
Cables Ltd., erroneously deducted tax on interest payments made to IDBI with
regard to the provisions contained in section 194A(3)(iii)(b) of the Act. The
TDS was Rs. 7,06,022 on payment of interest to IDBI, Bombay. IDBI objected to
the deduction of income tax as no tax was required to be deducted in respect of
payments made to a financial corporation established by or under a Central /
State or provincial Act; as IDBI was covered under the same, no tax was
required to be deducted on the payment of interest made to it. In view of the
above, the appellant requested the Income-tax Officer (TDS) to refund the
amount of Rs. 7,06,022 which was erroneously deducted and credited to the
account of the Central Government. The Commissioner of Income-tax, Jabalpur, by
an order dated 2nd February, 1996 directed the Income-tax Officer (TDS) to
refund the said amount to the appellant.

After the
grant of refund, the appellant requested the Department to grant interest on
the refund u/s 244A of the Act. The Income-tax Officer (TDS) declined to grant
interest. On an appeal, the Commissioner of Income-tax (Appeals) directed the
Income-tax Officer (TDS) to grant interest u/s 244A of the Act on the refunded sum
from the date of payment to the Government treasury to the date of issue of
refund voucher. On an appeal by the Revenue, the Tribunal reversed the order of
the Commissioner of Income-tax (Appeals), holding that the appellant was not an
assessee under the Act but only a tax deductor and that the tax refunded by the
Department was not a refund as per section 237 of the Act and therefore was not
entitled to refund u/s 244A of the Act. The High Court dismissed the appeal of
the appellant.

On further appeal to the Supreme
Court, the appellant relied on the decision of the Supreme Court in Union
of India vs. Tata Chemicals Ltd. reported in (2014) 363 ITR 658,
in particular, paragraph 37 on page 675 of the said decision.

The Supreme Court held that from
the dictum in the said judgment, it was clear that there was no reason to deny
payment of interest to the deductor who had deducted tax at source and
deposited the same with the treasury. According to the Supreme Court, this
observation squarely applied to the appellant.

As a result, the Supreme Court
allowed the appeal of the appellant and directed the Department to pay interest
as prescribed u/s 244A of the Act as applicable at the relevant time at the
earliest.

2. Union of India (UOI) and Ors. vs. Gautam Khaitan

(2020) 420 ITR 140 (SC)

Undisclosed foreign income and
assets – In order to give benefit to the assessee(s) and to remove anomalies,
the date 1^st July, 2015 has been substituted in sub-section (3) of
section 1 of the Black Money Act in place of 1^st April, 2016 – By
doing so, the assessee(s), who desired to take the benefit of one-time
opportunity could have made declaration prior to 30^th September,
2015 and paid the tax and penalty prior to 31^stDecember, 2015

An appeal was filed before the
Supreme Court challenging the interim order passed by the Division Bench of the
Delhi High Court in Writ Petition (Crl.) No. 618 of 2019 dated 16^th
May, 2019 thereby restraining the appellants from taking and / or continuing
any action against the respondent pursuant to the order dated 22^nd
January, 2019 u/s 55 of the Black Money (Undisclosed Foreign Income and Assets)
and Imposition of Tax Act, 2015 (hereinafter referred to as the Black Money
Act).

According to the Supreme Court,
the short question that fell for its consideration was as to whether the High
Court was right in observing that in exercise of the powers under the
provisions of sections 85 and 86 of the Black Money Act, the Central Government
had made the said Act retrospectively applicable from 1^st July, 2015
and passed a restraint order.

The Supreme Court, from the
Statement of Objects and Reasons, observed that the Black Money Act had been
enacted for the following purposes:

(a) to unearth the black money stashed in foreign countries;

(b) to prevent unaccounted money going abroad;

(d) To prevent illegitimate income and assets kept outside the country
from being utilised in ways which are detrimental to India’s social, economic
and strategic interests and its national security.

The Black Money Act was passed by
Parliament on 11^thMay, 2015 and received Presidential assent on 26^th
May, 2015. Sub-section (3) of section 1 provides that save as otherwise
provided in the said Act, it shall come into force on the 1^st day of
April, 2016. However, by the notification / order notified on 1^st
July, 2015, which was impugned before the High Court, it had been provided that
the Black Money Act shall come into force on 1^st July, 2015, i.e.,
the date on which the order was issued under the provisions of sub-section (1)
of section 86 of the Black Money Act.

The Supreme Court noted that the
scheme of the Black Money Act is to provide stringent measures for curbing the
menace of black money. Various offences have been defined and stringent
punishments have also been provided. However, the scheme of the Black Money Act
also provided a one-time opportunity to make a declaration in respect of any
undisclosed asset located outside India and acquired from income chargeable to
tax under the Income-tax Act. Section 59 of the Black Money Act provides that
such a declaration was to be made on or after the date of commencement of the
Black Money Act, but on or before a date notified by the Central Government in
the Official Gazette. The date so notified for making a declaration is 30^th
September, 2015, whereas the date for payment of tax and penalty was notified
to be 31^st December, 2015. As such, an anomalous situation was
arising; if the date under sub-section (3) of section 1 of the Black Money Act
was to be retained as 1^st April, 2016, then the period for making a
declaration would have lapsed by 30^th September, 2015 and the date
for payment of tax and penalty would have also lapsed by 31^st
December, 2015.

However, in
view of the date originally prescribed by sub-section (3) of section 1 of the
Black Money Act, such a declaration could have been made only after 1^st
April, 2016. Therefore, in order to give the benefit to the assessee(s) and to
remove the anomalies, the date 1^st July, 2015 had been substituted
in sub-section (3) of section 1 of the Black Money Act in place of 1^st
April, 2016. According to the Supreme Court, this was done to enable the
assessee(s) desiring to take benefit of section 59 of the Black Money Act. By
doing so, the assessee(s) who desired to take the benefit of the one-time
opportunity could have made a declaration prior to 30^th September,
2015 and paid the tax and penalty prior to 31^st December, 2015.

According to the Supreme Court,
the penal provisions under sections 50 and 51 of the Black Money Act would come
into play only when an assessee fails to take benefit of section 59 and neither
discloses assets covered by the Black Money Act, nor pays the tax and penalty
thereon. The Supreme Court therefore concluded that the High Court was not
right in holding that by the notification / order impugned before it, the penal
provisions were made retrospectively applicable.

The Supreme Court also noted that
in the factual scenario of the present case, the assessment year in
consideration was 2019-2020 and the previous year relevant to the assessment
year was the year ending on 31^st March, 2019 and in that view of the
matter, the interim order passed by the High Court was not sustainable in law;
the same was quashed and set aside.

3. Dalmia Power Limited and
Ors. vs. ACIT

(2020) 420 ITR 339 (SC)

Amalgamation of companies –
Revised return of income filed after amalgamation beyond the due date of filing
revised return provided u/s 139(5) without seeking permission from Central
Board of Direct Taxes u/s 119(2)(b) is a valid return where the Scheme of
Arrangement and Amalgamation which is approved by NCLT so provides and is not
objected to by the Department.

The appellant No. 1, M/s Dalmia
Power Limited, was engaged in the business of building, operating, maintaining
and investing in power and power-related businesses directly or through
downstream companies. The appellant No. 2, M/s Dalmia Cement (Bharat) Limited,
was engaged in the business of manufacturing and selling of cement, generation
of power, maintaining and operating rail systems and solid waste management
systems which provide services to the cement business. The appellants had their
registered offices at Dalmiapuram Lalgudi Taluk, Dalmiapuram, District
Tiruchirappalli, Tamil Nadu.

The appellant No. 1 filed its
original return of income u/s 139(1) of the Act on 30^th September,
2016 for A.Y. 2016-2017, declaring a loss of Rs. 6,34,33,806. Similarly,
appellant No. 2 filed its original return of income u/s 139(1) of the Act on 30^th
November, 2016 for A.Y. 2016-2017 declaring NIL income (after setting off
brought forward loss amounting to Rs. 56,89,83,608 against total income of Rs.
56,89,83,608).

With a view to restructure and
consolidate their businesses and enable better realisation of the potential of
their businesses, which would yield beneficial results, enhanced value creation
for their shareholders, better security to their creditors and employees, the
appellants (also referred to as ‘Transferee Companies’ or ‘Amalgamated
Companies’) entered into four inter-connected Schemes of Arrangement and
Amalgamation with nine companies, viz., DCB Power Ventures Ltd., Adwetha Cement
Holdings Ltd., Odisha Cement Ltd., OCL India Ltd., Dalmia Cement East Ltd.,
Dalmia Bharat Cements Holdings Ltd., Shri Rangam Securities & Holdings
Ltd., Adhunik Cement Ltd. and Adhunik MSP Cement (Assam) Ltd. (also referred to
as ‘Transferor Companies’ or ‘Amalgamating Companies’) and their respective
shareholders and creditors.

The appointed date of the Schemes
was 1^st January, 2015 and these would come into effect from 30^th
October, 2018.

The Transferor and Transferee
Companies filed company petitions under sections 391 to 394 of the Companies
Act, 1956 before the Madras and Guwahati High Courts.

On the coming into force of the
Companies Act, 2013, the company petitions were transferred to NCLT, Chennai
and NCLT, Guwahati.

The Schemes were duly approved
and sanctioned by the NCLT, Guwahati vide orders dated 18^th May,
2017 and 30^th August, 2017. NCLT, Chennai sanctioned the Schemes
vide orders dated 16^th October, 2017, 20^th October, 2017,
26^th October, 2017, 28^th December, 2017, 10^th
January, 2018, 20^th April, 2018 and 1^st May, 2018.

The appellants / Transferee
Companies manually filed revised returns of income on 27^th November,
2018 with the Department after the Schemes were sanctioned and approval was
granted by the NCLT. The revised returns were based on the revised and modified
computations of total income and tax liability of the Transferor / Amalgamated
Companies. In the revised returns of income, the appellant No. 1 claimed losses
in the current year to be carried forward amounting to Rs. 2,44,11,837; whereas
appellant No. 2 claimed losses in the current year, to be carried forward,
amounting to Rs. 11,05,93,91,494.

The revised
returns were filed after the due date for filing revised returns of income u/s
139(5) for the A.Y. 2016-2017 since the NCLT passed the final order on 1^st
May, 2018. Consequentially, it was an impossibility to file the revised returns
before the prescribed date of 31^stMarch,
2018.

On 4^th December, 2018,
the Department issued a notice u/s 143(2) of the Income-tax Act to give effect
to the approval of the Scheme.

On 5^th December, 2018,
the Department recalled the notice dated 4^th December, 2018 on the
ground that the appellants had belatedly filed their revised returns without
obtaining permission from the Central Board of Direct Taxes (CBDT) for
condonation of delay u/s 119(2)(b) of the Act read with CBDT Circular No.
9/2015 dated 9^thJune, 2015.

Next, on 28^th
December, 2018, the Department passed an assessment order u/s 143(3) of the
Act, stating that in view of the Scheme of Arrangement and Amalgamation, the
notice issued u/s 143(2), and the assessment proceedings for A.Y. 2016-2017 had
become infructuous with respect to appellant No. 2.

The appellants filed writ
petitions before the Madras High Court praying for quashing of the order dated
5^thDecember, 2018 and for a direction to the Department to complete
the assessment for A.Y. 2015-2016 and A.Y. 2016-2017 after taking into account
the revised income tax returns filed on 27^th November, 2018, as well
as the orders dated 20^th April, 2018 and 1^st May, 2018
passed by the NCLT, Chennai approving the Schemes of Arrangement and
Amalgamation.

The learned Single Judge of the
Madras High Court, vide common judgment and order dated 30^th April,
2019 allowed the writ petitions filed by the appellants and quashed the order
dated 5^th December, 2018 passed by the Department and directed the
Department to receive the revised returns filed pursuant to the approval of the
Schemes of Arrangement and Amalgamation by the NCLT, Chennai and complete the
assessment for A.Y. 2015-2016 and A.Y. 2016-2017 in accordance with law within
a period of 12 weeks.

The Department filed writ appeals
under clause 15 of the Letters Patent Act challenging the judgment and order
dated 30^th April, 2019 passed by the Single Judge.

A Division Bench of the Madras
High Court, vide the impugned judgment dated 4^th July, 2019 allowed
the writ appeals and reversed the judgment of the Single Judge.

Aggrieved by the judgment of the
Division Bench, the appellants filed appeals before the Supreme Court on 9^th
August, 2019.

According to the Supreme Court,
the issue arising for consideration in the appeals was whether the Department
ought to have permitted the assessee companies (the appellants) to file the
revised income tax returns for the A.Y. 2016-2017 after the expiry of the due
date prescribed u/s 139(5) of the Act on account of the pendency of proceedings
for amalgamation of the assessee companies with other companies in the group
under sections 230-232 of the Companies Act, 2013.

The Supreme Court observed that a
perusal of the Scheme of Arrangement and Amalgamation showed that the
appellants were entitled to file revised returns of income after the prescribed
time limit for filing or revising the returns had lapsed without incurring any
liability on account of interest, penalty or any other sum.

The Court noted that in
compliance with section 230(5) of the Companies Act, 2013, notices under Form
No. CAA 3 under sub-rule (1) of Rule 8 of the Companies (Compromises,
Arrangements and Amalgamations) Rules, 2016 were sent to the Department.

Rule 8(3) of the Companies
(Compromises, Arrangements and Amalgamations) Rules, 2016 provides that any
representation made to the statutory authorities notified u/s 230(5) shall be
sent to the NCLT within a period of 30 days from the date of receipt of such
notice. In case no representation is received within 30 days, it shall be
presumed that the statutory authorities have no representation to make on the
proposed scheme of compromise or arrangement.

The Supreme Court noted that the
Department did not raise any objection within the stipulated period of 30 days
despite service of notice.

Pursuant thereto, the Schemes
were sanctioned by the NCLT. Accordingly, the Schemes attained statutory force
not only inter se the Transferor and Transferee Companies, but also in
rem, since there was no objection raised either by the statutory
authorities, the Department or other regulators or authorities likely to be
affected by the Schemes.

As a consequence, when the
companies merged and amalgamated with one another, the amalgamating companies
lost their separate identity and character and ceased to exist upon the
approval of the Schemes of Amalgamation.

Every scheme of arrangement and
amalgamation must provide for an appointed date. The appointed date is the date
on which the assets and liabilities of the transferor company vest in and stand
transferred to the transferee company. The Schemes come into effect from the
appointed date, unless modified by the Court.

The Supreme Court observed that
in Marshall Sons & Co. (India) Ltd. vs. ITO it had held that
where the Court does not prescribe any specific date but merely sanctions the
scheme presented, it would follow that the date of amalgamation / date of
transfer is the date specified in the scheme as ‘the transfer date’. It was
further held that pursuant to the Scheme of Arrangement and Amalgamation, the
assessment of the Transferee Company must take into account the income of both
the Transferor and the Transferee Companies.

The Court noted that in the
present case, appellant Nos. 1 and 2 / Transferee Companies filed their
original returns of income on 30^th September, 2016 and 30^th
November, 2016, respectively. Thereafter, they entered into Schemes of
Arrangement and Amalgamation with nine Transferor Companies in 2017. The
Schemes were finally sanctioned and approved by the NCLT, Chennai vide final
orders dated 20^th April, 2018 and 1^st May, 2018. The
appointed date as per the Schemes was 1^st January, 2015.
Consequently, the Transferor / Amalgamating Companies ceased to exist with
effect from the appointed date, and the assets, profits and losses, etc. were
transferred to the books of the appellants / Transferee Companies / Amalgamated
Companies.

The Schemes incorporated
provisions for filing the revised returns beyond the prescribed time limit
since the Schemes would come into force retrospectively from the appointed
date, i.e., 1^st January, 2015.

Accordingly, the appellants filed
their revised returns on 27^th November, 2018. The re-computation
would have a bearing on the total income of the appellants with respect to the
A.Y. 2016-2017, particularly on matters in relation to carrying forward losses,
unabsorbed depreciation, etc.

The counsel appearing for the
Department relied on sections 139(5) and 119(2)(b) of the Act read with
Circular No. 9 of 2015 issued by the Central Board of Direct Taxes to contend
that the appellant ought to have made an application for condonation of delay
and sought permission from the Central Board of Direct Taxes before filing the
revised returns beyond the statutory period of 31^st March, 2018. The
appellants having belatedly filed their revised returns on 27^th
November, 2018, which was beyond the due date of 31^st March, 2018
for the A.Y. 2016-17, the assessment could be done on the basis of the original
returns filed by the appellants.

According to the Supreme Court,
the provisions of section 139(5) were not applicable to the facts and
circumstances of the present case since the revised returns were not filed on
account of an omission or wrong statement or omission contained therein. The
delay occurred on account of the time taken to obtain sanction of the Schemes
of Arrangement and Amalgamation from the NCLT. In the facts of the present
case, it was an impossibility for the assessee companies to have filed the
revised returns of income for the A.Y. 2016-2017 before the due date of 31^stMarch, 2018 since the NCLT had passed the last orders granting approval
and sanction of the Schemes only on 22^nd April, 2018 and 1^st
May, 2018.

The Supreme Court further held
that a perusal of section 119(2)(b) showed that it was applicable in cases of
genuine hardship to admit an application, claim any exemption, deduction,
refund or any other relief under this Act after the expiry of the stipulated
period under the Act. This provision would not be applicable where an assessee
has restructured his business and filed a revised return of income with the
prior approval and sanction of the NCLT, without any objection from the
Department.

The Court observed that the rules
of procedure have been construed to be the handmaiden of justice. The purpose
of assessment proceedings is to assess the tax liability of an assessee
correctly in accordance with law.

According to the Supreme Court,
sub-section (1) of section 170 makes it clear that it is incumbent upon the
Department to assess the total income of the successor in respect of the
previous assessment year after the date of succession. In the present case, the
predecessor companies / transferor companies have been succeeded by the
appellants / transferee companies who have taken over their business along with
all assets, liabilities, profits and losses, etc. In view of the provisions of
section 170(1) of the Income-tax Act, the Department is required to assess the
income of the appellants after taking into account the revised returns filed
after the amalgamation of the companies.

According to the Court, the
learned Single Judge had rightly allowed the writ petitions. The Court set
aside the impugned judgment and order dated 4^th July, 2019 passed by
the learned Division Bench and restored the judgment dated 30^th
April, 2019 passed by the learned Single Judge, allowing the civil appeals.

The Supreme Court directed the
Department to receive the revised returns of income for A.Y. 2016-2017 filed by
the appellants and complete the assessment for A.Y. 2016-2017 after taking into
account the Schemes of Arrangement and Amalgamation as sanctioned by the NCLT.

Note: The
judgment of the Apex Court in the case of Marshall Sons & Co.
(India) Ltd. vs. ITO (223 ITR 809) was analysed by us in the column
‘Closements’ in the February, 1997 issue of this Journal.

BCAJ Admin

SOCIETY NEWS

HOLISTIC HEALTHY LIVING…

The Human Resource Development Committee organised
a Study Circle meeting on ‘Holistic Healthy Living
(Emotional Upliftment Through Healthy Mind)’ on 10th
December, 2019 at the BCAS Hall. The presentation was
made by Dr. Viral Thakkar, MBBS, MD.

Key takeaways from the talk were as follows: A holistic
and healthy life entails harmony between the mental,
emotional and physical states of an individual. Recent
research has started accepting what our ancient scriptures
had proved – that physical health depends on what and
how we think and feel. Hence, maintaining equilibrium
and balance in one’s mental, emotional and physical
constitution leads to an ideal life. If everyone can learn
how to manage stress gracefully, most of the diseases
would not exist. Dr. Thakkar emphasised: ‘Everyone is
capable of achieving optimum health by becoming one’s
own physician.’

The speaker also covered the following concepts:
(i) Psychosomatic fundamentals;
(ii) R ole of emotions and thoughts in maintaining healthy
physiology;
(iii) Brief introduction to Bach Flower Remedies and
handling emotional health;
(iv) A dvance technologies to diagnose emotional and
thought patterns like aura videography;
(v) Lifestyle tips; and
(vi) M editation.

The meeting was well attended and the participants said
they would welcome more such discussions.
Maximising yourself

The HRD Committee organised another Study Circle
meeting on ‘Maximising Yourself by Living a Holistic
Life: Let 2020 be the Beginning of a Defining Decade’
on 14th January, 2020 at the BCAS Hall. The presentation
was made by Mr. Shyam Lata.

The talk provoked the members present to think about
whether they were leveraging the physical, intellectual,
emotional and spiritual fronts of their lives to the maximum
level.

He went on to explain the following:
(a) Physically, some of the essential aspects of life are
exercise, diet and rest; a balance of these helps maximise
our potential;
(b) For intellectual balance, an important aspect is to
filter the information received continuously before arriving
at conclusions. This requires a carefully considered gap
between listening and responding to make the right
decisions;
(c) For emotional balance, an important aspect is to be
assertive – but not aggressive;
(d) For spiritual balance, one needs to practice ethics in
dealings with others.

The speaker summarised these concepts by explaining
Maslow’s Hierarchy of Needs.

ACHIEVING $5 TRILLION ECONOMY

BCAS, along with experts from CCI, organised ‘Experts’
Chat’ on ‘Current Economic Scenario – How India can
achieve US $5 Trillion Economy Target’ at the C.K.
Nayudu Hall, CCI, on 29th January.
Those who participated in the discussion were:
Dr. Ajit Ranade – Group Executive President and Chief
Economist, Aditya Birla Group; Mr. Shyam Srinivasan
– CEO and Managing Director, Federal Bank Ltd.; and
Mr. Dipan Mehta – Stock Market Analyst. BCAS Past
President Shariq Contractor was the Moderator.

At the outset, BCAS President Manish Sampat thanked
the President of the CCI and its Executive Committee
for their co-operation in organising the joint event. He
welcomed the members of both organisations and gave
a brief idea about the activities of the BCAS. He set the
tone for the meeting by narrating the difficult times that
the Indian economy was passing through and hoped that
the experts would enlighten those present about the path
to take to achieve the desired target.

Manish Sampat formally introduced Moderator Shariq
Contractor and then requested Treasurer Abhay Mehta
to do the honours for the experts. After the introduction
of the experts and presentation of mementoes to them, it
was time for the Moderator to take over.

Shariq Contractor set the ball rolling
by first describing the headwinds
and challenges facing the economy
and then said that at the current rate
of growth, in order to achieve a $5
trillion economy India would have to
grow at 11% a year. Was it possible
to achieve this in five years in the
opinion of the panellists? He also wondered whether
the yardstick of consumption-driven growth, which was
the model adopted by the western countries till now,
was valid in view of the changing paradigms in ecology,
environmental concerns and the need for consideration of
the ‘index of human values’.

The panellists were unanimous in their opinion that despite
challenges, it was good to have a goal to propel India in
the desired direction. The challenges of low growth across
the world, the falling Indian agricultural sector putting
pressure on the manufacturing and services sectors and
the depreciating rupee were indeed matters of concern
and could act as a roadblock. However, if there was a
goal followed by action, it could yield the desired result,
if not in the targeted period then at some later time. But
the panellists negated the thought that liquidity was a
roadblock in achieving growth.

According to Mr. Shyam Srinivasan,
the real problem was that investments
were not happening. It was not
a supply problem but a demand
problem that was ailing the economy.
Changing patterns of consumption
and behaviour of the millennials also
needed to be given due consideration
as they did not believe in permanent ownership but useand-
throw, renting and bartering. This was putting a drag
on the economy and the growth rate needed to factor in
this major change.

Mr. Dipan Mehta said that globally, as in India, demand
for institutional finance was reducing as there were many
more avenues of financing available through VC and PE
funding. Besides, orbit-changing business enterprises
were created by ideas that had the potential of catapulting the economy to a very high growth
rate with low seed funding. And there
was enough funding available to
back such ideas.

Shariq Contractor asked whether
chasing the coveted growth rate
posed a risk for India and whether it
could lead to more inequality in the system.

Dr. Ajit Ranade opined that this was
inevitable in the pursuit of growth
because gains from successful
business always went first to the top
order. Besides, some social ills like
pollution, ecological disorders and
environmental hazards were bound
to come as a package along with
growth. However, the wisest thing would be to balance
these factors.

Answering a question on building human capital to
leverage the demographic advantage, Dr. Ranade said
that skill development was indeed a problem and massive
resources were needed to build up the required skill to
achieve the target. In fact, according to the panellists,
more investments would be necessary for investing in
skill-building than plant and machinery or buildings. Mr.
Shyam Srinivasan said that 2% of CSR funds could be
mandatorily made to be spent on skill-building. However,
all panellists agreed that the current level of CSR funds at
Rs. 3 billion might be insufficient to meet the requirements.

To specific questions whether India could afford to follow
a growth model that could potentially compromise the
environment, the panellists were unanimous that it could
only be possible with due balance and ensuring that the
model was financially and economically viable.

One of the critical factors for success in achieving the
desired growth rate and measuring the performance was
the availability of reliable statistical data. The Moderator
asked whether the panellists were convinced about the
reliability of data. They replied that India had a healthy
tradition of maintaining data and the advantage of a wellbuilt
system. They affirmed that GDP metrics did not
leave out any major data in all three sectors. In fact, the
government was consistently trying to improve methods
of data capturing and sampling methods to extrapolate
data in real time for the right decision and direction.

Mr. Dipan Mehta said that the auditors deserved special praise from society for ensuring that corporates presented
their figures accurately. All agreed that India was indeed
following global standards on most parameters for
measuring its progress.

Answering a question about what should one expect from
the forthcoming budget to act as a catalyst for growth,
the response was that no further taxes and greater
transparency by government would be the key.

The chat on targeted issues was followed by a rapid-fire
question round which was well fielded by the panellists.
Overall, the tone was both positive and optimistic about
having a target and working towards achieving it.

INTERNATIONAL ECONOMICS STUDY GROUP

The International Economics Study Group held its meeting
on 10th February on ‘Analysis of Economic Aspect of
Budget 2020’. Shalin Divatia led the discussions and
presented his considered views on the subject.

He first highlighted a few prominent themes of Budget
2020, how the past few years had shaped the budget
(‘Why we are where we are today’) and then dwelt on
some critical highlights of the (then forthcoming) budget.

Clearly, he said, this budget was a continuity of the
approach of the Modi government over the past five
years. During the ten years from 2004-05 to 2013-14,
India consumed by ‘importing’ and Indian corporates
resorted to high leveraging. Heavy external borrowings,
coupled with high fiscal deficit and very high bank credit
growth, had pumped the economy which reflected in the
GDP growth. However, this also resulted in ballooning
inflation and unsustainable PSU bank NPAs, in addition
to the depreciation of the rupee in the forex market.

The Modi government had gone on a systematic and
sustained course-correction to put the economy back on
track with the focus on measures relating to governance
(IBC, use of technology and DBT), strengthing the
economy (review of import duties and rules of origin
under FTA , increase in import duties to protect MSME
and the scheme to encourage electronics goods
manufacturing) and tax reforms (GST had resulted in
lowering of the total indirect taxes). The endeavour
had been to put purchasing power back in the hands of
the common man, promoting ‘Make in India’ for Indian
consumption, to protect / attract manufacturing in India and promote the sustainable competitiveness of the
Indian economy.

Among the prominent themes of the budget were
governance, ease of living (through ‘Aspirational India’,
economic development and a caring society) and the
financial sector. Speaker Shalin Divatia also presented
details of major infra projects announced by the
government to achieve a $5 trillion economy and how the
fiscal deficit is planned to be kept in control in a holistic
manner, including pushing of specific disinvestment cases.

He explained that the Indian economy being very diverse
and with vast inequalities, initiatives that are good from the
larger perspective may negatively impact certain sectors
in the short term. He described how the era of ‘making’
money was over and that with many opportunities, money
would now have to be ‘earned’.

DIGITAL TAXATION

A lecture meeting on ‘Digital Taxation’ was held at the
BCAS Hall on 12th February. Mr. Rashmin Sanghvi, was
the faculty.

He started with an explanation on
how BlockChain has changed the
banking system in India and the
world. He then went on to explain
how the big MNCs of the West such
as Apple and so on are engaged in a
tax war.

The difference between ‘Country of Source’ and ‘Country
of Residence’ was explained with the example of Google
Inc. That, in turn, led to a discussion on how the concept
of PE (Permanent Establishment) is outdated and what
are the current changes that the OECD has brought in.
What happens when the OECD brings in changes and
how do these impact India?

Mr. Sanghvi also elaborated the principles of Base Erosion
Profit Shifting – Action Plans and how these would affect
domestic laws when they were implemented by the nations
accepting them. He described how the term ‘equalisation
levy’ came into the picture and how nations like India and
France had implemented a tax on the digital advertisements
of digital marketing companies which, without a presence
in India, used these to evade taxes.

The erudite speaker explained the changes in the Finance Bill, 2020 which addressed significant economic presence
and also the digital economy, which would bring a change
in the way finance and taxes would work.

It was an upbeat and informative meeting, with the
participants benefiting enormously from the discussions
and the insights provided.

ITF STUDY CIRCLE MEETING

The ITF Study Circle meeting on ‘Amendments of
International Taxation – Finance Bill 2020’ was held on
14th February.

The International Taxation Committee Study Circle
organised this meeting at the BCAS Hall. It was addressed
by Ms Divya Jokhakar.

She began by sharing her personal views on how the
Finance Bill has its pros and cons. She then explained
the reasons for the change in the existing provisions
of section 6 – Residential Status; section 206C – TCS;
and section 94B – Interest Limitation. She led the group
discussion by throwing in several interesting questions,
leading finally to the conclusion that there were still many
doubts and queries which the Finance Bill would be able
to answer when it was made into an Act.

Divya Johkakar’s Excel workings on how to claim tax
credit in the event of an individual turning into a deemed
resident of India, and also the workings of disallowance
u/s 94B, were well received.

‘10X SUCCESS AND PRO SPERITY MINDSET’

The Human Resources Development Committee
organised a Study Circle meeting on 17th February at
the BCAS Hall to discuss the subject ‘10X Success
and Prosperity Mindset’ which was conducted by
Mr. Arunaagiri Mudaaliar.

He explained that what a human being achieves in life
depends on his mindset. And mindset comprises of
beliefs and attitudes that can be fine-tuned for success
through effective training. Dr. Arunaagiri is a master in
helping individuals convert their beliefs and attitudes into
liberating, empowering beliefs and mindset to achieve
holistic prosperity in life.

In the ‘10X Success and Prosperity Mindset’ seminar,
the participants got first-hand information on the subject. Some of them claimed that they had experienced an
uplifting and positive feeling and enhanced energy at the
end of the seminar.

ANAL YTICS & AI – A GLO BAL PERSPECTIVE

A lecture meeting on ‘Analytics and AI – Global
Perspective and India Story’ was held on 20th February
at the BCAS Hall.

President Manish Sampat gave the opening remarks
and presented an overview of the seminar by explaining
the importance of Artificial Intelligence (AI). He also
introduced both the speakers, Mr. Jeffery Sorensen and
Deepjee Singhal.

Mr. Jeff Sorensen started the
session by highlighting various
points to be kept in mind at the time
of auditing and briefly described the
global perspective on audit analytics
and AI by listing the following points:
(i) Artificial Intelligence definition
(ii) Global development
(iii) T he audit perspective
(iv) A udit AI in practice
(v) H ow you can get started

‘AI is the branch of computer science concerned
with the automation of intelligent behaviour. AI is the
computational ability to achieve goals in the world,’
he said, before going on to describe some common
AI terms and concepts. He then explained Machine
Learning – which is a subset of AI – and a mathematical
model based on sample data.

He also described some key challenges for AI and global
development, which is a combination of faster computers
and smarter techniques. He described the global progress
on AI with examples from the fields of finance, healthcare,
automotive, retail, airlines / travel, security, lifestyle and
so on.

Further, he explained Audit Perspective, which applies
to audit – Automation and Robotic Process Automation
(RPA); audit apps; machine learning / deep learning for
auditors; goals of RPA; features of RPA and tasks for
RPAs; standardised, rule-based repetitive and machinereadable
inputs; and so on.

Considering the time limitation,
Deepjee Singhal, a member of the
BCAS Core Group, gave more time to
Mr. Sorensen to share his
experience.

In the limited time available to him,
Deepjee Singhal provided a brief
update on ‘the India Story’ and on Analytics and AI in the
context of internal audit.

He explained the future of Analytics and AI in India
and asserted that AI had a bright and promising future.
Further, he described, with examples, the presence of
AI in government, automotive, finance, restaurants,
etc. He also explained some key points of AI such as
the development of AI in India through auditing, audit
analytics, etc.

Both sessions were interesting and interactive. The
meeting was well attended and attracted a full house.

WOR KSHOP ON UNDERSTANDING MLI

A two-day workshop on ‘Understanding the MLI’
(Multilateral Instrument) was organised by the BCAS
at Hotel Orchid in Mumbai on 21st and 22nd February. The
objective of the workshop was to offer participants indepth
understanding of the MLI and its impact on Indian
tax treaties going forward.

The seminar received tremendous response with 112
participants of all generations, both members and nonmembers,
as also outstation participants from 16 cities
across India.

Manish Sampat, BCAS President, welcomed the
gathering and made the opening remarks. Dr. Mayur Nayak, Chairman of the International Tax Committee,
introduced the subject.

In the first session on Day 1, Mukesh Butani lucidly
explained the architecture of the MLI along with its basic
concepts, terminology and nuances in light of the BEPS
project of the OECD and its ‘Action Report 15’. His
presentation provided an insight into Part I of the MLI,
i.e., Article 1 (Scope of MLI) and Article 2 (Interpretation
of Terms). The session was chaired by BCAS Past
President Kishor Karia.

On the conclusion of the first session, the BCAS
publication, ‘Multilateral Instruments [MLI] (including an
overview of BEPS) – A Compendium,’ was launched by
BCAS Past President Pinakin Desai.

The day’s second session saw
Vishal Gada providing insights
into Part II of the MLI dealing with
hybrid mismatches. The case studies
presented by him provided practical
understanding to the participants
of the issues which are sought to
be tackled by the MLI and also the
issues that could possibly arise from its interpretation.
His presentation covered Article 3 (Transparent Entities),
Article 4 (Dual Resident Entities) and Article 5 (Application
of Methods for Elimination of Double Taxation) of the MLI.
This session was chaired by Dr. Mayur Nayak.

In the third session of
Day 1, Radhakishan
Rawal provided insights
on Part VII of the MLI
(Final Provisions), dealing
with how the MLI will be
interpreted, implemented,
amended, will enter into force, will enter into effect, relate to the protocols, etc.
His presentation covered Articles 27 to 39 of the MLI. The
session was chaired by Nilesh Kapadia.

The last session
of the day had H.
Padamchand Khincha
dealing with Articles
12 to 15 of the MLI,
which pertain to artificial
avoidance of Permanent
Establishment (PE)
status in light of BEPS
Action Report 7. He also enlightened the participants on
the amendments to the concept of ‘business connection’
proposed by the Finance Bill, 2020 and its impact on the
taxation of foreign enterprises operating in India through
digital means. Daksha Baxi chaired this session.

On Day 2, the first
session saw Geeta
Jani taking the stage
and enlightening the
participants about the
intricacies and nuances
of Articles 6 to 11 of the
MLI dealing with Treaty
Abuse in the backdrop
of BEPS Action Report 6. The case studies covered in
her presentation inter alia not only highlighted the various
issues that are expected to arise under Article 6 (Purpose
of a Covered Tax Agreement) and Article 7 (Prevention
of Treaty Abuse) of the MLI, but also provided possible
solutions and interpretations to deal with these issues.
This session was chaired by Tarunkumar Singhal.

In the second session on Day 2, Dr. Vinay Kumar Singh,
IRS dealt with the very important topic of synthesised texts of Indian tax treaties (post-MLI) issued by the Indian
tax authorities. His presentation provided insights into
the approach of Indian tax authorities to the MLI, the
non-binding nature of the synthesised texts and how the
same are expected to enhance the ease of interpreting
the MLI, which can otherwise be a daunting task. This
particular session was chaired by Anish Thacker.

The two-day workshop concluded
with a panel discussion on case
studies under MLI featuring Dr. Vinay
Kumar Singh, IRS, Sushil Lakhani
and Vispi Patel acted as panellist
and Moderator, respectively. Thanks
to their expert knowledge and rich
practical experience, they dealt with
the complicated issues arising in
the case studies and provided allround
inputs and arguments from
the perspective of both the taxpayer
and the tax authorities. The case
studies were prepared by Ganesh
Rajagopalan, Bhaumik Goda and
Karnik Gulati. They were guided and provided with
valuable inputs by Vispi Patel.

All the sessions were interactive, with the speakers
sharing their insights on their respective subjects and
issues. The participants benefited immensely from their
guidance and practical views. The Coordinators for the
workshop were Namrata Dedhia, Tarunkumar Singhal
and Abbas Jaorawala.

INTERACTIVE SESSION WITH STUDENTS

The BCAS Students’ Forum, an initiative of the HRD
Committee, organised an interactive session with
students on the subject ‘“Success in CA Exams’” on 23rd
February at RVG Hostel, Andheri (West), Mumbai.

The event was attended by Mr. Lalchand Choudhary (President, RVG Hostel), Mr. Rajesh Muni (Chairman, HRD Committee – BCAS), Mihir Sheth (Hon. Joint Secretary – BCAS), Narayan Pasari (Past President – BCAS) and Anand Kothari (Convener, HRD Committee – BCAS).

Ms Azvi Khalid (student co-ordinator) introduced the speakers, Dr. Mayur Nayak and Ashutosh Rathi, and shared brief details about the BCAS Students’ Forum. Rajesh Muni addressed the students and encouraged them to actively participate in the events organised by the Students’ Forum. Mr. Lalchand Choudhary was delighted to share students’ activities at RVG and said that he would be very happy to conduct more such programmes jointly with the BCAS for the benefit of the CA students’ community. Mihir Sheth and Narayan Pasari also motivated the students with words of encouragement.

Dr. Mayur Nayak shared his own inspiring journey as a CA student who failed to crack the final exams in the first attempt and thereafter secured an All-India Rank with his sheer determination, hard work and positive attitude. He focused on the ways to mentally prepare for the exams and how to accept failure. He gave tips to calm the mind while attempting the papers; and, while studying for the exams, learning a few deep breathing techniques. He explained that the biggest danger faced by students was not in setting their aim too high and falling short, but in setting their aim too low and achieving their mark.

Ms Drishti Bajaj (student co-ordinator) urged students to participate in the forthcoming Jal Erach Dastur CA Students’ Annual Day event, popularly known as ‘Tarang’ which offered an excellent platform to CA students to showcase their talent.

The second speaker of the day, Ashutosh Rathi, who has vast teaching experience, emphasised the importance of staying time-conscious; to ensure that they did not get distracted; he suggested maintaining a ‘Mission Chartered Diary’ creating a plan for the next day before going to sleep and logging hourly performance marks.

At the end of every day, the student needs to do selfanalysis and ask three Golden Questions to himself:
1) What worked?
2) What did not work?
3) What is the improvement plan for things that did not work?

Planning and time management played a crucial role in getting the best ROI on the time invested. A good and realistic plan kept the student focused, sorted and in charge. He also shared a six-step approach:

Step 1: A sk the Golden Question
Step 2: Zero-Based Budgeting – Subject-wise and
Chapter-wise Time Estimates
Step 3: Subject Scheduling (Macro)
Step 4: Week Scheduling
Step 5: D ay Scheduling
Step 6: Fortnightly Refinement

Ashutosh Rathi pointed out that planning was a dynamic process. Often, the target may not be accomplished for various reasons and it would require the student to refine his plans to make up for the lost time; for this it was best for the students to spend 30 minutes every two weeks to refine their strategy.

At the end of the session, he shared the inspiring story of Ms Rajani Gopala, India’s first visually impaired woman who achieved the milestone of becoming a CA by transforming her weaknesses into strengths and sympathy into empathy by sheer determination, hard work, planning, focus and perseverance. He also offered practical tips and tricks to be implemented to qualify as a CA and provided students with powerful affirmations to stay self-motivated.

Finally, Mr. Vedant Satya (student co-ordinator) briefed the participants about the forthcoming BCAS events and thanked the speakers for sharing their knowledge.

VIVAD SE VISHWAS

BCAS Past President Gautam Nayak chaired the Direct Tax Laws Study Circle meeting on the ‘Vivad se Vishwas’ Bill, 2020, at the BCAS Hall on 24th February. Advocate Devendra Jain was the Group Leader.

Devendra Jain gave a brief overview of the objects of the Bill and the reasons for its enactment. The cases in which the scheme will be applicable, along with important definitions, were discussed in detail. Cases wherein the declaration would be considered inapplicable were highlighted.

All the aforesaid points were discussed in light of the amendments to the Bill, which were passed on the day of the meeting.

Chairman Gautam Nayak gave practical insights on various issues from time to time in the course of the meeting. Both he and the Group Leader took questions from the floor throughout the session.

INDIRECT TAX STUDY CIRCLE

The Indirect Tax Law Study Circle held its meeting on ‘Issues concerning the applicability of section 50, rule 86A and section 43A of the CGST Act’ at the BCAS Conference Hall on 2nd March. More than 40 members attended the meeting.

The Group Leader and session chairman provided insights on the topic with wide coverage and gave a detailed analysis on it. He also answered many of the doubts raised by members. It was an interesting and interactive meeting which concluded with a vote of thanks to the Group Leader and the Mentor. On a demand from the members, it was decided to hold a continuation of the same meeting at a later date.

BCAJ Admin

MISCELLANEA

I. Technology

1.
Blockchain can protect privacy during
coronavirus crisis

Citizens the world over typically
demand their governments respond to catastrophes by reaching out and helping
people when they are most in need. The coronavirus pandemic is no different –
and political leaders know they must step up. But when institutions stretch out
a hand, should we blindly accept the way governments take so much new control
over our lives in exchange for their help?

It is clear there must be some
restrictions on normal life to fight a pandemic. But we risk the crisis
response becoming an overreach and imposing limits on personal freedoms that
could last long after the virus is defeated.

How much privacy are we willing
to sacrifice to protect populations from the virus? In Israel, the government
has authorised its security service to track mobile phone location data of
people suspected to have coronavirus using techniques originally deployed for
anti-terrorism surveillance. China took advantage of facial-recognition systems
to trace people’s movements in its anti-virus fight. And the United States is
engaging in public-private partnerships with the likes of Palantir, a
data-scraping company known for its predictive policing tools.

These emergency measures risk
normalising monitoring mechanisms in much the same way that the 9/11 terror
attacks triggered legislation enabling broad spying on citizens. That
ostensibly temporary legislation remains largely unchecked almost two decades
later.

But just as technology empowers
governments to ratchet up their surveillance, so can technology unleash
opportunities to protect people’s privacy – and help keep them safe. The
solution lies with Blockchain, a decentralised technology offering data
sovereignty that facilitates individuals choosing what data they are willing to
share and with whom.

By combining Blockchain and
secure hardware, smart devices can achieve their intended purpose while also
preserving privacy. For example, residents in an apartment building or a gated
neighbourhood can use a Blockchain-powered security camera and choose which
agencies receive the data generated by the camera. This is ‘privacy-by-design’
built to protect individuals.

It avoids data being held in any
central point such as a government or corporation, where all too often leaks
and hacks or profit-driven data-selling deprive people of any chance of
privacy. With Blockchain’s unique ability to store information in a decentralised
way, the data has no such vulnerability.

2. Human-centred
privacy protection

There is an
emerging philosophy in privacy spheres, which is ‘bring the code to the data,
not data to the code’. One technology that employs this is confidential computing
which combines encrypted data from users and open-source algorithms from
companies in a trusted, neutral hardware environment to run privacy-preserving
computations. This human-centred approach protects users’ privacy while still
providing the insights that governments need. It also ensures user data is only
used for its intended purpose, as the algorithms applied to the data can be
verified.

Blockchain
also plays an important role here. In these privacy-preserving computations,
Blockchain technology coordinates the activity – such as uploading or deleting
data – for various stakeholders in the decentralised process. Blockchain
ensures the data can always be audited, meaning the consumer who provided the
information will always be able to tell if their data has been used for the
purpose they intended it, and for that purpose alone.

3. Keep
safe and keep your privacy

Protecting data privacy in the
ongoing coronavirus crisis is a bigger concern than many people might realise.
Just as people have come over time to understand how important it is to wash
their hands with soap, so will people increasingly learn to practice data
hygiene to keep ownership of their own data.

People need to be aware that once
data is out there, it is impossible to fully rein it back in. Scraping data
that users voluntarily put on the internet is one thing. But leveraging fears
in a crisis to incentivise them to upload highly sensitive data that they never
intended to share is dangerous and permanent.

For example, U.S. President
Donald Trump directed anxious Americans to Google’s Project Baseline, citing
that it would help with coronavirus. But its Terms and Conditions state: ‘If
you withdraw your consent, information that has already been gathered will be
retained. Once you join, your membership could last indefinitely, or could be
ended at any time without your permission.’ Talk about giving up any rights to
your own data!

These kinds of crises initiatives
highlight how vulnerable we all are to surveillance and losing control of our
data. Still, the good news is that Blockchain means we do not have to trust a
government or a Google. Instead, we can rely on Blockchain to enable us to
share only what we want to share. In short, we can help keep ourselves safe –
and keep our privacy, too.

(Source: International Business
Times – Opinion by Raullen Chai, 26^th March, 2020

Raullen Chai is the co-founder
and CEO of IoTeX, a technology company that uses Blockchain to secure hardware
devices and data storage to build end-to-end encrypted device ecosystems for
the Internet of Trusted Things)

4.
E-commerce faring better now, issues
being resolved, says DPIIT Secretary

Secretary in the Department for
Promotion of Industry and Internal Trade (DPIIT) Guruprasad Mohapatra has said
that thanks to several follow-ups, relaxations have been given to e-commerce
players by the Home Ministry. The government has held several meetings with
them to resolve issues arising due to the lockdown and the situation is now
improving on a daily basis. ‘The e-commerce position is much better now than
what it was on Day One of the lockdown’.

E-commerce representatives had
shared the problems faced by them in the movement of essential goods by
delivery boys due to the lockdown.

Traders and e-commerce companies
had raised concerns over police beating up delivery boys in various states
while they were doing their duty.

Commerce and Industry Minister
Piyush Goyal had earlier said the government was committed to ensuring that
essential goods reached people in the most safe and convenient manner.

Home Secretary Ajay Bhalla and
the DPIIT Secretary also held detailed meetings with traders and e-commerce
firms in this regard.

The DPIIT has set up a control
room to monitor the real-time status of transportation and delivery of
essential commodities amid the coronavirus lockdown. It is also monitoring
difficulties being faced by various stakeholders.

(Source: Business Standard –
Press Trust of India, 4^th April, 2020)

II. Markets

5.
Coronavirus outbreak eats into stock
valuations, market plunges 34%

The Indian
stock market has plunged 34% from its record high. As a result, the
price-to-earnings (P/E) ratio for the Nifty50 Index has declined to 12.3 from
18 at the start of the year. The Nifty’s valuation is still slightly above the
2008-09 global financial crisis trough level, when it had fallen to 11.

However, a
record 50% of the Nifty stocks are currently trading at a single-digit P/E
ratio. So, is this a good time for bargain-hunting? Experts say such low valuations
are a signal that the market is pricing in huge disappointment in earnings due
to the demand shock created by the lockdowns to contain Covid-19.

Stocks whose
outlook is better haven’t got much cheaper. For example, Nestle India,
Hindustan Unilever, Asian Paints and Britannia still quote at valuations of
more than 40 times.

(Source: Business Standard – By
Samie Modak, 4^th April, 2020)

III. Business

6. Coronavirus
pandemic delivers a major blow to struggling shipping industry

The developing Covid-19-related
scene brings to light once again the symbiosis between the global shipping
industry and world economic growth.

The furious speed at which
Covid-19 has spread from the most populous of all continents, Asia, to Europe
and then to the US killing thousands of people, is sending the global economy
reeling. As country after country, including India is enforcing a comprehensive
lockdown of life the economic cost of which remains anybody’s guess, all
stakeholders of shipping and ports across the globe are scurrying for cover.
The possibility of a repeat of lockdowns in India and elsewhere cannot be
dismissed at this stage. Thanks to Covid-19, maritime operators are likely to
contend with a crisis bigger than what they faced in the wake of the economic
meltdown of 2008-09.

The developing Covid-19-related
scene brings to light once again the symbiosis between the global shipping
industry and world economic growth that, in turn, leaves a major impact on
merchandise and services trade among nations. International Monetary Fund (IMF)
Managing Director Kristalina Georgieva warns that the damage being wrought by
the Covid-19 pandemic could be the ‘gravest threat’ to the global economy since
the financial crisis more than a decade ago. Describing Covid-19 as the ‘No. 1
risk for the world economy with multidimensional ramifications’, ratings and
research organisation CRISIL has drastically cut the gross domestic product
(GDP) growth forecast for India for 2021 fiscal to 3.5% from the earlier 5.2%.

To the horror of maritime
operators, who are facing the greatest existential challenge in decades as
Covid-19 deals a major blow to trade, the Organisation for Economic
Co-operation and Development (OECD) says global growth this year could sink to
1.5% from 2.9% forecast ahead of the virus outbreak.

The World Trade Organisation
(WTO) goods trade barometer published on 17^th February showed the
real-time measure of trade trends at 95.5, down from 96.6 recorded in November,
2019, well below the baseline value of 100. This suggests below-trend growth in
goods trade. In WTO’s reckoning, services trade will remain under growing pressure
as well. What the two WTO readings, however, say only partly captures the
likely economic impact of Covid-19. The next couple of WTO barometer readings
of goods and services trade will invariably show further declines with their
consequential impact on shipping, ports and related services.

London-based analytics group, IHS
Markit, said in an early January report, well before coronavirus started
spreading its fangs across the globe and lockdowns in major trading
nations, that after global trade grew by
a disappointingly low 0.6% in 2018 and 0.3% in 2019, the ‘world merchandise
trade volume is forecast to grow 2.7% in 2020.’ If this happens, global
merchandise trade volume this year would reach 14.175 billion tonnes (bt) from
13.804 bt in 2019. But the IHS Markit forecast was based on world real GDP
growth of 2.5% in the current year, so trade growth prediction will also fall
on its face. Shipping is, therefore, destined to bear the brunt as around 90%
of world trade is carried by sea.

Headwinds buffeted global dry
bulk trade through most of last year. Trade tensions between the US and China
left in their trail collateral damage on many other trading nations. Major
mining disasters in Brazil and then weather-related disruptions in prominent
Australian mining regions upset iron ore and coal shipments. A toxic
combination of geopolitical tensions, trade restrictions and low GDP rise
restricted global trade growth to around 1% in 2019. As a result, points out
New York-based maritime consulting Seabury, global container cargo volume last
year amounted to around 152 million twenty-foot equivalent unit (TEU), a
piffling growth of 0.8% on 2018.

For both global shipping and
logistics giants Maersk and Hapag-Lloyd, India is an important centre for
delivery and receipt of cargoes in containers. What will be the precise impact
of the still unfolding pandemic on the shipping industry and ports is a subject
of speculation. Maersk of Denmark, which made a 2019 earnings forecast of $5.5
billion in February, has now decided to ‘suspend’ it. It says in a statement:
‘The current situation gives great uncertainties about global demand for
containers as a result of Covid-19 pandemic and the measures taken by
governments to contain the outbreak.’ Incidentally, several seafarers of Maersk
vessels suspected of coronavirus infection had to be evacuated for treatment in
the Chinese city of Ningbo.

In a tone similar to Maersk,
Germany headquartered Hapag-Lloyd says: ‘The year 2020 will be very unusual,
after we have seen that conditions in many markets have changed very rapidly in
recent weeks as a result of the coronavirus.’ China, on which the rest of the
world has become heavily dependent for supply of components and semi-finished
and finished products, claims to have controlled Covid-19. But the global
shipping crisis was progressively spawned by Chinese ports becoming
non-operational January onwards as logistics support, including movement of
goods-carrying trucks and wagons, came to a standstill due to the nationwide
lockdown. China is an important trading partner of India – our 2019 imports
from China were $74.72 billion and exports to that country $17.95 billion – and
major disruptions in sailings between the two countries upset the production
schedules of many companies here.

Hapag-Lloyd says China returning
to normal is ‘positive news’ for the shipping industry. But this is
‘considerably overshadowed’ by all the major economies of the West standing in
the throes of ‘collapse’. Such developments can only have serious consequences
for the shipping industry. Indian port operators are experiencing a drop in
cargo volumes since February and no one is certain about the turnaround time.
Container shipping lines are idling vessels at a record pace, resulting in
growing numbers of boxes being removed from the trade network, as they go on
cutting sailings on all major trade lanes.

Only a few
very large shipping lines with plenty of cash such as Cosco of China, Maersk
and Hapag-Lloyd will be able to weather the current storm, albeit
with profits taking a hit. But how will smaller Indian companies, forced to
cancel sailings generate cash to pay for chartered ships, ship maintenance and
staff salaries? In the current situation, New Delhi is left with no option but
to shelve the disinvestment of Shipping Corporation of India whose performance
has been uninspiring for a long time.

(Source:
Business Standard – By Kunal Bose, 2^nd April, 2020)

BCAJ Admin

STATISTICALLY SPEAKING

1. Key
India Fdi Sources In Top 10
Jurisdictions (April 2000 to September 2019)

Source: Economic Times

2. Big payouts
declared in February, 2020 post the Finance Bill, 2020 which proposes to
abolish Dividend Distribution Tax (DDT)

Source: Capitaline

3. Stock movements between 12^th
February and 12th March, 2020

Source: The Spectator Index

4. Operational
airports

Source: Airport Authority

5. Financial
Secrecy Index 2020

Jurisdiction

Secrecy Score

FDI rank*

FDI inflows in crores (Rs.) #

Cayman Islands

32,617

1,61,399

Switzerland

26,806

Hong Kong

25,041

Singapore

5,61,933

Luxembourg

17,768

Japan

1,85,787

The
Netherlands

1,78,365

British Virgin Islands

8,727

UAE

40,455

*ranked on secrecy score plus share in global
financial
services market

# April, 2000 to September, 2019

Source: Economic
Times, 20^thFebruary 2020 and Tax justice Network

BCAJ Admin

ETHICS AND U

Arjun: Oh my
Lord, please save me! Please save me! I totally surrender to Thee!

Shrikrishna: (Smiling);
Arrey Arjun, what happened? What is your panic about?

Arjun: Last time
you mentioned something about NOCLAR and I asked you whether it was some
disease. It really made me uneasy.

Shrikrishna: You are
talking about disease. Today, the only disease the world over is Corona!

Arjun: I am not
afraid of Corona. It will come and go but NOCLAR will stay forever on our
heads. Or even if Corona comes to me, I will myself go. So, no worries!

Shrikrishna: Ha! Ha!
Ha!

Arjun: Since you
have mentioned about Corona, tell me, how long will it stay? Can it be a good
excuse for seeking extension of time for payment of taxes?

Shrikrishna: (laughs)
Wah, Arjun! You are constantly thinking of extension of deadlines only. When
are you going to improve?

Arjun: Anyway,
tell me something more about NOCLAR.

Shrikrishna: See, this
is basically connected with the fundamental principles of integrity and
professional behaviour.

Arjun: But
reporting on non-compliances is dangerous. Both the entity as well as the
‘auditor’ will get into trouble.

Shrikrishna: Why? If
an accountant or auditor takes cognisance of it and acts accordingly, then
there is no problem for him.

Arjun: Agreed.
But the same non-compliances could be there in earlier years, too. And the CA
may not have reported on it.

Shrikrishna: But
Arjun, you need to start somewhere. Better late than never.

Arjun: But the
company will be ruined.

Shrikrishna: No,
Arjun, don’t jump to conclusions. Actually, it is meant for the betterment of
the company. It can take timely steps to set things right. Non-compliances
cannot continue perpetually. Some defaults, if continued, can cause serious
damage. They may lead to huge losses and penal consequences.

Arjun: True. We
are required to report on ‘going concern’. The non-compliances will soon make
the company itself ‘go away’.

Shrikrishna: You said
it! It’s like your health. Early detection of disease increases the chances of
cure – including diseases like cancer. For that matter, even Corona.

Arjun: But tell
me, what exactly are we supposed to do if we come across such non-compliance?

Shrikrishna: Look, if
you give early signals to the management, the serious damage can be avoided.
This will enhance the reputation of your profession. Look at the positive
aspect, my dear.

Arjun: Yes, I
agree. But tell me, how to tackle the situation?

Shrikrishna: In a few
situations NOCLAR may not apply – like where the default is minor and
inconsequential, more like a simple traffic offence or personal misbehaviour of
an employee.

Arjun: Yes. But
should we always qualify our report?

Shrikrishna: Not
necessarily. First, remember that it is not your duty to seek or search for
non-compliances. It should be the ones which you come across in the course of
your work.

Arjun: Good.

Shrikrishna: Then you
need to understand the matter well. Discuss it with the management or you may
seek legal opinion. Discuss and then decide whether any further action is
required.

Arjun: But what
if the management does not listen?

Shrikrishna: That is
more likely. Then create the evidence that you have drawn their attention. If
it is serious, then decide whether to report it to the appropriate authority.
But for all this, keep your documents perfectly in order in terms of the
relevant standard of auditing.

Arjun: Okay.
Understood. So, we need to tackle it tactfully, with a cool-head. We need not
panic nor rush to take further steps.

Shrikrishna: And in an
extreme situation you may even withdraw from the assignment.

Arjun: That’s a
good piece of advice! Thank you for enlightening me as usual.

Om Shanti

This
dialogue is a continuation of the concept of NOCLAR

BCAJ Admin

REPRESENTATION

1. Dated: 16^th March, 2020

To:Honourable Finance Minister
Ministry of Finance, Government of India, 128-A North Block, New Delhi

Subject: Representation for
extension of time-line of 31^st March 2020 for Vivad Se Vishwas
Scheme, 2020 (‘VSVS’)

Representation by: IMC Chamber of
Commerce and Industry; Bombay Chartered Accountants Society; Chartered
Accountants Association, Ahmedabad; Chartered Accountants Association, Surat,
Karnataka State Chartered Accountants Association; Lucknow Chartered
Accountants Society

Note: For full Text of the above Representation, visit
our website www.bcasonline.org

BCAJ Admin

CORPORATE LAW CORNER

1. Flat
Buyers’ Association Winter Hills-77 vs. Umang Realtech Pvt. Ltd.

Company Appeal (AT)(Ins.) No. 926 of 2019

Date of order: 4^th February, 2020

Insolvency and Bankruptcy Code, 2016 – Reverse Corporate
Insolvency Resolution Process is to be followed in the case of real estate
companies – The CIRP initiated for one project of a real estate company is
restricted to that project alone – It does not extend to the other assets or
projects of the said company

FACTS

R and A were allottees in the real
estate project of U Co. They moved an application u/s 7 of the Insolvency and
Bankruptcy Code, 2016 (Code) for initiating Corporate Insolvency Resolution
Process (CIRP) against U Co. NCLT passed an order admitting the application and
directed that R and A deposit a sum of Rs. 2 lakhs with the Interim Resolution
Professional (IRP). Under the Code, it is the duty of the IRP to keep the
company a going concern which would be very difficult in the facts of the
present case where Rs. 2 lakhs would be insufficient for the said purpose.

The typical issue for real estate
companies stems from the fact that while homebuyers / allottees are financial
creditors, the homes / projects are often assets of the corporate debtor that
are offered as security against loans taken from banks or Non-Banking Financial
Companies (NBFCs). The assets of the corporate debtor as per the Code cannot be
distributed, they are secured for secured creditors. On the contrary, the
assets of the corporate debtor are to be transferred in favour of the allottees
/ homebuyers and not to the secured creditors such as financial institutions /
banks / NBFCs.

Normally, the banks / financial
institutions / NBFCs also would not like to take the flats / apartments in
lieu of the money disbursed by them. On the other hand, the
‘unsecured creditors’ have a right over the assets of the corporate debtor,
i.e., the flats / apartments which constitute the assets of the company.

The NCLAT was to examine whether
during the CIRP a resolution could be reached without approval of the
third-party resolution plan.

One of the promoters, UH Co, agreed
to remain outside the CIRP but intended to play the role of a lender (financial
creditor) to ensure that the CIRP reaches success and the allottees take
possession of their flats / apartments during the CIRP without any third-party
intervention. The Flat Buyers’ Association of Winter Hills-77, Gurgaon also
accepted the aforesaid proposal. ‘JM Financial Credit Solutions Ltd.’, one of
the financial institutions, has also agreed to co-operate in terms of the
agreement on the condition that they will get 30% of the amount paid by the
allottees at the time of the registration of the flats / apartments.

The CIRP progressed and a number of
allottees took the possession of their flats and had the sale deeds registered
in their favour. UH Co invested a certain amount as an outside financial
creditor and as promoter co-operating with the IRP. The specific details of the
project were laid out before the NCLAT and which were also endorsed by the IRP.
The claim of JM Financials was also satisfied at the time of registration of
flats.

HELD

NCLAT
observed that there were some aspects which were typical to real estate
companies. The decisions of the Supreme Court in the cases of Committee
of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta as
well as Pioneer Urban Land and Infrastructure Limited & Anr. vs.
Union of India were referred to. It was observed that ‘allottees’
(homebuyers) come within the meaning of ‘financial creditors’. They do not have
any expertise to assess the viability or feasibility of a corporate debtor.
They don’t have commercial wisdom like financial institutions / banks / NBFCs.
However, these allottees have been provided with voting rights for approval of
the plan. NCLAT observed that many such cases came to its notice where the
allottees were the sole financial creditors. However, it was not made clear as
to how they can assess the viability and feasibility of the ‘Resolution Plan’
or commercial aspect / functioning of the corporate debtor.

Further, it was observed that in a
CIRP against a real estate company if allottees (financial creditors), or
financial institutions / banks (other financial creditors), or operational
creditors of one project initiated a CIRP against the corporate debtor (the
real estate company), it is confined to the particular project. It cannot
affect any other project(s) of the same real estate company (corporate debtor)
in other places where separate plan(s) are approved by different authorities;
land and its owner(s) may be different and mainly the allottees (financial
creditors), financial institutions (financial creditors), operational creditors
are different for such separate projects. Accordingly, all the assets of the
corporate debtor are not to be maximised. CIRP should be on a project basis as
per plans approved by the Competent Authority. Any other allottees (financial
creditors), or financial institutions / banks (other financial creditors), or
operational creditors of other projects cannot file a claim before the IRP of
the other project of the corporate debtor and such claim cannot be entertained.

It was thus held that CIRP against a
real estate company (corporate debtor) is limited to a project as per the plan
approved by the Competent Authority and does not extend to other projects which
are separate and for which separate plans are approved.

Further,
a secured creditor such as a bank or financial institution, cannot be provided
with the asset (flat / apartment) in preference over the allottees (unsecured
financial creditors) for whom the project has been approved. Their claims are
to be satisfied by providing the flat / apartment. While satisfying the
allottees, one or other allottee may agree to opt for another flat / apartment
or one tower or another tower if not allotted otherwise. In such a case, their
agreements can be modified to that effect.

The prayer of any allottee asking
for a refund cannot be entertained in view of the decision of the Supreme Court
in the case of Pioneer Urban Land and Infrastructure Limited & Anr.
vs. Union of India & Ors. [(2019) SCC OnLine SC 1005]. However,
after offering allotment it is open to an allottee to request the IRP /
promoter, whoever is in charge, to find out a third party to purchase the said
flat / apartment and get the money back. After completion of the flats /
project or during the completion of the project, it is also open to an allottee
to reach an agreement with the promoter (not corporate debtor) for a refund of
the amount.

In a CIRP, NCLAT was of the view
that a ‘Reverse Corporate Insolvency Resolution Process’ could be followed in
cases of real estate infrastructure companies in the interest of the allottees
and survival of the real estate companies, and to ensure completion of projects
which provides employment to large numbers of unorganised workmen.

UH Co, in the facts of the present
case, was directed to co-operate with the IRP and disburse amounts (apart from
the amount already disbursed) from outside as lender (financial creditor) and
not as promoter, to ensure that the project is completed within the time frame
given by it. The flats / apartments should be completed in all aspects by 30^th
June, 2020. All internal fitouts for electricity, water connection should be
completed by 30^th July, 2020. The financial institutions / banks
should be paid simultaneously. Common areas such as swimming pool, clubhouse,
etc. as per the agreement be also completed by 30^th August, 2020.
The allottees are allowed to form a ‘Residents’ Welfare Association’ and get it
registered to empower them to claim the common areas. Only after getting the
certificate of completion from the Interim Resolution Professional / Resolution
Professional and approval of the Adjudicating Authority (National Company Law
Tribunal), unsold flats / apartments, etc. be handed over to the promoter / UH
Co.

If the ‘promoter’ fails to comply with the
undertaking and fails to invest as financial creditor, or does not co-operate
with the Interim Resolution Professional / Resolution Professional, the
Adjudicating Authority (National Company Law Tribunal) will complete the
Insolvency Resolution Process.

BCAJ Admin

ALLIED LAWS

1. Appeal
– High Court – Non-appearance of counsel – Matter dismissed by the High Court
on merits – Unjustified – Matter remanded [Civil Procedure Code, 1908, S. 100,
O. 41, R. 17]

Prabodh Ch. Das and Ors. vs. Mahamaya Das and Ors.; AIR 2020
SC 178

The question for consideration is whether the High Court is
justified in dismissing the second appeal on merits in the absence of the
learned counsel for the appellants. It was held that, with the explanation that
was introduced in Order 41 Rule 17(1) w.e.f. 1^st February, 1977 to
clarify the law by making an express provision that where the appellant does
not appear, the Court has no power to dismiss the appeal on merits – thus, Order
41 Rule 17(1) read with its explanation makes it explicit that the Court cannot
dismiss the appeal on merits where the appellant remains absent on the date
fixed for hearing.

In other words, if the appellant does not appear, the Court
may, if it deems fit, dismiss the appeal for default of appearance but it does
not have the power to dismiss the appeal on merits. Therefore, the impugned
judgment was set aside and it was directed to remit the matter to the High
Court for fresh disposal in accordance with the law.

2. Hindu
Undivided Family (HUF) – Recovery of debt – Auction sale – Coparcener
challenging sale as property mortgaged without his consent – Material produced
– Property purchased by mortgager in his own name for his own business –
Property never brought into the HUF – Bank would have every right to sell
property for recovery of loan [Recovery of Debts Due to Banks and Financial
Institutions Act, S. 25]

Abhimanyu Kumar Singh vs. Branch Manager, I.D.B.I. Bank Ltd.
and Ors.; AIR 2020 Patna 22

The petitioner filed a case that the property in question
which was mortgaged with the bank by his father and an equitable mortgage was
created by way of deposit of title deed, happened to be a joint Hindu family
property. The fact that the petitioner is a coparcener and the property in
question had been mortgaged without his consent, means that the 1/4^th
share of the petitioner cannot be attached and sold by auction.

The High Court held that the fact remains that the property
in question is in the individual name of the father of the petitioner
(mortgagor), the mutation and rent receipts remained in his individual name and
he could very well satisfy the bank that he happened to be the absolute owner
of the property and for his business he was mortgaging the land with the bank
by deposit of title deed.

Further, in a Hindu Undivided Family there would be a
presumption of jointness and the burden to prove that there was a partition
lies upon the person who claims the partition. It is well settled that even
within an HUF, a member of the family may create self-acquired and personal
property. It is only when such self-acquired property is brought into the
hotchpotch of the joint family that the property acquires the status of a joint
family property.

3. Partnership
– Dissolution– Partnership which is not at will cannot be terminated by notice
u/s 43 [Partnership Act, 1932, S. 43]

Manohar Daulatram Ghansharamani vs. Janardhan Prasad
Chaturvedi and Ors.; AIR 2019 Bombay 283

An issue arose with respect to the dissolution of a
partnership firm upon issuance of a notice u/s 43 of the Indian Partnership
Act, 1932. It was held that the terms of the partnership deed clearly stipulate
that the partnership was entered into for the purpose of developing the
property and constructing buildings. Thus, the partnership deed did not
expressly spell out a fixed term of duration. Nevertheless, the terms of the
contract indicate that the partnership was to end after completion of
construction of the buildings, obtaining completion certificates and execution
of conveyance in favour of the society. The terms of the contract thus imply
that the duration of the partnership was until completion of construction and
execution of conveyance. Further, the partnership deed also provides for
dissolution of partnership in the event of insolvency or death of any of the
partners.

Therefore, it was held that where a partnership deed which
contains a provision for duration of the partnership or for the determination
of the partnership, cannot be a partnership at will. As a corollary thereof,
the partnership that is not a partnership at will cannot be legally terminated
by a notice u/s 43 of the Partnership Act. Consequently, sending of notice u/s
43 of the Partnership Act, 1932 seeking dissolution of partnership is of no
consequence.

4. Will
– Onus to prove – None of the witnesses appeared before the Court to prove the
Will – Petitioner assured to produce the witnesses – No assistance taken from
Court to issue summons – Document in question cannot be said to be a validly
executed last Will [Succession Act, 1925, S. 222, S. 223, S. 246]

Chankaya vs. State and Ors.; AIR 2020 Delhi 30

A petition was filed u/s 226 of the Indian Succession Act,
1925 seeking grant of probate in respect of the document, purported to be the
validly executed last Will of deceased Shri D.C.S., grandfather of the
petitioner.

The petitioner has contended that he is aware of the
whereabouts of the witness and time and again assured that he would produce the
said witness before the Court. However, the same was not done. Later the
petitioner contended that the whereabouts of the witness was not known. The
petitioner did not exhaust all the remedies for producing the witness before
the Court. The petitioner could have resorted to Order 16 Rule 10 of the Civil
Procedure Code, 1908 for the purpose of seeking appearance of the attesting
witness. No assistance was taken from the Court to summon the said witness.

The Court held that, the burden of proof in the present case,
to prove the document claimed to be the validly executed last Will of the
deceased, lay on the petitioner who propounded the same. Indisputably, none of
the attesting witnesses had appeared before the Court to prove the Will. Thus, the
petitioner has failed to prove that the document is a Will executed by the late
Shri D.C.S. and accordingly the said issue is decided against the petitioner.
Therefore, the said Will has not been proved.

5. Writ
– Jurisdiction of High Court – Alternative remedy – Writ jurisdiction can be
exercised in respect of orders passed by the Armed Forces Tribunal (AFT) – No
blanket ban on exercise of writ jurisdiction because of alternative remedy
[Armed Forces Tribunal Act, 2007, S. 34, S. 15, Constitution of India, Art.
226]

Balkrishna Ram vs. Union of India; AIR 2020 SC 341

An issue arose before the Hon’ble Supreme Court whether an
appeal against an order of a single judge of a High Court deciding a case
related to an Armed Forces personnel pending before the High Court is required
to be transferred to the Armed Forces Tribunal, or should be heard by the High
Court. It was held that the principle that the High Court should not exercise
its extraordinary writ jurisdiction when an efficacious alternative remedy is
available, is a rule of prudence and not a rule of law. The writ courts
normally refrain from exercising their extraordinary power if the petitioner
has an alternative efficacious remedy. The existence of such a remedy, however,
does not mean that the jurisdiction of the High Court is ousted. At the same
time, it is a well-settled principle that such jurisdiction should not be
exercised when there is an alternative remedy available. The rule of
alternative remedy is a rule of discretion and not a rule of jurisdiction.
Merely because the Court may not exercise its discretion is not a ground to
hold that it has no jurisdiction. There may be cases where the High Court would
be justified in exercising its writ jurisdiction because of some glaring
illegality committed by the AFT.

One must also remember that
the alternative remedy must be efficacious and in case of a Non-Commissioned
Officer (NCO), or a Junior Commissioned Officer (JCO), to expect such a person
to approach the Supreme Court in every case may not be justified. It is
extremely difficult and beyond the monetary reach of an ordinary litigant to
approach the Supreme Court. Therefore, it will be for the High Court to decide
in the peculiar facts and circumstances of each case whether or not it should exercise
its extraordinary writ jurisdiction. There cannot be a blanket ban on the
exercise of such jurisdiction because that would effectively mean that the writ
court is denuded of its jurisdiction to entertain such writ petitions.

BCAJ Admin

FROM THE PRESIDENT

Dear Members,

As i write to you, india and the rest of the world is engaged in a ierce battle against the spread and damage caused due to COVID-19. Combating the coronavirus pandemic has created a war-like situation of complete lockdown, curfew and restrictions on movement of people and goods. Apart from the tragic human consequences, there is a complete standstill of business and economic activity resulting in uncertainty about the future of the global economy. There are also talks about an emergency type of situation with panic amongst citizens. This is a Black Swan event for the world. Amongst all the gloomy and negative propaganda on the event, we should learn and practice to think positively and act accordingly to overcome fear and negative thoughts that can cause depression, stress and a lot of unhappiness. We need to focus on the good things, inculcate positive thoughts, spend time with positive-thinking people, learn to enjoy nature, be thankful and have gratitude and above all keep faith and hope. Positive thoughts de-stress the mind, help in having a positive outlook, improve mental health, thus leading to living a successful and happy life.

Positives from the situation. As I see it, in these times of compulsory staying at home (social distancing), we have been able to do so many things that make us happy, which we had forgotten and used to do once upon a time. Most importantly, we now get to spend time with our children, parents and family. We have been running a race away from them and now is the time to match our pace with that of our family. Get the basics right and learn to enjoy and respect nature. Read, upgrade your skills, work on your itness, meditate, listen to music, cook, talk to long-lost friends, cousins. Learn to live and help others too.

India is grappling with the concept of ‘work from home’ (WFH), a work culture that is not yet very popular and accepted, particularly with the small and medium enterprises. WFH is changing the way we live and the way we work. Many of us proactively worked on technologies like cloud computing, remote access, VPN, network security, data backup and recovery and other such collaborative tools to prepare for WFH. If used wisely and appropriately, WFH has the potential of building a smart and effective remote workforce for business and our profession. This could lead to substantial reduction in overhead costs, increased productivity, boost employee morale and eficiencies, thus resulting in better customer satisfaction and thus proitability. Despite the challenges, one thing seems certain, that the time for WFH has come and more and more people would like to experiment with it.

CSR draft rules 2020: The MCA recently issued a draft of ‘The Companies (Corporate Social Responsibility Policy) Amendment Rules, 2020’. These Rules have proposed considerable and far-reaching changes in the existing Companies (CSR) Rules, 2014. The most signiicant and draconian change is in clause 4(1) – CSR implementation. The proposed new rule seeks to amend this to ‘CSR activities to be undertaken by the company itself or through a company established under section 8 of the Act, or any entity established under an Act of Parliament or a State legislature’. This amendment effectively makes registered societies and other public charitable trusts ineligible to carry out CSR activities, projects or programmes in future. This, I believe, is a potentially hazardous amendment. In India, historically, effective charitable work has been carried out by public charitable trusts and registered societies. Section 8 (or section 25 under the erstwhile Companies Act) are more recent phenomena. Charitable organisations depend heavily on donations and support from businesses and corporates in the form of CSR funds. I would like to believe that this is just a drafting error and will be corrected when the inal rules are notiied. However, looking at the recent trends and changes in various statutes (Income Tax Act, FCRA and others), it appears that the Government wants greater accountability, more transparency and stricter supervision of the NGO sector. We at the BCAS have made a strong representation seeking amendment to the draft CSR rules.

Normally, this is the time of year when all of us work towards inancial year-end compliances and prepare for the beginning of the new inancial year. However, this year is going to be completely different. A nationwide lockdown and the deferment of the statutory and regulatory compliances will ensure that March, 2020 will be a different and a once in a lifetime occurrence.

India’s strengths, lexibility and adaptability have withstood many such challenges in the past. Ancient Indian philosophy has encouraged us, as a human race, to adapt to new ideas, absorb shocks and face challenging circumstances with equanimity. Over the years, we have developed endurance and resilience to ight any eventuality. I am sure that we will bounce back quickly and emerge as a more powerful, united and happier Nation in the days to come.

Yes, this storm will also pass, humankind will survive, most of us will still be alive — but we will inhabit a different world.

Jai hind!

With Best Regards,
CA Manish Sampat
President

BCAJ Admin

FROM PUBLISHED ACCOUNTS

DISCLOSURES
IN INTERIM FINANCIAL RESULTS REGARDING IMPACT OF CORONA VIRUS

Compiler’s Note

The Financial Reporting
Council, UK, on 18^th February, 2020 issued an advice to companies
and auditors on corona virus risk disclosures. On similar lines, the US
Securities and Exchange Commission also issued a release dated 4^th
March, 2020 whereby besides extending the deadlines for regulatory filings by
45 days, it also asked companies affected by the corona virus to give adequate
disclosures. Given below are such disclosures by some companies.

Starbucks Corporation,
USA (quarter ended 29^th December, 2019)

Subsequent Event

In late January, 2020 we
closed more than half of our stores in China and continue to monitor and modify
the operating hours of all our stores in the market in response to the outbreak
of the corona virus. This is expected to be temporary. Given the dynamic nature
of these circumstances, the duration of business disruption, reduced customer
traffic and related financial impact cannot be reasonably estimated at this
time but are expected to materially affect our international segment and
consolidated results for the second quarter and full year of fiscal 2020.

Cathay Pacific Airways
Ltd., Hong Kong (annual results, 2019)

Event after the
reporting period

The outbreak of COVID-19
since January, 2020 has resulted in a challenging operational environment and
will adversely impact the group’s financial performance and liquidity position.
Travel demand has dropped substantially and the group has taken a number of
short-term measures in response, including aggressive reduction of passenger
capacity measured in Available Seat Kilometres (ASK) by approximately 30% for
February and 65% for March and April, with frequencies cut approximately 65%
and 75% over the same periods. Substantial passenger capacity and frequency
reduction is also likely for May as we continue to monitor and match market
demand.

As at the end of
February, passenger load factor had declined to approximately 50% and
year-on-year yield had also fallen significantly. It is difficult to predict
when these conditions will improve. However, the group is expected to incur a
substantial loss for the first half of 2020. The group’s available unrestricted
liquidity as at 31^st December, 2019 was HK$20 billion. The directors
believe that with the cost-saving measures being taken, the group’s strong
vendor relationships, as well as the group’s liquidity position and
availability of sources of funds, the group will remain a going concern.

Rio Tinto plc, UK
(Annual results 31^st December, 2019)

From Statement of
Risk Management (extracts)

There remain certain threats, such as natural disasters and
pandemics where there is limited capacity in the international insurance
markets to transfer such risks. We monitor closely such threats and develop
business resilience plans. We are currently closely monitoring the potential
short and medium-term impacts of the covid-19 virus, including, for example,
supply-chain, mobility, workforce, market demand and trade flow impacts, as
well as the resilience of global financial markets to support recovery. Any
longer term impacts will also be considered and monitored, as appropriate.

Marriott International
Inc., USA (year 31^st December, 2019)

Notes below results

Corona virus

Due to the uncertainty
regarding the duration and extent of the corona virus outbreak, Marriott cannot
fully estimate the financial impact from the virus, which could be material to
first quarter and full year 2020 results. As such, the company is providing a
base case outlook for the first quarter and full year 2020, which does not
reflect any impact from the outbreak. Assuming the current low occupancy rates
in the Asia-Pacific region continue, with no meaningful impact outside the
region, Marriott estimates the company could earn roughly $25 million in lower
fee revenue per month, compared to its 2020 base case outlook. Room additions
for the current year could also be delayed as a result of the corona virus
outbreak.

BCAJ Admin

GLIMPSES OF SUPREME COURT RULINGS

7. Sankalp Recreation Private Limited vs. Union of India and Ors. (2019) 418 ITR 673 (SC)

Purchase of immovable property by Central Government – In terms of an
auction where the Chief Commissioner reserves the right to reject any tender
form, including the highest bid, without assigning any reason – Cancellation
without reasons is not per se invalid especially when the Commissioner
had indicated the reasons for doing so to CBDT – So long as the auction process
is conducted in a bona fide manner and in public interest, a judicial
hands-off is mandated

A property admeasuring 1,053.5 square meters bearing Plot No. 27/A, Survey
No. 8, 9, 10, opposite Santacruz Police Station at the junction of Juhu Tara
Road and Linking Road, Santacruz (West), Mumbai 400054, although acquired by
the Union of India in 1994 u/s 269UD(1) of the Act, could only be sold in 2018.
Despite various attempts starting in 1994, several auctions conducted qua
the said property failed. Even an auction dated 27^th March, 2017
with a reserve price fixed of Rs. 32.11 crores failed to elicit a response from
any buyer. This being the case, Sankalp Recreation Pvt. Ltd., the appellant,
then made an offer to the Central Board of Direct Taxes to purchase the
aforesaid property for a sum of Rs. 32.11 crores. But this offer could not be
accepted because the CBDT stated that accepting such an offer by a private
treaty would be beyond their jurisdiction.

In the meanwhile, a fresh valuation report of the aforesaid property was
called for which was submitted on 4^th September, 2017 valuing the
property at Rs. 29,91,35,000. Pursuant to this, a brochure / catalogue was
circulated sometime in September, 2017.

The reserve price was fixed at Rs. 30 crores and the appellant was again
the sole bidder, offering Rs. 30.21 crores, or Rs. 21 lakhs above the reserve
price.In a letter dated 26^th September, 2017, the CCIT-2 sent a
report to the CBDT stating that although the bid of Rs. 30.21 crores offered by
the appellant was above the reserve price, it was less than the sum of Rs.
32.11 crores that had been offered by the same bidder earlier. In view of this,
a clarification was sought as to the future course of action.

On 20^th November, 2017, the CBDT directed that the auction
proceedings be kept in abeyance for the time being and appointed a valuer from
outside the State, viz., Mr. P. Ramaraj, District Valuation Officer, Chennai.
This valuer submitted a report on 23^rd February, 2018 valuing the
property at Rs. 31.07 crores because on 23^rd January, 2018 a cap had
been introduced in the TDR which would be available by way of FSI. Short of
this cap, the Chennai valuer valued the property at Rs. 36,51,59,000. Based on
this report, the property was put up for auction yet again.

Meanwhile, through a letter dated 4^th May, 2018, the earlier
auction which had yielded the sum of Rs. 30.21 crores from the appellant, was
treated as cancelled. The said letter specifically called upon the appellant to
participate in the upcoming auction to be conducted shortly.

The appellant, by a communication dated 12^th April, 2018,
referred to the return of the Demand Drafts of Rs. 7.5 crores and Rs. 5 lakhs
towards earnest money and caution money stating that the burden of interest
liability was continuing. The appellant made it clear that he would be
participating in a future auction and he was not exiting the auction
proceedings.

Pursuant to the valuation report, a notice for a public auction was
published on 10^th May, 2018 with the reserve price this time fixed
at Rs. 31.10 crores. On 17^th May, 2018 the Income tax Department
wrote to the appellant in which it intimated the fact that a fresh auction was
to be conducted on 30^thMay, 2018 and that the appellant should
participate in the same.

Meanwhile, the appellant, being aggrieved by the cancellation of the
auction process in which he was the highest bidder at Rs. 30.21 crores, filed a
writ petition in the High Court of Judicature at Bombay on 21^stMay,
2018. Two days later, on the 23^rd, the High Court permitted
Respondent Nos. 2 and 3 to conduct a fresh auction subject to refraining from
confirmation of the sale.

On 30^th May, 2018 the fresh auction was conducted and another
person (auction purchaser) was the sole bidder, with the bid being equal to the
reserve price of Rs. 31.10 crores.

Ultimately, by the impugned judgment dated 27^th July, 2018,
finding no infirmity in the auction process and finding that the cancellation,
though without reason, was not arbitrary, the High Court dismissed the writ
petition filed.

Before the Supreme Court, the learned counsel appearing on behalf of the
appellant urged that the cancellation being without reason was per se invalid in law and, therefore, ought to
have been set aside by the High Court. He also argued that the process of
conducting yet another auction after so many auctions had failed was itself
arbitrary and that as he was the highest bidder at Rs. 30.21 crores, that is,
Rs. 21 lakhs above the reserve price, the auction sale ought to have been
confirmed in his favour. Further, after citing a number of judgments, he made a
‘with-prejudice’ offer stating that he was willing to abide by the earlier
offer made by him of Rs. 32.11 crores.

The learned senior counsel appearing for auction purchaser urged that
there was no infirmity whatsoever in the
entire process. He highlighted the fact that under Clause 16 of the
brochure / catalogue, the Chief Commissioner reserved the right to reject any
tender form, including the highest bid, without assigning any reason. He, inter
alia, also made a ‘with-prejudice’ offer that his client would pay a sum of
Rs. 35 crores with an adjustment qua the earnest money that had been
deposited and lying with the Union of India, with a reasonable rate of interest
thereon.

The Supreme Court, referring to its earlier judgments which held that so
long as the auction process is conducted in a bona fide manner and in
the public interest a judicial hands-off is mandated, concluded that the
reasons disclosed both in the report dated 26^th September, 2017 and
the letter dated 6^th April, 2018 from the Government of India,
Ministry of Finance, to the Chief Commissioner of Income Tax made it clear that
there was no arbitrariness that was discernible in the entire auction process.
This being the case, the appeal had to be dismissed. The Supreme Court further
held that the offer made by the auction purchaser was very fair and directed
that from the figure of Rs. 35 crores, which would be paid within a period of
12 weeks directly to the Union treasury, a sum equivalent to interest of 9% on
the amount of Rs. 7.78 crores that was lying with the Union, calculated from
the date on which it was deposited with the Union till the date of the order,
be subtracted and the net figure be handed over as aforesaid.

8. Genpact India Private Limited vs. DCIT (2014) 419 ITR 440 (SC)

Appealable Orders – The contingencies detailed in (ii) and (iii) of section 246A(1)(a) arise
out of assessment proceedings u/s 143 or u/s 144 of the Act but the first
contingency is a standalone postulate and is not dependent purely on the
assessment proceedings either u/s 143 or u/s 144 of the Act – The expression
‘denies his liability to be assessed’ is quite comprehensive to take within its
fold every case where the assessee denies his liability to be assessed under
the Act

Alternative remedy – The High Court must not interfere if there is an
adequate, efficacious, alternative remedy available to the petitioner and he
has approached the High Court without availing the same unless he has made out
an exceptional case warranting such interference, or there exist sufficient
grounds to invoke the extraordinary jurisdiction under Article 226 – It cannot
be laid down as a proposition of law that once a petition is admitted, it could
never be dismissed on the ground of alternative remedy

Out of the opening share capital of 25,68,700 shares held by its sole
shareholder and holding company Genpact India Investment, Mauritius, the
appellant bought back 2,50,000 shares in May, 2013 at the rate of Rs. 32,000
per share for a total consideration of Rs. 800 crores.

On 10^th May, 2013, Chapter XIIDA consisting of sections
115QA, 115QB and 115QC was inserted in the Income-tax Act, 1961 (hereinafter
referred to as the Act) by the Finance Act, 2013 which came into effect from 1^stJune, 2013.

Some time later, on 10^th September, 2013, a scheme for
arrangement was approved by the High Court of Delhi in Company Petition No. 349
of 2013. Pursuant thereto, the appellant bought back another tranche of
7,50,000 shares at the rate of Rs. 35,000 per share for a total consideration
of Rs. 2,625 crores from Genpact India Investment, Mauritius.

In the income tax return for A.Y. 2014-15 filed on 28^th
November, 2014, the appellant stated that ‘Details of tax on distributed
profits of domestic companies and its payment’ were given in ‘Schedule DDT’
where the details of the aforesaid transactions were given but the liability to
pay any tax was denied.

A notice u/s 143(2) was issued to the appellant on 3^rdSeptember,
2015 seeking further explanation, pursuant to which requisite details were
furnished.

Vide his letter dated 28^th December, 2016, the assessee
submitted that the buyback of shares had been done in pursuance of the ‘scheme
of arrangement’ u/s 391 of the Companies Act, 1956 approved by the Hon’ble High
Court of Delhi and in such a manner that the same was not a buyback in terms of
section 115QA of the Act.

The matter was thereafter considered and an
assessment order was passed by the first respondent on 31^stDecember,
2016. As many as ten additions were made by the first respondent, one of them
being in respect of liability u/s 115QA of the Act. According to the first
respondent, section 115QA was introduced to provide that where shares are
bought back at a price higher than the price at which those shares were issued,
then the balance amount would be treated as distribution of income to the
shareholder and tax @20% would be payable by the company. Section 115QA was
applicable only to domestic unlisted companies.

Insofar as nine additions made by the first respondent were concerned,
an appeal was filed by the appellant. The appeal was decided in his favour but
a further challenge at the instance of the Revenue was under consideration.

As regards the issue concerning tax u/s 115QA, the appellant filed a
Writ Petition (Civil) No. 686 of 2017 in the High Court submitting, inter
alia, that the order passed by the first respondent was without
jurisdiction as buyback of shares in the instant case was in pursuance of the
‘scheme of arrangement’ approved by the High Court.

The High Court disposed of the petition with the following directions:

(i) The Court declines to entertain this writ petition under Article 226 of the Constitution against the
impugned demand raised by the Revenue by way of the impugned assessment order
u/s 115QA of the Act against the assessee;

(ii) The assessee is granted an opportunity to file
an appeal u/s 246A of the Act before the CIT(A) to challenge the impugned
assessment order only insofar as it creates a demand u/s 115QA;

(iii) If such an appeal is filed within ten days
from today, it will be considered on its own merits and a reasoned order
disposing of the appeal will be passed by the CIT(A) on all issues raised by
the assessee, not limited to the issues raised in the present petition as well
as on the response thereto by the Revenue in accordance with law;

(iv) The reasoned order shall be passed by the
CIT(A) not later than 31^st October, 2019. It will be communicated to
the petitioner within ten days thereafter. For a period of two weeks after the
date of such communication of order, the demand under the impugned assessment
order, if it is affirmed by the CIT(A) in appeal, will not be enforced against
the assessee;

(v) The
Court places on record the statement of the Revenue that it will not raise any
objection before the CIT(A) as to the maintainability of such an appeal and as
to the appeal being barred by limitation. The Court also takes on record the
statement of the Revenue that it will not enforce the demand in terms of the
impugned assessment order till the disposal of the above appeal. All of the
above is subject to the assessee filing the appeal before the CIT(A) within ten
days from today;

(vi) It is made clear that this Court has not
expressed any view whatsoever on the contentions of either party on the merits
of the case.

A challenge to the aforesaid view taken by the High
Court was raised by way of a Special Leave Petition No. 20728 of 2019 filed in
the Court on 26^th August, 2019. Within the time limit of ten days as
afforded by the High Court, an appeal was also preferred by the appellant
‘without prejudice’ on 30^th August,2019 against the ‘demand raised /
order passed u/s 115QA’. The aforesaid SLP came up before the Supreme Court on
6^th September, 2019, whereafter the matter was adjourned on a few
occasions and then taken up for final disposal.

The Supreme Court after going through the appeal
provisions observed that one of the key expressions appearing in section
246(1)(a) as well as in section 246A(1)(a) is ‘where the assessee denies his
liability to be assessed under this Act.’

It noted that a similar expression occurring in section 30 of the
Income-tax Act, 1922 came up for consideration before it in Commissioner
of Income Tax, U.P., Lucknow vs. Kanpur Coal Syndicate (1964) 53 ITR 225,
wherein it was concluded that the expression ‘denial of liability’ is
comprehensive enough to take in not only the total denial of liability but also
the liability to tax under particular circumstances.

The Court noted that the submission advanced on behalf of the appellant,
however, was that ‘denial of the assessee’s liability to be assessed’ in
section 246A is confined to his liability to be assessed u/s 143(3) and the
same has nothing to do with the liability to pay tax u/s 115QA. According to
the appellant, tax payable in respect of buyback of shares u/s 115QA is not a
tax payable on ‘total income’.

The Supreme Court considered the kinds of orders or situations that are
referred to in section 246(1)(a) of the Act, which are:

(i) An order against the assessee, where the assessee denies his
liability to be assessed under this Act, or

(ii) An intimation under sub-section (1) or sub-section (1B) of section
143 where the assessee objects to the making of adjustments, or

(iii) Any order of assessment under sub-section (3) of section 143 or
section 144, where the assessee objects:

to the amount of income assessed, or

to the amount of tax determined, or

to the amount of loss computed, or

to the status under which he is assessed.

According to the Supreme Court, the contingencies detailed in (ii) and
(iii) hereinabove arise out of assessment proceedings u/s 143 or section 144 of
the Act but the first contingency is a standalone postulate and is not
dependent purely on the assessment proceedings either u/s 143 or u/s 144 of the
Act. The expression ‘denies his liability to be assessed’ as held by this court
in Kanpur Coal Syndicate was quite comprehensive to take within
its fold every case where the assessee denies his liability to be assessed
under the Act.

The Supreme Court held that section 115QA stipulates that in case of
buyback of shares referred to in the provisions of the said section, the
company shall be liable to pay additional income tax at the rate of 20% on the
distributed income. Any determination in that behalf, be it regarding
quantification of the liability or the question whether such company is liable
or not, would be matters coming within the ambit of the first postulate
referred to hereinabove. Similar is the situation with respect to provisions of
section 246A(1)(a) where again, out of certain situations contemplated, one of
them is ‘an order against the assessee where the assessee denies his liability
to be assessed under this Act’. The computation and extent of liability is
determined under the provisions of section 115QA.Such determination under the
Act would squarely get covered under the said expression. There was no reason
why the scope of such expression be restricted and confined to issues arising
out of or touching upon assessment proceedings either u/s 143 or u/s 144.

The Court therefore rejected the submissions advanced by the appellant
and held that an appeal would be maintainable against the determination of
liability u/s 115QA of the Act. It thereafter dealt with the question whether
the High Court was justified in refusing to entertain the writ petition because
of the availability of adequate appellate remedy. According to the Supreme
Court, the law on the point was very clear and was summarised in Commissioner
of Income Tax and Ors. vs. Chhabil Dass Agarwal (2014) 1 SCC 603 as
under:

‘…It is settled law that non-entertainment of petitions under writ
jurisdiction by the High Court when an efficacious alternative remedy is
available is a Rule of self-imposed limitation. It is essentially a Rule of
policy, convenience and discretion rather than a Rule of law. Undoubtedly, it
is within the discretion of the High Court to grant relief under Article 226
despite the existence of an alternative remedy. However, the High Court must
not interfere if there is an adequate, efficacious, alternative remedy
available to the petitioner and he has approached the High Court without
availing the same unless he has made out an exceptional case warranting such
interference, or there exist sufficient grounds to invoke the extraordinary
jurisdiction under Article 226…’

The Supreme Court, referring to its various other
decisions, observed that while it can be said that it has recognised some
exceptions to the Rule of alternative remedy, i.e., where the statutory
authority has not acted in accordance with the provisions of the enactment in
question, or in defiance of the fundamental principles of judicial procedure,
or has resorted to invoke the provisions which are repealed, or when an order
has been passed in total violation of the principles of natural justice.
However, the Court further stated that the proposition laid down by it in many
cases that the High Court will not entertain a petition under Article 226 of
the Constitution if an effective alternative remedy is available to
the aggrieved person or the statute under which the action complained of has
been taken, itself contains a mechanism for redressal of grievance still holds
the field. Therefore, when a statutory forum is created by law for redressal of
grievances, a writ petition should not be entertained ignoring the statutory
dispensation.

Therefore, the Supreme Court did not find any infirmity in the approach
adopted by the High Court in refusing to entertain the writ petition. The
submission that once the threshold was crossed (i.e., the petition is
admitted)despite the preliminary objection being raised, the High Court ought
not to have considered the issue regarding alternate remedy may not be correct.
The first order dated 25^th January, 2017 passed by the High Court
did record the preliminary objection but was prima facie of the view
that the transactions defined in section 115QA were initially confined only to
those covered by section 77A of the Companies Act. Therefore, without rejecting
the preliminary objection, notice was issued in the matter. The subsequent
order undoubtedly made the earlier interim order absolute. However, the
preliminary objection having not been dealt with and disposed of, the matter
was still at large.

In State of U.P. vs. U.P. Rajya Khanij Vikas Nigam Sangharsh
Samiti and Ors. (2008) 12 SCC 675 the Supreme Court dealt with an issue
whether, after admission, the writ petition could not be dismissed on the
ground of alternate remedy and held that it cannot be laid down as a
proposition of law that once a petition is admitted, it could never be
dismissed on the ground of alternative remedy.

BCAJ Admin

FROM PUBLISHED ACCOUNTS

ILLUSTRATION OF AUDIT REPORT WITH ‘DISCLAIMER OF
OPINION’ AND ‘EMPHASIS OF MATTER’

RELIANCE INFRASTRUCTURE LTD. (31^ST MARCH, 2019)

From auditors’ report

Basis for Disclaimer of Opinion

We refer to Note 40 to the standalone financial statements which
describes that the Company has investments in and has various amounts
recoverable from a party aggregating Rs. 7,082.96 crores (net of provision of
Rs. 3,972.17 crores) (Rs. 10,936.62 crores as at 31^st March, 2018,
net of provision of Rs. 2,697.17 crores) comprising inter-corporate deposits
including accrued interest / investments / receivables and advances. In
addition, the Company has provided corporate guarantees during the year
aggregating to Rs. 1,775 crores (net of corporate guarantees aggregating to Rs.
5,010.31 crores cancelled subsequent to the balance sheet date) in favour of
the aforesaid party towards borrowings of the aforesaid party from various
companies including certain related parties of the Company.

According to the management of the Company, these amounts have been
mainly given for general corporate purposes and towards funding of working
capital requirements of the party which has been engaged in providing
Engineering, Procurement and Construction (EPC) services primarily to the
Company and its subsidiaries, its associates and its joint venture. We were
unable to obtain sufficient appropriate audit evidence about the relationship
of the aforementioned party with the Company, the underlying commercial
rationale / purpose for such transactions relative to the size and scale of the
business activities with such party and the recoverability of these amounts.
Accordingly, we were unable to determine the consequential implications arising
therefrom and whether any adjustments, restatement, disclosure or compliances
are necessary in respect of these transactions, investments and recoverable
amounts in the standalone financial statements of the Company.

Material uncertainty related to going concern

We draw attention to Note 41 to the standalone financial statements. The
factors, more fully described in the aforesaid Note, relating to losses
incurred during the year and certain loans for which the Company is guarantor,
indicate that a material uncertainty exists that may cast significant doubt on
the Company’s ability to continue as a going concern.

Emphasis of matter

(a) We draw attention to Note 38 to the standalone financial
statements regarding the Scheme of Amalgamation (the Scheme) between Reliance
Infraprojects Limited (wholly owned subsidiary of the Company) and the Company
sanctioned by the Hon’ble High Court of Judicature at Bombay vide its order
dated 30^th March, 2011, wherein the Company, as determined by the
Board of Directors, is permitted to adjust foreign exchange gain credited to
the standalone statement of profit and loss by a corresponding credit to
general reserve which overrides the relevant provisions of Indian Accounting
Standard 1 Presentation of financial statements. Pursuant to the Scheme,
foreign exchange gain of Rs. 192.24 crores for the year ended 31^stMarch,
2019 has been credited to the standalone statement of profit and loss and an
equivalent amount has been transferred to the general reserve.

(b) We draw attention to Note 39 to the
standalone financial statements, wherein pursuant to the Scheme of Amalgamation
of Reliance Cement Works Private Limited with Western Region Transmission
(Maharashtra) Private Limited (WRTM), wholly owned subsidiary of the Company,
which was subsequently amalgamated with the Company with effect from 1^stApril,
2013, WRTM or its successor(s) is permitted to offset any extraordinary /
exceptional items, as determined by the Board of Directors, debited to the
statement of profit and loss by a corresponding withdrawal from General
Reserve, which overrides the relevant provisions of Indian Accounting Standard
1 Presentation of financial statements. The Board of Directors of the
Company in terms of the aforesaid Scheme determined an amount of Rs. 6,616.02
crores for the year ended 31^stMarch, 2019 as exceptional items
comprising various financial assets amounting to Rs. 5,354.88 crores and loss
on sale of shares of Reliance Power Limited (RPower), an associate company,
pursuant to invocation of a pledge of Rs. 1,261.14 crores. The aforesaid amount
of Rs. 6,616.02 crores for the year ended 31^st March, 2019 has been
debited to the standalone statement of profit and loss and an equivalent amount
has been withdrawn from General Reserve.

Had the accounting treatment described in paragraphs (a) and (b) above
not been followed, loss before tax for the year ended 31^st March,
2019 would have been higher by Rs. 6,423.78 crores and General Reserve would
have been higher by an equivalent amount.

(c) We draw attention to Note 7(a) to the
standalone financial statements which describes the impairment assessment
performed by the Company in respect of its investment of Rs. 5,231.18 crores
and amounts recoverable aggregating to Rs. 1,219.63 crores in RPower as at 31^stMarch, 2019 in accordance with Indian Accounting Standard 36 Impairment
of assets / Indian Accounting Standard 109 Financial instruments.
This assessment involves significant management judgment and estimates on the
valuation methodology and various assumptions used in determination of value in
use / fair value by independent valuation experts / management as more fully
described in the aforesaid note. Based on management’s assessment and the
independent valuation reports, no impairment is considered necessary on the
investment and the recoverable amounts.

Our opinion is not modified in respect of the above matters.

Auditor’s Responsibilities for the Audit of the Standalone Financial
Statements

Our responsibility is to conduct an audit of the standalone financial
statements in accordance with Standards on Auditing and to issue an auditor’s
report. However, because of the matter described in the Basis for Disclaimer of
Opinion section of our report, we were not able to obtain sufficient
appropriate audit evidence to provide a basis for an audit opinion on these
standalone financial statements.

We are independent of the Company in accordance with the Code of Ethics
and provisions of the Act that are relevant to our audit of the standalone
financial statements in India under the Act, and we have fulfilled our other
ethical responsibilities in accordance with the Code of Ethics and the
requirements under the Act.

Report on other legal and regulatory requirements

(1) As required by the
Companies (Auditors’ Report) Order, 2016 (the Order) issued by the Central
Government in terms of section 143 (11) of the Act, and except for the possible
effects, of the matter described in the Basis for Disclaimer of Opinion
section, we give in the ‘Annexure A’ a statement on the matters specified in
paragraphs 3 and 4 of the Order, to the extent applicable.

(2) (A) As required by
section 143(3) of the Act we report that:

(i) As described in the
Basis for Disclaimer of Opinion section, we were unable to obtain all the
information and explanations which to the best of our knowledge and belief were
necessary for the purposes of our audit.

(ii) Due to the effects /
possible effects of the matter described in the Basis for Disclaimer of Opinion
section, we are unable to state whether proper books of accounts as required by
law have been kept by the Company so far as it appears from our examination of
those books.

(iii) The
standalone balance sheet, the standalone statement of profit and loss
(including other comprehensive income), the standalone statement of changes in
equity and the standalone statement of cash flows dealt with by this report are
in agreement with the books of accounts.

(iv) Due to the effects /
possible effects of the matter described in the Basis for Disclaimer of Opinion
section, we are unable to state whether the financial statements comply with
the Indian Accounting Standards specified under section 133 of the Act.

(v) The matter described in
the Basis for Disclaimer of Opinion section and going concern matter described
in the material uncertainty related to going concern may have an adverse effect
on the functioning of the Company.

(vi) On the basis of the
written representations received from the directors as on 31^st
March, 2019 taken on record by the Board of Directors, none of the directors is
disqualified as on 31^st March, 2019 from being appointed as a
director in terms of section 164(2) of the Act.

(vii) The reservation relating
to maintenance of accounts and other matters connected therewith are as stated
in the Basis for Disclaimer Opinion section.

(viii) With respect to the
adequacy of the internal financial controls with reference to standalone
financial statements of the Company and the operating effectiveness of such
controls, refer to our separate Report in ‘Annexure B’.

(B) With respect to the other
matters to be included in the Auditors’ Report in accordance with Rule 11 of
the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best
of our information and according to the explanations given to us:

(i) Except for the possible
effects of the matter described in the Basis for Disclaimer of Opinion section,
the Company has disclosed the impact of pending litigations as at 31^st
March, 2019 on its financial position in its standalone financial statements –
Refer Note 32 to the standalone financial statements.

(ii) Except for the possible
effects of the matter described in the Basis for Disclaimer of Opinion section,
the Company did not have any long-term contracts including derivative contracts
for which there were any material foreseeable losses.

(iii) Other than for dividend
amounting to Rs. 0.05 crore pertaining to the financial year 2010-2011 which
could not be transferred on account of pendency of various investor legal
cases, there has been no delay in transferring amounts, required to be
transferred, to the Investor Education and Protection Fund by the Company.

(C) With respect to the
matter to be included in the Auditors’ Report under section 197(16) of the Act:
In our opinion and according to the information and explanations given to us,
the remuneration paid by the Company to its directors during the current year
is in accordance with the provisions of section 197 of the Act. The
remuneration paid to any director is not in excess of the limit laid down under
section 197 of the Act. The Ministry of Corporate Affairs has not prescribed
other details under section 197(16) of the Act which are required to be
commented upon by us.

From Notes to Financial Statements

7(a) The Company has an
investment of Rs. 5,231.18 crores as at 31^st March, 2019 which
represents 33.10% shareholding in Reliance Power Limited (RPower), an associate
company. Further, the Company also has net recoverable amounts aggregating to
Rs. 1,219.63 crores from RPower as at 31^stMarch, 2019. RPower has
incurred a net loss (after impairment of certain assets) of Rs. 2,951.82 crores
for the year ended 31^st March, 2019 and its current liabilities
exceeded its current assets by Rs. 12,249.17 crores as at that date. Management
has performed an impairment assessment of its investment in RPower as required
by Indian Accounting Standard 36 Impairment of assets / Indian
Accounting Standard 109 Financial instruments, by considering inter
alia the valuations of the underlying subsidiaries of RPower which are
based on their value in use (considering discounted cash flows) and valuations
of other assets of RPower / its subsidiaries based on their fair values, which
have been determined by external valuation experts and / or management’s
internal evaluation.

The determination of the value in use / fair value involves significant
management judgement and estimates on the various assumptions including
relating to growth rates, discount rates, terminal value, time that may be
required to identify buyers, negotiation discounts, etc. Further, management
believes that the above assessment based on value in use / fair value
appropriately reflects the recoverable amount of the investment as the current
market price / valuation of RPower does not reflect the fundamentals of the
business and is an aberration. Based on management’s assessment and the independent
valuation reports, no impairment is considered necessary on this investment and
recoverable amounts.

38. Scheme of amalgamation of
Reliance Infraprojects Limited (RInfl) with the Company

The Hon’ble High Court of Judicature of Bombay had sanctioned the Scheme
of Amalgamation of Reliance Infraprojects Limited (RInfl) with the Company on
30^th March, 2011 with the appointed date being 1^st April,
2010. As per the clause 2.3.7 of the Scheme, the Company, as determined by its
Board of Directors, is permitted to adjust foreign exchange / hedging /
derivative contract losses / gains debited / credited in the Statement of
Profit and Loss by a corresponding withdrawal from or credit to General
Reserve.

Pursuant to the option exercised under the above Scheme, net foreign
exchange gain of Rs. 192.24 crores for the year ended 31^stMarch,
2019 (net loss of Rs. 11.68 crore for the year ended 31^st March,
2018) has been credited / debited to the Statement of Profit and Loss and an
equivalent amount has been transferred to General Reserve. The Company has been
legally advised that crediting and debiting of the said amount in the Statement
of Profit and Loss is in accordance with Schedule III to the Act. Had such
transfer not been done, the Loss before tax for the year ended 31^st
March, 2019 would have been lower by Rs. 192.24 crores and General Reserve
would have been lower by Rs. 192.24 crores. The treatment prescribed under the
Scheme overrides the relevant provisions of Ind AS 1: Presentation of
financial statements.

39. Exceptional items

Rs. crores

Particulars

Year ended 31^st
March, 2019

Year ended 31^st
March, 2018

Write off /
loss(profit) on sale of investments

2,446.61

(261.58)

Provision /
write-off / loss on sale of loans given and w/off of interest accrued thereon

8,410.99

190.39

Loss on
invocation of pledged shares

1,261.14

–

Loss on
transfer of Western Region System Strengthening Scheme (WRSS) – Transmission
Undertaking

–

198.50

Provision for
diminution in value of investments

678.62

–

Expenses /
(Income)

12,797.36

127.31

Less:
Withdrawn from General Reserve

6,616.02

411.50

Exceptional
items (net)

6,181.34

(284.19)

In terms of the Scheme of Amalgamation of Reliance
Cement Works Private Limited with Western Region Transmission (Maharashtra)
Private Limited (WRTM), wholly owned subsidiary of the Company, which was
subsequently amalgamated with the Company w.e.f. 1^stApril, 2013,
during the year ended 31^st March, 2019 an amount of Rs. 6,616.02
crores (31^stMarch, 2018 – Rs. 411.50 crores) has been withdrawn
from General Reserve and credited to the Statement of Profit and Loss against
the exceptional items of Rs. 12,797.36 crores (Rs. 127.31 crores for the year
ended 31^stMarch, 2018) as stated above which was debited to the
Statement of Profit and Loss. Had such withdrawal not been done, the loss
before tax for the year ended 31^stMarch, 2019 would have been
higher by Rs. 6,616.02 crores (31^stMarch, 2018 – Rs. 411.50 crores) and General Reserve would have been
higher by an equivalent amount. The treatment prescribed under the Scheme
overrides the relevant provisions of Ind AS 1 Presentation of financial
statements.

40. The Reliance Group of
companies, of which the Company is a part, supported an independent company in
which the Company holds less than 2% of equity shares (EPC Company) to inter
alia undertake contracts and assignments for a large number of varied
projects in the fields of power (thermal, hydro and nuclear), roads, cement,
telecom, metro rail, etc. which were proposed and / or under development by the
Group. To this end, along with other companies of the Group, the Company funded
EPC Company by way of EPC advances, subscription to debentures and preference
shares and inter-corporate deposits. The aggregate funding provided by the
company as on 31^stMarch, 2019 was Rs. 7,082,96 crores (previous
year Rs. 10,936.62 crores) net of provision of Rs. 3,972.17 crores (Rs.
2,697.17 crores). In addition, the Company has provided corporate guarantees
during the year aggregating (net of subsequent cancellation) to Rs. 1,775
crores.

The activities of EPC Company have been impacted by the reduced project
activities of the companies of the Group. In the absence of the financial
statements of the EPC Company for the year ending 31^st March, 2019
which are under compilation, it has not been possible to complete the
evaluation of the nature of relationship, if any, between the independent EPC
Company and the Company. At present, based on the analysis carried out in
earlier years, the EPC Company has not been treated as a related party.

Similarly, in the absence of full visibility on the assets and
liabilities of EPC Company and considering the reduced ability of the holding
company of the Reliance Group of Companies to support the EPC Company, the
Company has provided / written-off further Rs. 2,042.16 crores during the year
(Nil for the financial year ended 31^stMarch, 2018) in respect of
the outstanding amount advanced to the EPC Company and the same has been
considered as an exceptional item. Given the huge opportunity in the EPC field,
particularly considering the Government of India’s thrust on the infrastructure
sector coupled with increasing project and EPC activities of the Reliance
Group, the EPC Company with its experience will be able to achieve substantial
project activities in excess of its current levels, thus enabling the EPC Company
to meet its obligations. The Company is reasonably confident that the provision
will be adequate to deal with any contingency relating to recovery from the EPC
Company.

41. During the year, the
Company has incurred net losses (after impairment of assets) of Rs. 913.39
crores. Further, in respect of certain loan arrangements of certain
subsidiaries / associates, certain amounts have fallen due and / or have been
reclassified as current liabilities by the respective subsidiary / associate
companies. The Company is guarantor in respect of some of the loans / corporate
guarantee arrangements and consequently, the Company’s ability to meet its
obligations is significantly dependent on material uncertain events including
restructuring of loans, achievement of debt resolution and restructuring plans,
time-bound monetisation of assets as well as favourable and timely outcome of
various claims. The Company is confident that such cash flows would enable it
to service its debt, realise its assets and discharge its liabilities,
including devolvement of any guarantees / support to the subsidiaries and
associates in the normal course of its business. Accordingly, the standalone
financial statement of the Company has been prepared on a going concern basis.

From Directors’ Report

Auditors and Auditor’s Report

M/s Pathak H.D. & Associates, Chartered
Accountants, were appointed as statutory auditors of the Company to hold office
for a term of 4 (four) consecutive years at the 87^th Annual General
Meeting of the Company held on 27^thSeptember, 2016 until the
conclusion of the 91^stAnnual General Meeting of the Company. The
Company has received confirmation from M/s Pathak H.D. & Associates,
Chartered Accountants, that they are not disqualified from continuing as
auditors of the Company. M/s BSR & Co. LLP, Chartered Accountants, who were
appointed as statutory auditors of the Company at the 88^thAnnual
General Meeting of the Company, vide their letter dated 9^th August,
2019, have resigned as one of the statutory auditors of the Company with effect
from 9^th August, 2019. The other duly appointed statutory auditor,
M/s Pathak H.D. & Associates, who are statutory auditors of the Company
since the last nine financial years, i.e. from the financial year 2011 and
whose term is valid until the conclusion of the Annual General Meeting for the
year ended 31^st March, 2020, are continuing as the sole statutory
auditors of the Company.

The Auditors in their report to the members have given a Disclaimer of
Opinion for the reasons set out in the paragraph titled Basis of Disclaimer of
Opinion. The relevant facts and the factual position have been explained in
Note 40 of the Notes on Accounts. It has been explained that the Reliance Group
of companies, of which the Company is a part, supported an independent company
in which the Company holds less than 2% of equity shares (EPC Company) to inter
alia undertake contracts and assignments for a large number of varied
projects in the fields of power (thermal, hydro and nuclear), roads, cement,
telecom, metro rail, etc. which were proposed and / or under development by the
Group. To this end, along with other companies of the Group, the Company funded
EPC Company by way of EPC advances, subscription to debentures and
inter-corporate deposits.

The activities of EPC Company have been impacted by
the reduced project activities of the companies of the Group. While the Company
is evaluating the categorisation of the nature of relationship, if any, with
the independent EPC Company, based on the analysis carried out in earlier
years, the EPC Company has not been treated as a related party. Given the huge
opportunity in the EPC field, particularly considering the Government of
India’s thrust on the infrastructure sector coupled with increasing project and
EPC activities of the Reliance Group, the EPC Company with its experience will
be able to achieve substantial project activities in excess of its current
levels, thus enabling the EPC Company to meet its obligations. The Company is
reasonably confident that the provision will be adequate to deal with any
contingency relating to recovery from the EPC Company.

The observations and comments given by the Auditors in their report,
read together with notes on financial statements, are self-explanatory and
hence do not call for any further comments under section 134 of the Act.

BCAJ Admin

ETHICS AND U

Shrikrishna: Arjun, are you reading something? Shall we meet later?

Arjun: Bhagwan, please don’t say so. There is nothing more important in
my life than meeting you! Good that you came.

Shrikrishna: Why? What are you reading? I rarely see you referring to any book. Oh!
It’s a dictionary!

Arjun: Yes. Looking for a very strange word. I referred to three dictionaries,
but did not find it. It is an English word NOCLAR.

Shrikrishna: Where did you come across it?

Arjun: Yesterday, in some CPE seminar everybody around was talking about it.
They said it is very serious. Something like a disease.

Shrikrishna: (laughs) It is not a disease, but it will certainly make one Un-easy.

Arjun: What is it about? Is it going to add to our thankless burdens?

Shrikrishna: Yes, to some extent. It depends on how you take it.

Arjun: But why is that word not there in any dictionary?

Shrikrishna: Dear Paarth, it is only an acronym like your CARO. It means your
response to ‘Non-Compliances with Laws and Regulations’.

Arjun: Oh! Interesting. But wherever we go for audit, we see nothing but
non-compliance only. Anyway, what are we supposed to do then?

Shrikrishna: See, you know IESBA?

Arjun: Who is this ‘Yesba’?

Shrikrishna: (smiles) He is not a
person but a body – called International Ethics Standards Board for
Accountants. They issue guidelines for the Public Accountants (PA’s).

Arjun: Yes, our ICAI also has an ESB. What next?

Shrikrishna: While doing the audit or any other work of a company, if you come
across any non-compliance with any law or regulation which is of a very serious
nature, or which is illegal, then the question is how does a PA respond to it?
Whether he should act as a whistle-blower and expose the illegalities, or just
keep quiet?

Arjun: To tell you the truth, all these years, we CA’s have been keeping quiet
only. We never had the courage to speak out. That is why we are taken for a
ride.

Shrikrishna: I understand. You have a fear that you will lose your client. There is
a feeling of insecurity among the practising accountants like you. But remember
that NOCLAR applies not only to practising CAs, but it also covers the
accountants in employment.

Arjun: Baap-re! This is even more dangerous. Many accountants will have
to quit their jobs.

Shrikrishna: As an enlightened citizen and professional you cannot turn a blind eye
to the illegalities.

Arjun: That is exactly what Dhrutarashtra Uncle did in Mahabharata. If
he had done his duty conscientiously, the entire war and disaster could have
been avoided.

Shrikrishna: Wah, Arjun. What an apt example! That means you have understood
what NOCLAR is… I don’t have to explain it to you any further.

Arjun: No, Bhagwan, you can’t leave just like that. Please tell me what
exactly we are supposed to do? Since when will it be applicable? Where is it to
be reported? Does it cover fraud, corruption and bribery? Does it also include
money laundering? You need to tell me all this.

Shrikrishna: (smiles) Yes, dear. We need to discuss it in detail. All accountants
are now worried as to how they should tackle this. It will be very embarrassing
for anyone to expose the illegalities of the clients. It will be a serious threat
to the client as well as to the accountant.

Arjun: If it is so damaging then why bring this regulation at all.

Shrikrishna: Remember, Arjun, your
client as well as you yourself are a part of the society and the country. A company may have its vested self-interest in doing illegal acts. You as
auditors or service providers are indirect beneficiaries of the client’s business. But one must see whether such
illegal or irregular acts can be sustained by a client for a long time. Some
day or the other, the irregularities are bound to get exposed. Such acts cause
irreparable damage to the society and the country. If educated professionals
like you overlook or ignore these things, then you are breaching the trust
reposed in you. If such things continue, the social atmosphere will continue to
worsen.

Arjun: I agree. Is this the reason why some big firms are giving up a few
audit assignments? This is all very interesting. Tell me further.

Shrikrishna: I’m in a hurry. You please read it yourself. We will discuss it again
next time.

Om Shanti

This dialogue
is based on the new concept emerging in the profession – NOCLAR.

BCAJ Admin

CORPORATE LAW CORNER

10. Anand Rao Korada (Resolution
Professional) vs. Varsha Fabrics (P) Ltd. [2019] 111 taxmann.com 474 (SC) Civil Appeal Nos. 8800-8801 of 2019 Date of order: 18^thNovember,
2019

Sections 14, 231 and 238 of Insolvency and
Bankruptcy Code, 2016 – High Court cannot continue with auction proceedings to
sell the assets of corporate debtor if the proceedings under the Code have been
initiated and order declaring the moratorium has been passed by the NCLT

FACTS

I Co held shares in H Co. Pursuant to a
share purchase agreement (SPA) dated 10^thJuly, 2006 it sold its
entire shareholding in H Co to V Co, IF Co and M Co. H Co shut down its factory
on 8^th May, 2007. Subsequently, their stake in H Co was sold to IW
Co.

The workers of
H Co through their union (hereinafter referred to as the Union) filed writ
petitions before the Odisha High Court for cancellation of the SPA dated 10^thJuly, 2006 and payment of the arrears and current salaries of the
workmen. The High Court vide order dated 14^thMarch, 2012 directed
the Deputy Labour Commissioner to recover the workmen’s dues by sale of the
assets of H Co through a public auction. The Supreme Court in the said matter
passed an order dated 3^rd August, 2015 wherein it was directed that
the issue of quantifying the compensation payable to the workmen should be
determined by the Labour Court. In the event V Co, IF Co and M Co failed to pay
the compensation so determined, the assets of H Co would be sold in a public
auction and the proceeds would be used to disburse the arrears of workmen.

Pursuant to an order of the High Court dated
12^th January, 2017, the sale of a parcel of land of H CO was
completed and the amounts recovered compensated a portion of the total dues of
the workmen.

During the pendency of proceedings with the
High Court, N Co, a financial creditor of H Co, initiated corporate insolvency
resolution proceedings (CIRP) against H Co for default in payment of financial
debt. The National Company Law Tribunal (NCLT) admitted the petition and
declared a moratorium in accordance with the provisions of sections 13 and 15
of the Insolvency and Bankruptcy Code, 2016 (the Code) vide order dated 4^th
June, 2019.

The writ petitions came up for further
hearing and orders were passed by the High Court on 14^th August,
2019 and 5^th September, 2019. The Resolution Professional filed a
civil appeal to challenge the interim orders of the High Court on the ground
that since CIRP were already underway, the proceedings before the High Court
ought to be stayed.

HELD

The Supreme Court heard the parties at
length. It examined the provisions of sections 13, 14, 231 and 238 of the Code
and observed that section 238 gave an overriding effect to the Code over all
other laws. The provisions of the Code vested exclusive jurisdiction on the
NCLT and the NCLAT to deal with all issues pertaining to the insolvency process
of a corporate debtor and the mode and manner of disposal of its assets.
Further, section 231 of the Code bars the jurisdiction of civil courts in
respect of any matter in which the adjudicating authority, i.e. the NCLT or the
NCLAT, is empowered by the Code to pass any order.

In view of the said provisions, it was held
that the High Court ought not to have proceeded with the auction of the
property of H Co once the proceedings under the Code had commenced and an order
declaring moratorium was passed by the NCLT. It was observed that if the assets
of H Co were alienated during the pendency of the proceedings under the Code,
it would seriously jeopardise the interest of all the stakeholders.

The interim orders of the High Court were
set aside by the Supreme Court and it was held that the sale or liquidation of
assets of H Co would now be governed by the Code. Further, the union was
directed to file its claim under Regulation 9 of the Insolvency and Bankruptcy
Board of India (Insolvency Resolution Process for Corporate Persons)
Regulations, 2016 for payment of arrears, salaries and other dues before the
competent authority. All the parties were granted liberty to pursue the
available remedies in accordance with law.

11. Omega Finvest LLP vs. Direct News (P)
Ltd. [2019] 112 taxmann.com 297 (NCLT, N.Del.) C.P. (IB) No. 1478 (PB) of 2019 Date of order: 30^th September,
2019

Section 5 of Insolvency and Bankruptcy
Code, 2016 – Providing a place on lease for the purpose of carrying on
day-to-day activities was a supply of services – Lessor was an operational
creditor who was entitled to commence resolution proceedings when there was a
default in payment of rent

FACTS

D Co, a private
limited company, had entered into a lease agreement with S Co on 28^th
August, 2008. S Co was demerged into O Co and O Co was converted into an LLP in
the year 2012. In order to continue the lease of the premises, the parties had
entered into a lease deed dated 13^th July, 2016 for a period of
three years from 1^st July, 2016 to 30^th June, 2019. D Co
paid a sum of Rs. 1.25 crores to O Co pursuant to the lease deed. O Co submitted
that upon execution of the modification deed dated 14^th June, 2018,
D Co issued 13 post-dated cheques for payment of rent for each month from 1^stJune, 2018 to 30^th June, 2019 for a sum of Rs. 21,60,000,
inclusive of the base rent of Rs. 20,00,000 along with Goods and Services Tax @
18% amounting to Rs. 3,60,000. It is claimed by O Co that cheques issued
towards payment of rent for the months of April, 2019 and May, 2019 got
dishonoured.

O Co furnished a demand notice dated 28^th
May, 2019 to D Co u/s 8 of the Insolvency and Bankruptcy Code, 2016 (the Code).
O Co alleged that there was no reply to the notice so served.

D Co opposed the petition on the ground that
the debt claimed does not fall in the ambit of the definition of ‘operational
debt’ and therefore O Co was not an ‘operational creditor’. D Co further
submitted that a reply to the demand notice was communicated in due time. There
was prior communication to adjust the rent against the security deposit and
accordingly, it was alleged that there was a pre-existing dispute even before
notice u/s 8 was served.

HELD

The National Company Law Tribunal (NCLT)
heard both the sides at length. It examined the provisions of sections 5(20)
and 5(21) of the Code which define operational creditor and operational debt.
It was observed that in the facts of the present case, lease of premises was
for functioning of day-to-day operations and it was directly related to the
input and output of the supply of services by D Co. O Co had provided
infrastructure services to D Co for its functioning. Thus, leasing of premises
was held to be supply of services. Reliance was also placed on the report of
the Bankruptcy Law Reforms Committee dated 4^th November, 2015 which
also mentions that… ‘the lessor. that an entity rents out space from is an
operational creditor to whom the entity owes monthly rent’. It was held
that O Co was an ‘operational creditor’ within the meaning of section 5(20) of
the Code.

NCLT perused the communication between D Co
and O Co regarding adjustment of security deposit towards rent. The request for
adjustment was not met with by O Co and it proceeded to deposit the cheques
issued and the same were returned for want of sufficient funds.

NCLT also examined the provisions of the
rent agreement and observed that the security deposit had an entirely different
purpose. O Co had never agreed to adjust the rent from the security deposit.
The assumption of D Co that the agreement would extend to August, 2019 was
unfounded and the submission that there was a pre-existing dispute could not be
accepted.

As the default
stood established, NCLT proceeded to admit the petition
for initiating corporate insolvency resolution
process against D Co and declared a moratorium over its assets. An
interim resolution professional was also appointed.

12. Anil Syal
vs. Sanjeev Kapoor [2020] 113
taxmann.com 52 (NCLAT) Company Appeal
(AT)(Insolvency) No. 961 of 2019 Date of order:
8^th November, 2019

Sections 8 and 9 of the Insolvency and
Bankruptcy Code, 2016 – Dues claimed in the demand notice related to sister
concern of the corporate debtor and not the corporate debtor itself – Service
of such a notice was not valid – Application for initiating corporate
insolvency resolution proceedings was not maintainable for want of appropriate
notice

FACTS

A service
contract was entered into and executed between Sanjeev Kapoor, proprietor of
Kapoor Logistics (operational creditor) and Flywheel Logistics Solutions
Private Limited (corporate debtor) for running route vehicles in freight-line
haul operations between Pantnagar and Pune. Anil Syal is ex-director and
shareholder of the company Flywheel Logistics Solutions Pvt. Ltd. (corporate
debtor).

The operational creditor submitted that
Logistics Services were provided to the corporate debtor and pursuant to that
invoices were raised for the amount totalling Rs. 66,00,860 for the period
January, 2017 to August, 2017. Part payment of Rs. 35,68,484 was received from
the corporate debtor against the pending bills. Anil Syal stated that the balance
confirmation of Rs. 30 lakhs was admitted by the corporate debtor vide e-mail
dated 27^thJuly, 2018. But despite repeated e-mails and reminders,
the outstanding dues were not paid by the corporate debtor. The operational
creditor claimed that a demand notice was furnished calling upon the corporate
debtor to pay the total outstanding amount of Rs. 33,69,997.

The corporate debtor challenged the
submission stating that the demand notice and invoices were never received and
therefore the application was not maintainable for want of a valid demand
notice. Further, it was alleged that the demand notice was furnished to a
sister concern which was a separate legal entity by the name of Flywheel
Logistics Pvt. Ltd. having a different CIN and registered address, separate and
distinct from the corporate debtor. It was also submitted that the National
Company Law Tribunal (NCLT) which passed an order for initiation of the
corporate insolvency resolution process (CIRP) against the corporate debtor did
not take into account the evidence establishing a pre-existing dispute.

HELD

The National Company Law Appellate Tribunal
(NCLAT) observed that invoices were issued against M/s Flywheel Logistics Pvt.
Ltd. but the demand notice was issued to Flywheel Logistics Solutions Pvt. Ltd.
being the corporate debtor. The two are different corporate entities having
different CIN numbers and registered addresses.

NCLAT held that the operational creditor had
no right to claim dues relating to the invoices issued against ‘M/s Flywheel
Logistics Pvt. Ltd.’ from the corporate debtor, ‘M/s Flywheel Logistics
Solutions Pvt. Ltd.’ which is a separate corporate entity, having a different
CIN number.

It was observed that the mandatory primary
requirement for filing a petition u/s 9 of the Code was the service of the
demand notice u/s 8 of the Code. Since the demand notices related to the dues
of another corporate entity, it could not be treated as a valid and proper
service. The order passed by NCLT was thus set aside by NCLAT. It was further
held that this order would not prejudice the right of the operational creditor
to proceed against Flywheel Logistics Pvt. Ltd.

13. Indiavidual Learning (P) Ltd. vs.
Registrar of Companies [2019] 112 taxmann.com 101 (NCLT-Beng.) Date of order: 10^th October, 2019

In the Board
Report of the company filed with the ROC, certain matters were unintentionally
omitted to be reported – It could be permitted to revise the said Board Report
if the same would not prejudice the interests of the company, its shareholders
or stakeholders, or violate any provisions

FACTS

The Audited Financial Statements of I Pvt.
Ltd. (company), which included the Board’s Report for the financial year
2015-16, were approved by the Board of Directors. The Auditor’s Report attached
to the Financial Statements was sent to the shareholders of the company. The
same were laid before and adopted at the Annual General Meeting. The Audited
Financial Statements, together with the Board’s Report, was filed with the ROC
in due course.

It was brought
to the notice of the Bench that in the aforesaid Board’s
Report for the financial year 2015-16, certain matters to be covered in terms
of the provisions of section 134 of the Companies Act, 2013 were
unintentionally omitted to be reported. Those inadequacies were noticed by
the company later on, when it was reviewing the documents filed with the NCLT
in connection with a proposed reduction of share capital. It was further stated
in the petition that the inadequacies and omissions arising from non-compliance
of various applicable provisions happened purely due to inadvertence and no
part of it was prejudicial to the interests of any of the stakeholders.

A decision was taken at the meeting of the
Board of Directors of the company to revise the Board’s Report for the
financial year 2015-16, subject to approval of the Tribunal, and accordingly
the petition filed sought permission to revise the Board’s Report.

The notice of the petition was served on the
ROC concerned. Even though notice was served on the ROC and sufficient time
granted, ROC had not filed any response.

HELD

The proviso to section 131(1) of the
Companies Act, 2013 mandates that the Tribunal shall give notice to the
statutory authorities and it shall take into consideration the representations,
if any made by such authorities, before passing any order under this section.
Since ROC had not filed any representation on the petition, it appeared to the
Bench that it had no representation against the petition. Therefore, on the
principle of ease of doing business, it was held that orders are to be passed as
per merits of the case.

The inadequacies noticed in the Board’s
Report were as under:

(i) The financial highlights of the performance
of the company in terms of Rule 5(i) of the Companies (Accounts) Rules, 2014;

(ii) Details of subsidiaries, joint ventures or
associate companies in terms of Rule 5(iv) of the said Rules;

(iii) Details relating to deposits in terms of Rule
5(v) of the said Rules;

(iv) Details in respect of frauds reported by
auditors in terms of section 134(3)(ca) of the Companies Act, 2013;

(v) Disclosures on details of the Employee Stock
Option Scheme in terms of the Companies (Share Capital and Debentures) Rules,
2014;

(vi) The statutory auditor had made a qualification
stating that ‘no employee compensation expenses is accounted as required by
ICAI guidelines in absence of the fair value option, the impact on loss for the
year is not ascertained’. As per provisions of section 134(2)(f) of the
Companies Act, 2013, the Board was required to include in the Board’s Report
explanations or comments of the Board on every qualification, reservation or
adverse remark or disclaimer made by the Auditor in his report, if any.
However, there was an omission in this respect also since in the Board’s Report
dated 6^th September, 2016 no explanation was provided for the
adverse remarks / comments of the statutory auditors in their Report;

(vii) In terms of the provisions under the Sexual
Harassment of Women at Workplace (Prevention and Prohibition and Redressal)
Act, 2013 the company had to make certain disclosures on the complaints
received, if any, under the said Act. While the company had during the F.Y.
2015-16 complied with the requirements under the said Act, a statement to that
effect was omitted in the Board’s Report; and

(viii) In respect of the paragraph under
Directors’ Responsibility Statement in terms of section 134(3)(c) read with
section 134(5) of the Companies Act, 2013, the wording in the said paragraph
was not on the lines prescribed under the Act and, therefore, warranted a
correction.

On perusal of
the inadequacies of the Board’s Report as noticed and pointed out, it was
observed that they were not serious in nature and happened due to inadvertence
and if permitted to be revised as sought for, would not prejudice the interests
of the company, its shareholders, or stakeholders, or violate any provisions of
the Act. They have also declared that the company has been prompt in all annual
filings with the ROC in the past and all statutory registers and records were
maintained in accordance with the provisions of the Act. Therefore, considering
the fact that the instant petition is filed duly following the provisions of
the Act and the rules made thereunder and thus, by following the principle of
ease of doing business, the company petition is to be disposed of subject to
compliance of provisions of the applicable NCLT rules.

In the result, the company was permitted to
revise its Board’s Report for the financial year 2015-16 in terms of section
131(1) of the Companies Act, 2013.

However, it was made clear to the company
that the order would not absolve the company of any other violation(s)
committed by it and the statutory authorities were entitled to take appropriate
action in accordance with law.

BCAJ Admin

FROM PUBLISHED ACCOUNTS

Audit
Report and Critical Audit Matters paragraph in financial statements of Public
Company Accounting Oversight Board (PCAOB), United States

Compiler’s
Note

The PCAOB is a non-profit
corporation established by Congress to oversee the audits of public companies
in order to protect investors and the public interest by promoting informative,
accurate and independent audit reports. The PCAOB also oversees the audits of
brokers and dealers, including compliance reports filed pursuant to Federal
securities laws, to promote investor protection.

The five members of the PCAOB
Board, including the Chairman, are appointed to staggered five-year terms by
the U.S. Securities and Exchange Commission (SEC), after consultation with the
Chair of the Board of Governors of the Federal Reserve System and the Secretary
of the Treasury. The SEC has oversight authority over the PCAOB, including the
approval of the Board’s rules, standards and budget.

The mission of PCAOB is to
oversee the audits of public companies and SEC-registered brokers and dealers
in order to protect investors and further the public interest in the
preparation of informative, accurate and independent audit reports.

The vision of PCAOB is to be a
trusted leader that promotes high quality auditing through forward-looking,
responsive and innovative oversight. At all times we will act with integrity,
pursue excellence, operate with effectiveness, embrace collaboration and demand
accountability.

Given below is the audit report
of PCAOB for 31st December, 2019.

Opinions on the Financial Statements and Internal Control over
Financial Reporting

We have audited the accompanying
statements of financial position of the Public Company Accounting Oversight
Board (PCAOB) as of 31^st December, 2019 and 2018, and the related
statements of activities and cash flows for each of the years in the two-year
period ended 31^st December, 2019 and the related notes (collectively
referred to as the financial statements). We have also audited the PCAOB’s
internal control over financial reporting as of 31^st December, 2019
based on criteria established in Internal Control – Integrated Framework (2013)
issued by the Committee of Sponsoring Organisations of the Treadway Commission
(COSO).

In our opinion, the financial
statements referred to above present fairly, in all material respects, the
financial position of the PCAOB as of 31^st December, 2019 and 2018
and the results of its operations and its cash flows for each of the years in
the two-year period ended 31^st December, 2019 in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, the PCAOB maintained, in all material respects, effective
internal control over financial reporting as of 31^st December, 2019,
based on criteria established in Internal Control – Integrated Framework (2013)
issued by COSO.

Change in Accounting Principle

As discussed in Note 2 to the
financial statements, during the year ended 31^st December, 2019
PCAOB adopted Accounting Standards Update No. 2014-09, Revenue from
Contracts with Customers (Topic 606) and Accounting Standards Update No.
2018-08, Not-for-Profit Entities (Topic 958): Clarifying the Scope and
Accounting Guidance for Contributions Received and Contributions Made. Our
opinion is not modified with respect to these matters.

Basis for Opinion

The PCAOB’s management is
responsible for these financial statements, for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying
Financial Reporting Management’s Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the PCAOB’s financial
statements and an opinion on the PCAOB’s internal control over financial
reporting based on our audits. We are required to be independent with respect
to the PCAOB in accordance with the relevant ethical requirements relating to
our audit.

We conducted our audits in
accordance with the auditing standards of the PCAOB. Those standards require
that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement, whether due
to error or fraud, and whether effective internal control over financial
reporting was maintained in all material respects.

Our audits of the financial
statements included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. Our audit of
internal control over financial reporting included obtaining an understanding
of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our
opinions.

Definition and limitations of internal control over financial
reporting

A company’s internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally
accepted accounting principles. PCAOB’s internal control over financial
reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the PCAOB; (2) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the PCAOB are
being made only in accordance with authorisations of management and directors
of the PCAOB; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorised acquisition, use or disposition of the PCAOB’s
assets that could have a material effect on the financial statements.

Because of its inherent
limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

Critical audit matter

The critical audit matter
communicated below is a matter arising from the current period audit of the financial
statements that was communicated or required to be communicated to the board of
directors (1) relate to accounts or disclosures that are material to the
financial statements and (2) involved our especially challenging, subjective,
or complex judgments. The communication of critical audit matters does not
alter in any way our opinion on the financial statements, taken as a whole, and
we are not, by communicating the critical audit matter below, providing
separate opinions on the critical audit matters or on the accounts or
disclosures to which they relate.

Description of the matter

As disclosed
in Note 2, the PCAOB adopted ASU No. 2014-09, Revenue from Contracts with
Customers (Topic 606) (ASU 2014-09) during its fiscal year ended 31^stDecember,
2019. The core principle of this standard is that revenue should be recognised
to depict the transfer of promised goods or services to customers in an amount
that reflects the consideration to which the entity expects to be entitled in
exchange for those goods and services. Historically, the PCAOB has recognised
revenue related to support and annual fees in the year in which they are
assessed, registration fees in the year the application is submitted and
monetary penalties in the year the sanctions are effective. Management
evaluated its historical revenue recognition practices against the requirements
of ASU 2014-09 as part of its adoption of the standard.

Auditing the PCAOB’s adoption of
ASU 2014-09 required complex auditor judgment due to the nature and
characteristics of the PCAOB’s revenues.

How we addressed the matter in our audit

As part of its
consideration of ASU 2014-09, the PCAOB prepared an analysis of its revenue
sources against the concepts included within the standard. This analysis
included the following considerations:

The PCAOB’s revenues are derived from
issuers, broker dealers and public accounting firms. PCAOB does not have a
contract with any of these parties.

The amounts assessed to these parties by the
PCAOB have not been negotiated and these parties are not the direct
beneficiaries of the PCAOB’s services.

The assets transferred to the PCAOB by
issuers, broker dealers and public accounting firms are not transferred on a
voluntary basis.

Based upon its analysis, the
PCAOB concluded the majority of its revenue sources do not meet the criteria
specified to be specifically accounted for under ASU 2014-09. As a practical
alternative, PCAOB looked via analogy to the guidance of ASC 958 for when the
revenue amounts are determinable, they have a right to bill and collect such
amounts, and the amounts are realisable. Based on this analysis, PCAOB
concluded that its revenue should be recognised at the point of billing and, as
a result, recognition policies should remain consistent with historical
practice. In our audit of this conclusion, we performed the following:

We analysed applicable accounting guidance in
ASC 606 and ASC 958 based upon the specific facts and circumstances of the
PCAOB’s revenue types.

We analysed the realisability considerations
for each of the PCAOB’s revenue types.

We analysed applicable issuer, broker dealer
and public accounting firm appeal rights for each of the PCAOB’s revenue types.

We tested controls over the PCAOB’s revenue
recognition process.

In addition to the engagement
team personnel, we consulted with our firm’s revenue recognition subject matter
expert on the adoption of ASU 2014-09 based on the PCAOB’s specific fact
pattern. In addition, we evaluated the PCAOB’s disclosure included in Note 2 in
relation to this matter.

We
have served as the PCAOB’s auditor since 2006.

BCAJ Admin

SOCIETY NEWS

TALK ON ‘ACHIEVING SUCCESS – LIVING VALUES’

The H.R. Committee, along with the RVG Educational Foundation, organised a talk for the benefit of students and young members on 24^th November, 2019 at the RVG Hostel Auditorium. Mr. M.K. Ramanujam addressed the gathering on ‘Achieving Success – Living Values’ in his eloquent style and in an interactive session.

He started his talk by explaining the difference between success and happiness. Success, he said, invariably refers to targets, milestones, goals, etc. But happiness is born out of love, abundance and inspiration. Therefore, one ought to choose to do something out of inspiration and love for a subject, for a career, for one’s dreams and so on. ‘Success’ is a challenge because it is short-lived. One often postpones happiness till one achieves success. Happiness, on the other hand, flows from inspiration during the process of achieving it; and despite the challenges, one remains cheerful.

Mr. Ramanujam explained the acronym ‘PREMA’ and the most important concept of ‘Purpose’.

‘P’ Stands for positive emotions. One must venture out with positive emotions. Negative emotions are like Velcro that gets fixed to us easily. We should not be like Velcro but like a Teflon coating so that we are not stuck to negative emotions. For a daily practice of positive emotions it would be best to remember and note down at least three nice things that happened during the day and objectively assessing why these felt like positive happenings.

‘R’ Stands for Relationships. One must invest time, effort, energy and willingness in building relationships with nature, friends, teachers, seniors, the environment and everything around. They are the best support systems.

‘E’ stands for Engagement. Give your best. Introspect and ask yourself, why are you doing what you are doing? Put all your energy into whatever you are doing. Even if you are compelled to do certain things that you do not want to do (e.g., due to parents’ pressure), put in your best. Love what you do and do what you love. Put your 100% and think beyond your own self. Think what contributes to your happiness… Expand your horizon.

‘M’ stands for Meaning. In all that you do, you ought to have meaning for the self and for all those concerned
with it.

‘A’ stands for Achieving. You must complete what
you have begun. There is joy in finishing and
achieving things.

Purpose: Everything in the universe is driven by purpose. Align your work with the purpose. Clarity of ‘Why’ lightens the burden of ‘How’ and ‘What’. Purpose can be understood with deep introspection with ’Why’ and values can be understood by questioning ‘How’. Success is what others measure in you and happiness is what you measure in yourself.

One hundred and ten participants, including more than 80 students, attended and enjoyed the talk.

President Manish Sampat welcomed the participants and gave information about the Society and also shared its vision. Chairman Rajesh Muni provided a broad outline of the activities of the H.R. Committee, especially those carried out for the benefit of students. He invited and encouraged students to register and participate in the Study Circle and the Students’ annual programmes which enable students to showcase their talents.

Mr. Lalchand Chaudhari, President of the RVG Foundation, shared information about the number of chartered accountants who had benefited as alumni of the hostel. He also shared the ‘Vision 2024’ plan set out for RVG. Mukesh Trivedi proposed the vote of thanks.

WORKSHOP ON NBFCS

The NBFC sector has been facing several challenges of late. Apart from business and regulatory challenges, it is also confronted with challenges in Ind AS implementation and other compliances of ECL provisioning and disclosure, etc. Further, regulatory norms are also being notified on a frequent basis.

The Accounting and Auditing Committee of the BCAS has always been at the forefront in planning programmes for NBFCs in order to bolster them and to equip professionals to deal with challenges. Accordingly, the Committee conducted a ‘Workshop on NBFCs’ on 13^th December, 2019 at Hotel Orchid, Mumbai to have an in-depth discussion on the current developments in the field from the regulatory perspective and various issues arising from first-time Ind AS implementation.

It was structured into five sessions followed by a panel discussion. The technical sessions dealt with a variety of topics such as Key regulatory updates in the NBFC Sector, Financial Instruments, Applying the ECL Model and related disclosure requirements, Disclosure requirements under Schedule III of the Companies Act, 2013, Statutory audit aspects, followed by an interesting panel discussion on Challenges of first-time adoption of Ind AS.

The Workshop was attended by more than 80 persons, with increased participation from the industry.

The Workshop started with an inaugural address by Samir Kapadia, BCAS Hon. Joint Secretary, who stressed the importance of NBFCs in the overall development of the financial sector in India. Himanshu Kishnadwala, Chairman of the Committee, introduced the structure of the Workshop to the participants, the thought process behind its design and the need for such a Workshop.

The first session was conducted by Bhavesh Vora who dealt with the important aspects of key regulations surrounding NBFCs and the recent changes therein. While dealing with these, he also took participants on a journey of the NBFC sector over a period of time and gave valuable insights into the regulatory impact on various categories of NBFCs.

In the second session, Santosh Maller dealt with Financial Instruments, Classification of Financial Instruments based on the business models and the measurement of various Financial Instruments with several examples for ease of understanding.

Rukshad Daruvala, who conducted the third session, took up the key issues and requirements in applying the Expected Credit Loss (ECL) model dealing with the provisioning requirements of Advances of NBFCs.

Post lunch, Rukshad Daruvala was once again at the helm, at the session on Disclosure Requirements under Schedule III, including various critical disclosures required under the Ind AS regime.

The subject of Statutory Audit aspects was dealt with in the fifth session by Jayesh Gandhi. He discussed in detail the requirements while conducting audit of NBFCs and shared his vast experience with the participants as
he explained the importance of Audit in the current economic scenario.

In the final session, the challenges of first-time adoption of Ind AS were discussed by a panel comprising Govind Jain, Jayesh Gandhi and Haren Parekh. The discussion was ably moderated by Ashutosh Pednekar. It revolved around the first-time adoption challenges faced by the NBFC industry and the auditors’ perspective on the same. The panellists shared their practical experience on the subject for the benefit of all participants.

TRAINING SESSION FOR CA ARTICLE STUDENTS

The Students’ Forum under the auspices of the H.R.D. Committee organised a training session for CA article students on ‘Recent Developments in Income Tax’ on 10^thJanuary, 2020 at the BCAS Hall.

It was conducted by Jayna Shah. Ms Dhristhti Bajaj, the student coordinator, introduced the speakers and described the upcoming events for students.
Anand Kothari, Convener of the H.R.D. Committee, welcomed the speakers and presented them with a memento each.

Jayna Shah explained the various amendments in income tax such as the change in the corporate tax rate, introduction of faceless assessment, changes to boost cashless economy, new provisions and amendments in TDS provisions and so on. It was an interactive session and the speakers answered all the queries raised by the participants.

The training session ended with Student Study Circle Coordinator Dnyanesh Patade proposing the vote of thanks to the speakers and also to the participants.

NANI PALKHIWALA MEMORIAL LECTURE

The Nani Palkhiwala Memorial lecture meeting was organised jointly with the Forum of Free Enterprises at NCPA Tata Theatre on 16^th January, 2020.
Mr. N. Chandrasekaran, Chairman of Tata Sons Ltd., who was the guest speaker, dwelt on the subject ‘Building India for the Future’. Mr. Y.H. Malegam presided over the proceedings.

A documentary film, ‘Nani the Crusader’, was screened at the start of the meeting. It was based on the life of the late Mr. Nani Palkhiwala and showed glimpses of his life, his rise in the legal fraternity and the accolades that he won from all quarters on account of his brilliance. It also threw light on some of the major cases on Constitutional matters that he had won and that saved India’s democracy and shaped the country’s future.

The film screening was followed by the release of a book, ‘Essays & Reminiscences’ in honour of Mr. Palkhiwala. Mr. Arvind P. Datar, the general editor of the book, fondly recalled his vivid memories of the late stalwart.

Mr. Chandrasekaran spoke of suspicions and ‘micro-management’ of the economy as the impediments faced by businesses in India. He stressed on the need for creating a harmonious atmosphere by trusting and treating business as an essential pillar for
nation-building. The Tata group was an excellent example of how business can contribute to nation-building. Mr. Palkhiwala had set an example of how businesses, by maintaining their core values, could co-exist in a competitive economy and had helped government to build the present-day India. This happened because even his strictest criticism was taken in a positive spirit and with implicit trust by the government.

The core thrust of Mr. Chandrasekaran’s speech was how, with the co-operation of business and government, the vast potential of India could be tapped and the benefits of growth could reach the poorest segment of people to build a strong India, making its future
extremely bright.

Mr. Deepak Parekh, HDFC Bank Chairman, while proposing the vote of thanks, called for maintaining the values of the Indian Constitution. Pointing out that ‘while times and circumstances change, strong values and principles do not’, he said that while we should hold on to the learnings that Mr. Palkhiwala had left behind, it was important not to be consumed by ‘pessimism and doom-mongering’. Admitting that he was an optimist, he said he was confident about the future of India and that ‘our youth will see India’s best days’.

SEMINAR ON PRESUMPTIVE TAXATION

The Taxation Committee organised a seminar on ‘Presumptive Taxation’ with several distinguished speakers sharing their deep knowledge on the subject. It was held at the Walchand Hirachand Hall of the IMC on 18^th January, 2020. The event attracted overwhelming response and saw an attendance of 111 participants, including outstation participants from five different cities / towns. President Manish Sampat welcomed the attendees and gave the opening remarks.

The following topics were taken up for discussion by the speakers:

Sections 44AD and 44ADA: – • Purpose of the provision • How is it different from section 28 – 43CA • Assessee to offer business income under this section • Assessees who cannot offer income under presumptive taxation • Maintenance of books of accounts• Calculations of gross receipts• Determination of GR without BOA and case studies	Bhadresh Doshi
Sections 44AE, 44AF, 44BB, 44BBA, 44BBB – Purpose of the sections, applicabiltity, issues, recent jurisprudence – Interplay of tax audit – Case studies	Mehul Shah
Brain trust questions – Presumptive taxation issues –Issues concerning return of income, books of accounts, tax audit, assessments, penalties, ICDS, etc.	Gautam Nayak, Anil Sathe and Kinjal Bhuta

In the first session, Bhadresh Doshi highlighted the technical aspects of sections 44AD and 44ADA. He concentrated on various issues arising right from the time of the introduction of the presumptive taxation scheme under these two sections. He gave his views and insights on multiple issues and explained the jurisprudence affecting them. He advised participants to read and understand the section and scheme and not to rely on general perceptions.

On his part, Mehul Shah dwelt on the presumptive basis of taxation under sections 44AE, 44AF, 44BB, 44BBA and 44BBB. He explained sections with the help of case studies. It was a highly interactive session and the speaker answered all the questions posed by the participants.

Gautam Nayak, Anil Sathe and Kinjal Bhuta were the ‘brain trustees’ for the last session that was moderated by Ameet Patel. The ‘brain trustees’ were allotted specific questions based on various issues raised by BCAS members from time to time.

Starting the session, Gautam Nayak gave his views on whether presumptive taxation provisions under sections 44AD and 44ADA are qua assessee or qua income. He also responded to various issues raised by the participants pertaining to sections 44AD and 44ADA.

Anil Sathe gave his views on fundamental issues concerning the presumptive basis of taxation and responded to questions based on real examples. He also gave his views on issues concerning sections 44AE and 44BB.

Finally, Kinjal Bhuta shared her insights while addressing questions relating to important definitions such as eligible business, etc. under the presumptive basis of taxation. She also elaborated on the overall scheme and answered queries related to return of income for assessees adopting the presumptive basis of taxation.

All the sessions were interactive and the speakers shared their insightful views. The participants benefited immensely from the guidance and practical views on various issues offered by the faculties.

NFRA AND PCAOB – DISSECTING

PERFORMANCE EVALUATION OF AUDITS

A lecture meeting was organised on 22^nd January, 2020 in the BCAS Conference Hall to deal with the above topic. It was addressed by Chirag Doshi who went through the process of inspection by the Public Company Accounting Oversight Board (PCAOB) of a firm’s quality controls and review of audit assignments carried out by that firm.

He provided an overview of the functioning of the PCAOB with its top areas of focus during the exercise of a firm’s quality review process. The major focus areas were:

(i) System of quality control in firms;

(ii) Independence;

(iii) Recurring audit deficiencies relating to ICFR, Revenue Recognition, Allowance for loan losses, Other Accounting Estimates and ROMMs.

The review process is split into two parts, viz., Quality Control Review and Audit Engagement Review. The major focus is on compliance with auditing standards and not the accounting standards.

Chirag Doshi dwelt on the on-field procedure for review as well as the procedure after field reviews and highlighted the thorough professionalism and independence involved in the whole review process.

He then dealt with the National Financial Reporting Authority (NFRA) which has been constituted on the lines of the PCAOB with the objective of monitoring and enforcing compliance with auditing standards. For achieving this objective, the NFRA would be reviewing the working papers of the audit firms and other communication related to the audits to evaluate the sufficiency of the quality control system of the auditor.

Chirag Doshi went on to deal with the first report of NFRA in the form of an Audit Quality Review (AQR) Report in the case of the auditee, ‘IL&FS Financial Services Limited’ for the F.Y. 2017-18. The purpose of discussing the findings was to make the members aware of the necessity to document and to put on record the findings during the audit process in such a manner that it goes on to prove the independence of the auditor as well as displaying adequate professional scepticism during the conduct of the audit process.

He provided inputs for creating an in-house audit manual by small and medium-size firms for the efficient conduct of audit.

The meeting was well attended and attracted a full house.

FEMA STUDY CIRCLE

Here is a brief report on the FEMA Study Circle meeting held at the BCAS Conference Hall on 23^rd January, 2020.

Ms Mitali Pakle’s presentation was comprehensive and lucid in nature and covered a variety of case laws that made it easy for everyone to grasp the subject matter being discussed. In the course of her brief talk, the speaker managed to cover various aspects of the ECB Guidelines and made it quite interesting.

The discussion was further enriched by some thought-provoking questions that the participants posed and the answers provided by the speaker.

DTAA COURSE 2019-20

The 20^th Study Course on Double Taxation Avoidance Agreement was conducted at the BCAS Hall over nine days – 13^th, 14^th, 20^th and 21^st December, 2019 and 4^th, 5^th, 11^th, 12^th and 25^th January, 2020.

Thanks to regular feedback and continuous refinement, the Study Course was re-designed and covered all BEPS and MLIs along with the Articles of DTAA, FEMA / GAAR, Transfer Pricing, Source Rules under the Income-tax Act, 1961, TDS u/s 195, Substance vs. Form and other relevant provisions.

All the lectures delivered by 31 eminent faculties were very well received. The faculties were generous in sharing their experience by way of case studies on critical topics such as residence and PE, as well as the amendments sought to be made through the MLI.

The Study Course was attended by 73 participants from diverse backgrounds such as senior professionals, practising CAs, young professionals associated with big and SME accounting firms and so on. Apart from Mumbai, there were registrations from other cities such as Ahmedabad, Baroda, Chennai, Jaipur and Delhi. All of them contributed to making the course a huge success.

For those who came in late, the Study Course is an eagerly-awaited event amongst the practitioners of international taxation from all over the country and was well received and appreciated. It was coordinated by Maitri Ahuja and Mahesh Nayak.

‘INDIAN PRIVATE TRUSTS – TAX AND FEMA ASPECTS’

The International Taxation Committee arranged a meeting on ‘Indian Private Trusts – Tax and FEMA Aspects’ on 28^th January, 2020 at the BCAS Conference Hall. The meeting was led by Group Leader Naresh Ajwani who explained the far-reaching income tax and FEMA implications in case of trusts.

The speaker walked the audience through the provisions of income tax and FEMA on trusts and explained various basic terms, the genesis of trusts, kinds of trusts, ownership of trust property, AOP / BOI taxation, beneficial interest, beneficial ownership and other provisions. With the help of some simple illustrations, he explained various concepts and particulars – including terms that do not exist in Indian law such as ‘Trust is not a person’, ‘Grantor Trust’, ‘Trustee taxable as Representative Assessee’ and so on.

Naresh Ajwani also dealt with and answered queries raised by members of the audience. The meeting was interactive and the participants received enormous benefit from the discussion and the insights provided.

Acknowledging the importance of the subject, the Committee plans to host another meeting on trust provisions, details of which will be shared with members very soon.

FELICITATION OF YOUNG CAS AND ‘VISION 2020 – SHAPING THE FUTURE’ FOR NEWLY-QUALIFIED CAS

A special programme was organised for the newly-qualified Chartered Accountants (emerging successful from the November, 2019 examination) under the aegis of the Seminar, Public Relations and Membership Development (SPR&MD) Committee. But within a few days of the announcement, the online enrolments crossed the record figure of 300, forcing BCAS to close registrations!

The event was held at the BCAS Hall on Friday, 31^stJanuary, 2020. It attracted a full house of over 190 participants, including some walk-ins. They were greeted at the registration desk with a few BCAS publications – ‘Changing Paradigms for CSR in India’, a ‘Monograph Series’ containing five booklets on various laws, a copy of the BCAJ Journal of the last two months and BCAS membership forms.

The evening started with a one-on-one interactive session focussed on mentoring with eminent mentors, Nandita Parekh and Robin Banerjee. The participants were divided into two groups between the speakers so that they could interact and take help from them on all their queries, including guidance for future careers. These sessions were appreciated by all the newly-qualified CAs.

This was followed by an address by President Manish Sampat who talked about his early days as a qualified Chartered Accountant, the sound advice that he had received from his seniors to associate himself with the BCAS, the positive impact that the Society had had on his career as a CA – and to the present day when he heads the Society as President. He also briefed the new CAs on the various initiatives of the Society.

Narayan Pasari, Chairman of the SPR&MD Committee, pointed out that the youth or ‘yuva shakti’ is an integral part of the numerous activities organised by the BCAS. He appealed to the new CAs to become members of BCAS, benefit from it and play an active role in its innumerable activities. He pointed to the BCAS Referencer, the Annual RRC and the other programmes conducted in the last few months and said that youth had contributed significantly in all these events.

He proudly revealed that the BCAS is very active on social media and its handle @BCASGlobal has recently crossed the 33K mark; it also has 11K followers each on LinkedIn and YouTube.

The ‘Thought Leader’ for the evening, Nilesh Vikamsey, then took the floor and offered valuable advice to young CAs from the variegated learnings of his own life. He spoke at length on upcoming fields for CAs and stated that he believes ‘ABCD is the future’ – that is, Artificial Intelligence, Block Chains, Cyber Security and Data Analytics.

He also answered all the questions posed to him by the newly-minted CAs. He advised them to join the nearest Study Circles and pointed out that at an association like BCAS, the process of learning never stopped.

This was followed by a felicitation ceremony, with all the participants being presented with a memento by ‘Team BCAS’. The event showcased the vibrancy of the participants, many of whom showed great interest in signing up to become members of the Society.

Interestingly, some of the participants were eager to ask even more questions to their Mentors. The proceedings ended with a vote of thanks proposed by the coordinator, Rimple Dedhia.

18^TH RESIDENTIAL LEADERSHIP RETREAT

The 18^th Residential Retreat programme was held on 7^th and 8^thFebruary, 2020 on the theme ‘Future Begins Now’. Twenty-nine participants, including ten newcomers, had registered for the programme. The trainer, Mr. Deepak Shinde (a disciple of Shri Mahatria), had flown in from Bengaluru for the event.

A cool winter breeze flowing over the green, serene and spacious campus, amidst the shade of swaying trees and the chirping of birds, set the perfect tone for the Retreat, which was held at the Rambhau Mhalgi Prabodhini, Essel World Road, Uttan.

The programme commenced with the invocation prayer. President Manish Sampat welcomed the participants and shared information about the activities of the BCAS. He proudly narrated his journey at the Society which had begun many years ago as Convener of the Human Resource Committee. He complimented the participants and the organising team for devising such an interesting workshop.

Trainer Deepak Shinde discussed several important concepts and pointers of life with the participants over the two-day Retreat.

He opened with the story of Alexander the Great King and the Saint Diogene, driving home the point that to become king or to achieve something, one has to put in huge efforts. But to be like Saint Diogene (and in permanent bliss) one need not depend on external things. One can be in that state quite naturally. To be happy, one must adhere to right values. One can be an achiever, become successful and also remain blissful like a saint.

His advice was to always begin the day with the greeting ‘Happy Morning’. Doing this all 365 days of the year would turn it into a habit. And one would not need to depend on people, places, objects, time, or seasons to be happy. If one was dependent on such external factors, the happiness would be temporary and external factors would make one subservient and vulnerable to them.

‘We have a tendency to judge people with our own biased and limited vision. In doing so we miss to be in touch with people and miss happiness. One’s life must be full of happiness and love, such that the epithet on one’s grave describes one’s life with apt, inspiring and happy words.’

In the second session, Trainer Deepak Shinde spoke about perfect balance and alignment of the laws of nature and man’s tendency to interfere. He used the simile of a Rubik’s Cube. At the beginning it is perfectly balanced with each of six sides uniformly reflecting one colour. The moment one turns, twists and revolves the cube, the entire symmetry of colour and pattern gets disturbed. The learning from this is not to interfere with the well-aligned laws of nature.

He then moved to thoughts and words. One becomes as one thinks; similarly, as one feels, so one attracts. He discussed at length the power of positive words and prayers and said that cheerfulness, abundance, gratitude, appreciation, encouragement and inspiration bring happiness and energy.

The third, evening session, was conducted in the open amphitheatre area, in the lap of nature, and the Trainer discussed peace vs. prosperity. He emphasised that one must clearly define what one wants in life. To earn peace and goodwill, one may come under pressure to sacrifice one’s own space. On the other hand, to enjoy material wealth one may have to compromise with values, goodwill and peace. The question was how to balance both, peace and prosperity? By using positive words and feelings, one can be in harmony and have perfect balance, he stressed.

Practising grace. Grace is one’s ability to carry out an act without disturbing the environment. ‘With grace, accept the outcome of action, inaction and efforts as a gift of the Lord (prasad buddhi).’

Late in the evening on the first day, the participants enjoyed a brilliant campfire. Some of them took to singing and dancing to music. The relaxed participants appeared charged up for the next morning’s session.

The first session on the second day began quite early, at 7 o’clock, in an open area witnessing the rising sun and its golden glow. The discussion turned to ‘Faith’ and ‘Energy’. Faith is something invisible with strong conviction of its presence. Trainer Deepak Shinde called faith the thread of a kite flying high in the sky. It is the connection with the thread that keeps the kite (symbolising life) flying high in the sky.

He explained the ‘God concept’ with cause and effect principles. One draws energy from the effulgence of the sun and knowledge; exercise and sattvik food for the body, positive words and prayer for the mind; and reflection, contemplation and meditation for the intellect. Energy charges the sub-conscious mind. ‘Therefore, live with grace and align with nature with faith and receive energy’.

Narrating a conversation between Lord Rama and Hanuman, he shared the view that our faith in the Lord is much more powerful than the Lord. ‘God is the symbol of love. One need not have fear of the Lord.’

In the third session, the discussion focused on relations, expectations and situations. In life sometimes one may need to take a U-turn from one’s position. One ought to understand the people around, understand that man expects happiness and woman, love. But both love and happiness are complementary. Learn to say no without guilt and not to please others.

The two-day programme concluded with a vote of thanks.

BCAJ Admin

GOODS AND SERVICES TAX (GST)

I. SUPREME COURT

32. [2020 113 taxmann.com 422 (SC)] Nirmal Kumar Parsan vs. Commissioner of

Commercial Taxes Date of order: 21^st January, 2020

When the assessee imported the goods,
stored the same in a custom bonded warehouse and sold them to foreign-going
vessels for consumption on board, the State in which such warehouse is situated
shall have a right to levy sales tax on the same and the transaction does not
amount to sale in the course of import

FACTS

The principal question involved in
these appeals is whether the subject sales (of goods imported from a foreign
country and after unloading the same on the landmass of the State of West
Bengal, kept in the bonded warehouse without payment of customs duty) to
foreign-bound ships as ‘ship stores’ can be regarded as sale within the
territory of the State and therefore liable for sales tax under the West Bengal
Sales Tax Act, 1954 (‘the 1954 Act’).

After importing foreign-made
cigarettes, the appellants stored the same in the customs bonded warehouse
within the landmass of the State of West Bengal and some of those articles were
sold to the Master of a foreign-going ship as ship stores, without payment of customs
duty. The assessee contended that the process of import was not complete at the
time of sale to the foreign-going ship and the transaction was a sale in the
course of import. It further contended that there was no sale within the
State of West Bengal or even in India because the buyer had no right to consume
the goods before the ship crossed the territorial waters of India. According to
the authority, it was not a sale in the course of import. The High Court upheld
the decision of the Tribunal that the sales were within the territory of the
State of West Bengal and amenable to sales tax.

HELD

The Supreme Court referred to various
judgments and held that it is clear that the sale to be in the course of import
must be a sale of goods and, as a consequence of such sale, the goods must
actually be imported within the territory of India and further that the sale must be part and parcel of the
import so as to occasion import thereof. Indeed, for the purposes of the
Customs Act, only upon payment of customs duty are the goods cleared by the
customs authorities when import thereof can be regarded as complete. However,
that would be no impediment for levy of sales tax by the State concerned in
whose territory the goods had already landed / been unloaded and kept in the
bonded warehouse.

The Court further explained that for
seeking exemption it is necessary that the goods must be in the process of
being imported when the sale occurs, or the sale must occasion the import
thereof within the territory of India. The word ‘occasion’ is used to mean ‘to
cause’ or ‘to be the immediate cause of’. Thus, the sale which is to be
regarded as exempt from payment of sales tax is a sale that causes the import
to take place, or is the immediate cause of the import of goods. The Court
observed that in the present case the stated sales in no way occasioned import
of the goods into the territory of India. Moreover, there is no direct linkage
between the import of the goods and the sale in question to qualify as having
been made in the process or progress of the import.

In order to decide whether the stated
sales can be deemed to have taken place in the course of import of the goods
into the territory of India before the goods had crossed the customs
frontiers of India, which is the core requirement of section 5(2) of the
CST Act, the Court examined the expression ‘crossing the customs frontiers of
India’ as has been defined in section 2(ab) of the CST Act. The Court held that
going by the definition of ‘customs port’ or ‘land customs station’ as
applicable in the present case, it is the customs port or the land customs
station area appointed by the Central Government in terms of notification u/s
7.

The Court observed that the bonded
warehouses, where the goods were kept and the stated sales took place by
appropriation of the goods thereat, were not within the area notified as
customs port and / or land customs station u/s 7 of the Customs Act. The Court
also noted that there is nothing to indicate that the bonded warehouse, where
the stated goods were kept by the appellants and eventually sold, formed part
of the customs port / land customs station. Therefore, it held that as the
stated goods had travelled beyond the customs port / land customs station at
the relevant time, in law, it would mean that the goods had crossed the customs
frontiers of India for the purposes of the CST Act.

II. HIGH COURT

33. [2020 114 taxmann.com 122 (Delhi)] Pitambra Books (P) Ltd. vs. UOI Date of order: 21^stJanuary, 2020

High Court stayed
the operation of paragraph 8 of Circular No. 125/44/19-GST dated 18^th
November, 2019 which mandated periodicity in the filing of the refund claim
with a restriction that refund claim to be filed cannot spread across different
financial years

FACTS

The petitioner engaged in the business
of manufacturing and trading of books also exports its products, which is
categorised as zero-rated supplies as per section 16(1)(a) of the Integrated
Goods and Services Tax Act, 2017. The petitioner challenged Circular No.
37/11/2018-GST dated 15^th March, 2018 and Circular No. 125/44/19-GST
dated 18^th November, 2019 to the extent they provide that the period
for which refund claim is filed cannot spread across different financial years.
The petitioner submitted that the said clause restricts the claim of refund in
case it relates to different financial years causing serious financial hardship
as more than Rs. 30 crores of accrued and unutilised input tax credit that is
eligible for refund is now lying stuck. The petitioner submitted that as per
section 54(3) of the CGST Act, a person making zero-rated supplies can claim
refund of unutilised input tax credit at the end of any tax period by making a
refund application before the expiry of two years from the relevant date.
Hence, the aforesaid restriction is ultra vires the Act and the
provisions contained under it.

It was also argued that Rule 89(4) of
the CGST Rules containing the formula for calculating input tax for refund is
in contravention of section 16 of the IGST Act read with section 54 of the CGST
Act as the said Rule restricts the computation of the refund taking the basis
of ITC ‘availed during the relevant period’. The ‘relevant period’ has been
defined in Rule 89(4)(F) as the period for which the claim has been filed. It
was argued that the said circular to the extent it restricts the refund claims
only on monthly basis is contrary to the rights conferred by the Act.

The Revenue submitted that the refund
is subject to conditions and therefore the Government is well within its
jurisdiction to impose conditions by way of the impugned circular. Further, it
was submitted that u/s 2(106) of the GST Act, the ‘tax period’ has been defined
to mean a period for which a return is required to be filed. The return under
the Act has to be filed on a month-to-month basis and, therefore, the
petitioner does not have any right to claim refund for one financial year in
another year.

HELD

The Court called upon the Government to
file a detailed affidavit in reply; however, it gave a prima facie view
that the restriction pertaining to the spread of refund claim across different
financial years is arbitrary and that there is no rationale for such a
constraint. It further held that the entire concept of refund of ITC relating
to zero-rated supply would be obliterated in case the respondents are permitted
to put any limitation and condition that takes away the petitioner’s right to
claim a refund of all the taxes paid on the domestic purchases used for the
purpose of zero-rated supplies. The incentive given to the exporters would lose
its meaning and this would cause grave hardship to the exporters who are
earning valuable foreign exchange for the country. The respondents cannot,
artificially, act contrary to the fundamental spirit and object of the law and
contrive ways to deny the benefit which the substantive provisions of the law
confer on the taxpayers.

Thus, the Court held that the
petitioner has a strong prima facie case and it cannot be denied its
right to claim a refund which is visible from the mechanism provided under the
Act. Further, referring to the case of Pioneer India Electronics (P) Ltd.
vs. Union of India & Anr. ILR (2014) II DELHI 791, the Court observed
that circulars might mitigate rigors of law by granting administrative relief
beyond relevant provisions of the statute; however, the Central Government is
not empowered to withdraw benefits or impose stricter conditions than
postulated by the law. The High Court accordingly stayed paragraph 8 of Circular No. 125/44/2019-GST dated 18^th November,
2019 and also directed the respondents to either open the online portal so as
to enable the petitioner to file the tax refund electronically, or to accept the
same manually.

BCAJ Admin

SERVICE TAX

I.
HIGH COURT

26. [2020-TIOL-397-HC-AP-ST] Vasudha
Bommireddy vs. Assistant Commissioner
of Service Tax, Hyderabad Date of
order: 20^th December, 2019

Tax collected without
authority of law is liable to be refunded with interest

FACTS

A writ petition was filed for refund of
service tax consequent upon the decision of the Delhi High Court in Suresh
Kumar Bansal’s case, 2016-TIOL-1077-HC-DEL-ST, wherein it was
held that in respect of the composite contracts for purchase of immovable
property along with goods used therein and also a part of the undivided land,
service tax cannot be levied on the composite price as per the provisions of
the Act as the statute did not contain any mechanism to segregate / bifurcate
the value of goods and the cost of the land from the gross value for
determining the value of the service.

HELD

The Court noted that the refund (plea)
is filed within two months of the decision of the Delhi High Court. Article 265
of the Constitution of India provides that ‘no tax shall be levied or collected
except by authority of law’. Therefore, refund was sanctioned with interest of
9% per annum from the date of payment.

II. TRIBUNAL

27. [2020-TIOL-249-CESTAT-Ahm.] Surya
Shipping vs. Commissioner of Central Excise and Service Tax Date of
order: 22^nd August, 2019

The difference
between freight received and freight paid is not a service liable to service
tax

FACTS

The assessee is engaged in purchasing
space on ocean-going vessels from shipping companies and selling the same to
various exporters. The shipping companies raise invoices on the assessee for
freight and the assessee in turn raises its own invoices on the exporters for
the freight. The difference in freight represents the profit or loss, as the
case may be, in respect of the said activity of buying and selling space on the
ocean-going vessels. The Revenue claimed that the profit or excess freight is
taxable under Business Support Service. The demand was confirmed by the
Commissioner (Appeals). Hence, the present appeal was filed.

HELD

The Tribunal noted that there is no
service involved in such transaction as the purchase and sale of the space is
an activity of sale and purchase and hence not liable to service tax. Further,
relying on several judgments it is held that any amount charged for space on
ocean-going vessels, over and above the purchase price, is not liable to
service tax.

28. [2020-TIOL-324-CESTAT-Mad.] M/s
Broekman Logistics India Private Limited vs. Commissioner of GST and Central
Excise Date of
order: 31^stJanuary, 2020

The intention of
creating a Free Trade Zone is to give exemption from levy of all duties and
taxes and therefore by application of service tax rules, place of provision of
service rules, the activities undertaken by such units cannot be made taxable

FACTS

The appellants are engaged in the
business of logistics supply, chain management, clearing and forwarding,
licensed CHA, etc. They did not pay any service tax on the services provided by
them from the Free Trade Warehousing Zone (FTWZ) exclusively to foreign-based
clients. It was contended by the Revenue that the service does not qualify as
export of services, therefore tax is payable.

HELD

The Tribunal primarily noted that the
Special Economic Zone Act, 2005 provides for exemption from service tax.
Section 51 states that the Act will have overriding effect notwithstanding
anything inconsistent in any other law. The Act, therefore, overrides the
Finance Act, 1994. Accordingly, it was held that the Department cannot press
the application of service tax rules, place of provision of service rules or
other rules to hold that the appellant has not exported any service. The
meaning of service and export contained in the special legislation by which SEZ
or FTWZ has been created has to be given effect. Thus, the demand was set
aside.

29. [2020-TIOL-209-CESTAT-All.] M/s Radhey
Krishna Technobuild Pvt. Ltd. vs. Commissioner of Central Excise Date of
order: 17^th December, 2019

Electric meter
charges collected along with the sale of residential units is a bundled service
u/s 66F of the Finance Act, 1994; therefore, the electric charges collected is
also admissible for abatement

FACTS

During the time of sale of residential
units the assessee was also collecting some charges from the buyers under the
head ‘electric meter main load supply charges’ and was discharging service tax
by claiming an abatement. The Revenue opined that such charges collected were
other than the construction of residential complex service and therefore
abatement was inadmissible.

HELD

The Tribunal noted
that section 66F(3) of the Finance Act, 1994 provides that taxability of a
bundled service shall be determined if various elements of such services are
naturally bundled in the ordinary course of business. The charges for electric
meter main load supply were collected along with the consideration for sale of
residential unit and they were collected from every person to whom the
residential unit was sold; further, as explained, the same was for providing
electricity supply during power failure/s to the residents of the complex.
Therefore, such service is bundled service u/s 66F of the Finance Act, 1994.
Accordingly, the abatement is admissible and the demand is set aside.

BCAJ Admin

MISCELLANEA

I.
Technology

18. Amazon, Flipkart
challenge new Indian tax on online sellers

Amazon and Walmart’s Flipkart are among
online retailers demanding that India scale back a proposed tax on third-party
sellers on their platforms, saying the burden of compliance will hurt the
fledgling industry. The online retail industry is braced for a possible 1% tax
on each sale made by sellers on their platforms from April if the proposal is
approved by Parliament next month.

The move is part of a broader plan by
the government to increase tax revenues and counter a sharp economic slowdown
due to weakening consumer demand. But the tax will hurt the country’s fledgling
e-commerce sector, according to a presentation prepared by the Federation of
Indian Chambers of Commerce and Industry (FICCI) for the government.

The Finance Ministry declined to
comment. Some third-party sellers are also pushing back against the tax,
arguing that it would negatively impact their working capital, adding that they
already contribute to a nationwide sales tax.

This tax will be ‘extremely detrimental
to the growth and sustenance’ of small online sellers and make the model
‘unviable’, Unexo Life Sciences, a seller of healthcare products on Amazon’s
India website, said in an email to the Central Board of Direct Taxes. Online
vendors, or sellers with revenue of less than half a million rupees in the previous
year, as well as brick-and-mortar retailers, will be exempted from the new tax,
although they are subject to the nationwide sales tax.

The tax would apply to the income of
drivers on ride hailing firms, such Uber and Ola, as well as sales on restaurant
aggregators, including Zomato and Swiggy.

(Source:
in.reuters.com)

II. World News

19. Coronavirus could
damage global growth in 2020: IMF

The coronavirus epidemic could damage
global economic growth this year, the IMF Head said on Sunday, but a sharp and
rapid economic rebound could follow. ‘There may be a cut that we are still
hoping would be in the 0.1-0.2 percentage space,’ the MD of the International Monetary
Fund, Kristalina Georgieva, told the Global Women’s Forum in Dubai.

The full impact of the spreading disease
that has already killed more than 1,700 people would depend on how quickly it
was contained. ‘I advise everybody not to jump to premature conclusions. There
is still a great deal of uncertainty. We operate with scenarios, not yet with
projections, ask me in 10 days,’ Georgieva said.

In its January update to the World
Economic Outlook, the IMF lowered the global economic growth forecast in 2020
by 0.1 percentage point to 3.3%, following a 2.9% growth the previous year, the
lowest in a decade. The MD said it was ‘too early’ to assess the full impact of
the epidemic but acknowledged that it had already affected sectors such as
tourism and transportation.

‘It is too early to say because we don’t
yet quite know the nature of this virus. We don’t know how quickly China will
be able to contain it. We don’t know whether it will spread to the rest of the
world.’ If the disease is ‘contained rapidly, there can be a sharp drop and a
very rapid rebound’, in what is known as a V-shaped impact, she said.

Compared to the impact of the Severe
Acute Respiratory Syndrome (SARS) in 2002, she pointed out that China’s economy
then made up just 8.0% of the global economy. Now, that figure was 19%. The
trade agreement between the United States and China, the world’s first and
second economies, had reduced the disease’s impact on the global economy.

But the world should be concerned ‘about
sluggish growth’ impacted by uncertainty.
‘We are now stuck with low productivity growth, low economic growth, low
interest rates and low inflation,’ the IMF chief told the Dubai forum.

(Source:
www.business-standard.com)

III. Health

20. Coronavirus
disease advice for the public – Basic protective measures suggested by WHO

Wash your hands
frequently

Wash your hands frequently with soap and
water or use an alcohol-based hand-rub if your hands are not visibly dirty.

Why? Washing your hands with soap and
water or using alcohol-based hand-rub eliminates the virus if it is on your
hands.

Practice respiratory
hygiene

When coughing and sneezing, cover mouth
and nose with flexed elbow or tissue – discard tissue immediately into a closed
bin and clean your hands with alcohol-based hand-rub or soap and water.

Why? Covering your mouth and nose when
coughing and sneezing prevent the spread of germs and viruses. If you sneeze or
cough into your hands, you may contaminate objects or people that you touch.

Maintain social distancing

Maintain at least 1 metre (3 feet)
distance between yourself and other people, particularly those who are
coughing, sneezing and have a fever.

Why? When someone who is infected with a
respiratory disease like 2019-nCoV coughs or sneezes, that person projects
(ejects) small droplets containing the virus. If you are too close, you may
breathe in the virus.

Avoid touching eyes,
nose and mouth

Why? Your hands touch many surfaces
which may be contaminated with the virus. If you touch your eyes, nose or mouth
with your contaminated hands, you may transfer the virus from the surface to
yourself.

If you have fever,
cough and difficulty breathing, seek medical care early

Tell your health care provider if you
have travelled in an area in China where 2019-nCoV has been reported, or if you
have been in close contact with someone who has travelled from China and has
respiratory symptoms.

Why? Whenever you have fever, cough and
difficulty in breathing, it’s important to seek medical attention promptly as
this may be due to a respiratory infection, or any other serious condition.
Respiratory symptoms with fever can have a range of causes, and depending on
your personal travel history and circumstances, 2019-nCoV could be one of them.

If you have mild
respiratory symptoms and no travel history to or within China

In such a case, carefully practice basic
respiratory and hand hygiene and stay at home until you have recovered.

Practice general
hygiene measures when visiting live animal markets, wet markets or animal
product markets

Ensure regular hand washing with soap
and potable water after touching animals and animal products; avoid touching
eyes, nose or mouth with hands; and avoid contact with sick animals or spoiled
animal products. Strictly avoid any contact with other animals in the market
(such as stray cats and dogs, rodents, birds, bats). Avoid contact with
potentially contaminated animal waste or fluids on the soil or structures of
shops and market facilities.

Avoid consumption of
raw or undercooked animal products

Handle raw meat, milk or animal organs
with care to avoid cross-contamination with uncooked foods, as per good food
safety practices.

(Source: www.who.int)

21. Over 1 lakh
deaths in 29 cities due to air pollution: Study

While Environment Minister Prakash
Javadekar is often heard claiming that there is no correlation between air
pollution levels and premature deaths, the latest Indian study published in a
leading international journal suggests a close correlation.

In fact, over one lakh deaths in 29
Indian cities may be attributed to the rising PM 2.5 levels. According to a
study by two IIT Kanpur experts, published in the latest edition of the
environmental journal ‘Science of the Total Environment’, the national capital heads
the pack. Kolkata, Mumbai, Chennai and Ahmedabad are not far behind. Delhi tops
the list of 29 cities with a million plus population.

The study adds that Ischemic Heart
Disease (IHD) is the leading cause of death accounting for 58% of the PM
2.5-related premature deaths. The most affected are children under the age of
five and the ‘productive age group’ of 25-50 years, suggests the study titled
‘Cause and Age, Specific Premature Mortality Attributable to PM 2.5 Exposure:
An Analysis for Million Plus Cities’. This paper has used the 2016 data for the
29 cities as that is the latest year for which the registered all-cause death
data is available from the Civil Registration System. It is modelled on the
basis of the 2015 Global Burden of Disease report.

The study has been authored by air
pollution expert Mukesh Kumar of IIT Kanpur along with Prateik Saini. Kumar
also authored the 2015 report on sources of air pollution in Delhi. ‘While
studies have also been done earlier, this one is based on Ischemic Heart
Disease and actual measured data on PM 2.5-related mortality. The data is
age-specific and cause-specific and therefore helps us interpret and show the
clear correlation between pollution levels and death rate,” Kumar stated.

(Source: www.economictimes.com)

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