CIT vs. Sadia Shaikh (Bombay High Court At Goa)
S. 2(47)(v): Mere execution of a development agreement is not a "transfer" if possession as per s. 53A of the Transfer of Property Act is not given
Though the development agreement was executed in AY 2003-04, the possession as contemplated in Section 53A of the Transfer of Property Act was in fact not handed over by the assessee to the developer. The agreement only permitted the development to be carried out by the said developer. The entire control over the property was in fact with the assessee inasmuch as the licence to construct the property was also in the name of the assessee and the occupancy certificate was also given to the assessee. Therefore the execution of the agreement could not amount to transfer as contemplated under Section 53A of the Transfer of Property Act. The agreement was subsequently specifically modified and the assessee was liable to pay the capital gain as per the last agreement i.e. for assessment year 2008-09.
See also General Glass 108 TTJ 854 (Mum) & Fibars Infratech (ITAT Hyd) where Chaturbhuj Dwarakadas Kapadia 260 ITR 491 (Bom) is explained/ distinguished. Contrast with Charanjit Singh Atwal (ITAT Chd)ACIT vs. Casio India Co Pvt Ltd (ITAT Delhi)
Transfer Pricing: Argument, based on BMW, that the AMP adjustment law laid down in L. G. Electronics (SB) does not apply to a full-risk distributor in not correct
In LG Electronics India Pvt. Ltd. vs. ACIT 2013 152 TTJ (Del) (SB) 273 the Special Bench held by majority that incurring of AMP expenses towards promotion of brand, legally owned by the foreign AE, constitutes a `transaction'. The contention that no disallowance could be made out of AMP expenses by benchmarking them separately when the overall net profit rate declared by the assessee was higher than other comparable cases also came to be specifically rejected by the special bench. Resultantly, the transfer pricing adjustment in relation to such AMP expenses was held to be sustainable in principle. In the eventual order, the Special Bench restored the matter to the file of the AO/TPO for fresh determination of Transfer Pricing Adjustment in relation to AMP expenses. In order to enable the determination of correct ALP of AMP expenses, the Tribunal listed out 14 parameters in Para 17.4 of its order which should be examined by the AO/TPO before reaching the final conclusion about the warrant for a TP Adjustment on this score. It is relevant to note that there were 22 interveners in this case, some of which were distributors, while others were licensed manufacturers. While setting out 14 parameters, the Special Bench has held vide first parameter that the AO/TPO should ascertain as to whether the Indian AE is simply a distributor or is holding a manufacturing license from its Foreign AE. The second parameter talks of examining as to whether or not the Indian AE is a full fledge manufacturer and whether it is selling the goods purchased from the Foreign AE as such or is making some value addition to the goods purchased from its Foreign AE before selling it to customers. Thus there is not even a slightest doubt that the special bench order not only applies to a `Manufacturer', but also extends to a distributor, whether he is a bearing full risk or least risk. Thus, such tests are applicable with full vigor to the extent applicable, to the distributors. There is nothing in the special bench order which restricts its operation only to the `Manufacturers'.
The argument, based on BMW India Pvt. Ltd. vs. ACIT (Del) that as the assessee was a full fledged distributor and as such the benefit of AMP expenses did not spill over to the foreign AE is not acceptable because the Special Bench order in LG Electronics is applicable with full force on all the classes of the assessees, whether they are licensed manufacturers or distributors. The Bench in BMW did not have any occasion to bestow its attention to the correctness of the application by the TPO of the aforesaid parameters laid down in the special bench order as these were naturally not considered by the Officer since he passed his order much before the advent of the special bench order. There is no prize for guessing that Special Bench order has more force and binding effect over the Division Bench order on the same issue.
Dishnet Wireless Limited vs. ACIT (Madras High Court)
S. 220: AO cannot exercise coercive measures to recove tax during the period available for filing an appeal
Against the assessment order, further appeal lies to the Income Tax Appellate Tribunal u/s 253 of the Act and the time for moving the Tribunal is 60 days from the date of receipt of a copy of the order. As the appellate remedy is available to the petitioner, it could be accepted and the authority may thereafter proceed with the matter. However, in the absence of any legal impediment, the respondents have intimated recovery proceedings against the petitioner, when there is reasonable time for him to prefer an appeal. In view of the above, respondents are directed to not to take any coercive steps for recovery against the petitioner, till the appeal time is exhausted. Thereafter, the respondents are at liberty to act in accordance with law for recovery of the amount as per the order of the appellate authority.
See also Treatise On The Law & Practice Of Stay & Recovery and MHADA (ITAT Mum)S. 234E Pay Fees for late filing before filing of TDS Statement
As per the records of Centralized Processing Cell (TDS), the TDS Statement(s) for some of the quarters have not been submitted within the prescribed due date.
Intimation u/s 200A of the Income Tax Act, 1961 intimating an outstanding demand for the relevant quarters, including demand under section 234E towards Fee for delayed filing of TDS Statement(s), have already been sent by CPC (TDS) on Registered email address and by post, at the address, as mentioned in the relevant TDS Statement.
Your attention is hereby drawn towards the provisions of section 234E of the Act, which reads as follows:
Levy for Late filing of TDS Statement (Section 234E of Income Tax Act)
1) Without prejudice to the provisions of the Act, where a person fails to deliver or cause to be delivered a statement within the time prescribed in sub-section (3) of section 200 or the proviso to sub-section (3) of section 206C, he shall be liable to pay, by way of fee, a sum of two hundred rupees for every day during which the failure continues.
2) The amount of fee referred to in sub-section (1) shall not exceed the amount of tax deductible or collectible, as the case may be.
3) The amount of fee referred to in sub-section (1) shall be paid before delivering or causing to be delivered a statement in accordance with sub-section (3) of section 200 or the proviso to sub-section (3) of section 206C.
4) The provisions of this section shall apply to a statement referred to in sub-section (3) of section 200 or the proviso to sub-section (3) of section 206C which is to be delivered or caused to be delivered for tax deducted at source or tax collected at source, as the case may be, on or after the 1st day of July, 2012
You are advised to pay the outstanding demand at an early date to avoid Penal Interest u/s 220(2) of the Act apart from intimation of other recovery proceedings as per Income Tax Act, 1961. If the demand has already been paid, you are requested to file a Correction Statement by tagging the challan and the Justification report can be verified for closure of demand, if the revision has already been submitted and processed.
How to pay the demand:
The following steps shall help you analyze and pay the demand:
· Download the Justification Report from portal TRACES to view your latest outstanding demand.
· Use Challan ITNS 281 to pay the above with your relevant Banker or use any other Challan, which has adequate balance available
· Download the Conso File from TRACES portal.
· In case of payment towards late filing fee, please Tag the challan towards the payment, in the "Fee" column" (Column Number 305 for 24Q, 404 for 26Q, 706 for 26Q) using RPU Ver. 3.8, mentioning appropriate amount in such column and validate to generate the FVU.
· Submit the Correction Statement at TIN Facilitation Centre.
· The demand can also be paid by using the Online Correction facility.
For any further assistance, you can also write to ContactUs@tdscpc.gov.in or call our toll-free number 1800 103 0344.
Download TDS Certificates from TRACES within Due date – Reminder
There are many Deductors who have filed TDS Statements for different quarters but not yet downloaded TDS Certificates (Forms 16/ 16A) from TRACES portal should download the same immediately to avoid Penal Consequences.
Downloading of TDS Certificates from TRACES made mandatory: In this regard, your attention is invited to the CBDT circulars 04/2013 dated 17.04.2013, CBDT Circular No. 03/2011 dated 13-5-2011 and CBDT Circular No. 01/2012 dated 9-4-2012 on the Issuance of certificate for Tax Deducted at Source in Form 16/16A as per IT Rules 1962. It is now mandatory for all deductors to issue TDS certificates after generating and downloading the same from "TDS Reconciliation Analysis and Correction Enabling System" or (https://www.tdscpc.gov.in) (hereinafter called TRACES Portal).
TDS Certificates downloaded only from TRACES hold valid: In view of above circulars, it may kindly be noted that the TDS Certificates downloaded only from TRACES Portal will be valid. Certificates issued in any other form or manner will not comply to the requirements referred in the Income-tax Act 1961 read with relevant Rules and Circulars issued in this behalf from time to time.
Due Date for Issuance of TDS Certificates and Penalty for non-compliance u/s 272A: Please be advised that under the provisions of section 203 of the Income Tax Act, 1961 read with rule 31A, Certificate of tax deducted at source is to be furnished within fifteen (15) days from the due date for furnishing the statement of tax deducted at source. Failure to comply with the provisions of the Act will attract penalty under the provisions of section 272A of the Act, a sum of one hundred rupees for every day during which the failure continues.
ST : Change in Defination of governmental authority in Mega Exemption Notification
Notification No. 02/2014 – Service Tax, New Delhi, 30th January, 2014
G.S.R….(E).- In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby makes the following further amendments in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No.25/2012-Service Tax, dated the 20th June, 2012, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide G.S.R. 467 (E), dated the 20th June, 2012, namely:-
In the said notification, in the paragraph 2, for clause (s), the following shall be substituted, namely:–
'(s) "governmental authority" means an authority or a board or any other body;
(i) set up by an Act of Parliament or a State Legislature; or
(ii) established by Government,
with 90% or more participation by way of equity or control, to carry out any function entrusted to a municipality under article 243W of the Constitution;'.
[F.No. 354 /236/ 2013-TRU]
(Raj Kumar Digvijay)
Under Secretary to the Government of India
Note.- The principal notification was published in the Gazette of India, Extraordinary, vide notification No. 25/2012 – Service Tax, dated 20th June, 2012, number G.S.R. 467 (E), dated the 20th June, 2012 and was last amended by notification No.01/2014- Service Tax, dated the 10th January, 2014 G.S.R. 15(E), dated the 10th January,2014.
Clarification on a news item that 13000 of sub brokers have shut shop in last six months
A section of the press has published reports highlighting surge in surrender of certificates of registration by sub brokers during the period April – September, 2013. In this regard, it is clarified as follows;
SEBI vide circular dated November 6, 2009 introduced the concept of the 'Authorized Person' (AP) facilitating registered stock brokers of stock exchanges to provide access to clients through these Authorised Persons. The role of the AP is akin to the role of sub broker like assisting the investors in buying, selling or dealing in securities through stock-brokers. The AP is required to be approved only by stock exchange and does not require registration with SEBI.
As per records, SEBI has approved 13,396 surrender applications of sub brokers between April to September, 2013.
During the period from April to September 2013, the net addition of APs is 15,465 {number of approvals granted to APs is 23, 703 minus number of surrender of APs is 8,238} which is more than the number (13,396) of surrender of registration of sub brokers. It is observed that increasingly the entities are seeking approval as APs rather than acting as sub brokers.
The comparison of registration / surrender of sub brokers vis-à-vis approvals / surrenders of APs during the period April 2013 to September 2013 are as under;
| Financial Year | No. of Sub Brokers | No. of Authorised Persons | ||
| registered by SEBI | whose surrender of registration approved by SEBI | approved by Stock Exchanges | whose surrenders approved by Stock Exchanges | |
| 2013-14 (From April to September, 2013) | 210 | 13,396 | 23,703 | 8,238 |
The total number of registered Sub Brokers and approved Authorised Persons (AP) is given below:
| As on March 31, 2013 | As on Sept 30, 2013 | |
| No. of sub brokers registered by SEBI | 70,178 | 56,992 |
| No. of APs approved by Exchanges | 1,25,273 | 1,40,738 |
Source- SEBI
Apex Cost Audit body Invites Application for Internal Audit for 2014-15
Application for Internal Audit 2014-15
Sealed and separate applications are invited from Cost Accountants' Firm, having minimum of 4(four) Partners who are in full time practice for conducting the Internal Audit of the Head Quarters of the Institute at Kolkata and Delhi for the FY 2014-15, mentioning following details of the Firm :
1. Year of Establishment (attach photocopy of latest constitution certificate issued by the Institute).
2. No. of Partners in the firm with their Name, Membership Number, No. of years in practice, area of specialization.
3. Number of Qualified Assistants ( Cost Accountants) with their Membership nos.
4. No. of Semi Qualified Assistants (i.e those who have passed Intermediate Examination of the Institute of Cost Accountants of India) in the firm. (Copy of the certificates to be enclosed).
5 Audit Experience in other PSUs, Govt. Organisation as Internal Auditor (Photocopies of appointment letters containing name of the audit firm/letter No. & Date and signature of appointing authority and the job allotted).
6. The Firm should have their offices at Kolkata / Delhi duly registered with the Institute.
7. A declaration of confidentiality and fidelity is to be given by firm in its own letter head.
8. The Firm shall be at arms length to the Institute and its constituents and a declaration for the same is to be furnished.
9. A declaration confirming that the details/information furnished in the application are true and correct.
Cost Accountants' Firms, interested to carry out the Audit work, may send their Application along with documentary evidences, as stated above, in sealed envelope, superscribe with – "Application for Internal Audit 2014-15" through registered Post/Courier service only, to the Director-Finance of the Institute at the following address, on or before February 21 ,2014 :
Director – Finance
The Institute of Cost Accountants of India
12, Sudder Street
Kolkata – 700016
Jobbing is not speculative in view of proviso(c) to section 43(5)
In normal terminology, the share trading business on behalf of oneself is known as jobbing. Section 43(5) defines the word speculative transaction, but there are three exceptions to it. The proviso (c) to section 43(5) reads as under : '
'A contract entered into by a member of forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to hedge against loss which may arise in the ordinary course of his business as a member.'
This proviso makes it very clear that any profit or loss on account of jobbing will not be in the nature of speculation profit or speculation loss. Thus, even if it is accepted that the loss suffered by the appellant was on account of self-trading in view of proviso (c) to section 43(5) such loss cannot be treated as speculation loss.
Allahabad High Court
Commissioner Income Tax
Vs.
Sri Ram Kishan Gupta
INCOME TAX APPEAL No. – 143 of 2003
Order Date :- 20.1.2014
Hon'ble Ashok Bhushan,J.
Hon'ble Mahesh Chandra Tripathi,J.
ORDER
(Per Hon'ble Ashok Bhushan, J.)
This appeal under section 260A of the Income Tax Act, 1961 (hereinafter referred to as 'Act') has been filed against the judgment and order of the Income Tax Appellate Tribunal dated 25.4.2003 by which the appeal of the assessee against the order of the Commissioner Income Tax Appeal has been allowed. It is sufficient to note the facts as noted in the order of the Tribunal to decide the questions raised in this appeal. In paragraph 2 of the order of the Tribunal, facts of the case have been noted in following words:
"In brief the relevant facts are that the appellantassessee is a Member of the U.P. Stock Exchange Association Ltd. And is registered as Stock Broker and carries on the purchase and sale of shares and securities. On scrutiny of the trading profit and loss account filed along with the return of income of Rs. 81,050/-, the Assessing Officer found that a sum of Rs. 8,53,030/- is debited for which the claim of the assessee was that it incurred loss in respect of transactions done by him on the floor of stock exchange with other brokers. The Assessing Officer rated the same as speculation loss as the loss of Rs. 8,53,030/- was on account of transactions for which there was no physical delivery. The appellant-assessee submitted before the Assessing Officer that the delivery had been effect at net basis as per the Stock exchange guidelines and no forward trading was allowed therefore there was no question of any speculation loss. The assessee's plea was also that otherwise the appellant-assessee's transaction was covered u/s 43(5)(c) of the Income Tax Act , therefore, the transaction carried out by the appellant-assessee were specifically exempted to be treated as speculative transactions but the Assessing Officer did not agree with the contentions of the appellant-assessee and disallowed the loss of Rs. 8,53,030/- being speculative in nature arising out of speculative transactions and the same could not be set off against other income and had to be carried forward and to be set off against speculative profit as per the provisions of Section 73(1). Therefore, after disallowing the loss of Rs. 8,53,030/-, the Assessing Officer computed the income of the appellant-assessee at Rs. 9,22,829/-. On appeal, the ld. CIT(A) agreed with the conclusions drawn by the Assessing Officer and dismissed the appeal of the appellant-assessee, therefore, the appellant-assessee is in present appeal before the Tribunal."
This appeal has been admitted on the following questions of
"(1) Whether on the fact and in the circumstances of the case, the Income Tax Appellate Tribunal was correct in law in not upholding the order of the Assessing Officer and the Commissioner of Income Tax (Appeals) treating the loss of Rs. 8,53,030/- as speculative loss?
(2) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was correct in law in holding that the assessee's entire business is of non-speculative nature?
(3) Whether the Income Tax Appellate Tribunal was correct in holding that the assessee was engaged in jobbing although the fact remains that the assessee was not registered as a jobber?
(4) Whether Income Tax Appellate Tribunal was correct in law in holding that the loss incurred by the assessee was not speculative when the assessee could not give evidence of delivery of the scripts?"
We have heard Sri Shambhu Chopra, learned Counsel appearing for the appellant and Sri S.D. Singh, learned senior Advocate appearing for the assessee. The provisions of the Income Tax Act relevant for the issues raised in the appeal need to be noted first. Section 43 contains definition of certain terms relevant to income from profits and gains of business or profession. Section 43(5) deals with "speculative transaction". Section 43 (5) proviso (a) (b) and (c) which are relevant are quoted below:
"(5) speculative transaction" means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scripts:
Provided that for the purposes of this clause—
(a) a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or
(b) a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; or
(c) a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member;"
Section 73 deals with "Losses in speculation business" Section 73(1) provides as follows:
"73. (1) Any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except against profits and gains, if any, of another speculation business."
The assessee a member of the U.P. Stock Exchange Kanpur filed its return of income for the Assessment Year 1998-99 showing income of Rs. 81,050/-. Assessee claimed Rs. 8,53,030/- as business loss which was disallowed by the Assessing Officer holding it to be speculative loss. The assessee claimed before the Assessing Officer that transaction is covered by Section 43(5) proviso (c) hence, the same cannot be treated as speculative business and the assessee was entitled for set off of the loss against the business income. The Commissioner of Income Tax (Appeals) confirmed the order of the Assessing Officer. The Commissioner held that transaction which have been settled otherwise than actual delivery of shares in question will have to be treated as speculative transaction as provided under section 43(5) of the Act. In the appeal filed before the Tribunal, the assessee reiterated his claim that transactions which were settled otherwise than by actual delivery of shares are fully covered by proviso (c) to Section 43(5) of the Act. The assessee also pleaded before the Tribunal that he was asked to deposit turnover fee of jobbing to the SEBI. The submission was also raised by the assessee before the Tribunal that delivery has been effected at net basis as per the Stock Exchange guidelines hence, there was no question of any speculation loss. The Tribunal noticed the submissions and facts pleaded on behalf of the assessee in paragraph 3 of the judgment, which is to the following effect:
"On behalf of appellant- assessee Shri Rakesh Garg, Advocate submitted that the lower authorities have not appreciated the facts and circumstances resulting in loss of Rs. 8,53,030/- and have wrongly treated the same as speculative loss. With reference to comprehensive paper book including the written submission, which were filed before the ld. CIT(A) who called for a remand report from the Assessing Officer, Shri Garg invited the attention of the Bench towards the tax audit report and the consolidated trading profit and loss account as appearing on page 95 of the supplementary paper book and the details of transactions appearing on pages 36 and 96 to 99 of the pa0er book and submitted that if the entire transaction of purchases and sales as well as the provisions of Section 43(5) (c) of the Income Tax Act providing for that "a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member; shall not be deemed to be speculative transaction" are taken into consideration, the loss cannot be considered as speculation loss. In order to prove his point Shri Garg submitted that the appellant was asked to deposit turnover fee for which he made reference to pages 40 to 43 of the paper book and he also referred to page 42 of the paper book being letter dated 1.4.02 from U.P. Stock Exchange Association Ltd. Giving the details of the turnover fee payable to SEBI and it specifically mentions fee on jobbing. In view of this, Shri Garg pleaded that since the SEBI was charging turnover fee which means there were purchases as well as sales and the same necessarily includes delivery therefore therefore it cannot be inferred that no actual delivery had taken place. Shri Garg further submitted that the entire trading activity of the broker for which licence has been obtained is subject to SEBI Rules and Regulations including the bye laws and accordingly the activities of a Stock Exchange Broker, inter alia includes purchase and sale of shares and securities at the floor of the Stock Exchange between the brokers, to transact business of purchase/sales of shares on behalf of the clients and also to do business of arbitrage. He reiterated that as the UP Stock Exchange Association does not permit forward trading and the transactions are compulsorily settled either by taking delivery of shares or enabling the delivery of shares at net basis and the transactions are through clearing house just like brokers clearing house and accordingly all transactions are settled on net basis and all these transactions are part and parcel of one business only which cannot be segregated. Shri Garg further elaborated the total transaction on purchase of shares by the assessee were in respect of 9,95,100 equity shares for an aggregate value of Rs. 22,28,36,534/- and the sale consideration of these shares was Rs. 22,19,83,515/- and accordingly the appellant- assessee suffered a loss of Rs. 8,53,030/- and pages 96 to 99 of the paper book which gives date-wise transactions in respect of all the scripts reveal that in some transactions there was profit and in some there was a loss and overall there was a loss of Rs. 8,53,030/- In view of his submission, Shri Garg pleaded that the transactions carried on by the appellant- assessee are not of speculative nature and in the alternative, the transactions are otherwise covered in view of clause (c) of proviso to Section 54(5) of the Income Tax Act for which he placed reliance in 249 ITR 233 (Allahabad High Court) holding that transactions entered into by the brokers who are members of the stock exchange, Section 43(5)(c) is applicable. Therefore, unless the Department specifically proves that the transactions entered upon by the broker as a member of the stock exchange are not covered under Section 43(5) (c) onus lies on the Department to do so in the case of appellant- assessee; the Department has not proved that the provisions of Section 43(5) (c) are not applicable in the case of appellant- assessee. Therefore, the ld CIT(A) is not justified in upholding the conclusion of the Assessing Officer that the transaction resulting in a loss of Rs. 8,53,030/- is a speculative loss."
The Tribunal held that the allegation that transactions were settled without actual delivery was not fully established by the Revenue. It was held that if the system provides settlement at net basis in respect of jobbing and the appellant- assessee had been found paying turnover fee on such transactions ever since 1991-92 the assessee's entire business was of non-speculative nature. The Tribunal also placed reliance on a Division Bench judgment of this Court reported in 249 ITR 233 Commissioner of Income-Tax Vs. Shri Sharwan Kumar Agrawal, in which judgment, this Court held that the assessee who was a share broker was entitled for the exception covered by proviso (c) to Section 43(5). Following was held by the Tribunal in paragraph 7:
"7. The Tribunal found dial the assessee was entitled to the exception covered by the proviso, Clause (c) to Subsection (5) of Section 43 of the Income Tax Act. The onus of proof was on the Department to establish that such exception was not applicable. It has placed reliance upon the decision of the Supreme Court in CIT v. Ramakrishna Deo [1959]35ITR312(SC).It further found that no material was collected al the appellate stage to show that the condition was fulfilled. Learned counsel for the applicant has not shown that there was any material to show that the assessee was not entitled to the exception, referred to above. It may also be noted that the applicant has not sought any question to be referred in regard to proviso, Clause (c) to Sub-section (5) of Section 43 of the Income Tax Act. In view of the above, the application is rejected."
For answering the questions which have arisen in this appeal, two main issues have to be decided. Firstly as to whether the business carried out by the assessee which consist of various transactions of sale and purchase of shares was a speculative transaction and secondly as to whether the assessee is entitled for the benefit of proviso (C) to sub-section (5) of Section 43 of the Act.
The facts as emerged from statements of facts and the facts noted in the orders of the Assessing Officer,Commissioner (Appeals) and Tribunal, there is no dispute that assessee had claimed loss of Rs. 8,53,030/- on account of non delivery based transactions. The Assessing Officer has noted the above stand of the assessee in its order in following words:
"In the reply dated 21/11/2000 Sales & purchases have been given. From this reply it is clear that the assessee has earned a profit of Rs. 508977.50 on account of delivery based share transactions and a loss of Rs. 8,53,030/- on account of non-delivery based transactions which were shown as sales purchases respectively in the trading account."
Section 43 (5) defines "speculative transaction" as a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips. Thus, transaction in shares which is periodically or ultimately settled by actual delivery or transfer of the commodity or scrips is not a speculative transaction. Assessee's own case before the Assessing Officer was that he suffered loss of Rs. 8,53,030/- on account of non delivery based share transaction.
The apex Court had occasion to consider Explanation 2 to Section 24(1) of Indian Income Tax Act, 1922 which was parimateria to Section 43(5) of the Act in 100 ITR 715 Davenport & Co. P. Ltd. Vs. Commissioner of Income-Tax, west Bengal, II. Explanation 2 to Section 24(1) was to the following effect:
"Where any assessee sustains a loss of profits or gains in any year under any of the heads mentioned in section 6, he shall be entitled to have the amount of the loss set off against his income, profits or gains under any other head in that year.
Provided that in computing the profits and gains charge able under the head 'profits and gains of business, profession or vocation', any loss sustained in speculative transactions which are in the nature of a business shall not be taken into account except to the extent of the amount of profits and gains, if any, in any other business consisting of speculative transactions:
Explanation 1: Where the speculative transactions carried on are of such a nature as to constitute a business, the business shall be deemed to be distinct and separate from any other business.
Explanation 2: A speculative transaction means a transaction in which a contract for purchase and sale of any commodity including stocks and shares is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips"
In the aforesaid case, transaction carried out by the assessee involved transfer of delivery notes and not actual delivery of the goods. Assessee suffered a loss and claimed adjustment of loss in the computation of its income. The Assessing Officer held that the transaction was speculative transaction and could be set off only against speculation profits in future. The Appellate Assistant Commissioner held that transactions were not speculative. The Tribunal restored the order of the Income Tax Officer. The question was referred to the High Court "Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the transactions described above entered into by the assessee were speculative transactions within the meaning of explanation 2 to section 24( 1)?" In the above case, it was held that the words actual delivery means real as opposed to notional delivery. Following was laid down at page 721:
"Explanation 2 defines a speculative transaction as a transaction in which a contract for purchase and sale of any commodity is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity. The words actual delivery in explanation 2 means real as opposed to notional delivery. For income tax purposes speculative transaction means what the definition of that expression in explanation 2 says. Whether a transaction is speculative in the general sense or under the Contract Act is not relevant for the purpose of this explanation. The definition of "delivery" in sec. 2(2) of the Sale of Goods Act which has been held to include both actual and constructive or symbolical delivery has no bearing on the definition of speculative transaction in the explanation. A transaction which is otherwise speculative would not be a speculative transaction within the meaning of explanation 2 if actual delivery of the commodity or the scrips has taken place; on the other hand, a transaction which is not otherwise speculative in nature may yet be speculative according to explanation 2 if there is no actual delivery of the commodity or the scrips. The explanation does not invalidate speculative according to explanation 2 if there is no actual delivery meaning to that expressing for purposes of income-tax only."
Rajasthan High Court in 255 ITR 329 Commissioner of Income-Tax Vs. Mangal Chand, explaining Section 43(5)of the Act, laid down following at page 334:
"A perusal of aforesaid provisions goes to show that apart from the question falling in the proviso, settlement of a transaction of sale and purchase otherwise than by actual delivery of the commodity, including stock and shares in respect of any transaction is essence of determining whether the transaction is to be termed as speculative transaction or non- speculative transaction.
The law has been well settled by judicial pronouncement that actual delivery for the purpose of Sub-section 5 of Section 13 means actual delivery as opposed to notional delivery. The definition of delivery in Section 2(2) of the Sale of Goods Act which has been held to include both actual and constructive and symbolical delivery has no bearing on the definition of speculative transaction in the Explanation."
The Tribunal in paragraph 5 had observed that the allegation that the transactions were settled without actual delivery is not fully established by the Revenue. There being specific case of the assessee noted before the Assessing Officer that loss of Rs. 8,53,030/- was suffered on account of non delivery base transaction, the above observation of the Tribunal cannot be approved.
Now we proceed to consider the second issue i.e. as to whether the assessee was entitled to the benefit of proviso (c) to Section 43(5). The assessee has specifically claimed the benefit of proviso (c) to Section 43(5) of the Act stating that transaction of sale and purchase of shares was a part of jobbing. Appellant claimed that he had been paying turnover fee on such transaction to SEBI, thus, his transactions were fully covered by jobbing as contemplated under proviso (c) to Section 43(5) of the Act. The assessee has claimed that he has been carrying on sale and purchase of shares on behalf of different parties as well as on his behalf. The Tribunal in paragraph 3 of the judgment has noted in detail the tax audit report, the consolidated trading profit and loss account and details of the transactions appearing on paper book. The Tribunal has returned finding in paragraph 5 that Assessing Officer has not pointed out any discrepancy and the bonafide of the transactions has also not been doubted. There is thus, no dispute that losses were suffered on account of various transactions relating to sale and purchase of shares, the details of which were filed in the paper book. Assessee has categorically claimed that those transactions are fully covered by the word "jobbing" as contemplated in proviso (c) to Section 43(5) of the Act. Word "jobbing" has been defined in Law Lexicon P. Ramanatha Aiyar in following words:
"The practice of a middleman or stock jobber [S. 43(5) (c), Income-tax Act]."
The word "jobber" has been defined in Black's Law dictionary 9th Edition in following words:
"1. One who buys from a manufacturer and sells to a retailer; a wholesaler or middleman. 2. A middleman in the exchange of securities among brokers.- Also termed stockjobber; stock-jobber. 3. one who works by the job; a contractor."
We have already observed that purchase or sale of shares periodical or ultimately settled otherwise than by the actual delivery is a speculative transaction as provided under section 43(5). The assessee's categorical case is that losses were suffered on account of non-delivery transactions. Whether the assessee is still entitled to protection under proviso (c) to sub-section (5) of Section 43, which transactions are non delivery transactions and what is the scope of the proviso in context of speculative transaction have to be examined.
Certain principles of statutory interpretation in context of the proviso has to be looked into for answering the issues. Justice G.P. Singh in 'Principles of Statutory Interpretation' 12th Edition, while explaining the principles for interpreting a proviso, laid down following:
"The normal function of a proviso is to except something out of the enactment or to qualify something enacted therein which but for the proviso would be within the purview of the enactment. As stated by LUSH, J.: " when one finds a proviso to a section the natural presumption is that, but for the proviso, the enacting part of the section would have included the subject matter of the proviso." In the words of LORD MACMILLAN: " The proper function of a proviso is to except and to deal with a case which would otherwise fall within the general language of the main enactment and its effect is confined to that case." The proviso may, as LORD MACNAGHTEN laid down, be "a qualification of the preceding enactment which is expressed in terms too general to be quite accurate." The general rule has been stated by HIDAYATULLAH, J., in the following words " As a general rule, a proviso is added to an enactment to qualify or create an exception to what is in the enactment, and ordinarily, a proviso is not interpreted as stating general rule." And in the words of KAPUR,J. "The proper function of a proviso is that it qualifies the generality of the main enactment, by providing an exception and taking out as it were, from the main enactment, a portion which, but for the proviso would fall within the main enactment. Ordinarily it is foreign to the proper function of a proviso to read it as providing something by way of an addendum or dealing with a subject which is foreign to the main enactment." Further, a proviso is not normally construed as nullifying the enactment or as taking away completely a right conferred by the enactment. As a consequence of the aforesaid function of a true proviso certain rules follow.
(b) Not construed as excluding or adding something by implication.
Except as to cases dealt with by it, a proviso has no repercussion on the interpretation of the enacting portion of the section so as to exclude something by implication which is embraced by clear words in the enactment. Further, as stated by Lord Watson in an oft-quoted passage: "If the language of the enacting part of the statute does not contain the provisions which are said to occur in it, you cannot derive these provisions by implication from a proviso. So, when on a fair construction the principle provision is clear, a proviso cannot expand or limit it.
The Madras District Municipalities Act, 1920 empowered a municipality to levy property tax on all lands and buildings at such percentage of the annual value as may be fixed by the municipal council. The Act by Section 82(2) defined annual value of lands and buildings in terms: 'shall be deemed to be the gross annual rent at which they may be reasonably expected to let from month to month or year to year-'. A proviso appended to Section 82(2) provided that in case of certain classes of buildings the annual value of such premises was deemed to be 6 per cent of their capital value. Certain vacant land belonging to a Railway Company were assessed to property tax by the Bezewada Municipality and the method adopted in order to arrive at the annual value was first to ascertain their capital value and to fix 6 per cent of the same as annual value. The tax was levied at a certain percentage of the annual value so calculated. The contention before the Privy Council was that the proviso appended to section 82(2) indicated that capital value as basis for ascertaining annual value could be used only in case of specified classes of buildings in the proviso and that resort to this method was by necessary implication prohibited in every other case. It was not disputed that but for the proviso, section 82(2) would have permitted resort to any of the recognised methods of arriving at the rent which a hypothetical tenant might reasonably be expected to pay for the lands in question, including the method of taking a percentage of capital value. Rejecting the contention LORD MACMILAN observed: "The proviso does not say that the method of arriving at annual value by taking a percentage of capital value is to be utilised only in the case of the classes of buildings to which the proviso applies. It leaves the generality of the substantive enactment in the sub-section unqualified except in so far as concerns the particular subjects to which the proviso relates. Where, as in the present case, the language of the main enactment is clear and unambiguous, a proviso can have no repercussion on the interpretation of the main enactment, so as to exclude from it by implication what clearly falls within its express terms."
The apex Court had occasion to consider the principles of statutory interpretation in (2004) 1 SCC 574 Haryana State Cooperative Land Development Bank Ltd. Vs. Haryana State Cooperative Land Development Banks Employees Union and Another, in context of Sections 3 and 10 of the Payment of Bonus Act, 1965. Section 3 of the said Act provided as follows:
"3. Establishment to include departments undertakings and branches:- Where an establishment consists of different departments or undertakings or has branches, whether situated in the same place or in different places, all such departments or undertakings of branches shall be treated as parts of the same establishment for the purpose of computation of bonus under this Act:
Provided that where for any accounting year a separate balance sheet and profit and loss account are prepared and maintained in respondent of any such department or undertaking or branch then, such department or undertaking or branch shall be treated as a separate establishment for the purpose of compensation of bonus under this Act for that year, unless such department or undertaking or branch was immediately before the commencement of that account year treated as part of the establishment for the purpose of computation of Bonus"
The issue which fell for consideration before the apex Court was as to whether the employees working with primary agricultural cooperative Bank are entitled to bonus at the same rate at which it was paid to employees working in the Apex bank i.e. Haryana State Cooperative Land Development Bank Ltd. The claim of union was resisted by the primary bank on the ground that they are separate entities and have a distinct cooperative and corporate identity therefore, are not required to pay bonus at the same rate as the employees of the Apex Bank. The High Court allowed the writ petition against which the Apex bank went in appeal before the apex Court. In paragraphs 8 and 9, the apex Court laid down following :
"8. The proviso to Section 3 makes it clear that where for any accounting year, a separate Balance Sheet and Profit and Loss account are prepared and maintained in respect of any department or undertaking or branch, such department or undertaking or branch shall be treated as a separate establishment for the purpose of computation of bonus under the Act for that year, unless for the previous period such department or undertaking or branch was treated as a part of the establishment for the purpose of computation of bonus. Similarly, third proviso to Section 34 deals with modalities for working out entitlement for bonus.
9. The normal function of a proviso is to except something out of the enactment or to qualify something enacted therein which but for the proviso would be within the purview of the enactment. As was stated in Mullins v. Treasurer of Survey [1880 (5) QBD 170, (referred to in Shah Bhojraj Kuverji Oil Mills and Ginning Factory v. Subhash Chandra Yograj Sinha (AIR 1961 SC 1596) and Calcutta Tramways Co. Ltd. v. Corporation of Calcutta (AIR 1965 SC 1728); when one finds a proviso to a section the natural presumption is that, but for the proviso, the enacting part of the section would have included the subject matter of the proviso. The proper function of a proviso is to except and to deal with a case which would otherwise fall within the general language of the main enactment and its effect is confined to that case. It is a qualification of the preceding enactment which is expressed in terms too general to be quite accurate. As a general rule, a proviso is added to an enactment to qualify or create an exception to what is in the enactment and ordinarily, a proviso is not interpreted as stating a general rule. "If the language of the enacting part of the statute does not contain the provisions which are said to occur in it you cannot derive these provisions by implication from a proviso." Said Lord Watson in West Derby Union v. Metropolitan Life Assurance Co. (1897 AC 647)(HL). Normally, a proviso does not travel beyond the provision to which it is a proviso. It carves out an exception to the main provision to which it has been enacted as a proviso and to no other. (See A.N. Seh gal and Ors. v. Raje Ram Sheoram and Ors. (AIR 1991 SC 1406), Tribhovandas Haribhai Tamboli v. Gujarat Revenue Tribunal and Ors. (AIR 1991 SC 1538) and Kerala State Housing Board and Ors. v. Ramapriya Hotels (P)Ltd. and Ors. (1994 (5) SCC 672).
"This word (proviso) hath divers operations. Sometime it worketh a qualification or limitation; sometime a condition; and sometime a covenant" (Coke upon Littleton 18th Edition, 146) "If in a deed an earlier clause is followed by a later clause which destroys altogether the obligation created by the earlier clause, the later clause is to be rejected as repugnant, and the earlier clause prevails.... But if the later clause does not destroy but only qualifies the earlier, then the two are to be read together and effect is to be given to the intention of the parties as disclosed by the deed as a whole" (per Lord Wrenbury in Forbes v. Git [1922] 1 A. C. 256).
A statutory proviso "is something engrafted on a preceding enactment" (R. v. Taunton, St James, 9 B. & C. 836).
"The ordinary and proper function of a proviso coming after a general enactment is to limit that general enactment in certain instances" (per Lord Esher in Re Barker, 25 Q.B.D. 285)."
The apex Court held that proviso to section 3 of the Act has full application.
Thus, the proviso to Sub-section (5) of Section 43 takes out those transactions which are covered by the speculative transactions as defined in section 43(5). The transactions which are claimed by the assessee would not fall within the purview of the Section 43(5) as speculative transactions. The Tribunal has placed reliance on a Division Bench judgment of this Court in 249 ITR 233 Commissioner of Income Tax Vs. Shri Sharwan Kumar Agarwal. In the above case, the assessee a share broker filed his return. Assessing Officer found that assessee had at times settled the share transactions by corresponding deliveries and at times settled the contract without effecting the delivery. It was held that speculative loss could not be allowed to be set off since the transaction was speculative transaction within the meaning of Section 43(5). The order was affirmed in appeal. The Tribunal in appeal held that assessee was entitled to the exception covered by clause (c) of the proviso to Section 43(5). The Division Bench rejected the application of reference and made following observations at page 235:
" The Tribunal found dial the assessee was entitled to the exception covered by the proviso, Clause (c) to Subsection (5) of Section 43 of the Income Tax Act. The onus of proof was on the Department to establish that such exception was not applicable. It has placed reliance upon the decision of the Supreme Court in CIT v. Ramakrishna Deo [1959]35ITR312(SC) . It further found that no material was collected al the appellate stage to show that the condition was fulfilled. Learned counsel for the applicant has not shown that there was any material to show that the assessee was not entitled to the exception, referred to above. It may also be noted that the applicant has not sought any question to be referred in regard to proviso, Clause (c) to Sub-section (5) of Section 43 of the Income Tax Act.
In view of the above, the application is rejected."
Sri S.D. Singh, learned Counsel for the assessee pointed out that against the Division Bench judgment, the Department filed an appeal before the apex Court, which appeal was dismissed by following order:
"We agree with the High Court that no question of law was required to be referred albeit for reasons other than the reason expressed by the High Court. The appeal is accordingly dismissed."
Sri Shambhu Chopra, learned Counsel for the appellant submitted that the Division Bench judgment of this Court in Commissioner of Income Tax Vs. Shri Sharwan Kumar Agarwal (supra) does not contain any ratio and can be said to be confined to the facts of that case and no question was sought to be referred regarding the proviso (c) to Section 43(5). He further submitted that onus of proof was wrongly put on the Department in the said judgment whereas it was for the assessee to prove his case. Although the Tribunal relying on the judgment of this Court in Sharwan Kumar Agarwal's (supra) held that case is covered by the said judgment but we do not wish to rest our judgment on the above judgment.
Sri Shambhu Chopra, learned Counsel for the Department has placed reliance on judgment of the apex Court in 35 ITR 312 Commissioner of Income-Tax Bihar and Orissa Vs. Ramakrishna Deo. In the above case, the apex Court laid down that a person seeking exemption has to prove that the income sought to be taxed was the agricultural income. Following was laid down at page 317:
"The decisions of Indian Courts have likewise ruled and quite rightly that it is for those who seek exemption under s. 4 of the Act to establish it. Vide Amritsar Produce Exchange Ltd. In re (3) and Sm. Charusila Dassi and others, In re (4). So far as exemption under s. 4(3) (viii) is concerned, the matter is concluded by a decision of this Court given subsequent to the decision now under appeal. In Commissioner of Income-tax v. Venkataswamy Naidu (5), this Court held, reversing the judgment of the High Court of Madras, that it was for the assessee to prove that the income sought to be taxed was agricultural income exempt from taxation under s. 4(3)(viii). Bhacgwati, J., delivering the' judgment of the Court observed:
" … the High Court erroneously framed the question in the negative form and placed the burden on the Income-tax Authorities of proving that the income from the sale of milk received by the assessee during the accounting year was not agricultural income. In order to claim an exemption from payment of income tax in respect of what the assessee considered agricultural income, the assessee had to put before the Income-tax Authorities proper materials which would enable them to come to a conclusion that the income which was sought to be assessed was agricultural income. It was not for the Income-tax Authorities to prove that it was not agricultural income. It was this wrong approach to the question which vitiated the judgment of the High Court and led it to an erroneous conclusion."
Another judgment relied by Sri Chopra is 209 ITR 933 Commissioner of Income-Tax Vs. Aditya Mills Ltd., in which case Section 43(5) of the Act fell for consideration. Following was laid down in the said judgment at page 943:
"From the facts as mentioned above, it would be evident that the assessee performed part of the contract and the dispute remained for the remaining part for which the supplies were not made. Section 43(5) refers to a speculative transaction which means, a transaction in which a contract for the purchase or sale of any commodity is periodically settled otherwise than by the actual delivery or transfer of the commodity. The said section is not restricted to a contract where the settlement is only in respect of the entire contract. The word "periodically" makes it clear that it could apply even to a part of a contract. Suppose, in a contract the supplies were to be made in equal instalments for 6 months and the supplies have been made for 5 months only, and the rest of the contract was settled without actual delivery, in that case, it will be still a speculative transaction. The argument thus, that where a part of a contract is performed by actual delivery of the goods and part of the contract is settled otherwise than by actual delivery of the goods, the provisions of section 43(5) will not be attracted is not a correct interpretation of the provisions of section 43(5). The provisions of section 43(5) can be made applicable when there is a delivery of part of the goods and the part of the contract is settled otherwise than by actual delivery of the goods. That part where the settlement of the contract is without actual delivery of goods, it will fall under section 43(5)."
There cannot be any dispute to the proposition laid down by the Rajasthan High Court in the above case that that part where the settlement of the contract is without actual delivery of goods, it will fall under section 43(5). In the present case, the assessee is claiming benefit of proviso (c) to Section 43(5).
The judgment of Delhi High Court reported in (2004) 91 TTJ Delhi 57, Assistant Commissioner of Income Tax Vs. Subhash Chand Shorewala supports the assessee's contention. In paragraph 7 of the judgment, the facts of the case were noted which is to the following effect:
"7. The brief facts are that the assessed is a member of the Delhi Stock Exchange engaged, inter alia, in the business as share broker, entering into transactions for and on behalf of its clients and has also done some trading on its own behalf. In the course of assessment proceedings, the assessing officer noticed that the assessed has received from the market a sum of Rs. 87,06,621 and as against this, the assessed has paid to various clients a net amount of Rs. 90,48,581, thereby suffering a loss of Rs. 3,42,060 on such transactions. The assessed was asked to explain as to why the loss suffered by the assessed should not be treated as a speculative loss. The assessed explained by means of written submissions before the assessing officer that on some occasions, the loss on the share transaction was consequent to a breach of contract by the client and the same could not be said to be speculative loss. Secondly, it was also explained that in certain situations, a broker also acts as a jobber and the jobbing transactions are inherent in the business of share broking and the same is also not to be viewed as a speculative loss. The assessed also worked out the details of certain transactions, which resulted into excess of debit in the account of difference even in case where the actual delivery of shares took place. The assessed, in the said manner, contended that the said loss was not a speculative loss. The assessing officer, however, treated an amount of Rs. 3,42,060 as a net loss on account of speculation. Aggrieved, the matter was carried in appeal before the Commissioner (Appeals)."
In paragraphs 13 and 14, following was held:
"13. The two facets of the issue before us relate to : (a) loss as a result of the breach of contract by the clients; and (b) loss suffered on account of jobbing transaction. The order of the Commissioner (Appeals) on this issue is quite illustrative, a portion of which we reproduce as under :
'I have considered the arguments of the learned counsel.
As regards the loss on account of breach of contract, the Hon'ble Delhi High Court in the case of Bhagwan Dass Rameshwar Dayal (supra) held that one can visualise a number of situations in which there may be no delivery for various reasons, i.e., because of failure of the party on account of insolvency or frustration, e.g., banning of business or mere breach, i.e., to say non-supply. All these cannot be classified as speculative within the meaning of section 43(5). What the section visualises is a contract which is settled by means of a cross contract. If the contract is settled for some other reasons by payment of damages or even without payment of damages it may or may not be speculation transaction depending upon the circumstances of the case. The Hon'ble court further held that if a contract is broken, i.e., for any reasons one party is unable to give delivery order the other party is unable to take delivery, it is a case of breach of contract. A breach takes place on repudiation of contract or failure to perform it. When the obligation to supply or to take delivery comes to an end, it does not make the transaction speculative. The Hon'ble court clarified that if it was settled by mutual consent to avoid delivery then it would be speculative. But if it was settled because of inability of the assessed to supply or on account of the fact that it did not have necessary resources to give the, delivery then it would be a breach of contract and not the speculative transaction.
In view of the decision of the jurisdictional High Court, I hold that the loss suffered by the appellant on account of breach of contract falls outside the purview of speculative transaction. Accordingly, the assessing officer was not justified in treating the loss as speculative loss. He is directed to treat the loss as business loss.
Even if the arguments of the assessing officer are accepted that such loss suffered by the appellant was on account of self-trading, still the loss cannot be termed as speculation loss. In normal terminology, the share trading business on behalf of oneself is known as jobbing. Section 43(5) defines the word speculative transaction, but there are three exceptions to it. The proviso (c) to section 43(5) reads as under : '
'A contract entered into by a member of forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to hedge against loss which may arise in the ordinary course of his business as a member.'
This proviso makes it very clear that any profit or loss on account of jobbing will not be in the nature of speculation profit or speculation loss. Thus, even if it is accepted that the loss suffered by the appellant was on account of self-trading in view of proviso (c) to section 43(5) such loss cannot be treated as speculation loss. The assessing officer is directed to treat the loss as normal business loss. Accordingly, I hold that the loss of Rs. 3,01,785 is normal business loss and not the speculation loss.'
14. A perusal of the aforesaid leads to an inference that the legal aspect has been properly discussed and appreciated by the Commissioner (Appeals). Admittedly, the assessed, being in the business of broking, would be facing situations wherein some of the clients do not own up the transactions on anticipating losses. In such situations, the consequential loss incurred by the assessed to honour the commitments is to be viewed as an integral part of carrying on of assessee's business and is, therefore, not liable to be judged as a speculation loss. The decision of the jurisdictional High Court in the case of Bhagwan Das Rameshwar Dayal (supra) supports the stand of the assessed."
The Delhi High Court in the said judgment had held that in normal terminology, the share trading business on behalf of oneself is known as jobbing. The above judgment supports the assessee's case that a transaction carried on by the assessee for sale and purchase of the shares was fully covered by the term 'jobbing' and assessee is entitled for the extension of the benefit of proviso (c) to Section 43(5) of the Act.
The Tribunal having returned finding that the details of each and every transaction were disclosed by the assessee which were part of the paper book. No discrepancy in any of the transactions can be pointed out by the Assessing Officer nor the bonafide of the transactions were doubted, the transaction thus carried out were part of the 'jobbing' within the meaning of proviso (c) to Section 43(5).
We are thus of the view that the order of the Tribunal allowing the appeal of the assessee is to be upheld although confined to the ground that the losses suffered by the assessee cannot be termed to be speculative loss by virtue of proviso (c) to Section 43(5). In view of the foregoing discussions, all the questions are answered in favour of the assessee and against the Revenue. The appeal is dismissed.
Amount received by liaison office over and above the expenses actually incurred is taxable
There cannot be any dispute with the legal contention of the learned counsel that the reimbursement of the expenses can never be income. Hon'ble Jurisdictional High Court has also held that the reimbursement of expenses can under no circumstances be regarded as a revenue receipt. However, in this case, as a matter of fact, what the Assessing Officer taxed is the amount received by the assessee over and above the reimbursement of the expenses. In fact, from the amount received from the head office, the Assessing Officer had deducted the expenses incurred by the assessee and it is only the excess amount received by the assessee which has been treated as income. That in the above mentioned case, Hon'ble Jurisdictional High Court has upheld the order of the ITAT because in that case, the amount received by the assessee from the foreign company was equal to the expenses incurred. Thus, the actual expenditure incurred by the assessee was reimbursement by the foreign company and no sum in excess of the expenses incurred was reimbursed. But, the facts are altogether different in the case of the assessee. In the case under appeal before us, in all the three years, the liaison office received more amount than the expenses actually incurred by the liaison office. The Assessing Officer himself has not treated reimbursement of expenses as income. The amount received by liaison office over and above the expenses actually incurred, year after year, was treated as income. To that extent, the above decision of Hon'ble Jurisdictional High Court would in fact support the case of the Revenue rather than the assessee.
Liaison Office of a foreign company is taxable when such foreign company is registered with ROC.
INCOME TAX APPELLATE TRIBUNAL, DELHI
BEFORE SHRI G.D.AGRAWAL, VICE PRESIDENT AND
SHRI I.C. SUDHIR, JUDICIAL MEMBER
ITA Nos .2015/Del/2008, 2435/Del/2010 & 5026/Del/2011
Assessment Years – 2003–2004, 2004–2005, 2005-2006
M/s Brown & Sharpe INC
Vs.
Assistant /Deputy Commissioner of Income Tax
Dated : 17.01.2014
ORDER
PER G.D.AGRAWAL, VP:
These appeals by the assessee are directed against separate orders of learned CIT(A), Ghaziabad dated 05.02.2007, 16.03.2010 and 16.08.2011 for the AY 2003-04 to 2005-06 respectively.
2. In all these appeals, common grounds have been raised. Therefore, we shall discuss in detail the grounds as well as facts for AY 2003-04.
3. In this year, the assessee has raised as many as 20 grounds. However, they are all against the determination of income at Rs. 24,86,703/- as against the declared loss of Rs. 38,86,254/-.
4. At the time of hearing before us, it is stated by the learned counsel that the assessee i.e. M/s Brown & Sharpe INC is incorporated in USA and it is 100% subsidiary of Hexagon AB (Publ), Sweden. That during the accounting year, the assessee started a liaison office in India for which permission of the RBI was taken. That the liaison office was established only as a communication channel between the assessee and its customers or prospective customers in India. That as per the condition put forth by the RBI while permitting the assessee to establish a liaison office in India, the liaison office was debarred from rendering any consultancy or any other services directly or indirectly. That the RBI had never alleged that the assessee has violated the conditions put forth by RBI while granting permission to establish a liaison office in India. He stated that the liaison office never rendered any services for procurement of order or sale of the product of the assessee company. Therefore, there was no income earned in India. He further stated that the liaison office is only receiving the reimbursement of expenses incurred from the head office. He, therefore, submitted that merely because the assessee company has opened the liaison office in India, it is not liable to be taxed. In this regard, he relied upon the following decisions:-
(i) Angel Garment Ltd. – [2006] 287 ITR 341 (AAR).
(ii) U.A.E. Exchange Centre Ltd. Vs. UOI & Another – [2009] 313 ITR 94 (Delhi).
(iii) K.T. Corporation – [2009] 181 Taxman 94 (AAR-New Delhi).
(iv) Sojitz Corporation Vs. Assistant Director of Income Tax
(International Taxation) – [2008] 117 TT] (Kol) 792.
(v) Mondial Orient Ltd. Vs. ACIT (International Taxation) – [2010] 129 TT] (Bang) 560.
5. The learned counsel further submitted that the reimbursement of expenses cannot be said to be income of the assessee. In support of this contention, he relied upon the decision of Hon'ble Jurisdictional High Court in the case of CIT Vs. Industrial Engineering Projects Pvt. Ltd. – [1993] 202 ITR 1014.
6. Learned DR, on the other hand, relied upon the order of the Assessing Officer as well as learned CIT(A) and by referring to pages 2 to 4 of the assessment order, he pointed out that the Assessing Officer had examined in detail whether the liaison office has rendered any services for effecting the sales of the assessee's product or not and on examination of the service agreement of the employees, he found that the employees were offered the sales incentive plan by setting the performance target for which they were allowed to receive up to 25% of the annual remuneration as incentive. He also stated that the liaison office had employed not only the Chief Representative Officer but also the Technical Support Manager. The Assessing Officer had examined the Chief Representative Officer i.e. Shri Anoop Prasad Verma and his statement was recorded. From his statement, it was evidently clear that the liaison office was promoting the brand products of the assessee and the performance of the employees was being judged by the number of orders that the company received. He, therefore, submitted that the liaison office was not simply a communication channel and as claimed by the assessee but it was rendering the services for promotion and sales of the products of the assessee company. That apart from getting permission from RBI for opening the liaison office, the assessee company is registered with the Registrar of Companies for establishment of place of business in India. He referred to the certificate issued by the Registrar of Companies, NCT of Delhi and Haryana in this regard. He also stated that the assessee itself had filed the return of income not only for this year but also for all subsequent years claiming the loss under the head 'income from business or profession'.
7. We have carefully considered the submissions of both the sides and perused the material placed before us. The learned counsel for the assessee has argued at length to buttress his point that the liaison office of the assessee did not render any services in India so as to saddle with the liability of income tax in India and in support of which he relied upon the various decisions. Therefore, before adverting to the facts of the assessee's case, it would be important to see the ratio laid down in the various decisions relied upon by the learned counsel.
8. In the case of U.A.E. Exchange Centre Ltd. (supra), Hon'ble Jurisdictional High Court held as under:-
"Under article 5(2)(c), amongst others, permanent establishment includes an office. However, article 5(3) which opens with a non obstante clause, is illustrative of instances where under the DTAA various activities have been deemed as ones which would not fall within the ambit of the expression "permanent establishment". One such exclusionary clause is found in article 5(3)(e) which is : maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character. The only activity of the petitioner's liaison offices in India was to download information which was contained in the main servers located in the UAE based on which cheques were drawn on banks in India whereupon the cheques were couriered or dispatched to the beneficiaries in India, keeping in mind the instructions ofthe NRI remitter. Such an activity could not be anything but auxiliary in character. The instant activity was in "aid" or "support" of the main activity. It fell within the exclusionary clause."
9. In the case of Angel Garment Ltd. (supra), the Authority for Advance Rulings held as under:-
"The applicant, a non-resident company incorporated in Hong Kong, proposed to set up a liaison office in India for collecting information and samples of garments and textiles from manufacturers, traders and exporters and passing on the information to the head office in Hong Kong and co-ordinating and acting as the channel of communication between the applicant and Indian exporters and follow up with Indian exporters for timely export of goods. The entire expenses of the proposed liaison office were to be met through remittances from the applicant's head office in Hong Kong. On these facts the applicant applied to the Authority for an advance ruling on the question whether the applicant could be said to have received income taxable in India. On the facts stated the Authority ruled that a plain reading of Explanation 1(b) to section 9(1)(i) of the Income-tax Act, 1961, indicating that no income would be deemed to accrue or arise to a non¬resident through or from operations confined to the purchase of goods in India for the purpose of export. The proposed activities of the liaison office of the applicant in India were to be confined to purchase of goods for export. It was immaterial whether the export ofgoods was to Hong Kong or to any other country. The applicant company could not, therefore, be said to earn income from the proposed activities under the provisions of the Income-tax Act."
10. In the case of K.T. Corporation (supra), the Authority for Advance Rulings held as under:-
"The applicant, a Korean company, is telecommunication carrier/reseller. It has opened a Liaison Office ('LO') in India with the permission of the Reserve Bank of India (RBI) to act as a communication channel between the head office of the applicant and the Indian companies within the parameters listed out by the RBI. Pursuant to the opening of the LO, the applicant entered into an agreement with Vodafone Essar South Ltd. (VESL), an Indian company which is also a telecommunication carrier/reseller, to provide certain services to each other. In the above backdrop, the applicant has sought advance ruling on question as to whether its LO in India constitutes a permanent establishment in terms of the aforesaid agreement. It contends that LO in India only carries out preparatory or auxiliary activities, such as: (i) holding of seminars, conferences; (ii) receiving trade enquiries from the customers; (iii) advertising about the technology being used by the applicant in providing the wired/wireless services and to answer the queries of the customers; (iv) collecting feedback from the prospective customers/consumers, trade organizations, etc., and it has neither played any role in pre-bid survey, etc., before entering into the agreement with VESL nor has involved itself in the technical analysis of any project, and, therefore, it cannot be considered to be a PE in terms of clauses (d), (e) and (f) of Para 4 of article 5 of the Treaty between India and Korea."
11. In the case of Sojitz Corporation (supra), Kolkata Bench of ITAT held as under:-
"Liaison offices of the assessee in India whose activities are restricted to collecting and sending of information from India to Japan fall within the exclusionary cl. (e) of art. 5 of the DTAAbetween India and Japan and, therefore, the said liaison offices cannot be treated as PE of the assessee in India, and therefore the action of authorities below in estimating the income of the assessee on the basis of having PE was not sustainable."
12. Let us now see the facts of the assessee's case so as to arrive at the conclusion whether any of the above decisions would be applicable to the case of the assessee. In the assessment order, at page 2, the Assessing Officer has recorded that the liaison office of the assessee has employed Chief Representative Officer Shri Anoop Prasad Verma and Technical Support Manager Shri Rajeev K. Datar. The employees, besides fixed remuneration, were offered sales incentive plan by fixing the performance target for which they were allowed to receive up to 25% of the annual remuneration as sales incentive. Though during the assessment proceedings Shri Anoop Prasad Verma i.e. Chief Representative officer of the liaison office had stated that sales incentive plan was not actually acted upon but, nevertheless, it is not in dispute that in the employment contract between the assessee and the employees, there was a sales incentive plan and employees were to be provided with the remuneration based upon the achievement of the target for the sales of the goods of the assessee company in India. The statement of Shri Anoop Prasad Verma was also recorded by the Assessing Officer and, in reply to question 14, he stated "The employee ofthe liaison office was assigned the task to promote Brown & Sharpe Brand's products and to understand the Indian market. The performance judged by number of direct orders that the company received as well as extend the awareness of the Brown & Sharpe Company in India." The above factual finding recorded by the Assessing Officer could not be controverted by the assessee either before the CIT(A) or before us. Further, the assessee company registered itself with the Registrar of Companies for carrying on the business in India and the certificate issued by the Registrar of Companies reads as under:-
"I hereby certify that Form No.44 dated 13.9.2002 filed U/s 592 of the Companies Act, 1956 notifying establishment of place of business in India with effect from 31.7.2002 by M/s Brown & Sharpe INC. Company originally incorporated in U.S.A. has been registered.
Given under my hand at New Delhi this day of 14th Nov. Two Thousand Two."
13. The assessee itself filed the return of income on 28.11.2003 declaring net loss of ~38,86,255/-. The computation of income is at page 26 of the paper book from which it is evident that the loss is computed under the head 'profits & gains of business & profession". In the computation, the assessee added back the depreciation which was debited to the books of account as per Companies Act and claimed the depreciation as per the Income-tax Act. Thus, the assessee itself took a stand that it derives income from business or profession in India. On these facts, none of the decisions relied upon by the learned counsel would be applicable because in the case of U.A.E. Exchange Centre Ltd. (supra), the liaison office of the assessee in India was only to download information which was contained in the main server located in UAE based upon which the cheques were drawn in India. On these facts, Hon'ble Jurisdictional High Court held that such an activity was only auxiliary in character. In the case of Angel Garment Ltd. (supra), the liaison office was only collecting information and sample of garments and textile from manufacturer and traders and passing on the information to the head office in Hong Kong and coordinating as channel of communication between the assessee and the customers. On these facts, the Authority for Advance Rulings held that the applicant company could not be said to have earned income from the proposed activities under the provisions of the Income-tax Act. In the case of K.T. Corporation (supra), the liaison office in India carried out only preparatory or auxiliary activities such as holding seminars, conferences, receiving trade enquiries, collecting feedbacks, advertising about the technology being used by the assessee etc. On these facts, the Authority for Advance Rulings held that the liaison office cannot be termed as PE in terms of treaty between India and Korea. In the case of Sojitz Corporation (supra), the liaison office of the assessee in India was only collecting and sending the information from India to Japan. On these facts, the ITAT Kolkata Bench held that the authorities below were not justified in estimating the income of the assessee on the ground that the assessee was having a PE in India. But, the facts in the case of the assessee are altogether different. The assessee company is registered with the Registrar of Companies in India for carrying on the business. The liaison office, apart from having Chief Representative Officer and other staff, is also having a Technical Expert. The employees of the assessee company are promoting the sales of the goods of the assessee company as per service conditions. There is a sales incentive plan by which employees are provided the incentive for achieving the sales target and the performance of the employees is being judged by the orders secured by the assessee company. All these activities clearly establish that the liaison office of the assessee was promoting the sales of the assessee company in India and, therefore, the Assessing Officer was fully justified in holding that the income attributable to liaison office is taxable in India.
14. Now, coming to the determination of income by the Assessing Officer, the learned counsel for the assessee has vehemently contended that the liaison office has only received the reimbursement of the expenses and, under no circumstances, the reimbursement of expenses can be termed as the income of the assessee. In support of this contention, the learned counsel relied upon the decision of Hon'ble Jurisdictional High Court in the case of Industrial Engineering Projects Pvt. Ltd. (supra), wherein their Lordships held as under:-
"Held, (i) that reimbursement of expenses can, under no circumstances, be regarded as a revenue receipt and in the present case the Tribunal had found that the assessee received no sums in excess of expenses incurred. The Tribunal was, therefore, justified in deleting the disallowance under section 37(2A) of the Income-tax Act, 1961, and rule 6D ofthe Income-tax Rules, 1962."
(emphasis by underlining supplied by us)
15. There cannot be any dispute with the legal contention of the learned counsel that the reimbursement of the expenses can never be income. Hon'ble Jurisdictional High Court has also held that the reimbursement of expenses can under no circumstances be regarded as a revenue receipt. However, in this case, as a matter of fact, what the Assessing Officer taxed is the amount received by the assessee over and above the reimbursement of the expenses. In fact, from the amount received from the head office, the Assessing Officer had deducted the expenses incurred by the assessee and it is only the excess amount received by the assessee which has been treated as income. That in the above mentioned case, Hon'ble Jurisdictional High Court has upheld the order of the ITAT because in that case, the amount received by the assessee from the foreign company was equal to the expenses incurred. Thus, the actual expenditure incurred by the assessee was reimbursement by the foreign company and no sum in excess of the expenses incurred was reimbursed. But, the facts are altogether different in the case of the assessee. In the case under appeal before us, in all the three years, the liaison office received more amount than the expenses actually incurred by the liaison office. The Assessing Officer himself has not treated reimbursement of expenses as income. The amount received by liaison office over and above the expenses actually incurred, year after year, was treated as income. To that extent, the above decision of Hon'ble Jurisdictional High Court would in fact support the case of the Revenue rather than the assessee.
16. In view of the above, we do not find any justification to interfere with the orders of authorities below. The same are sustained.
17. In the result, all the appeals of the assessee are dismissed. Decision pronounced in the open Court on 17th January, 2014.
Internal Audit Manual
CA Sameer Thakur
INTRODUCTION :-1. DEFINITION OF INTERNAL AUDIT :- Internal auditing is an independent objective assurance and consulting activity designed to add value and improve organizational operations. It helps an organisation to accomplish its objectives by bringing a systematic approach to evaluate and improve the risk management, control & compliance process. (Institute of internal auditors Florida).
2. INTERNAL AUDITING STANDARDS :-The profession is having following 2 types of standards which internal audit entity and all internal auditors must follow.
a) ATTRIBUTE STANDARD.
b) PERFORMANCE STANDARD.
a) Attribute standard :- (From 1000 to 1340) :- These relate to traits of entities and individuals providing internal audit services. The following is the brief of such standards :-
| Sr. No | Standard Name & Type | Contents |
| 1. | Attribute Standard no:- 1000 | Purpose Authority & Responsibility of Internal Audit activity. |
| 2. | Standard no:- 1110 | Organizational Independence |
| 3. | Standard no:- 1120 | Individual objectivity |
| 4. | Standard no: 1130 | Impairment to independence or objectivity. |
| 5. | Standard no:- 1210 | Proficiency of Internal auditors. |
| 6. | Standard no:- 1220 | Due professional care |
| 7. | Standard no :-1230 | Continuing Professional Development |
| 8. | Standard no:- 1300 | Quality Programme Assessments :- CAE should develop and maintain a quality assurance and improvement programme. |
| 9. | Standard no:- 1310 | Quality programme assessments :- IAA should adopt a process to monitor and assess the overall effectiveness of the Quality programme. |
| 10. | Standard no:- 1311 | Internal Assessments :- Periodic internal reviews of IAA is an on going process. |
| 11. | Standard no:- 1312 | External Assessments :- Quality assurance review of IAA activity needs to be done once in 5 years from an independent outside agency. |
| 11. | Standard no:- 1320 | Reporting on Quality programme :- CAE should communicate the results of external assessments to the Board. |
| 12. | Standard no:- 1330 | Use of words ,"Conducted in accordance with the standards" :- IAA needs to use such words while reporting. |
| 13. | Standard no:- 1340 | Disclosure of non – compliance :- CAE to disclose the non-compliance to senior management and the Board. |
b) PERFORMANCE STANDARDS :- (From 2000 – 2600) - These standards related to Internal audit activities and criteria for evaluation of performance. The following is the brief of such standards :-
| Sr. No | Standard Name & Type | Contents |
| 1. | 2000 – Performance Standard | Managing the Internal Audit activity |
| 2. | 2010 | Planning :- CAE to establish risk based plans to determine priorities. |
| 3. | 2020 | Communication & approval of planning from Board & senior management. |
| 4. | 2030 | Resource Management :- CAE to ensure suffice of resources available for IAA. |
| 5. | 2040 | Policies & Procedures :- CAE to establish policies & procedures for IAA. |
| 6. | 2050 | Co ordination :- IAA to share information with Internal & External sources. |
| 7. | 2060 | Reporting to Board & Senior Management :- CAE to report periodically to Board & Senior management on IAA 's purpose, authority & responsibility. |
| 8. | 2100 | Nature of work :- To improve risk management control & Governance. |
| 9. | 2110 | Risk Management :- IAA should evaluate significant exposures to Risk. |
| 10 | 2120 | Control :- IAA should assist in maintaining effective control. |
| 11 | 2130 | Governance Process :-IAA should provide compliance of Governance process. |
| 12. | 2200 | Engagement planning :- IAA to develop a record plan for carrying out engagement activities. |
| 13. | 2201 | Planning considerations :- IAA to consider the risks, objectives & resources etc. |
| 14. | 2210 | Engagement objectives :- The objectives should address risk control & governance process. |
| 15. | 2220 | Engagement Objectives :-The objectives of IAA is to establish. |
| 16. | 2230 | Engagement resource allocation |
| 17. | 2240 | Engagement work programme |
| 18. | 2300 | Performing the engagement |
| 19. | 2310 | Identifying the Information to be used in carrying out engagement activity. |
| 20. | 2320 | Analysis & evaluation of the information. |
| 21. | 2330 | Recording information |
| 22. | 2340 | Engagement supervision |
| 23. | 2400 | Communication results |
| 24. | 2410 | Criteria for communication. |
| 25. | 2420 | Quality of communication |
| 26. | 2421 | Errors and omissions |
| 27. | 2430 | Engagement disclosure of non compliance with standards. |
| 28. | 2440 | Disseminating results. |
| 29. | 2500 | Monitoring Progress |
| 30. | 2600 | Management acceptance of risks :- The CAE & senior Management should report to Board for matters of residual risks. |
3. MAJOR TRAITS OF INTERNAL AUDIT ACTIVITY :-
3.1 INTEGRITY, OBJECTIVITY AND INDEPENDENCE :-
The auditor should be straightforward, honest and sincere in his approach to his professional work. He must be fair and must not allow prejudice or bias to override his objectivity. He should maintain an impartial attitude and both be and appear to be free of any interest which might be regarded, whatever its actual effect, as being incompatible with integrity and objectivity.
3.2 CONFIDENTIALITY :-
The auditor should respect the confidentiality of information acquired in the course of his work and should not disclose any such information to a third party without specific authority or unless there is a legal or professional duty to disclose.
3.3 SKILLS AND COMPETENCE :-
The audit should be performed and the report prepared with due professional care by persons who have adequate training, experience and competence in auditing.
The auditor requires specialised skills and competence which are acquired through a combination of general education, technical knowledge obtained through study and formal courses concluded by a qualifying examination recognised for this purpose and practical experience under proper supervision. In addition, the auditor requires a continuing awareness of developments including pronouncements of IIA Florida (Institute of internal auditors Florida) on auditing matters, and relevant regulations and statutory requirements.
3.4 WORK PERFORMED BY OTHERS :-
When the auditor delegates work to assistants or uses work performed by other auditors and experts, he will continue to be responsible for forming and expressing his opinion on the financial information. However, he will be entitled to rely on work performed by others, provided he exercises adequate skill and care and is not aware of any reason to believe that he should not have so relied.
The auditor should carefully direct, supervise and review work delegated to assistants. The auditor should obtain reasonable assurance that work performed by other auditors or experts is adequate for his purpose.
3.4 AUDIT PROCEDURES :-
The auditor, in forming his opinion on financial information, needs reasonable assurance that transactions are properly authorised and recorded in the accounting records and that transactions have not been omitted. Internal controls, even if fairly simple, may contribute to the reasonable assurance the auditor seeks. The auditor's objective in studying and evaluating internal controls is to establish the reliance he can place thereon in determining the nature, timing and extent of his substantive auditing procedures.
The auditor obtains an understanding of the accounting system to identify points in the processing of transactions and handling of assets where errors or fraud may occur. It is at these points that the auditor must be satisfied that internal control procedures applied by the enterprise are effective for his purposes.
Compliance procedures are tests designed to obtain reasonable assurance that those internal controls on which audit reliance is to be placed are in effect. These procedures include tests requiring inspection of documents supporting transactions to gain evidence that controls have operated properly (for example, verifying that the document has been authorised) and enquiries about the observation of controls which leave no audit trail (for example, determining who actually performs each function not merely who is supposed to perform it).
Substantive procedures are designed to obtain evidence as to the completeness, accuracy and validity of the data produced by the accounting system. These procedures comprise tests of details of transactions and balances, and analysis of significant ratios and trends including the resulting investigation of unusual fluctuations and items.
While compliance procedures and substantive procedures are distinguishable as to their purpose, the results of either type of procedure may contribute to the purpose of the other. Errors discovered in conducting substantive procedures may cause the auditor to modify his evaluation based on compliance procedures that controls were adequate for his purposes.
The auditor's compliance procedures normally should be applied to transactions selected from those of the entire period under examination. When, however, a shorter period is initially tested, the auditor needs to consider what is necessary to provide reasonable assurance as to the reliability of the accounting records for the whole period. The auditor's judgement as to the nature, timing and extent of compliance or substantive procedures to be applied to transactions occurring in the remaining period will be affected by such factors as the following:
- The results of the procedures already conducted;
- The responses to enquiries as to whether the internal control system is still operating in the same manner as when studied and evaluated;
- The length of the remaining period;
- The nature and amount of the transactions or balances involved;
- The auditor's evaluation of the internal control environment, especially supervisory controls; and
- The substantive procedures which the auditor intends to carry out irrespective of the adequacy of internal controls.
4. OBJECTIVE AND SCOPE OF INTERNAL AUDIT :-
4.1 OBJECTIVE OF AN AUDIT:-
The objective of an audit is to review internal controls, assessment of the risk involved in carrying out the routine business activities and providing reasonable assurance to the top management within a framework of recognised accounting policies and practices and relevant statutory requirements.
4.2 SCOPE OF AN AUDIT:-
The scope of an audit is to check each & every system, to compare any data with other units engaged in similar line, the requirements of relevant legislation, to analyse and interpret the same at macro level.
The auditor assesses the reliability and sufficiency of the information contained in the underlying accounting records and other source data by:
(a) making a study and evaluation of accounting systems and internal controls on which he wishes to rely and testing those internal controls to determine the nature, extent and timing of other auditing procedures; and
(b) carrying out such other tests, enquiries and other verification procedures of accounting transactions and account balances as he considers appropriate in the particular circumstances.
The auditor is also to determine whether the relevant information is properly disclosed to the top management by :
comparing the financial statements with the underlying accounting records and other source data to see whether they properly summarise the transactions and events recorded therein; and
considering the judgements that the department has made in preparing the financial statements; accordingly, the auditor assesses the selection and consistent application of accounting policies, the manner in which the information has been classified, and the adequacy of disclosure.
In forming his opinion in the final report, the auditor follows procedures designed to satisfy himself that the financial statements reflect a true and fair view of the financial position and operating results of the enterprise. The auditor recognises that because of the test nature and other inherent limitations of an audit, together with the inherent limitations of any system of internal control, there is an unavoidable risk that some material misstatement may remain undiscovered.
The auditor is expected to perform duties also which fall outside the scope of his competence with the help of other departments. For example, the professional skill required of an auditor does not include that of a technical expert for determining physical condition of certain assets but opinion can be framed after taking the help of Maintenance department of the Corporate office or from some unit.
5. DOCUMENTATION AND AUDIT EVIDENCE:-
The auditor should document matters which are important in providing evidence that the audit was carried out in accordance with the basic principles.
The auditor should plan his work to enable him to conduct an effective audit in an efficient and timely manner. Plans should be based on a knowledge of the business which must be acquired before hand.
Plans should be made to cover, among other things:
(a) Acquiring knowledge of the accounting system, policies and internal control procedures;
(b) establishing the expected degree of reliance to be placed on internal control;
(c) determining and programming the nature, timing, and extent of the audit procedures to be performed; and
(d) coordinating the work to be performed.
Plans should be further developed and revised as necessary during the course of a audit.
5.1 DOCUMENTATION :-
Documentation, here, refers to the working papers prepared or obtained by the auditor and retained by him, in connection with the performance of his audit. Working papers includes :
aid in the planning and performance of the audit; aid in the supervision and review of the audit work; and provide evidence of the audit work performed to support the auditor's opinion.
5.2 FORM AND CONTENT :-
Working papers should record the audit plan, the nature, timing and extent of auditing procedures performed, and the conclusions drawn from the evidence obtained.
The form and content of working papers are affected by matters such as:
- The form of the auditor's report.
- The nature and complexity of the business.
- The nature and condition of the records and degree of reliance on internal controls.
- The needs in particular circumstances for direction, supervision and review of work performed by assistants.
Working papers should be designed and properly organised to meet the circumstances of each audit and the auditor's needs in respect thereof. The standardisation of working papers (for example checklists, specimen letters, standard of working papers) improves the efficiency with which they are prepared and reviewed. It also facilitates the delegation of work while providing a means to control its quality.
Working papers should be sufficiently complete and detailed for an auditor to obtain an overall understanding of the audit.
All significant matters, which require the exercise of judgement, together with the auditor's conclusion thereon, should be included in the working papers.
To improve audit efficiency, the auditor normally obtains and utilises schedules, analyses and other working papers prepared by the auditee. In such circumstances, the auditor should satisfy himself that these working papers have been properly prepared.
A permanent audit file normally includes:
- Audit reports alongwith all annexures of the earlier period.
- Documents related to certain statutory requirements which are unique in nature for that particular Unit.
- Notes regarding significant accounting policies of the unit.
- Significant audit observations of earlier years.
- Synopsis reports given to the top management.
- Replies / action taken by the Unit on such observations.
5.3 CUSTODY OF WORKING PAPERS :-
Working papers are the property of the auditor. The auditor may, at his discretion, make portions of or extracts from his working papers available to the auditee
The auditor should adopt reasonable procedures for custody and confidentiality of his working papers and should retain them for a period of time sufficient to meet the needs of his practice and satisfy any pertinent legal or professional requirements of record retention.
5.4 AUDIT EVIDENCE :-
The auditor should obtain sufficient appropriate audit evidence through the performance of compliance and substantive procedures to enable him to draw reasonable conclusions therefrom on which to base his opinion on the financial information & systems.
Compliance procedures are tests designed to obtain reasonable assurance that those internal controls on which audit reliance is to be placed are in effect.
Substantive procedures are designed to obtain evidence as to the completeness, accuracy and validity of the data produced by the accounting system.
5.5 QUALITY AND TIMELINESS OF AUDIT EVIDENCE :-
Certain types of audit evidence obtained by the auditor are more reliable than others. Ordinarily, the auditor's observation provides more reliable audit evidence than merely making inquiries, for example, the auditor might obtain audit evidence about the proper segregation of duties by observing the individual who applies a control procedure or by making inquiries of appropriate personnel. However, audit evidence obtained by some tests of control, such as observation, pertains only to the point in time at which the procedure was applied. The auditor may decide, therefore, to supplement these procedures with other tests of control capable of providing audit evidence about other periods of time.
In determining the appropriate audit evidence to support a conclusion about control risk, the auditor may consider the audit evidence obtained in prior audits. In a continuing engagement, the auditor will be aware of the accounting and internal control systems through work carried out previously but will need to update the knowledge gained and consider the need to obtain further audit evidence of any changes in control. Before relying on procedures performed in prior audits, the auditor should obtain audit evidence, which supports this reliance. The auditor would obtain audit evidence as to the nature, timing and extent of any changes in the entity's accounting and internal control systems since such procedures were performed and assess their impact on the auditor's intended reliance. The longer the time elapsed since the performance of such procedures the less assurance that may result.
The auditor should consider whether the internal controls were in use throughout the period. If substantially different controls were used at different times during the period, the auditor would consider each separately. A breakdown in internal controls for a specific portion of the period requires separate consideration of the nature, timing and extent of the audit procedures to be applied to the transactions and other events of that period.
The auditor may decide to perform some tests of control during an interim visit in advance of the period end. However, the auditor cannot rely on the results of such tests without considering the need to obtain further audit evidence relating to the remainder of the period. Factors to be considered include :
- The results of the interim tests.
- The length of the remaining period.
- Whether any changes have occurred in the accounting and internal control systems during the remaining period.
- The nature and amount of the transactions and other events and the balances involved.
- The control environment, especially supervisory controls.
- The nature, timing and extent of substantive procedures which the auditor plans to carry out.
6. ACCOUNTING SYSTEM AND INTERNAL CONTROL :-
Management is responsible for maintaining an adequate accounting system incorporating various internal controls to the extent appropriate to the size and nature of the business. The auditor should reasonably assure himself that the accounting system is adequate and that all the accounting information which should be recorded has in fact been recorded. Internal controls normally contribute to such assurance.
The auditor should gain an understanding of the accounting system and related internal controls and should study and evaluate the operation of those internal controls upon which he wishes to rely in determining the nature, timing and extent of other audit procedures.
Where the auditor concludes that he can rely on certain internal controls, his substantive procedures would normally be less extensive than would otherwise be required and may also differ as to their nature and timing.
6.1 Objectives of Internal Controls Relating to Accounting System
OBJECTIVES OF INTERNAL CONTROLS ;-
Internal controls relating to the accounting system are concerned with achieving the following objectives:
Transactions are executed in accordance with management's general or specific authorisation;
All transactions are promptly recorded in the correct amount in the appropriate accounts and in the accounting period in which executed so as to permit preparation of financial information within a framework of recognised accounting policies and practices and relevant statutory requirements, if any, and to maintain accountability for assets; assets are safeguarded from unauthorised access, use or disposition; the recorded assets are compared with the existing assets at reasonable intervals and appropriate action is taken with regard to any differences.
6.2 INTERNAL CONTROLS IN CONNECTION WITH AN AUDIT :-
The auditor should gain an understanding of the accounting system and related internal controls and should study and evaluate the operation of those internal controls upon which he wishes to rely in determining the nature, timing and extent of other audit procedures. Where the auditor concludes that he can rely on certain internal controls, his substantive procedures would normally be less extensive than would otherwise be required and may also differ as to their nature and timing."
6.3 AWARENESS WITH CONTROL ENVIRONMENT :-
The auditor should obtain an understanding of the control environment sufficient assess management's attitudes, awareness and actions regarding internal controls and their importance in the entity. Such an understanding would also help the auditor to make a preliminary assessment of the adequacy of the accounting and internal control systems as a basis of the preparation of the financial statements, and of the likely nature, timing and extent of audit procedures.
The auditor should obtain an understanding of the control procedures sufficient of develop the audit plan. In obtaining this understanding, the auditor would consider knowledge about the presence or absence of control procedures obtained from the understanding of the control environment and accounting system in determining whether any additional understanding of control procedures is necessary. Because control procedures are integrated with the control environment and the accounting system, as the auditor obtains an understanding of the control environment and the accounting system, some knowledge about control procedures is also likely to be obtained, for example, in obtaining an understanding of the accounting system pertaining to cash, the auditor ordinarily, development of the overall audit plan does not require an understanding of control procedures for every financial statement assertion in each account balance and transaction class.
6.4 COMMUNICATION OF WEAKNESSES IN INTERNAL CONTROLS :
As a result of his study and evaluation of internal control and other auditing procedures, the auditor may become aware of weaknesses in internal control. For the benefit of the entity, the auditor should make management aware, on a timely basis, of material weaknesses which have come to his attention. Such weaknesses are usually communicated in writing. It is important to indicate in such communication that it discusses only weaknesses which have come to the attention of the auditor as a result of his audit, and that his examination has not been designed to determine the adequacy of internal control for management purposes.
7. AUDIT CONCLUSIONS AND REPORTING :-
The auditor should review and assess the conclusions drawn from the audit evidence obtained and from his knowledge of business of the entity as the basis for the expression of his opinion on the financial information. This review and assessment involves forming an overall conclusion as to whether:
(a) the financial information has been prepared using acceptable accounting policies, which have been consistently applied;
(b) the financial information complies with relevant regulations and statutory requirements;
(c) there is adequate disclosure of all material matters relevant to the proper presentation of the financial information, subject to statutory requirements, where applicable.
The audit report should contain a clear written expression of opinion on the financial information and if the form or content of the report is laid down in or prescribed under any agreement or statute or regulation, the audit report should comply with such requirements..
When a qualified opinion, adverse opinion or a disclaimer of opinion is to be given or reservation of opinion on any matter is to be made, the audit report should state the reasons therefor.
-
8. FRAUD AND ERROR :-
8. FRAUD AND ERROR :-
The term "fraud" refers to intentional misrepresentations of financial information by one or more individuals. Fraud may involve:
manipulation, falsification or alteration of records or documents. For example, in a period of rising prices, sales contract documents may be ante-dated to record sales at prices lower than the prices at which sales have actually taken place;
misappropriation of assets. For example, cash sales may not be fully accounted for improper utilisation of DEPB lisence.
Suppression or omission of the effects of transactions from records or documents. For example, goods sold may not be recorded as sales but included in inventories caused increased in outstanding at one end but also creating dummy increase in stock which may compensate actual intentionally created shortage in stock.
The term "error" refers to unintentional mistakes in financial information such as:
mathematical or clerical mistakes in the underlying records and accounting data;
oversight or misinterpretation of facts; or
misapplication of accounting policies.
An auditor must be analytical enough to make a clear cut demarcation in a fraud or error. All errors must be reported as errors and any error in nature of fraud needs to be reported immediately (with conclusive evidence) to the head office and senior management.
8.1 RESPONSIBILITY FOR THE DETECTION OF FRAUD AND ERROR:-
The auditor, should so plan his audit that he has a reasonable expectation of detecting material misstatements in the financial and other records resulting from fraud or error. The auditor should use all information which is relevant, reliable & useful while conducting an engagement. The degree of assurance of detecting errors would normally be higher than that of detecting fraud, since fraud is usually accompanied by acts specifically designed to conceal its existence.
8.2 RISK OF FRAUD AND ERROR
In planning and performing his examination the auditor should take into consideration the risk of material misstatement of the financial information caused by fraud or error. He should consult with the management as to any fraud or significant error which has occurred in the reporting period and modify his audit procedures, if necessary. For example, in a fraud involving removal of stocks from the company's godowns without the same being accounted for, the auditor should enlarge the coverage of his substantive tests regarding dispatches of stocks, review of acknowledgements and correlation of such dispatches with invoices raised. This would be further supplemented by surprise physical verifications and stock reconciliations.
Weaknesses in the design of the internal control system and non-compliance with identified control procedures increase the risk of fraud or error. Other conditions or events which increase the risk of fraud or error include:
- unusual transactions;
- problems in obtaining sufficient appropriate audit evidence.
- Inadequate records, for example, incomplete files, excessive adjustments to books and accounts, transactions not recorded in accordance with normal procedures and out of balance control accounts.
- Inadequate documentation of transactions, such as lack of proper authorisation, supporting documents not available and alteration to documents (any of these documentation problems assume greater significance when they relate to large or unusual transactions).
- An excessive number of differences between accounting records and third party confirmations, conflicting audit evidence and unexplainable changes in operating ratios.
- Evasive or unreasonable responses by auditee to audit inquiries.
8.3 PROCEDURES WHEN THERE IS AN INDICATION THAT FRAUD OR ERROR MAY EXIST:-
If circumstances indicate the possible existence of fraud or error, the auditor should immediately consult with his head office along with a Flash report clearly indicating the nature of fraud, persons responsible and probable amount included in it.
Unless circumstances clearly indicate otherwise, the auditor should not assume that an instance of fraud or error is an isolated occurrence. If the fraud or error should have been prevented or detected by the system of internal control, the auditor should reconsider his prior evaluation of that system and, if necessary, adjust the nature, timing and extent of his substantive procedures.
8.4 INHERENT LIMITATIONS OF AN AUDIT:-
The test nature of an audit of all information involves judgement as to the areas to be tested and the number of transactions to be examined. Furthermore, much audit evidence is persuasive rather than conclusive in nature; for example, confirmation of a debt by a customer is not conclusive evidence that the debt is good and recoverable. Therefore, it should be recognised that the auditor's examination is subject to the inherent limitation that some material misstatements of the financial information resulting from fraud or error, if either exists, may not be detected.
The risk of not detecting material misstatement resulting from fraud is greater than the risk of not detecting a material misstatement resulting from error, because fraud usually involves acts designed to conceal it, such as collusion, forgery, deliberate failure to record transactions, or intentional misrepresentations being made. Unless the auditor's examination reveals evidence to the contrary, he is entitled to accept representations as truthful and records and documents as genuine. However, the auditor should plan and perform his audit recognising that he may encounter conditions or events during his examination that would lead him to question whether fraud or error exists.
8.5 OTHER REPORTING RESPONSIBILITIES :-
The auditor should communicate his findings to management on a timely basis if fraud or significant error is found to exist.
The auditor should also consider the implications of the circumstances on the true and fair view which the financial statements ought to convey and frame his report appropriately.
9.INTERNAL AUDIT IN AN ORGANISATION:-
Internal audit activity is a centralized activity in an organization. The corporate internal audit department conducts internal audit of all units and branch offices. The planning of internal audit assignments to be carried out during the year is done at the start of the year and got approved from Head of Internal audit. The main objective of the planning of Internal audits is to provide coverage to all locations. Generally audit programme is planned with an objective of conducing the audit twice in a year. After getting approval of the audit plan the same is also placed in the Audit committees meetings also. The audit committees are briefed about the assignments carried out during a particular period and also informed about the assignments which could not be carried out (planned earlier) due to the circumstances beyond control.
Once Internal audit programme is finalised , then planning of each assignment is taken in further detail. The following points are taken mainly while making detailed planning :-
A) Major observations pointed out in previous internal audit report and action taken by the auditee on these observations.
B) Checklist of previous audit assignment is also referred to get the insight about the areas to be focused in next assignment.
C) Any new changes / amendments taken place in commercial laws.
D) Any special area / investigation as instructed by the top management.
E) Results of various exception reports as run in ERP at head office before start of internal audit assignment.
9.1 MANPOWER PLANNING IN INTERNAL AUDIT :- The manpower is decided as per the work load. The department calculates the budgeted requirement of mandays at the start of the year while planning the audit assignments. The scope of the audit assignments i.e. checklists are referred for each activity and also the time taken for completion of such activity is calculated. The mandays to be spent in each activity also depends on the sample size to be considered while planning the internal audit. As per available checklists and mandays thus calculated, the department requires ideally a strength of 19 employees. The deployment of this manpower is mainly divided into following 5 categories.
| Sr.no | % of total available manpower | Audit of activities. |
| 1. | 45 % of total available manpower | Audit of Manufacturing Units |
| 2. | 15 % of total available manpower | Audit of Branches |
| 3. | 17 % of total available manpower | Audit of corporate offices & special studies to be undertaken. |
| 4. | 12 % of total available manpower | To be in office for report preparation , discussion of various observations and for running various ERP reports. |
| 5. | 7 % of total available manpower | On account of leave / holidays taken by the employees. |
| 6. | 4 % of total available manpower | On account of training like on the job training , training at VTDC and various in house training sessions. |
9.2 DEPARTMENTAL COST TO THE ORGANISATION :- The department prepares its annual expense budget also at the start of the year. The exercise is carried out very minutely and overall budget is divided into following 4 categories. Total annual expense budget of the department is approx. Rs. 32 lacs.
| Sr.no | Particulars | % of total budget |
| 1. | Salary & other expenses related to salary. | 75 % of the total budget |
| 2. | Travelling expenses related to audit assignments | 15 % of the total budget |
| 3. | Training expense and other study material | 4 % of the total budget. |
| 4. | Other administrative expenses | 6 % of the total budget. |
Apart from above capital budget is also got approved at the start of the year. The budget includes various expenses to be incurred on the procurement of capital items.
9.3 UPDATION OF CHECKLISTS:- The department is having well defined scope of operations of different area. The same is named as checklists. The updation of these checklists are carried out on regular basis. Any item which is obsolete / less important in nature it is deleted and new changes / amendments are added immediately. At present the department is having separate checklists for manufacturing units , branch offices , corporate offices , administrative offices & other special activities like process of physical stock verification , process of debtors review & process of other current assets verification etc. The assignments are carried out keeping in view the same.
9.4 CONDUCTING AN ASSIGNMENT :- The team is decided on the basis of past experience for conducting an assignment . The team is briefed about the various aspects of the location to be got audited. The vital data of the location is also discussed with the team before hand. The team is provided target dates for finalising the audits of different department with in a location . The teams are asked to follow the general code of discipline during the currency of audit and also to flash any observation serious in nature immediately. Apart from above the teams are also informed to email their findings with the replies of the auditee immediately as finalised in the auditee's location. After the receipt of mail at Head office , the observations are reviewed about its contents .facts , criteria and main points of objection. The replies of the auditee to these observations is also taken care. The observations are discussed with Corporate heads immediately if need arise. The points with remarks of the section head is sent to the team with in a day from receipt of such observations. As a policy matter pre information is not given for commencement of audit activity. However for far away locations the information is sent for guest house booking and other arrangements.
9.5 STEPS FOR CONDUCTING INTERNAL AUDIT.:- The following steps are undertaken for conducting an internal audit assignment with tentative time taken for the same.
1. Previous audit report review along with replies of unit and making notes of the same :-Half day .
2. Running of various ERP reports.:- 2 days
3. Review of updations in various policies , Laws and their impact on auditee unit.:-Half day
4. Review of Vital data & major systems of the Units.:-Half day
5. Discussion with the section head for coverage to be done in the recent audit.:- Half day
6. Interaction with respective section heads:- 1 day
7. Interaction with respective seat heads.:- 3 days
8. Identification of new developments / policy change taken place in auditee unit.:- 2 days
9. Finalising of audit programme at the auditee camp.:- half day
10. Requisition of various records . review of procedures as per audit programme / checklist.:-55 mandays
11. Establishing observations , providing suggestions for improvement , preparing draft report and allied records in support to observations.
12. Discussion with respective seat head & section head and sought their replies to the observations.
13. Discussion of observations with detailed replies of section head / seat head with VP :- 1 day.
14. Preparation of synopsis report and to discuss the same with Unit head :- 1 day.
15. Discussion with section head.:-1 day
16. Preparing detailed report from the draft report as amended after discussion with section head.:-4 days
17. Discussion of various observations with respective corporate departments.:-2 days
18. Final report after incorporating the remarks of corporate departments with HOD.:-Half day
19. Finalisation of synopsis report after amendments.:- 1 day
20. Dispatch of reports to Unit head / business head & major points to Corporate heads.
21. Updation of Vital data & Checklists in reference to auditee unit.:- Half day.
22. Perseverance of the various working papers related to assignment.:- Half day.
9.6 MAINTAINENCE OF WORKING PAPERS :-As per normal practice working papers are developed during the period when an assignment is carried out. It may include checklists filled during the currency of audit , list of main areas covered under engagement , various data collected for analysis purposes and also replies of the auditee to the observations. All such working papers are very important records for future references .
As per policy , we preserve the same for the period upto 2 audits conducted afterwards i.e. working papers for IAR 1 will be preserved till the finalisation of IAR 3. As soon as IAR 3 will be ready then working papers for IAR 1 will be destroyed.
The audit team after conducting the audit shall file all working papers in the proper file. Full details shall be mentioned on the files i.e. working papers related to the location , Internal audit report number & names of the team members who had conducted internal audit etc.
9.7 QUARTERLY PROGRESS REPORT :- A report named quarterly progress report is prepared at the end of each quarter. The report includes major audit observations pertaining to the audit conducted during the quarter and reports finalised .The report contains major observations with impact and replies of the auditee on the same. The report is discussed with CMD. All instructions as provided by CMD in the discussion is noted down and letters for the same is sent to concerned HOD. In the next meeting the upto date status of the earlier observations is also presented to CMD .
9.8 PRESENTATION TO AUDIT COMMITTEES :- In all the companies where share capital is listed , an audit committee comprising Board of directors is formed as per clause 49 of the listing agreement . The audit committee functions on behalf of Board of Directors. The audit committee review Internal audit reports , internal audit programme in each meeting and provides its recommendations on various audit observations. The audit committee's suggestions are sent to various functional heads for implementation of the same. The department follows up with all functional heads and upto date status is provided to audit committees in the next meeting.
9.9 OTHER ACTIVITIES :- The department also carries out other activities related to HR . The employees of Internal audit activity are continuously provided feedback on the communication skills , new changes taken place in the field of audit etc. In department's quarterly meetings a topic is assigned to one of the audit employee who gives its presentation on that issue. The basic concept is to hone the communication and presentation skills of the employees.
Deemed dividend provisions not applicable to loan made in ordinary course of business
CA, CS Pawan Sehrawat
Trade advance which are in the nature of money transacted to give effect to commercial transaction would not fall within the ambit of the provisions of section 2(22)(e).
As per section 2(22)(e) of IT Act, Deemed dividend (to extent of accumulated profit) includes, Any payment by way of loan or advance by a closely-held company to a shareholder holding substantial interest. Such deemded dividend is treated as Income From Other Sources (IFOS) in the hand of such shareholder. Unless the loan made in the ordinary course of business and money-lending is substantial part of the company's business.
In case of "Asstt. Commissioner of Income Tax Versus Pravin C. Pandya – Income Tax – ITAT INDORE" ITAT held that the word advance which appears, in the company of the word "loan", could only mean such advance which carries with it an obligation of repayment. Trade advance which are in the nature of money transacted to give effect to commercial transaction would not fall within the ambit of the provisions of section 2(22)(e). The trade advances do not fall within the ambit of section 2(22)(e) of the Act as the business transactions are outside the purview of section 2(22)(e).
In this case, Assessee was having share holding in M/s Jayvin Sales Private Limited to the extent of 60%. The assessee was asked to produce the ledger of M/s Jayvin Sales Private Limited in its books. The assessee furnished necessary details. On perusal of such details, the learned Assessing Officer observed that the assessee received payment as advance from M/s Jayvin Sales Private Limited.
The learned Assessing Officer invoked the provisions of section 2(22)(e) of the Act adding Rs.14,63,400/- as deemed dividend in the hands of the assessee.
On appeal, the learned CIT(A) considered the submissions of the assessee along with certain judicial pronouncements and held that the learned Assessing Officer was not justified in invoking the provisions of section 2(22)(e) of the Act and deleted the addition. ITAT INDORE also confirmed the decision of learned CIT(A) in favour of assessee.
Full text of the Judgment is as follows :-
INCOME TAX APPELLATE TRIBUNAL, INDORE
ITA No. 309/Ind/2013 – A.Y. 2008-09
Asstt. Commissioner of Income Tax
Vs
Pravin C. Pandya
Date of pronouncement 20.8.2013
ORDER
PER JOGINDER SINGH, judicial member
The Revenue is aggrieved by the impugned order dated 23.1.2013 passed by the learned first appellate authority. The only ground raised in this appeal pertains to deleting the addition of Rs. 14,63,400/- made by invoking section 2(22)(e) of the Act allegedly treating the trade advance outside the purview of the section.
2. During hearing of this appeal, the crux of argument on behalf of the Revenue is in support to the assessment order. However, nobody is present for the assessee. Registered AD notice was sent to the assessee on 16th July, 2013. In spite of that, the assessee neither presented himself nor moved any adjournment petition, therefore, we have no option but to proceed ex parte qua the assessee and tend to dispose of this appeal on the basis of material available on record.
3. We have considered the submissions put forth by the learned Senior DR and have gone through the material available on record. The facts, in brief, are that the assessee is engaged in the business of trading of pesticides, bio-fertilizers, organic manure and C&F activities, declared income of Rs.34,72,400/- in its return filed on 25th September, 2008. Since the case of the assessee was selected for scrutiny, therefore, required notices along with questionnaire were served upon the assessee to which the assessee furnished various details and attended assessment proceedings. The assessee was having share holding in M/s Jayvin Sales Private Limited to the extent of 60%. The assessee was asked to produce the ledger of M/s Jayvin Sales Private Limited in its books. The assessee furnished necessary details. On perusal of such details, the learned Assessing Officer observed that the assessee received payment as advance from M/s Jayvin Sales Private Limited. The learned Assessing Officer invoked the provisions of section 2(22)(e) of the Act adding Rs. 14,63,400/- as deemed dividend in the hands of the assessee.
3.1 On appeal, the learned CIT(A) considered the submissions of the assessee along with certain judicial pronouncements and held that the learned Assessing Officer was not justified in invoking the provisions of section 2(22)(e) of the Act and deleted the addition. The aggrieved Revenue is in appeal before the Tribunal.
3.2 If the totality of facts available on record, observations made in the assessment, conclusion drawn in the impugned order and the arguments of the learned Senior DR are kept in juxtaposition and analysed, we find that the impugned addition was made by the learned Assessing Officer on the observation that the assessee received loans/advances amounting to Rs. 15,80,965/- from M/s Jayvin Sales Private Limited and by applying the provisions of section 2(22)(e) of the Act the addition of Rs. 14,63,400/- was made to the total income of the assessee being deemed dividend. The stand of the assessee right from the assessment stage had been that the provisions of section 2(22)(e) of the Act are not applicable to trade transactions more specifically when such advance is made during the course of business of the assessee. The stand of the Revenue is that if the company makes any payment to any share holder either by loan or advance, in both situations, the provision of section 2(22)(e) of the Act is attracted. The assessee duly filed the copy of ledger account of M/s Jayvin Sales Private Limited evidencing that the amounts were paid in the regular course of business. We are of the view that under the facts available on record, the trade advances do not fall within the ambit of section 2(22)(e) of the Act as the business transactions are outside the purview of section 2(22)(e) of the Act. Section 2(22)(e) of the Income Tax Act, 1961 shows that a payment would acquire the attributes of a dividend if the following conditions are satisfied -
(a) the company making the payment is one in which the public are not substantially interested;
(b) money should be paid by the company to a share holder holding not less than 10% of the voting power of the company. It would make no difference if the payment was out of the asset of the company or otherwise;
(c) the money should be paid either by way of advance of loan or it may be "any payment" which the company make on behalf of or for the individual benefit of any share holder or also to any concern in which such share holder is a member or a partner and in which he is substantially interested and
(d) the limiting factor being that these payments must be to the extent of accumulated profits, possessed by such company.
Keeping in view rule/observation in mind, we are of the opinion that the word "advance" which appears in the company of the word "loan" could only mean such advance which carries with it an obligation of repayment. Trade advance which are in the nature of money transacted to give effect to commercial transaction would not, in our view, fall within the ambit of the provisions of section 2(22)(e) of the Act. This interpretation would allow the rule of purposive construction with noscitur a sociis, as was done by Hon'ble Apex Court in the case of LIC of India vs. Retired LIC Officers Association (2008) 3 SCC 321. The observation made in para 24 is extracted hereunder 0#
"Each word employed in a statute must take colour from the purport and object for which it is used. The principle of proposive interpretation, therefore, should be taken recourse to."
A close examination of the decision from Hon'ble Bombay High Court in the case of Nagindas M. Kapadia (1989) 177 ITR 393 would show that the Court excluded from the ambit of "dividend", monies which the assessee received towards purchases. Identical ratio was laid down by Hon'ble Delhi High Court in CIT vs.Creative Dyeing & Printing P Ltd.; (2009) 318 ITR 476. In view of the clear facts, we find no infirmity in the conclusion drawn in the impugned order. It is affirmed.
Finally, the appeal of the Revenue is dismissed.
This order was pronounced in the open Court in the presence of learned Senior DR at the conclusion of the hearing on 20.8.2013.
I HAVE SEEN A RIDICULOUS AND STRANGE POSITION IN HON. HIGH COURT OF GUJARAT COMPLETE DISREGARDS OF HON. SUPREME COURT WELL KNOWN JUDGMENTS IN MY CASES FOR LAST 20 YEARS AND MORE!!!!!!!!!!!!!!!!!!!!!! THEY HAD BEEN/ ARE IN HON. SUPREME COURT OF INDIA!!!!
Binding force of Judicial Precedents
CA Abhishek Kacholiya
1. Introduction:
In a civilised society all disputes between two parties always have been settled either by way of their mutual arrangements or by way of court of law of the land. For the smooth administration of the democratic country it is very much necessary to have a strong and good judicial system and this system should get proper support from Constitution of that Country. In India our constitution gives such power to our judicial system by way of Chapter – IV, by which Indian Supreme Court gets powers and duties.
2. Binding force of Supreme Court decisions:
In Chapter – IV. – The Union Judiciary article 141 describes binding force of law declared by Supreme Court that; "the law declared by the Supreme Court shall be binding on all courts within the territory of India." It means only the law declared by the Supreme Court which was necessary for the determination of the case would be binding in nature not the opinion of the court on the question which was not necessary to decide the case. To understand this situation let me explain word Ratio Decidendi and Obiter Dicta:
Ratio Decidendi means "the reason" or "the rationale for the decision". The ratio decidendi is "the point in a case which determines the judgment" or "the principle on which the case establishes". The process of determining the ratio decidendi is a correct thoughtful analysis of what the court actually decided essentially, based on the legal points about which the parties in the case actually fought.
All decisions are, in the common law system, decisions on the law as applied to the facts of the case, therefore, ratio decidendi is one of the most powerful tool, with a proper understanding of the ratio of a precedent, one can force a lower court to come to a decision which that court may otherwise be unwilling to make, considering the facts of the case.
Obiter Dicta means "other things that are said", that is, a statement in a judgment that is "said in passing" All other statements about the law in the text of a court opinion or all pronouncements that do not form a part of the court's rulings on the issues actually decided in that particular case are obiter dicta, and are not rules for which that particular case stands.
The distinction between the ratio decidendi and obiter dictum has been very beautifully explained by Chagla C.J. in the case of Mohandas Issardas v. A. N. Sattanathan, (at page 1160) in the following words (at page 115 of AIR 1955 Bom):
"……an obiter dictum is an expression of opinion on a point which is not necessary for the decision of a case. This very definition draws a clear distinction between a point which is necessary for the determination of a case and point which is not necessary for the determination of the case. But in both cases points must arise for the determination of the Tribunal. Two questions may arise before a court for its determination. The court may determine both although only one of them may be necessary for the ultimate decision of the case. The question which was necessary for the determination of the case would be the 'ratio decidendi'; the opinion of the Tribunal on the question which was not necessary to decide the case would be only an 'obiter dictum'."
So it would be incorrect to say that every opinion of the Supreme Court would be binding on the High Courts in India. The only opinion which would be binding would be an opinion expressed on a question that arose for the determination of the Supreme Court.
3. Position regarding contrary decision by Supreme Court itself:
In case of divergence between the decisions of Supreme Court, decision of the larger bench should be followed and in case of conflict between decisions of bench of equal strength, the later decision should be followed provided the earlier decision is considered.
4. Revision of own decision:
A question may arise that doctrine of Stare Decisis or Ratio Decidendi may deter the Supreme Court to overrule or review its decision. In this regard it may be said that except some specific situation the Supreme Court may reconsider its decision. A larger bench of Supreme Court may reconsider and overrule a decision of a smaller bench if it is clearly erroneous not otherwise. As held in Pradip Chandra Parija & Ors. Vs. Pramod Chandra Patnaik & Ors. (2002) 254 ITR 099 (SC) if a bench feels that a decision of larger bench is erroneous it may refer the matter to larger bench but cannot refer matter directly to Constitution Bench, except matter provided in the Article 145(3) of Constitution of India.
5. Binding force of High Court Decisions:
Like Article 141 there is no such provision available in Constitution of India which deals about the binding force of the decisions pronounced by the High Courts. But on the basis of several case laws it is settled law of the land that the High Courts have binding force in the state in which it operates and not in the territory outside of the state. It means decisions of the High Court are binding on the subordinate courts, tribunals and other authorities of the jurisdiction in which the High Court runs. High Court of other state may take same view or consider decision of another High Court but are not duty bound to follow it.
Conclusion drawn in the case of CIT vs. Thana Electricity Supply Ltd 206 ITR 727 (Bom.) that the decisions of other High Courts are not binding on this court also gets full support from the scheme of income-tax itself. It may be referred in this connection to section 260 of the Income Tax Act, 1961 which, so far as relevant, reads as follows:
"260(1) The High Court or the Supreme Court upon hearing any such case shall decide the questions of law raised therein, and shall deliver its judgment thereon containing the grounds on who such decision is founded, and a copy of the judgment shall be sent under the seal of the court and the signature of the Registrar to the Appellate Tribunal which shall pass such order as are necessary to dispose of the case conformably to such judgment."
A plain reading of this section clearly goes to show that what the High Court is required to do under this section is to decide the question of law raised in the case before it and to deliver its judgment thereon containing the grounds on which such decision if founded. This court, therefore, has to give its own decision and also the reasons therefore. While doing so, undoubtedly, the court is free to follow the decision of any High Court in its judgment. The Legislature itself was fully aware of the fact that in the process of deciding the questions of law under section 260 of the Act, there may be a conflict of opinion of different High Courts in respect of a particular question of law and in that view of the matter, under section 257 of the Act, has empowered the Tribunal to make a reference directly to the Supreme Court if it finds it expedient to do so on account of a conflict in the decisions of the High Court. Section 257 reads as follows :
"257. If, on an application made under section 256, the Appellate Tribunal is of the opinion that, account of a conflict in the decisions of High Courts in respect of any particular question of law, it is expedient that a reference should be made direct to the Supreme Court, the Appellate Tribunal may draw up a statement of the case and refer it through its President direct to the Supreme Court."
A conjoint reading of the above provisions of the Income-tax Act clearly goes to show that the Act itself contemplates independent decisions of various High Courts on the question of law referred to them. It has visualised the possibility of conflict of opinion between different High Courts on the same question of law and has also made specific provision to take care of such a situation in suitable cases. In fact, in the light of the clear language of section 260 of the Act, every High Court is required to give its own opinion on a particular question of law. It should not follow, as a matter of course, only with a view to achieve uniformly in the matter of interpretation, the decision of another High Court, if such decision is contrary to its own opinion. Because, such action will be contrary to the clear mandate of section 260 of the Act. It will amount to abdication of its duty by the High Court to give "its decision" on the point of law referred to it. We are, therefore, of the clear opinion that decision of none High Court is not binding on another High Court.
The above view is also supported by Supreme Court in case of Valliama Champaka Pillai v. Sivathanu Pillai.
6. Position regarding contrary decision by High Court is as follows:
It is a well accepted legal position that a single judge of a High Court is ordinarily bound to accept as correct judgments of courts of co-ordinate jurisdiction and of the Division Benches and of the Full Benches of his court and of the Supreme Court.
Equally well settled is the position that when a Division Bench of the High Court gives a decision on a question of law, it should generally be followed by a co-ordinate Bench in the subsequent case wants the earlier decision to be reconsidered, it should refer the question at issue to a larger Bench.
7. Conclusion:
As per the above discussion it is clearly says that law declared by the Supreme Court is binding on all courts within the territory of India as per the provisions of Article 141 of the Constitution of India. And decision of High Court is binding on the subordinate court and tribunals of the territory of the state only. Decision of one High Court does not have binding force on another High Court but that can be considered.
Sources referred:
a) Wikipedia for the definition of word Ratio Decidendi and Obiter Dicta
b) Kanga & Palkhivala's The Law and Practice of Income Tax
(Author is a Manager Taxation with KGK Group of Companies )
No Disallowance of Interest on Loan taken to earn taxable business Income U/s. 14A r.w. Rule 8D(2)(ii)
ITO vs. Narain Prasad Dalmia (ITAT Kolkata), I.T.A No. 1180/Kol/2011, Date of pronouncement: 27.01.2014
The issue of revenue's appeal is that the CIT(A) has wrongly deleted the disallowance made by AO under Rule 8D(2)(ii) of the Rules at Rs.55,47,700/-. Here the assessee before the lower authorities and even before us explained that out of the total interest payment of Rs.97,22,656/-, the interest aggregating to Rs. 92,69,529/- was paid to Brila Global Finance Co. Ltd., DSP Merill Lynch Capital Ltd. and J.M. Financial Products Pvt. Ltd. is relating to loans taken for IPOs shares, which were business transaction and taken in stocks. To prove this point the assessee explained that the shares which were allotted in these IPOs were sold during the year under appeal and profit arising out of the same at Rs.87,42,284/- was disclosed as business profit. The balance shares were carried forward to the Balance Sheet as stock-in-trade. We are in full agreement with the findings of CIT(A) that the payment of interest amounting to Rs.92,69,529/- has a direct nexus with business income and once this is the position, the CIT(A) has rightly deleted the addition.
The CIT(A) has also consulted assessment records and found that assessee has submitted a statement showing utilisation of borrowed funds to substantiate his claim that funds were utilised for applying new shares in IPOs which were kept in trading portfolio and part of those were sold and earned profit, which was taxed at normal rates. Accordingly, we are of the view that the CIT(A) has rightly deleted the disallowance and we confirm the same. This issue of revenue's appeal is dismissed.
Entitlement earned for carbon credits is a capital receipt and cannot be taxed as a revenue receipt
Shree Cement Ltd vs. ACIT (ITAT Jaipur), ITA No.503/JP/2012 – Assessment year: 2007-08,Date of Pronouncement: 27-01-2014
Issue - In the assessment order, the Assessing Officer has held that (a) Carbon Credit is not a capital receipt, (b) cost of acquisition of Carbon Credit is NIL & (c) entire receipt is taxable as capital gain. However, in the computation, it has been added as Business income. Learned CIT(Appeals) has held that receipt from CER's is in the nature of benefit arising from the business of the assessee and is taxable as 'Business Income' u/s Sec 28(iv) of the Act.
Contention of the Department -Receipt on account of carbon credit is related to the business of the assessee and the assessee has undertaken activities which has resulted in the receipt on account of carbon credits. Hence, the amount so received has to be considered as related to the business of the assessee and should either be considered as revenue receipts chargeable to tax as business income, or the net amount after deduction of expenditure if any, incurred for the same should be considered as chargeable to tax under the head capital gains.
Contention of the Assessee :-
(a) Issue squarely covered in Assessee 's favour by the decisions of Hon 'ble Tribunal:
The issue under consideration is squarely covered by the decision of Hon'ble Hyderabad Tribunal in favour of assessee in the case of My Home Power Ltd. –vs.- DCIT (2013) 151 TTJ 616 (Hyd) wherein it has been held that receipt on account of carbon credit is not in the nature of profit or in the nature of income and hence has to be considered as capital receipt. After examining the matter in detail the Hon'ble Tribunal in the said case have held as under -
"Carbon credit is in the nature of 'an entitlement' received to improve world atmosphere and environment reducing carbon, heat and gas emissions. The entitlement earned for carbon credits can, at best, be regarded as a capital receipt and cannot be taxed as a revenue receipt. It is not generated or created due to carrying on business but it is accrued due to 'world concern'. It has been made available assuming character of transferable right or entitlement only due to world concern. The source of carbon credit is world concern and environment. Due to that the assessee gets a privilege in the nature of transfer of carbon credits. Thus, the amount received for carbon credits has no element of profit or gain and it cannot be subjected to tax in any manner under any head of income. It is not liable for tax for the assessment year under consideration in terms of sections 2(24), 28, 45 and 56 of the Income-tax Act, 1961. Carbon credits are made available to the assessee on account of saving of energy consumption and not because of its business. Further, in our opinion, carbon credits cannot be considered as a bi-product. It is a credit given to the assessee under the Kyoto Protocol and because of international understanding. Thus, the assessees who have surplus carbon credits can sell them to other assessees to have capped emission commitment under the Kyoto Protocol. Transferable carbon credit is not a result or incidence of one's business and it is a credit for reducing emissions. The persons having carbon credits get benefit by selling the same to a person who needs carbon credits to overcome one's negative point carbon credit. The amount received is not received for producing and/or selling any product, biproduct or for rendering any service for carrying on the business. In our opinion, carbon credit is entitlement or accretion of capital and hence income earned on sale of these credits is capital receipt. For this proposition, we place reliance on the judgment of the Supreme Court in the case of CIT v. Maheshwari Devi Jute Mills Ltd. (57 ITR 36) wherein it is held that transfer of surplus loom hours to other mill out of those allotted to the assessee under an agreement for control of production was capital receipt and not income. Being so, the consideration received by the assessee is similar to consideration received by transferring of loom hours. The Supreme Court considered this fact and observed that taxability of payment received for sale of loom hours by the assessee is on account of exploitation of capital asset and it is capital receipt and not an income. Similarly, in the present case the assessee transferred the carbon credits like loom hours to some other concerns for certain consideration. Therefore, the receipt of such consideration cannot be considered as business income and it is a capital receipt. Accordingly, we are of the opinion that the consideration received on account of carbon credits cannot be considered as income as taxable in the assessment year under consideration. Carbon credit is not an offshoot of business but an offshoot of environmental concerns. No asset is generated in the course of business but it is generated due to environmental concerns. Credit for reducing carbon emission or greenhouse effect can be transferred to another party in need of reduction of carbon emission. It does not increase profit in any manner and does not need any expense. It is a nature of entitlement to reduce carbon emission, however, there is no cost of acquisition or cost of production to get this entitlement. Carbon credit is not in the nature of profit or in the nature of income."
The principles stated above have been accepted and followed by the Chennai Bench of the Hon'ble Tribunal in the case of Sri Velayudhaswamy Spinning Mills (P.) Ltd. – vs.- DCIT (2013) 40 taxmann.com 141 (Chennai) and Ambika Cotton Mills Ltd. -vs.- DCIT (2013) I.T.A. No. 1836/Mds/2012(Chennai)
(b) No Provision under the Income Tax Act to tax Carbon Credit
Proposed Direct Tax Code (DTC) vide clause 33(2)(xi) specifically provides for taxability of Carbon Credit as Business receipts & chargeable to tax. Similar provision is not present under the current Income Tax Act '1961.
Apex Court in Vodafone International Holdings –vs.- UOI 341 ITR 1 (2012) SC while deciding an issue on international taxation made a comparative analysis of the provisions of Direct Taxes Code (DTC) Bill, 2010 and Income Tax Act, 1961 and have held that treatment of any particular item in different manner in the 1961 Act and DTC serves as an important guide in determining taxability of the said item. Since similar provision for taxability is not present in the current statute, clear inference can be drawn that the above income is not chargeable to tax under the Income Tax Act, 1961.
Carbon credit in the present case has been awarded due to reduction in emission of green house gases consequent to the Optimum Utilization of Clinker project undertaken by the assessee. The assessee has been provided entitlement/incentive in the form of carbon credit. Hence, this receipt does not have the element of income or profit embedded to it. Further, the above incentive has been granted as per Kyoto Protocol to incentivize the industry in the developing countries for reduction of carbon emission. Hence, the same needs to be considered as capital receipt not chargeable to tax. As regards the contention of the DR that the same is chargeable to tax as business income or as Capital Gains, the AR submitted that the above issue has already been considered by the Hon'ble Hyderabad Tribunal that the said receipt is not chargeable to tax as it does not fall u/s 2(24), 28, 45 and 56 of the Act.
Held - We find that the Appellate Tribunal in My Home Power Ltd Vs. DCIT [supra], have, after detailed examination, concluded that the receipts from Carbon credit are capital in nature. We are inclined to follow the said decision and the other two decisions of Chennai Tribunal in Sri Velayudhaswamy Spinning Mills (P.) Ltd. Vs. DCIT [supra] and Ambika Cotton Mills Ltd. Vs. DCIT (supra) where also it has been held that receipt on account of Carbon Credit is capital in nature & neither chargeable to tax under the head Business Income nor liable to tax under the head Capital Gains. Our above view is also supported by the decision of Supreme Court in the case of Vodafone International Holdings Vs. UOI [supra] wherein Supreme Court has held that treatment of any particular item in different manner in the 1961 Act and DTC serves as an important guide in determining the taxability of said item. Since DTC by virtue of the deeming provisions specifically provides for taxability of carbon credit as business receipt and Income Tax Act does not do so, our view gets duly fortified by the principles stated in the above decision of Supreme Court. Accordingly this ground of the assessee is allowed and the addition made by the AO is deleted.
IBA may discontinue pre-payment penalty on all floating rate loans and levy of Minimum Balance Charges
Annual Conference of Banking Ombudsmen 2014 -Date : 31 Jan 2014
The Annual Banking Ombudsmen Conference was held at the Reserve Bank of India, Mumbai on January 30, 2014 and was inaugurated by Dr. Raghuram G. Rajan, Governor, Reserve Bank of India. The Governor delivered the keynote address and expressed that customer protection is at the core of the central Banks' concerns. He released the Annual Report of the Banking Ombudsman Scheme for year 2012-2013. The Annual Report contains the highlights of the performance of 15 Offices of Banking Ombudsmen across the country and is available on the RBI website: www.rbi.org.in.
All fifteen Banking Ombudsmen, CMDs/CEOs of major public/ private sector banks, representatives of major foreign banks, Chief Executive of Indian Banks' Association, Chairman of BCSBI, MD & CEO of NPCI, MD of CIBIL, Member SEBI, Director, CAFRAL attended. Dr. KC Chakrabarty chaired the conference, addressed the Banking Ombudsmen and also held structured interactions with those present.
Dr. Nachiket Mor, Director, Central Board of RBI, a Guest Speaker discussed the idea of suitability of products and services and other recommendations of the Committee on Comprehensive Financial Services for Small Businesses and Low Income Households chaired by him. Ms Monika Halan, Editor Livemint, another Guest Speaker, spoke on the need for protecting the rights of small and vulnerable customers.
Action Points for Improving Customer Protection
- Banks and IBA to work together on rolling out a wide impact media campaign for improving financial literacy, creating awareness of products and commitment of banks to Fair Practices Codes. The Depositors' Education and Awareness Fund and banks' own advertisement budget may be used for the purpose.
- IBA may issue instructions at the earliest to banks to discontinue levy of pre-payment penalty on all floating rate loans and ensure that fixed rate loans are truly fixed and are not referenced to any floating rate benchmark.
- Banks may discontinue the practice of levying penalty for non-maintenance of minimum balance in ordinary savings bank accounts and instead consider converting such accounts to Basic Savings Bank Deposit accounts. IBA/RBI may issue the necessary operational instructions to banks in this regard.
- Banks to revisit the charges levied to ensure reasonableness, fairness and transparency in pricing. IBA to issue detailed operational guidelines to banks in this regard.
- Banks and IBA to formulate policy on zero liability of customer in electronic banking transactions, where the bank is unable to establish customer level negligence. The onus of proving customer level negligence would be on the bank and when such negligence is not established beyond doubt, the benefit of such doubt may be given to the customer. IBA and banks should strive to put in place policies, systems and processes to secure electronic banking systems, protect customer's interest to bring it 'at par' with traditional delivery channels.
- Banks and IBA to revisit the 'reasonableness' of the proposed levy of charge for transactions done by customers at banks' own ATMs.
Background
The Reserve Bank notified the Banking Ombudsman Scheme in 1995. The Scheme provides for a system of quick and inexpensive redress of customer grievances against banks. The Banking Ombudsman Scheme covers a wide range of complaints concerning deficiency in banking service. The Scheme also allows appeals from complainants and banks in respect of decisions made by the Banking Ombudsman. The Deputy Governor is the appellate authority under the Scheme. The Scheme was revised twice – in 2002 and 2006 to expand its scope and coverage. The Scheme, as last amended in 2009, includes complaints for deficiencies arising out of internet banking, non-adherence to the provisions of the Fair Practices Code for lenders or the Code of Bank's Commitment to Customers issued by the Banking Codes and Standards Board of India (BCSBI) and non-observance of the Reserve Bank guidelines/directions.
IT: 'Earnest Money' not a loan or deposit; its repayment in cash does not violate section 269T provisions
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[2013] 37 taxmann.com 349 (Gujarat)
HIGH COURT OF GUJARAT
Commissioner of Income-tax -VI
v.
Madhav Enterprise (P.) Ltd.*
M.R. Shah AND MS. SONIA GOKANI, JJ.
Tax Appeal No. 561 of 2013†
JULY 3, 2013
Section 269T, read with section 271E of the Income-tax Act, 1961 - Deposit - Mode of repayment [Earnest money] - Assessment year 2006-07 - Whether, where assessee-company, engaged in construction, repaid earnest money/advances to certain parties in cash, section 269T was not applicable as repayments were not in nature of repayment of loan or deposits - Held, yes -Whether, therefore penalty under section 271E for violation of section 269T, for making payments in excess of Rs. 20,000 in cash, could not be levied - Held, yes [Para 7] [In favour of assessee]
Mrs. Mauna M. Bhatt for the Appellant.
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