Chartered Accountant Finance: [aaykarbhavan] Judgments and Information.

Companies Act 2013 – Companies (Meetings of Board and its Powers) Rules, 2014

Chapter XII – The Companies (Meetings of Board and its Powers) Rules, 2014

Ministry of Corporate Affairs

Notification

New Delhi, Dated 27.03.2014

GSR. (E).- No. In exercise of powers conferred under sections 173, 175, 177, 178, 179, 184, 185, 186, 187, 188, 189 and section 191 read with section 469 of the Companies Act, 2013 and in supersession of the Companies (Central Government General) Rules and Forms or any other Rules prescribed under the Companies Act, 1956 on matters covered under these rules, except as respects things done or omitted to be done before such suppression, the Central Government hereby makes the following rules, namely:-

1. (1) Short title and commencement.- (1) These rules may be called the Companies (Meetings of Board and its Powers) Rules, 2014.

(2) They shall come into force on the date of their publication in the Official Gazette.

2. Definitions.- (1) In these rules, unless the context otherwise requires, -

(a) "Act" means the Companies Act, 2013;

(b) "Annexure" means the Annexure appended to these rules;

(d) "Form" or "e-Form" means a form set forth in Annexure to these rules which shall be used for the matter to which it relates;

(e) "Related party" means a director or key managerial personnel of the holding company or his relative with reference to a company, shall be deemed to be a related party;

(f) "section" means the section of the Act.

(2) Words and expressions used in these rules but not defined and defined in the Act or in the Companies (Specification of Definitions Details) Rules, 2014, shall have the same meanings respectively assigned to them in the Act or in the said Rules.

3. Meetings of Board through video conferencing or other audio visual means.- A company shall comply with the following procedure, for convening and conducting the Board meetings through video conferencing or other audio visual means.

(1) Every Company shall make necessary arrangements to avoid failure of video or audio visual connection.

(2) The Chairperson of the meeting and the company secretary, if any, shall take due and reasonable care -

(a) to safeguard the integrity of the meeting by ensuring sufficient security and identification procedures;

(b) to ensure availability of proper video conferencing or other audio visual equipment or facilities for providing transmission of the communications for effective participation of the directors and other authorised participants at the Board meeting;

(d) to store for safekeeping and marking the tape recording(s) or other electronic recording mechanism as part of the records of the company at least before the time of completion of audit of that particular year.

(e) to ensure that no person other than the concerned director are attending or have access to the proceedings of the meeting through video conferencing mode or other audio visual means; and

(f) to ensure that participants attending the meeting through audio visual means are able to hear and see the other participants clearly during the course of the meeting:

Provided that the persons, who are differently abled, may make request to the Board to allow a person to accompany him.

(3) (a) The notice of the meeting shall be sent to all the directors in accordance with the provisions of sub-section (3) of section 173 of the Act.

(b) The notice of the meeting shall inform the directors regarding the option available to them to participate through video conferencing mode or other audio visual means, and shall provide all the necessary information to enable the directors to participate through video conferencing mode or other audio visual means.

(c) A director intending to participate through video conferencing or audio visual means shall communicate his intention to the Chairperson or the company secretary of the company.

(d) If the director intends to participate through video conferencing or other audio visual means, he shall give prior intimation to that effect sufficiently in advance so that company is able to make suitable arrangements in this behalf.

(e ) The director, who desire, to participate may intimate his intention of participation through the electronic mode at the beginning of the calendar year and such declaration shall be valid for one calendar year.

(f) In the absence of any intimation under clause (c), it shall be assumed that the director shall attend the meeting in person.

(4) At the commencement of the meeting, a roll call shall be taken by the Chairperson when every director participating through video conferencing or other audio visual means shall state, for the record, the following namely:-

(a) name;

(b) the location from where he is participating;

(d) that no one other than the concerned director is attending or having access to the proceedings of the meeting at the location mentioned in clause (b);

(5) (a) After the roll call, the Chairperson or the Company Secretary shall inform the Board about the names of persons other than the directors who are present for the said meeting at the request or with the permission of the Chairperson and confirm that the required quorum is complete.

Explanation.- A director participating in a meeting through video conferencing or other audio visual means shall be counted for the purpose of quorum, unless he is to be excluded for any items of business under any provisions of the Act or the rules.

(b) The Chairperson shall ensure that the required quorum is present throughout the meeting.

(6) With respect to every meeting conducted through video conferencing or other audio visual means authorised under these rules, the scheduled venue of the meeting as set forth in the notice convening the meeting, which shall be in India, shall be deemed to be the place of the said meeting and all recordings of the proceedings at the meeting shall be deemed to be made at such place.

(7) The statutory registers which are required to be placed in the Board meeting as per the provisions of the Act shall be placed at the scheduled venue of the meeting and where such registers are required to be signed by the directors, the same shall be deemed to have been signed by the directors participating through electronic mode, if they have given their consent to this effect and it is so recorded in the minutes of the meeting.

(8) (a) Every participant shall identify himself for the record before speaking on any item of business on the agenda.

(b) If a statement of a director in the meeting through video conferencing or other audio visual means is interrupted or garbled, the Chairperson or Company Secretary shall request for a repeat or reiteration by the Director.

(9) If a motion is objected to and there is a need to put it to vote, the Chairperson shall call the roll and note the vote of each director who shall identify himself while casting his vote.

(10) From the commencement of the meeting and until the conclusion of such meeting, no person other than the Chairperson, Directors, Company Secretary and any other person whose presence is required by the Board shall be allowed access to the place where any director is attending the meeting either physically or through video conferencing without the permission of the Board.

(11) (a) At the end of discussion on each agenda item, the Chairperson of the meeting shall announce the summary of the decision taken on such item along with names of the directors, if any, who dissented from the decision taken by majority.

(b) The minutes shall disclose the particulars of the directors who attended the meeting through video conferencing or other audio visual means.

(12) (a) The draft minutes of the meeting shall be circulated among all the directors within fifteen days of the meeting either in writing or in electronic mode as may be decided by the Board.

(b) Every director who attended the meeting, whether personally or through video conferencing or other audio visual means, shall confirm or give his comments in writing, about the accuracy of recording of the proceedings of that particular meeting in the draft minutes, within seven days or some reasonable time as decided by the Board, after receipt of the draft minutes failing which his approval shall be presumed.

(c) After completion of the meeting, the minutes shall be entered in the minute book as specified under section 118 of the Act and signed by the Chairperson.

Explanation.- For the purposes of this rule, "video conferencing or other audio visual means" means audio- visual electronic communication facility employed which enables all the persons participating in a meeting to communicate concurrently with each other without an intermediary and to participate effectively in the meeting.

4. Matters not to be dealt with in a meeting through video conferencing or other audio visual means.- (1) The following matters shall not be dealt with in any meeting held through video conferencing or other audio visual means.-

(i) the approval of the annual financial statements;

(ii) the approval of the Board's report;

(iii) the approval of the prospectus;

(iv) the Audit Committee Meetings for consideration of accounts; and

(v) the approval of the matter relating to amalgamation, merger, demerger, acquisition and takeover.

5. Passing of resolution by circulation.- A resolution in draft form may be circulated to the directors together with the necessary papers for seeking their approval, by electronic means which may include E-mail or fax.

6. Committees of the Board.- The Board of directors of every listed companies and the following classes of companies shall constitute an Audit Committee and a Nomination and Remuneration Committee of the Board-

(i) all public companies with a paid up capital of ten crore rupees or more;

(ii) all public companies having turnover of one hundred crore rupees or more;

(iii) all public companies, having in aggregate, outstanding loans or borrowings or debentures or deposits exceeding fifty crore rupees or more.

Explanation.- The paid up share capital or turnover or outstanding loans, or borrowings or debentures or deposits, as the case may be, as existing on the date of last audited Financial Statements shall be taken into account for the purposes of this rule.

7. Establishment of vigil mechanism.- (1) Every listed company and the companies belonging to the following class or classes shall establish a vigil mechanism for their directors and employees to report their genuine concerns or grievances-

(a) the Companies which accept deposits from the public;

(b) the Companies which have borrowed money from banks and public financial institutions in excess of fifty crore rupees.

(2) The companies which are required to constitute an audit committee shall oversee the vigil mechanism through the committee and if any of the members of the committee have a conflict of interest in a given case, they should recuse themselves and the others on the committee would deal with the matter on hand.

(3) In case of other companies, the Board of directors shall nominate a director to play the role of audit committee for the purpose of vigil mechanism to whom other directors and employees may report their concerns.

(4) The vigil mechanism shall provide for adequate safeguards against victimisation of employees and directors who avail of the vigil mechanism and also provide for direct access to the Chairperson of the Audit Committee or the director nominated to play the role of Audit Committee, as the case may be, in exceptional cases.

(5) In case of repeated frivolous complaints being filed by a director or an employee, the audit committee or the director nominated to play the role of audit committee may take suitable action against the concerned director or employee including reprimand.

8. Powers of Board.- In addition to the powers specified under sub-section (3) of section 179 of the Act, the following powers shall also be exercised by the Board of Directors only by means of resolutions passed at meetings of the Board.-

(1) to make political contributions;

(2) to appoint or remove key managerial personnel (KMP);

(3) to take note of appointment(s) or removal(s) of one level below the Key Management Personnel;

(4) to appoint internal auditors and secretarial auditor;

(5) to take note of the disclosure of director's interest and shareholding;

(6) to buy, sell investments held by the company (other than trade investments), constituting five percent or more of the paid up share capital and free reserves of the investee company;

(7) to invite or accept or renew public deposits and related matters;

(8) to review or change the terms and conditions of public deposit;

(9) to approve quarterly, half yearly and annual financial statements or financial results as the case may be.

9. Disclosures by a director of his interest.- (1) Every director shall disclose his concern or interest in any company or companies or bodies corporate (including shareholding interest), firms or other association of individuals, by giving a notice in writing in Form MBP 1.

(2) It shall be the duty of the director giving notice of interest to cause it to be disclosed at the meeting held immediately after the date of the notice.

(3) All notices shall be kept at the registered office and such notices shall be preserved for a period of eight years from the end of the financial year to which it relates and shall be kept in the custody of the company secretary of the company or any other person authorized by the Board for the purpose.

10. Loans to Director etc. under section 185.- (1) Any loan made by a holding company to its wholly owned subsidiary company or any guarantee given or security provided by a holding company in respect of any loan made to its wholly owned subsidiary company is exempted from the requirements under this section; and

(2) Any guarantee given or security provided by a holding company in respect of loan made by any bank or financial institution to its subsidiary company is exempted from the requirements under this section:

Provided that such loans made under sub-rule (1) and (2) are utilised by the subsidiary company for its principle business activities.

11. Loan and investment by a company under section 186 of the Act.- (1) Where a loan or guarantee is given or where a security has been provided by a company to its wholly owned subsidiary company or a joint venture company, or acquisition is made by a holding company, by way of subscription, purchase or otherwise of, the securities of its wholly owned subsidiary company, the requirement of sub-section (3) of section 186 shall not apply:

Provided that the company shall disclose the details of such loans or guarantee or security or acquisition in the financial statement as provided under sub-section (4) of section 186.

(2) For the purposes of clause (a) of sub-section (11) of section 186, the expression "business of financing of companies" shall include, with regard to a Non-Banking Financial Company registered with Reserve Bank of India, "business of giving of any loan to a person or providing any guaranty or security for due repayment of any loan availed by any person in the ordinary course of its business".

(3) No company registered under section 12 of the Securities and Exchange Board of India Act, 1992 and also covered under such class or classes of companies which may be notified by the Central Government in consultation with the Securities and Exchange Board, shall take any inter-corporate loan or deposits, in excess of the limits specified under the regulations applicable to such company, pursuant to which it has obtained certificate of registration from the Securities and Exchange Board of India.

12. Register.- (1) Every company giving loan or giving guarantee or providing security or making an acquisition of securities shall, from the date of its incorporation, maintain a register in Form MBP 2 and enter therein separately, the particulars of loans and guarantees given, securities provided and acquisitions made as aforesaid.

(2) The entries in the register shall be made chronologically in respect of each such transaction within seven days of making such loan or giving guarantee or providing security or making acquisition.

(3) The register shall be kept at the registered office of the company and the register shall be preserved permanently and shall be kept in the custody of the company secretary of the company or any other person authorised by the Board for the purpose.

(4) The entries in the register (either manual or electronic) shall be authenticated by the company secretary of the company or by any other person authorised by the Board for the purpose.

(5) For the purpose of sub-rule (4), the register can be maintained either manually or in electronic mode.

(6) The extracts from the register maintained under sub-section (9) of section 186 may be furnished to any member of the company on payment of such fee as may be prescribed in the Articles of the company which shall not exceed ten rupees for each page.

13. Special Resolution.- (1) Where the aggregate of the loans and investment so far made, the amount for which guarantee or security so far provided to or in all other bodies corporate along with the investment, loan, guarantee or security proposed to be made or given by the Board, exceed the limits specified under section 186 no investment or loan shall be made or guarantee shall be given or security shall be provided unless previously authorised by a special resolution passed in a general meeting.

Explanation.- For the purpose of this sub-rule, it is clarified that it would sufficient compliance if such special resolution is passed within one year from the date of notification of this section.

(2) A resolution passed at a general meeting in terms of sub-section (3) of section 186 to give any loan or guarantee or investment or providing any security or the acquisition under sub section (2) of section 186 shall specify the total amount up to which the Board of Directors are authorised to give such loan or guarantee, to provide such security or make such acquisition:

Provided, that the company shall disclose to the members in the financial statement the full particulars in accordance with the provision of sub-section (4) of section 186.

14. Investments of company to be held in its own name.- (1) Every company shall, from the date of its registration, maintain a register in Form MBP 3 and enter therein, chronologically, the particulars of investments in shares or other securities beneficially held by the company but which are not held in its own name and the company shall also record the reasons for not holding the investments in its own name and the relationship or contract under which the investment is held in the name of any other person.

(2) The company shall also record whether such investments are held in a third party's name for the time being or otherwise.

(3) The register shall be maintained at the registered office of the company. The register shall be preserved permanently and shall be kept in the custody of the company secretary of the company or if there is no company secretary, any director or any other officer authorised by the Board for the purpose.

(4) The entries in the register shall be authenticated by the company secretary of the company or by any other person authorised by the Board for the purpose.

15. Contract or arrangement with a related party.- A company shall enter into any contract or arrangement with a related party subject to the following conditions, namely:-

(1) The agenda of the Board meeting at which the resolution is proposed to be moved shall disclose-

(a) the name of the related party and nature of relationship;

(b) the nature, duration of the contract and particulars of the contract or arrangement;

(d) any advance paid or received for the contract or arrangement, if any;

(e) the manner of determining the pricing and other commercial terms, both included as part of contract and not considered as part of the contract;

(f) whether all factors relevant to the contract have been considered, if not, the details of factors not considered with the rationale for not considering those factors; and

(g) any other information relevant or important for the Board to take a decision on the proposed transaction.

(2) Where any director is interested in any contract or arrangement with a related party, such director shall not be present at the meeting during discussions on the subject matter of the resolution relating to such contract or arrangement-

(3) For the purposes of first proviso to sub-section (1) of section 188, except with the prior approval of the company by a special resolution-

(i) a company having a paid-up share capital of ten crore rupees or more shall not enter into a contract or arrangement with any related party; or

(ii) a company shall not enter into a transaction or transactions, where the transaction or transactions to be entered into -

(a) as contracts or arrangements with respect to clauses (a) to (e) of sub-section (1) of section 188 with criteria, as mentioned below -

(i) sale, purchase or supply of any goods or materials directly or through appointment of agents exceeding twenty five percent. of the annual turnover as mentioned in clause (a) and clause (e) respectively of sub-section (1) of section 188;

(ii) selling or otherwise disposing of, or buying, property of any kind directly or through appointment of agents exceeding ten percent. of net worth as mentioned in clause (b) and clause (e) respectively of sub-section (1) of section 188;

(iii) leasing of property of any kind exceeding ten percent. of the net worth or exceeding ten percent. of turnover as mentioned in clause (c) of sub-section (1) of section 188;

(iv) availing or rendering of any services directly or through appointment of agents exceeding ten percent. of the net worth as mentioned in clause (d) and clause (e) of sub-section (1) of section 188;

(b) appointment to any office or place of profit in the company, its subsidiary company or associate company at a monthly remuneration exceeding two and half lakh rupees as mentioned in clause (f) of sub-section (1) of section 188; or

(c) remuneration for underwriting the subscription of any securities or derivatives thereof of the company exceeding one percent. of the net worth as mentioned in clause (g) of sub-section (1) of section 188.

Explanation.- (1) The Turnover or Net Worth referred in the above sub-rules shall be on the basis of the Audited Financial Statement of the preceding Financial year.

(2) In case of wholly owned subsidiary, the special resolution passed by the holding company shall be sufficient for the purpose of entering into the transactions between wholly owned subsidiary and holding company.

(3) The explanatory statement to be annexed to the notice of a general meeting convened pursuant to section 101 shall contain the following particulars namely:-

(a) name of the related party ;

(b) name of the director or key managerial personnel who is related, if any;

(d) nature, material terms, monetary value and particulars of the contract or arrangement;

(e) any other information relevant or important for the members to take a decision on the proposed resolution.

16. Register of contracts or arrangements in which directors are interested.- (1) Every company shall maintain one or more registers in Form MBP 4, and shall enter therein the particulars of-

(a) company or companies or bodies corporate, firms or other association of individuals, in which any director has any concern or interest, as mentioned under sub-section (1) of section 184:

Provided that the particulars of the company or companies or bodies corporate in which a director himself together with any other director holds two percent. or less of the paid-up share capital would not be required to be entered in the register;

(b) contracts or arrangements with a body corporate or firm or other entity as mentioned under sub-section (2) of section 184, in which any director is, directly or indirectly, concerned or interested; and

(2) The entries in the register shall be made at once, whenever there is a cause to make entry, in chronological order and shall be authenticated by the company secretary of the company or by any other person authorised by the Board for the purpose.

(4) The company shall provide extracts from such register to a member of the company on his request, within seven days from the date on which such request is made upon the payment of such fee as may be specified in the articles of the company but not exceeding ten rupees per page.

17. Payment to director for loss of office, etc. in connection with transfer of undertaking, property or shares.- (1) No director of a company shall receive any payment by way of compensation in connection with any event mentioned in sub-section (1) unless the following particulars are disclosed to the members of the company and they pass a resolution at a general meeting approving the payment of such amount -

(a) name of the director;

(b) amount proposed to be paid;

(d) date of Board meeting recommending such payment;

(e) basis for the amount determined;

(f) reason or justification for the payment;

(g) manner of payment – whether payable in cash or otherwise and how;

(h) sources of payment; and

(i) any other relevant particulars as the Board may think fit.

(2) Any payment made by a company by way of compensation for the loss of office or as a consideration for retirement from office or in connection with such loss or retirement, to a managing director or whole time director or manager of the company shall not exceed the limit as set out under section 202.

(3) No payment shall be made to the managing director or whole time director or manager of the company by way of compensation for the loss of office or as consideration for retirement from office (other than notice pay and statutory payments in accordance with the terms of appointment of such director or manager, as applicable) or in connection with such loss or retirement if -

(a) the company is in default in repayment of public deposits or payment of interest thereon;

(b) the company is in default in redemption of debentures or payment of interest thereon;

(c) the company is in default in repayment of any liability, secured or unsecured, payable to any bank, public financial institution or any other financial institution;

(d) the company is in default in payment of any dues towards income tax, VAT, excise duty, service tax or any other tax or duty, by whatever name called, payable to the Central Government or any State Government, statutory authority or local authority (other than in cases where the company has disputed the liability to pay such dues);

(e) there are outstanding statutory dues to the employees or workmen of the company which have not been paid by the company (other than in cases where the company has disputed the liability to pay such dues); and

(f) the company has not paid dividend on preference shares or not redeemed preference shares on due date.

Explanation : Pending notification of sub-section (1) of section 247 of the Act and finalisation of qualifications and experience of valuers, valuation of stocks, shares, debentures, securities etc. will be conducted by an independent merchant banker who is registered with the Securities and Exchange Board of India or an independent chartered accountant in practice having a minimum experience of ten years.

(File No. 1/32/2013-CL.V)

(Renuka Kumar)

Joint Secretary to the Government of India

Central Indirect Tax Litigations – Different Levels for Dispute resolution

R. Kumar, B.Com. MBA

Introduction:

India has steadily streamlined its central indirect tax regime over the last 30 years. The law has increasingly become simpler and easier to interpret and administer. Central indirect tax laws in India, at the central level, provide various avenues for resolution of tax disputes/litigations. Official litigation policy says in revenue matters, an appeal shall not be filed if the amount involved is not very high or is less than the monetary limit fixed by the revenue authorities. It also states appeals shall not be filed if the matter is covered by a series of judgments of the tribunal in question and the High Courts, which have held the field and not been challenged in the Supreme Court. A tax dispute may take anytime between 12 to 20 years before it attains finality at the Supreme Court level.

It also says no appeal shall be filed where the assessee has acted in accordance with the long-standing practice and also merely because of a change of opinion on the part of the jurisdictional officers. While the norm is a five-tier appeal process mandated by customs, central excise and service tax laws.

A representation of the five-tier appeal structure at each level is given below:

Structures Format:

Level-1:- Dispute resolution by Assistant / Deputy / Joint / Additional Commissioner or Commissioner:

The original adjudicating authority takes around one to two years to adjudicate a Show Cause Notices (SCN) issued by the said authority.

Under central indirect tax laws, the first level of adjudication is by a Superintendent, Deputy Commissioners, Joint/Additional Commissioners or Commissioner depending on the quantum and nature of dispute involved. The original adjudicating authorities have the right to and they seek copious additional documentation from the taxpayer during the course of adjudication of a claim. Such additional information and documentation is sought and scrutinized in the context of adjudication of demands as well as refunds filed by the taxpayer. Such adjudication proceedings culminate in either confirmation of the demand (i.e. tax/duty, interest and penalty) or rejection of refund on a host of legal/technical, procedural and documentation based reasons.

In the context of issuing demands, adjudicating authorities are allowed to issue Show Cause Notices (SCNs) within a period of 1 year from relevant date (as per Notification No. 30/2005 – Service Tax, dated August 10, 2005 last amended on September 8, 2010). However, in cases where the department is in a position to substantiate that tax / duty has not been paid by reason of fraud, collusion or any willful misstatement or suppression of facts etc, then a larger period of limitation of 5 years could be invoked.

The taxpayer, upon issuance of Show Cause Notices, is expected to provide necessary clarification to the adjudicating authorities rebutting the allegations in the Show Cause Notices/ substantiating the tax position adopted by the taxpayer. At this stage, the adjudicating authorities are required to judiciously analyze the submissions made by the taxpayer and arrive at a conclusion in confirming / dropping the proposals in the Show Cause Notices (SCNs).

Upon the finalization of first level of adjudication proceedings vide an "Order-in-Original", the dissatisfied the taxpayer can prefer an appeal before the next level of dispute resolution which is either Commissioner (Appeals) (in case of orders passed by Additional Commissioner or officers below him) or in case taxpayer is aggrieved by the order passed by the Commissioner (i.e. Customs, Excise, Service Tax Appellate Tribunal).

Level-2:- Dispute resolution by Appeal to Commissioner (Appeals):

The time typically taken for the resolution of an appeal at the level of the Commissioner (Appeals) is approximately 1 to 2 years. An Order-in-Original passed by adjudicating authorities below the level of a Commissioner, an appeal lies to the Commissioner (Appeals). The Commissioner (Appeals) is required to consider the arguments of both the Revenue and the taxpayer and decide the matter judiciously and by following the principles of natural justice. The proceedings at this level culminate in an "Order-in- Appeal" being issued by the Commissioner (Appeals).

Level-3:- Dispute resolution by the Customs, Excise, Service Tax Appellate Tribunal ('CESTAT'):

The time typically taken for a resolution of an appeal at the level of the CESTAT is approximately 2 – 3 years. An appeal lies before the CESTAT against an Order-in-Appeal passed by the Commissioner (Appeals) or an Order-in-Original passed by the Commissioner, as the case may be. Except for matters relating to classification and valuation of goods, the CESTAT is the final Appellate Authority in all customs, excise and service tax matters, although a reference to the High Court can be made on a "Question of Law". In classification and valuation matters, the appeal against the order of the CESTAT directly lies to the Hon'ble Supreme Court.

The CESTAT as well as the Commissioner (Appeals) have the power to dispense with the requirement to pre-deposit tax, interest and penalty arising out of the order appealed against where the said appellate authority is of the view that such deposit shall cause undue hardship to the taxpayer / shall not adversely affect the interests of the Revenue.

The CESTAT has established coordinate benches across the country and an order of an earlier coordinate bench is binding upon any latter coordinate bench deciding the same or similar issues. If the later bench wants to take a different view than the one taken by the earlier bench, the proper course is for it to refer the matter to a larger bench for decision.

Level-4:- Dispute resolution by High Court:

Disposal of an appeal at the level of High Court level could entail many years (between 3 and 5 years). An appeal against the order of the CESTAT lies before the jurisdictional High Court on issues involving "substantial questions of law" except issues relating to classification and valuation where, as mentioned earlier, the appeal lies directly before the Supreme Court.

A decision of the High Court would have a binding effect on the Revenue and all taxpayers lying within its jurisdiction. In other words, unless reversed by the Supreme Court or by way of a retrospective legislation, a decision of the jurisdictional High Court attains finality within its jurisdiction and has a reasonable persuasive value in other jurisdictions.

Level-5:– Dispute resolution by the Supreme Court:

Disposal of an appeal at the level of the Supreme Court could entail several years (between 5 and 8 years).

This last tier of the litigation structure is the highest court of India – the Supreme Court. A decision of a High Court on a question of law may be challenged by the taxpayer/ Revenue before the Supreme Court. Further, as discussed in the previous paragraph, an appeal against the order of the CESTAT on issues relating to classification and / or valuation also lies directly to the Supreme Court.

Under Article 141 of the Constitution of India, a decision rendered by the Supreme Court of India is the law of the land and binding on all courts and tribunals functioning in the country. In other words, dispute resolution is final at the level of the Supreme Court unless legislative changes are made to reverse the decision of the Supreme Court.

Case Study:-

In the case of CCE Vs. Techno Economic Services Pvt. Ltd [(2010) 255-ELT-526 (Bom)], the Bombay High Court observed the Central Board of Direct Taxes had taken a policy decision in March 2000 not to file appeals or references wherein the tax effect is less than the amount prescribed in the instructions issued from time to time. This was to reduce litigation before the High Court's and the Supreme Court. The decision has definitely reduced the volume of litigation, enabling officers to concentrate on cases involving heavy stakes. The High Court asked the Central Board of Excise and Customs to adopt a similar policy, for these and related reasons, including reducing the burden on the courts and on the revenue department.

Accordingly, on October 20, 2010, the Central Board of Excise and Customs prescribed monetary limits below which an appeal shall not be filed in tribunals/courts on excise, customs and service tax matters. The Finance Act, 2011, gave necessary powers to Central Board of Excise and Customs to do so with effect from the earlier date.

The monetary limits were revised on August 17, 2011. Accordingly, the department is not to file appeals before a tribunal where the duty/tax amount is less than Rs 5 lakh. The limits for not filing appeals before High Court's and the Supreme Court are Rs 10 lakh and Rs 25 lakh, respectively.

These limits also apply for matters involving refunds. However, the monetary limits will not be a consideration on matters before the revisionary authority in the finance ministry or where the constitutional validity of the provisions of an Act or Rule is under challenge or where a notification or instruction or order or circular has been held illegal or unconstitutional. Also, decisions or judgments not challenged in appeal or accepted by the department for reasons of monetary limit do not have precedent value.

Conclusion:- The above mentioned relevant laws make it abundantly clear that no person, being a party in appeal, shall contend that the department had acquiesced in the decision on the disputed issue by not filing an appeal, where an appeal has not been filed by the department following instructions issued for not filing one below the monetary limit. Central Board of Excise and Customs (CBEC) recently reiterated this point and advised its representatives in the tribunal to plead that a judgment accepted for reasons of low amount should not be relied upon by the appellate forum. Since in my advice, the trade must take note that on all matters involving amounts less than the monetary limits prescribed, the department is at liberty to agitate the issue in subsequent proceedings till the matter is settled on merits.

Author can be reached @ sunraj.18@rediffmail.com

Chapter XXVI – Nidhi Rules, 2014 – Companies Act 2013

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[TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY, PART II,SECTION 3, SUB-SECTION (i)]

Government of India
Ministry of Corporate Affairs
Notification

New Delhi, dated ___________

G.S.R. (E).- In exercise of the powers conferred under sub-section (1) of section 406 read with sub-sections (1) and (2) of 469 of the Companies Act,2013, the Central Government hereby makes the following rules, namely:-

1. Short title and commencement. - (1) These Rules may be called Nidhi Rules, 2014.

(2) They shall come into force on the date of their publication in the Official Gazette.

2. Application.- These rules shall apply to,-

(a) every company which had been declared as a Nidhi or Mutual Benefit Society under sub-section (1) of section 620A of the Companies Act, 1956;

(b) every company functioning on the lines of a Nidhi company or Mutual Benefit Society but has either not applied for or has applied for and is awaiting notification to be a Nidhi or Mutual Benefit Society under sub-section (1) of section 620A of the Companies Act, 1956; and

3. Definitions.- (1) In these rules, unless the context otherwise requires,-

(a) "Act" means the Companies Act, 2013 (18 of 2013);

(b) "Doubtful Asset" means a borrowal account which has remained a nonperforming asset for more than two years but less than three years;

(c) "Loss Asset" means a borrowal account which has remained a nonperforming asset for more than three years or where in the opinion of the Board, a shortfall in the recovery of the loan account is expected because the documents executed may become invalid if subjected to legal process or for any other reason;

(d) "Net Owned Funds" means the aggregate of paid up equity share capital and free reserves as reduced by accumulated losses and intangible assets appearing in the last audited balance sheet:

Provided that the amount representing the proceeds of issue of preference shares shall not be included for calculating Net Owned Funds.

(e) "Non-Performing Asset" means a borrowal account in respect of which interest income or instalment of loan towards repayment of principal amount has remained unrealised for twelve months;

(f) "Standard Asset" means the asset in respect of which no default in repayment of principal or payment of interest has occurred or is perceived and which has neither shown signs of any problem relating to repayment of principal sum or interest nor does it carry more than normal risk attached to the business;

(g) "Sub-Standard Asset" means a borrowal account which is a non performing asset:

Provided that reschedulement or renegotiation or rephasement of the loan instalment or interest payment shall not change the classification of an asset unless the borrowal account has satisfactorily performed for at least twelve months after such reschedulement or renegotiation or rephasement.

(2) Words and expressions used herein, but not defined in these rules and defined in the Act or in the Companies (Specification of definitions details)Rules, 2014 shall have the same meaning as assigned to them in the Act orin the said Rules.

4. Incorporation and incidental matters.- (1) A Nidhi to be incorporated under the Act shall be a public company and shall have a minimum paid upequity share capital of five lakh rupees.

(2) On and after the commencement of the Act, no Nidhi shall issue preference shares.

(3) If preference shares had been issued by a Nidhi before the commencement of this Act, such preference shares shall be redeemed inaccordance with the terms of issue of such shares.

(4) Except as provided under the proviso to sub-rule (e) to rule 6, no Nidhi shall have any object in its Memorandum of Association other than theobject of cultivating the habit of thrift and savings amongst its members,receiving deposits from, and lending to, its members only, for their mutualbenefit.

(5) Every Company incorporated as a "Nidhi" shall have the last words 'Nidhi Limited' as part of its name.

5. Requirements for minimum number of members, net owned fundetc.- (1) Every Nidhi shall, within a period of one year from the commencement of these rules, ensure that it has-

(a) not less than two hundred members;

(b) Net Owned Funds of ten lakh rupees or more;

(d) ratio of Net Owned Funds to deposits of not more than 1:20.

(2) Within ninety days from the close of the first financial year after its incorporation and where applicable, the second financial year, Nidhi shall file a return of statutory compliances in Form NDH-1 along with such fee as provided in Companies (Registration Offices and Fees) Rules, 2014 with the Registrar duly certified by a company secretary in practice or a chartered accountant in practice or a cost accountant in practice.

(3) If a Nidhi is not complying with clauses (a) or (d) of sub-rule (1) above,it shall within thirty days from the close of the first financial year, apply to the Regional Director in Form NDH-2 along with fee specified in Companies(Registration Offices and Fees) Rules, 2014 for extension of time and the Regional Director may consider the application and pass orders within thirty days of receipt of the application.

Explanation.- For the purpose of this rule "Regional Director" means the person appointed by the Central Government in the Ministry of Corporate Affairs as a Regional Director;

(4) If the failure to comply with sub-rule (1) of this rule extends beyond the second financial year, Nidhi shall not accept any further deposits from the commencement of the second financial year till it complies with the provisions contained in sub-rule (1), besides being liable for penal consequences as provided in the Act.

6. General restrictions or prohibitions.- No Nidhi shall-

(a) carry on the business of chit fund, hire purchase finance, leasing finance, insurance or acquisition of securities issued by any body corporate;

(b) issue preference shares, debentures or any other debt instrument by any name or in any form whatsoever;

(d) acquire another company by purchase of securities or control the composition of the Board of Directors of any other company in any manner whatsoever or enter into any arrangement for the change of its management, unless it has passed a special resolution in its general meeting and also obtained the previous approval of the Regional Director having jurisdiction over such Nidhi;

Explanation.- For the purposes of this sub-rule, "control" shall have the same meaning assigned to it in clause (27) of section 2 of the Act;

(e) carry on any business other than the business of borrowing or lending in its own name:

Provided that Nidhis which have adhered to all the provisions of these rules may provide locker facilities on rent to its members subject to the rental income from such facilities not exceeding twenty per cent. of the gross income of the Nidhi at any point of time during a financial year.

(f) accept deposits from or lend to any person, other than its members;

(g) pledge any of the assets lodged by its members as security;

(h) take deposits from or lend money to any body corporate;

(i) enter into any partnership arrangement in its borrowing or lending activities;

(j) issue or cause to be issued any advertisement in any form for soliciting deposit:

Provided that private circulation of the details of fixed deposit schemes among the members of the Nidhi carrying the words "for private circulation to members only" shall not be considered to be an advertisement for soliciting deposits.

(k) pay any brokerage or incentive for mobilising deposits from members or for deployment of funds or for granting loans.

7. Share capital and allotment.- (1) Every Nidhi shall issue equity shares of the nominal value of not less than ten rupees each:

Provided that this requirement shall not apply to a company referred toin sub-rules (a) and (b) of rule 2.

(2) No service charge shall be levied for issue of shares.

(3) Every Nidhi shall allot to each deposit holder at least a minimum of ten equity shares or shares equivalent to one hundred rupees:

Provided that a savings account holder and a recurring deposit account holder shall hold at least one equity share of rupees ten.

8. Membership.- (1) A Nidhi shall not admit a body corporate or trust as a member.

(2) Except as otherwise permitted under these rules, every Nidhi shall ensure that its membership is not reduced to less than two hundred members at any time.

(3) A minor shall not be admitted as a member of Nidhi: Provided that deposits may be accepted in the name of a minor, if they aremade by the natural or legal guardian who is a member of Nidhi.

9. Net owned funds.- Every Nidhi shall maintain Net Owned Funds(excluding the proceeds of any preference share capital) of not less than ten lakh rupees or such higher amount as the Central Government may specify from time to time.

10. Branches.- (1) A Nidhi may open branches, only if it has earned net profits after tax continuously during the preceding three financial years.

(2) Subject to the provisions contained in sub-rule (1), a Nidhi may open upto three branches within the district.

(3) If a Nidhi proposes to open more than three branches within the district or any branch outside the district, it shall obtain the prior permission of the Regional Director and an intimation is to be given to the Registrar about opening of every branch within thirty days of such opening.

(4) No Nidhi shall open branches or collection centres or offices or deposit centres, or by whatever name called outside the State where its registered office is situated.

(5) No Nidhi shall open branches or collection centres or offices or deposit centres, or by whatever name called unless financial statement and annual return (up to date) are filed with the Registrar.

(6) A Nidhi shall not close any branch unless it-

(a) publishes an advertisement in a newspaper in vernacular language in the place where it carries on business at least thirty days prior to such closure, informing the public about such closure;

(b) fixes a copy of such advertisement or a notice informing such closure of the branch on the notice board of Nidhi for a period of at least thirty days from the date on which advertisement was published under clause (a) ; and

11. Acceptance of deposits by Nidhis.- (1) A Nidhi shall not accept deposits exceeding twenty times of its Net Owned Funds (NOF) as per itslast audited financial statements.

(2) In the case of companies covered under clauses (a) and (b) of rule 2and existing on or before 26th July, 2001 and which have accepted deposits in excess of the aforesaid limits, the same shall be restored to the prescribed limit by increasing the Net Owned Funds position or alternatively by reducing the deposit according to the table given below:

TABLE

Ratio of Net Owned Funds to Deposits (as on 31.3. 2013)	Date by which the company has to achieve prescribed ceiling of 1:20
a) More than 1:20 but upto 1:35	By 31.3. 2015
b) More than 1:35 but upto 1:45	By 31.3. 2016
c) More than 1:45	By 31.3. 2017

(3) The companies which are covered under the Table in sub-rule (2)above shall not accept fresh deposits or renew existing deposits if such acceptance or renewal leads to violation of the prescribed ratio.

(4) The ratio specified in sub-rule (2) above shall also apply to incremental deposits.

12. Application form for deposit.- (1) Every application form for placing a deposit with a Nidhi shall contain the following particulars,namely:-

(a) Name of Nidhi;

(b) Date of incorporation of Nidhi;

(d) Brief particulars of the management of Nidhi (name, addresses and occupation of the directors, including DIN);

(e) Net profits of Nidhi before and after making provision for tax for the preceding three financial years;

(f) Dividend declared by Nidhi during the preceding three financial years;

(g) Mode of repayment of the deposit;

(h) Maturity period of the deposit;

(i) Interest payable on the deposit;

(j) The rate of interest payable to the depositor in case the depositor withdraws the deposit prematurely;

(k) The terms and conditions subject to which the deposit may be accepted or renewed;

(l) A summary of the financials of the company as per the latest two audited financial statements as given below:

(i) Net Owned Funds

(ii) Deposits accepted

(iii) Deposits repaid

(iv) Deposits claimed but remaining unpaid

(v) Loans disbursed against-

(a) immovable property;

(b) deposits; and

(vi) Profit before tax

(vii) Provision for tax

(viii) Profit after tax

(ix) Dividend per share

(m) any other special features or terms and conditions subject to which the deposit is accepted or renewed.

(2) The application form shall also contain the following statements,namely:-

(a) in case of non- payment of the deposit or part thereof as per the terms and conditions of such deposit, the depositor may approach the Registrar of companies having jurisdiction over Nidhi;

(b) in case of any deficiency of Nidhi in servicing its depositors, the depositor may approach the National Consumers Disputes Redressal Forum, the State Consumers Disputes Redressal Forum or District Consumers Disputes Redressal Forum, as the case may be, for redressal of his relief;

(c) a declaration by the Board of Directors to the effect that the financial position of Nidhi as disclosed and the representations made in the application form are true and correct and that Nidhi has complied with all the applicable rules;

(d) a statement to the effect that the Central Government does not undertake any responsibility for the financial soundness of Nidhi or for the correctness of any of the statement or the representations made or opinions expressed by Nidhi;

(e) the deposits accepted by Nidhi are not insured and the repayment of deposits is not guaranteed by either the Central Government or the Reserve Bank of India; and

(f) a verification clause by the depositor stating that he had read and understood the financial and other particulars furnished and representations made by Nidhi in his application form and after careful consideration he is making the deposit with Nidhi at his own risk and volition.

(3) Every Nidhi shall obtain proper introduction of new depositors before opening their accounts or accepting their deposits and keep on its record the evidence on which it has relied upon for the purpose of such introduction.

(4) For the purposes of introduction of depositors, a Nidhi shall obtain documentary evidence of the depositor in the form of proof of identity and address as under:

(a) Proof of Identity (any one of the following)

(i) Passport

(ii) Unique Identification Number

(iii) Income-tax PAN card

(iv) Elector Photo Identity Card

(v) Driving licence

(vi) Ration card

(b) Proof of address (any one of the following)

(i) Passport

(ii) Unique Identification Number

(iii) Elector Photo Identity Card

(iv) Driving licence

(v) Ration card

(vi) Telephone bill

(vii) Bank account statement

(viii) Electricity bill

(documents referred to serial numbers (vi), (vii) and (viii) above shall not be more than two months old)

13. Deposits.- (1) The fixed deposits shall be accepted for a minimum period of six months and a maximum period of sixty months.

(2) Recurring deposits shall be accepted for a minimum period of twelvemonths and a maximum period of sixty months.

(3) In case of recurring deposits relating to mortgage loans, the maximum period of recurring deposits shall correspond to the repayment period of such loans granted by Nidhi.

(4) The maximum balance in a savings deposit account at any given time qualifying for interest shall not exceed one lakh rupees at any point of time and the rate of interest shall not exceed two per cent. above the rate of interest payable on savings bank account by nationalised banks.

(5) A Nidhi may offer interest on fixed and recurring deposits at a rate not exceeding the maximum rate of interest prescribed by the Reserve Bank ofIndia which the Non-Banking Financial Companies can pay on their public deposits.

(6) A fixed deposit account or a recurring deposit account shall be foreclosed by the depositor subject to the following conditions, namely:-

(a) a Nidhi shall not repay any deposit within a period of three months from the date of its acceptance;

(b) where at the request of the depositor, a Nidhi repays any deposit after a period of three months, the depositor shall not be entitled to any interest up to six months from the date of deposit;

(c) where at the request of the depositor, a Nidhi makes repayment of a deposit before the expiry of the period for which such deposit was accepted by Nidhi, the rate of interest payable by Nidhi on such deposit shall be reduced by two per cent. from the rate which Nidhi would have ordinarily paid, had the deposit been accepted for the period for which such deposit had run:

Provided that in the event of death of a depositor, the deposit may be repaid prematurely to the surviving depositor or depositors in the case of joint holding with survivor clause, or to the nominee or to legal heir with interest up to the date of repayment at the rate which the company would have ordinarily paid, had such deposit been accepted for the period for which such deposit had run.

14. Un-encumbered term deposits.- Every Nidhi shall invest and continue to keep invested, in unencumbered term deposits with a scheduled commercial bank (other than a co-operative bank or a regional rural bank),or post office deposits in its own name an amount which shall not be less than ten per cent. of the deposits outstanding at the close of business on the last working day of the second preceding month:

Provided that in cases of unforeseen commitments, temporary withdrawal may be permitted with the prior approval of the Regional Director for the purpose of repayment to depositors, subject to such conditions and time limit which may be specified by the Regional Director to ensure restoration of the prescribed limit of ten per cent.

15. Loans.- (1) A Nidhi shall provide loans only to its members.

(2) The loans given by a Nidhi to a member shall be subject to the following limits, namely:-

(a) two lakh rupees, where the total amount of deposits of such Nidhi from its members is less than two crore rupees;

(b) seven lakh fifty thousand rupees, where the total amount of deposits of such Nidhi from its members is more than two crore rupees but less than twenty crore rupees;

(c) twelve lakh rupees, where the total amount of deposits of such Nidhi from its members is more than twenty crore rupees but less than fifty crore rupees; and

(d) fifteen lakh rupees, where the total amount of deposits of such Nidhi from its members is more than fifty crore rupees:

Provided that where a Nidhi has not made profits continuously in the three preceding financial years, it shall not make any fresh loans exceeding fifty per cent. of the maximum amounts of loans specified in clauses (a), (b), (c) or (d).

Provided further that a member shall not be eligible for any further loan if he has borrowed any earlier loan from the Nidhi and has defaulted in repayment of such loan.

(3) For the purposes of sub-rule (2), the amount of deposits shall be calculated on the basis of the last audited annual financial statements.

(4) A Nidhi shall give loans to its members only against the following securities, namely:-

(a) gold, silver and jewellery:

Provided that the repayment period of such loan shall not exceed one year.

(b) immovable property:

Provided that the total loans against immovable property [excluding mortgage loans granted on the security of property by registered mortgage, being a registered mortgage under section 69 of the Transfer of Property Act, 1882 (IV of 1882)] shall not exceed fifty per cent. of the overall loan outstanding on the date of approval by the board, the individual loan shall not exceed fifty per cent. of the value of property offered as security and the period of repayment of such loan shall not exceed seven years.

Provided that such securities duly discharged shall be pledged with Nidhi and the maturity date of such securities shall not fall beyond the loan period or one year whichever is earlier:

Provided further that in the case of loan against fixed deposits, the period of loan shall not exceed the unexpired period of the fixed deposits.

16. Rate of interest.- The rate of interest to be charged on any loan given by a Nidhi shall not exceed seven and half per cent. above the highest rate of interest offered on deposits by Nidhi and shall be calculated on reducing balance method:

Provided that Nidhi shall charge the same rate of interest on the borrowers in respect of the same class of loans and the rates of interest of all classes of loans shall be prominently displayed on the notice board at the registered office and each branch office of Nidhi.

17. Rules relating to Directors. (1) The Director shall be a member of Nidhi.

(2) The Director of a Nidhi shall hold office for a term up to ten consecutive years on the Board of Nidhi.

(3) The Director shall be eligible for re-appointment only after the expiration of two years of ceasing to be a Director.

(4) Where the tenure of any Director in any case had already been extended by the Central Government, it shall terminate on expiry of such extended tenure.

(5) The person to be appointed as a Director shall comply with the requirements of sub-section (4) of section 152 of the Act and shall not have been disqualified from appointment as provided in section 164 of the Act.

18. Dividend.- A Nidhi shall not declare dividend exceeding twenty five per cent. or such higher amount as may be specifically approved by the Regional Director for reasons to be recorded in writing and further subject to the following conditions, namely:-

(a) an equal amount is transferred to General Reserve;

(b) there has been no default in repayment of matured deposits and interest; and

19. Auditor:- (1) No Nidhi shall appoint or re-appoint an individual as auditor for more than one term of five consecutive years.

(2) No Nidhi shall appoint or re-appoint an audit firm as auditor for more than two terms of five consecutive years;

Provided that an auditor (whether an individual or an audit firm) shall be eligible for subsequent appointment after the expiration of two years from the completion of his or its term.

Explanation: For the purposes of this proviso:

(i) in case of an auditor (whether an individual or audit firm), the period for which he or it has been holding office as auditor prior to the commencement of these rules shall be taken into account in calculating the period of five consecutive years or ten consecutive years, as the case may be;

(ii) appointment includes re-appointment.

20. Prudential norms.- (1) Every Nidhi shall adhere to the prudential norms for revenue recognition and classification of assets in respect of mortgage loans or jewel loans as contained hereunder.

(2) Income including interest or any other charges on non-performing assets shall be recognised only when it is actually realised and any such income recognised before the asset became non-performing and which remains unrealised in a year shall be reversed in the profit and loss account of the immediately succeeding year.

(3) (a) In respect of mortgage loans, the classification of assets and the provisioning required shall be as under:

NATURE OF ASSET	PROVISION REQUIRED
Standard Asset	No provision
Sub-standard Asset	10% of the aggregate outstanding amount
Doubtful Asset	25% of the aggregate outstanding amount
Loss Asset	100% of the aggregate outstanding amount

Provided that a Nidhi may make provision for exceeding the percentage specific herein.

(b) The estimated realisable value of the collateral security to which a Nidhi has valid recourse may be reduced from the aggregate outstanding amount,if the proceedings for the sale of the mortgaged property have been initiated in a court of law within the previous two years of the interest, income or instalment remaining unrealised.

(4) In case of companies which were incorporated on or before 26-07-2001, such companies shall make provisions in respect of loans disbursed and outstanding as on 31-03-2002 for income reversal and non-performing assets as per table given below:

For the year ended	Extent of provision
31-03- 2015	Un-provided balance on equal basis over the three
31-03- 2016	Un-provided balance on equal basis over the three
31-03- 2017	years as specified in the preceding column.

(5) (a) The Notes on the financial statements of a year shall disclose-

(i) the total amount of provisions, if any, to be made on account of income reversal and non-performing assets remaining unrealised;

(ii) the cumulative amount provided till the previous year;

(iii) the amount provided in the current year; and

(iv) the balance amount to be provided.

(b) Such disclosure shall continue to be made until the entire amount to be provided has been provided for.

(6) In respect of loans against gold or jewellery-

(a) the aggregate amount of loan outstanding against the security of gold or jewellery shall either be recovered or renewed within three months from the due date of repayment;

(b) if the loan is not recovered or renewed and the security is not sold within the aforesaid period of three months, the company shall make provision in the current year's financial statements to the extent of unrealised amount or the aggregate outstanding amount of loan including interest as applicable;

(c) no income shall be recognised on such loans outstanding after the expiry of the three months period specified in (a) above or sale of gold or jewellery, whichever is earlier; and

(d) the loan to value ratio shall not exceed 80 percent.

Explanation.- For the purposes of this rule, the term 'loan to value ratio' means the ratio between the amount of loan given and the value of gold or jewellery against which such loan is given.

21. Filing of half yearly return.- Every company covered under rule 2shall file half yearly return with the Registrar in Form NDH-3 along with such fee as provided in Companies (Registration Offices and Fees) Rules,2014 within thirty days from the conclusion of each half year duly certified by a company secretary in practice or chartered accountant in practice or cost accountant in practice.

22. Auditor's certificate.- The Auditor of the company shall furnish a certificate every year to the effect that the company has complied with allthe provisions contained in the rules and such certificate shall be annexed to the audit report and in case of non-compliance, he shall specifically state the rules which have not been complied with.

23. Power to enforce compliance.- (1) For the purposes of enforcing compliance with these rules, the Registrar of companies may call for such information or returns from Nidhi as he deems necessary and may engage the services of chartered accountants, company secretaries in practice, cost accountants, or any firm thereof from time to time for assisting him in the discharge of his duties.

(2) In respect of any Nidhi which has violated these rules or has failed to function in terms of the Memorandum and Articles of Association, the concerned Regional Director may appoint a Special Officer to take over the management of Nidhi and such Special Officer shall function as per the guidelines given by such Regional Director:

Provided that an opportunity of being heard shall be given to the concerned Nidhi by the Regional Director before appointing any Special Officer.

24. Penalty for non-compliance.- If a company falling under rule 2contravenes any of the provisions of the rules prescribed herein, the company and every officer of the company who is in default shall be punishable with fine which may extend to five thousand rupees, and where the contravention is a continuing one, with a further fine which may extend to five hundred rupees for every day after the first during which the contravention continues.

Chapter XXIX – The Companies (Adjudication of Penalties) Rules, 2014 – Companies Act 2013

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Uploaded on MCA Website on 28.03.2014

[TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY, PART II, SECTION 3, SUB-SECTION (i)]

Government of India
Ministry of Corporate Affairs
NOTIFICATION

New Delhi, Dated____________

G.S.R. (E).- In exercise of the powers conferred by section 454 read with section 469 of the Companies Act, 2013, the Central Government hereby makes the following rules, namely:-

1. Short title and commencement. - (1) These rules may be called the Companies (Adjudication of Penalties) Rules, 2014.

(2) They shall come into force on the date of their publication in the Official Gazette.

2. Definitions. (1) In these rules, unless the context otherwise requires,-

(a) "Act" means the Companies Act, 2013 (18 of 2013);

(b) "Annexure" means the Annexure enclosed to these Rules;

(d) "Form" or 'e-Form" means a form set forth in Annexure to these rules which shall be used for the matter to which it relates;

(e) "Regional Director" means the person appointed by the Central Government in the Ministry of Corporate Affairs as a Regional Director;

(f) "section" means section of the Act;

(2) Words and expressions used in these rules but not defined, and defined in the Act or in the Companies (Specification of definitions details)Rules, 2014 shall have the meanings respectively assigned to them in the Act or in the said Rules.

3. Adjudication of penalties.- (1) The Central Government may appoint any of its officers, not below the rank of Registrar, as adjudicating officers for adjudging penalty under the provisions of the Act.

(2) Before adjudging penalty, the adjudicating officer shall issue a written notice to the company and to every officer of the company who is in default, to show cause, within such period as may be specified in the notice (not being less than fifteen days and more than forty five days from the date of service thereon), why the inquiry should not be held against him:

Provided that every notice issued under this sub-rule, shall clearly indicate the nature of non-compliance or default under the Act alleged to have been committed or made by such company and officer in default, as the case may be:

Provided further that the adjudicating officer may, for reasons to be recorded in writing, extend the period referred to above by a further period not exceeding fifteen days, if the company or officer (as applicable) satisfies the said officer that it has sufficient cause for not responding to the notice within the stipulated period.

(3) If, after considering the cause, if any, shown by such company or officer, the adjudicating officer is of the opinion that an inquiry should beheld, he shall issue a notice fixing a date for the appearance of such company, through its authorised representative, or officer of such company whether personally or through his authorised representative

(4) On the date fixed for hearing and after giving a reasonable opportunity of being heard to the person(s) concerned, the adjudicating officer may, subject to reasons to be recorded in writing, pass any order as he thinks fit including an order for adjournment of the hearing to a future date.

(5) Every order passed under sub-rule (4), shall be dated and signed by the adjudicating officer.

(6) The adjudicating officer shall send a copy of the order passed by it to the concerned company or officer who is in default and to the Central Government.

(7) While holding an inquiry, the adjudicating officer shall have the following powers, namely:-

(a) to summon and enforce the attendance of any person acquainted with the facts and circumstances of the case;

(b) to order for evidence or to produce any document, which in the opinion of the adjudicating officer, may be useful for or relevant to the subject matter of the inquiry.

(8) If any person fails, neglects or refuses to appear as required under sub-rule (7) before the adjudicating officer, the adjudicating officer may proceed with the inquiry in the absence of such person after recording the reasons for doing so.

(9) While adjudging quantum of penalty, the adjudicating officer shall have due regard to the following factors, namely:-

(a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default;

(b) the amount of loss caused to an investor or group of investors or creditors as a result of the default;

(10) All sums realised by way of penalties under the Act shall be credited to the Consolidated Fund of India.

4. Appeal against the order of adjudicating officer. – (1) Every appeal against the order of the adjudicating officer shall be filed in writing with the Regional Director having jurisdiction in the matter within a period of sixty days from the date of receipt of the order of adjudicating officer by the aggrieved party, in Form ADJ setting forth the grounds of appeal and shall be accompanied by a certified copy of the order against which the appeal is sought:

Provided that where the party is represented by an authorised representative, a copy of such authorisation in favour of the representative and the written consent thereto by such authorised representative shall also be appended to the appeal:

Provided further that an appeal in Form ADJ shall not seek relief(s) therein against more than one order unless the reliefs prayed for are consequential.(2) Every appeal filed under this rule shall be accompanied by such fee as provided in the Companies (Registration Offices and Fees) Rules, 2014.

5. Registration of appeal.- (1) On the receipt of an appeal, office of the Regional Director shall endorse the date on such appeal and shall signsuch endorsement.

(2) If, on scrutiny, the appeal is found to be in order, it shall be duly registered and given a serial number:

Provided that where the appeal is found to be defective, the Regional Director may allow the appellant such time, not being less than fourteen days following the date of receipt of intimation by the appellant from the Regional Director about the nature of the defects, to rectify the defects and if the appellant fails to rectify such defects within the time period allowed as above, the Regional Director may by order and for reasons to be recorded in writing, decline to register such appeal and communicate such refusal to the appellant within a period of seven days thereof:

Provided further that the Regional Director may, for reasons to be recorded in writing, extend the period referred to in the first proviso above by a further period of fourteen days if an appellant satisfies the Regional Director that the appellant had sufficient cause for not rectifying the defects within the period of fourteen days referred to in the first proviso.

6. Disposal of appeal by Regional Director.- (1) On the admission of the appeal, the Regional Director shall serve a copy of appeal upon the adjudicating officer against whose order the appeal is sought along-with a notice requiring such adjudicating officer to file his reply thereto within such period, not exceeding twenty-one days, as may be stipulated by the Regional Director in the said notice:

Provided that the Regional Director may, for reasons to be recorded in writing, extend the period referred to in sub-rule (1) above for a further period of twenty-one days, if the adjudicating officer satisfies the Regional Director that he had sufficient cause for not being able to file his reply to the appeal within the above-said period of twenty-one days.

(2) A copy of every reply, application or written representation filed by the adjudicating officer before the Regional Director shall be forthwith served on the appellant by the adjudicating officer.

(3) The Regional Director shall notify the parties, the date of hearing of the appeal which shall not be a date earlier than thirty days following the date of such notification for hearing of the appeal.

(4) On the date fixed for hearing the Regional Director may, subject to the reasons to be recorded in writing, pass any order as he thinks fit including an order for adjournment of the hearing to a future date.

(5) In case the appellant or the adjudicating officer does not appear on the date fixed for hearing, the Regional Director may dispose of the appeal ex-parte:

Provided that where the appellant appears afterwards and satisfies the Regional Director that there was sufficient cause for his nonappearance,the Regional Director may make an order setting aside the ex-parte order and restore the appeal.

(6) Every order passed under this rule shall be dated and signed by the Regional Director.

(7) A certified copy of every order passed by the Regional Director shall be communicated to the adjudicating officer and to the appellant forthwith and to the Central Government.

The Companies (Miscellaneous) Rules, 2014 – Chapter XXIX – Companies Act 2013

Posted In Company Law | Notifications | No Comments »

Uploaded on MCA website on 28.03.2014

[TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY, PART II, SECTION 3, SUB-SECTION (i)]

Government of India
Ministry of Corporate Affairs
NOTIFICATION

New Delhi, dated___________

G.S.R. (E).- In exercise of the powers conferred under section 455,sub-section (2) of section 459 and sub-section (1) of section 464 read with section 469 of the Companies Act, 2013, and in suppression of the Companies (Central Government's) General Rules and Forms, 1956 or any other rules prescribed under the Companies Act, 1956 (1 of 1956) on matters covered under these rules, except as respects things done or omitted to be done before such supersession, the Central Government hereby makes the following rules, namely:-

1. Short title and commencement. - (1) These rules may be called the Companies (Miscellaneous) Rules, 2014.

(2) They shall come into force on the date of their publication in the Official Gazette.

2. Definitions. (1) In these rules, unless the context otherwise requires,-

(a) "Act" means the Companies Act, 2013 (18 of 2013);

(b) "Annexure" means Annexure enclosed to these Rules;

(d) "Form" or "e-Form" means a form set forth in Annexure to these rules which shall be used for the matter to which it relates;

(e) "section" means section of the Act;

(2) Words and expressions used in these rules but not defined, and defined in the Act or in the Company (Specification of definitions details)Rules, 2014 shall have the meanings respectively assigned to them in the Act or in the said Rules.

3. Application for obtaining status of dormant company.- For the purposes of sub-section (1) of section 455, a company may make an application in Form MSC-1 along with such fee as provided in the Companies (Registration Offices and Fees) Rules, 2014 to the Registrar for obtaining the status of a Dormant Company in accordance with the provisions of section 455 after passing a special resolution to this effect in the general meeting of the company or after issuing a notice to all the shareholders of the company for this purpose and obtaining consent of atleast 3/4th shareholders (in value):

Provided that a company shall be eligible to apply under this rule only, if-

(i) no inspection, inquiry or investigation has been ordered or taken up or carried out against the company;

(ii) no prosecution has been initiated and pending against the company under any law;

(iii) the company is neither having any public deposits which are outstanding nor the company is in default in payment thereof or interest thereon;

(iv) the company is not having any outstanding loan, whether secured or unsecured:

Provided that if there is any outstanding unsecured loan, the company may apply under this rule after obtaining concurrence of the lender and enclosing the same with Form MSC-1 ;

(v) there is no dispute in the management or ownership of the company and a certificate in this regard is enclosed with Form MSC-1;

(vi) the company does not have any outstanding statutory taxes, dues, duties etc. payable to the Central Government or any State Government or local authorities etc.;

(vii) the company has not defaulted in the payment of workmen's dues;

(viii) the securities of the company are not listed on any stock exchange within or outside India.

4. Certificate of status of dormant company.- The Registrar shall,after considering the application filed in Form MSC-1, issue a certificate in Form MSC-2 allowing the status of a Dormant Company to the applicant.

5. Register of dormant companies.- The Register maintained under the portal maintained by the Ministry of Corporate Affairs on its web-site www.mca.gov.in or any other website notified by the Central Government, shall be the register for dormant companies.

6. Minimum number of directors for dormant company.- A dormant company shall have a minimum number of three directors in case of a public company, two directors in case of a private company and one director in case of a One Person Company:

Provided that the provisions of the Act in relation to the rotation of auditors shall not apply on dormant companies.

7. Return of dormant companies.- A dormant company shall file a"Return of Dormant Company" annually, inter-alia, indicating financial position duly audited by a chartered accountant in practice in Form MSC-

3 along with such annual fee as provided in the Companies (Registration Offices and Fees) Rules, 2014 within a period of thirty days from the end of each financial year:

Provided that the company shall continue to file the return or returns of allotment and change in directors in the manner and within the time specified in the Act, whenever the company allots any security to any person or there is any change in the directors of the company.

8. Application for seeking status of an active company.- (1) An application, under sub-section (5) of section 455, for obtaining the status of an active company shall be made in Form MSC-4 along with fees as provided in the Companies (Registration Offices and Fees) Rules, 2014 and shall be accompanied by a return in Form MSC-3 in respect of the financial year in which the application for obtaining the status of an active company is being filed:

Provided that the Registrar shall initiate the process of striking off the name of the company if the company remains as a dormant company for a period of consecutive five years.

(2) The Registrar shall, after considering the application filed under sub-rule(1), issue a certificate in Form MSC-5 allowing the status of an active company to the applicant.

(3) Where a dormant company does or omits to do any act mentioned in the Grounds of application in Form MSC-1 submitted to Registrar for obtaining the status of dormant company, affecting its status of dormant company, the directors shall within seven days from such event, file an application, under sub-rule (1) of this rule, for obtaining the status of an active company.

(4) Where the Registrar has reasonable cause to believe that any company registered as 'dormant company' under his jurisdiction has been functioning in any manner, directly or indirectly, he may initiate the proceedings for enquiry under section 206 of the Act and if, after giving a reasonable opportunity of being heard to the company in this regard, it is found that the company has actually been functioning, the Registrar may remove the name of such company from register of dormant companies and treat it asan active company.

9. Fees for application to Central Government.- For the purposes of sub-section (2) of section 459, every application which may be, or is required to be, made to the Central Government under any provision of the Act

(a) in respect of any approval, sanction, consent, confirmation or recognition to be accorded by that Government to, or in relation to, any matter; or

(b) in respect of any direction or exemption to be given or granted by that Government in relation to any matter; or

(c) in respect of any other matter, shall be accompanied by such fee as provided in the Companies (Registration Offices and Fees) Rules, 2014.

10. Association or partnership of persons exceeding certain number. - No association or partnership shall be formed, consisting of more than fifty persons for the purpose of carrying on any business that has for its objects the acquisition of gain by the association or partnership or by individual members thereof, unless it is registered as a company under the Act or is formed under any other law for the time being in force.

Bhopal: CBI arrests I-T officer, husband for taking Rs 10 lakh bribe

Posted In Income Tax | News | No Comments »

CBI ARRESTS A DEPUTY COMMISSIONER OF INCOME TAX AND THREE OTHERS IN AN ALLEGED BRIBERY OF RS.TEN LAKHS.

The Central Bureau of Investigation has arrested Poonam Rai, the Deputy Commissioner of Income Tax, and her husband Ganesh Malviya, a BJP leader, and another private person in an alleged bribery case of Rs. 10 Lakhs.

A case was registered U/s 120-B of IPC and Section 7 of PC Act 1988 yesterday, on the basis of a complaint, alleging that the Dy. Commissioner, Income Tax Office, Bhopal has demanded bribe of Rs. 25 lakhs for closing the pending matter of Income Tax assessment of the complainant's firm. It was further alleged in the complaint that husband of Deputy Commissioner and a middleman (private person), were negotiating the bribe amount, at her behest.

During the verification of complaint, the husband of Dy Commissioner of Income Tax allegedly agreed to receive the part payment of Rs. 10 Lakhs of the demanded bribe and asked the complainant to deliver the bribe amount to the middleman.

CBI laid a trap and the bribe amount was allegedly accepted by the middleman at his office, in MP Nagar, Bhopal. Subsequently, the bribe amount was further delivered to the residence of Dy Commissioner, through another private person, where the husband of Dy Commissioner, was arrested while allegedly accepting the bribe amount. The other accused including Deputy Commissioner of Income Tax were also arrested.

Searches have been carried out and the relevant documents relating to the case have been recovered.

All the arrested accused are being produced today in the Court of Special Judge ,CBI Cases, Bhopal.

Provisions of CA, 2013 and corresponding provisions thereof under CA,1956

Posted In Company Law | News | No Comments »

Table containing provisions of Companies Act, 2013 as notified up to 28.02.2014 and corresponding provisions thereof under Companies Act, 1956.

Table containing provisions of Companies Act, 2013 as notified up to date and corresponding provisions thereof under Companies Act, 1956.

Note: This is a ready reckoner for the information of stakeholders. Please refer to the relevant notifications and circulars issued separately.

You can check all the Notification on New Companies Act 2013 at the Following link :- Company Law Notifications

All The Latest Articles, News, Notifications, Circulars, Analysis on New Companies Act can be checked at the following link :- Companies Act 2013

S. No.	Provisions of Companies Act, 2013 as notified(98+1+183= 282 Sections)	Corresponding provisions of Companies Act, 1956	Corresponding provisions of Companies Act, 1956 continue to remain in force
1.	Section 2
	Clause (1)	2(1)	Nil
	Clause (2)	211(3C)	Nil
	Clause (3)	2(1A)	Nil
	Clause (4)	2(1B)	Nil
	Clause (5)	2(2)	Nil
	Clause (6)	Nil	Nil
	Clause (7)	Nil	Nil
	Clause (8)	Nil	Nil
	Clause (9)	2(5)	Nil
	Clause (10)	2(6); 252(3)	Nil
	Clause (11)	2(7)	Nil
	Clause (12)	2(8)	Nil
	Clause (13)	209(1)	Nil
	Clause (14)	2(9)	Nil
	Clause (15)	Nil	Nil
	Clause (16)	124	Nil
	Clause (17)	Explanation to section 33(2)	Nil
	Clause (18)	Nil	Nil
	Clause (19)	Nil	Nil
	Clause (20)	2(10) and 3	Nil
	Clause (21)	2(23) and 12(2)(b)	Nil
	Clause (22)	2(23) and 12(2)(a)	Nil
	Clause (24)	2(45)	Nil
	Clause (25)	2(45A)	Nil
	Clause (26)	Nil	428The term 'Contributory' shall continue for the purposes winding up.
	Clause (27)	Nil	Nil
	Clause (28)	233B(1)	Nil
	Clause (29)(except sub-clause (iv)	2(11), 2(14), 10	622
	Clause (30)	2(12)	Nil
	Clause (31)	Explanation to 58A (11)	Nil
	Clause (32)	2(12A)	Nil
	Clause (33)	2(12B)	Nil
	Clause (34)	2(13)	Nil
	Clause (35)	2(14A)	Nil
	Clause (36)	2(15)	Nil
	Clause (37)	2(15A)	Nil
	Clause (38)	59(2)	Nil
	Clause (39)	Nil	Nil
	Clause (40)	Nil	Nil
	Clause (41) [except first proviso]	2(17)	Nil
	Clause (42)	Nil	Nil
	Clause (43)	Explanation to section 2 (29A)	Nil
	Clause (44)	Nil	Nil
	Clause (45)	2(18), 617	Nil
	Clause (46)	2(19), 4	Nil
	Clause (47)	Nil	Nil
	Clause (48)	Nil	Nil
	Clause (49)	Nil	Nil
	Clause (50)	Nil	Nil
	Clause (51)	Nil	Nil
	Clause (52)	2(23A)	Nil
	Clause (53)	2(24)	Nil
	Clause (54)	2(26)	Nil
	Clause (55)	2(27), 41	Nil
	Clause (56)	2(28)	Nil
	Clause (57)	2(29A)	Nil
	Clause (58)	Nil	Nil
	Clause (59)	2(30)	Nil
	Clause (60)	2(31), 5, 7	Nil
	Clause (61)	Nil	448
	Clause (62)	Nil	Nil
	Clause (63)	Nil	Nil
	Clause (64)	2(32)	Nil
	Clause (65)	Explanation to section 192A	Nil
	Clause (66)	2(33)	Nil
	Clause (67)[except sub-clause (ix)]	2(34)	Nil
	Clause (68)	2(35)	Nil
	Clause (69)	Explanation (a) to section 62(6)	Nil
	Clause (70)	2(36)	Nil
	Clause (71)	2(37)	Nil
	Clause (72)	4A	Nil
	Clause (73)	2(39)	Nil
	Clause (74)	Nil	Nil
	Clause (75)	2(40)	Nil
	Clause (76)	Nil	Nil
	Clause (77)	2(41), 6 and schedule IA	Nil
	Clause (78)	Explanation to 198	Nil
	Clause (79)	2(42)	Nil
	Clause (80)	2(43)	Nil
	Clause (81)	2(45AA)	Nil
	Clause (82)	2(45B)	Nil
	Clause (83)	Nil	Nil
	Clause (84)	2(46)	Nil
	Clause (85)	Nil	Nil
	Clause (86)	Nil	Nil
	Clause (87)	2(47), 4	Nil
	Clause (88)	Explanation II to Section 79A	Nil
	Clause (89)	2(48)	Nil
	Clause (90)	2(49A)	Nil
	Clause (91)	Nil	Nil
	Clause (92)	12(2)(c)	Nil
	Clause (93)	Nil	Nil
	Clause (94)	Explanation to Section 269	Nil
	Clause (95)	2(31A), 2A	Nil
2.	Section 3	12	Nil
3.	Section 4	13,14,15,15A,15B, 20, 37	Nil
4.	Section 5	26,27,28,29,30	Nil
5.	Section 6	9	Nil
6.	Section 7 (except sub-section (7)	33,34(1),35	Nil
7.	Section 8 (except sub-section (9)	25	Nil
8.	Section 9	34(2)	Nil
9.	Section 10	36	Nil
10.	Section 11	149	Nil
11.	Section 12	17A, 146, 147	Nil
12.	Section 13	16,17,18,19,21,23	Nil
13.	Section 14(except second proviso to sub- section (1) and sub-section (2))	31(except proviso to sub-section (1) and Sub-section (2A); 43	Proviso to sub-section (1) of section 31;
			Sub-section (2A) of section 31
14.	Section 15	40	Nil
15.	Section 16	22	Nil
16.	Section 17	39	Nil
17.	Section 18	32	Nil
18.	Section 19	42	Nil
19.	Section 20	51, 52, 53	Nil
20.	Section 21	54	Nil
21.	Section 22	47, 48	Nil
22.	Section 23	67	Nil
23.	Section 24	55A	Nil
24.	Section 25	64	Nil
25.	Section 26	55,56,57,58,59,60, Sch. II	Nil
26.	Section 27	61	Nil
27.	Section 28	Nil	Nil
28.	Section 29	68B	Nil
29.	Section 30	66	Nil
30.	Section 31	68	Nil
31.	Section 32	60B	Nil
32.	Section 33	56(3)	Nil
33.	Section 34	63	Nil
34.	Section 35	62	Nil
35.	Section 36	68	Nil
36.	Section 37	Nil	Nil
37.	Section 38	68A	Nil
38.	Section 39	69, 75	Nil
39.	Section 40	73, 76	Nil
40.	Section 41	Nil	Nil
41.	Section 42	67	Nil
42.	Section 43	2(46A), 85, 86	Nil
43.	Section 44	82	Nil
44.	Section 45	83	Nil
45.	Section 46	84	Nil
46.	Section 47	87	Nil
47.	Section 49	91	Nil
48.	Section 50	92	Nil
49.	Section 51	93	Nil
50.	Section 52	78	Nil
51.	Section 53	79	Nil
52.	Section 54	79A	Nil
53.	Section 55 except sub-section(3)	80 and 80A (except Proviso to section 80A(1) and section 80A(2))	Proviso to section 80A(1) and section 80A(2)
54.	Section 56	108, 108A to 108 I, 109,110,113	Nil
55.	Section 57	116	Nil
56.	Section 58	111	Nil
57.	Section 59	111A	Nil
58.	Section 60	148	Nil
59.	Section 61 except proviso to clause (b) of sub-section (1)	94	Nil
60.	Section 62 except sub-sections(4) to (6)	81 except sub-sections (4) to (7)	sub-sections (4) to (7) of section 81 and section 94A
61.	Section 63	Proviso to 205 (3)	Nil
62.	Section 64	94A(3), 95,97	Nil
63.	Section 65	98	Nil
64.	Section 67	77	Nil
65.	Section 68	77A	Nil
66.	Section 69	77AA	Nil
67.	Section 70	77B	Nil
68.	Section 71 except sub-sections (9) to (11)	117,117A,117B,117C,118,119, 122Except 117B(4) and 117C (4) and (5)	117B(4) and 117C (4) and (5)
69.	Section 72	109A,109B	Nil
70.	Section 73	58A, 58AA, 58AAA, 58B, 59	Nil
71.	Sub-section (1) of section 74	Nil	Nil
72.	Section 76	58A	Nil
73.	Section 77	125,128, 129,132, 133, 145	Nil
74.	Section 78	134	Nil
75.	Section 79	127,135	Nil
76.	Section 80	126	Nil
77.	Section 81	130	Nil
78.	Section 82	138	Nil
79.	Section 83	139,140	Nil
80.	Section 84	137	Nil
81.	Section 85	131, 136,143,144	Nil
82.	Section 86	142	Nil
83.	Section 87	141	Nil
84.	Section 88	150,151,152,152A,153, 153A, 153B, 157, 158	Nil
85.	Section 89	187C	Nil
86.	Section 90	187D	Nil
87.	Section 91	154	Nil
88.	Section 92	159,160,161,162,Sch V	Nil
89.	Section 93	Nil	Nil
90.	Section 94	163	Nil
91.	Section 95	164	Nil
92.	Section 96	165,166, 170	Nil
93.	Section 100	169 (9)	Nil
94.	Section 101	171,172	Nil
95.	Section 102	173	Nil
96.	Section 103	174	Nil
97.	Section 104	175	Nil
98.	Section 105	176, Schedule IX	Nil
99.	Section 106	181,182,183	Nil
100.	Section 107	177, 178	Nil
101.	Section 108	Nil	Nil
102.	Section 109	179,180,184,185	Nil
103.	Section 110	192A	Nil
104.	Section 111	188	Nil
105.	Section 112	187A, 187B	Nil
106.	Section 113	187	Nil
107.	Section 114	189	Nil
108.	Section 115	190	Nil
109.	Section 116	191	Nil
110.	Section 117	192	Nil
111.	Section 118	193,194,195,197	Nil
112.	Section 119 (except sub- section (4))	196	Nil
113.	Section 120	Nil	Nil
114.	Section 121	Nil	Nil
115.	Section 122	Nil	Nil
116.	Section 123	Section 205Sub-section (3) of section 205A	Nil
		Section 206
117.	Section 126	206A	Nil
118.	Section 127	207	Nil
119.	Section 128	209 214	Nil
120.	Section 129	210, 211, 212, 213, 221, 222, 223	Nil
121.	Section 133	211 (3C)	Nil
122.	Section 134	215, 216, 217, 218	Nil
123.	Section 135	Nil	Nil
124.	Section 136	219	Nil
125.	Section 137	220	Nil
126.	Section 138	Nil	Nil
127.	Section 139	224, 224A, 619	Nil
128.	Section 140 [except second proviso to sub-section (4) and sub-section (5)	225 except proviso to sub- section (3)	Proviso to sub-section (3) of section 225
129.	Section 141	226	Nil
130.	Section 142	224(8)	Nil
131.	Section 143	227, 228, 263A	Nil
132.	Section 144	Nil	Nil
133.	Section 145	229, 230	Nil
134.	Section 146	231	Nil
135.	Section 147	232, 233, 233A	Nil
136.	Section 148	233B	Nil
137.	Section 149	252, 253, 258, 259	Nil
138.	Section 150	Nil	Nil
139.	Section 151	Proviso to sub- section (1) of section 252	Nil
140	Section 152	254, 255, 256, 264	Nil
141	Section 153	266A	Nil
142	Section 154	266B	Nil
143	Section 155	266C	Nil
144	Section 156	266D	Nil
145	Section 157	266E	Nil
146	Section 158	266F	Nil
147	Section 159	266G	Nil
148	Section 160	257	Nil
149	Section 161	260, 262, 313	Nil
150	Section 162	263	Nil
151	Section 163	265	Nil
152	Section 164	202, 274	Nil
153	Section 165	275, 276, 277, 278, 279	Nil
154	Section 166	312	Nil
155	Section 167	283	Nil
156	Section 168	Nil	Nil
157	Section 169 except sub-section (4)	284 except sub-section (4)	Sub-section (4) of section 284
158	Section 170	303, 307	Nil
159	Section 171	304	Nil
160	Section 172	Nil	Nil
161	Section 173	285, 286	Nil
162	Section 174	287, 288	Nil
163	Section 175	289	Nil
164	Section 176	290	Nil
165	Section 177	292A	Nil
166	Section 178	Nil	Nil
167	Section 179	Section 291 Section 292	Nil
168	Section 180	293	Nil
169	Section 181	Nil	Nil
170	Section 182	293A	Nil
171	Section 183	293B	Nil
172	Section 184	299, 305	Nil
173	Section 185	295, 296	Nil
174	Section 186	372A	Nil
175	Section 187	49	Nil
176	Section 188	294, 294A, 294AA, 297, 314	Nil
177	Section 189	301	Nil
178	Section 190	302	Nil
179	Section 191	319, 320, 321	Nil
180	Section 192	Nil	Nil
181	Section 193	Nil	Nil
182	Section 194	Nil	Nil
183	Section 195	Nil	Nil
184	Section 196	197A, 267, 311, 317, 384, 385, 388	Nil
185	Section 197	198, 201, 309, 310, 387	Nil
186	Section 198	349	Nil
187	Section 199	Nil	Nil
188	Section 200	637AA	Nil
189	Section 201	640B	Nil
190	Section 202	318	Nil
191	Section 203	269, 316, 386	Nil
192	Section 204	Nil	Nil
193	Section 205	Nil	Nil
194	Section 206	234 [except sub-section (8)]	Nil
195	Section 207	209A	Nil
196	Section 208	Nil	Nil
197	Section 209	234A	Nil
198	Section 210	235	Nil
199	Section 211	Nil	Nil
200	Section 212 [except sub- section (8) to (10)];	Nil	Nil
201	Section 214	236	Nil
202	Section 215	238	Nil
203	Section 216 [except sub- section (2)]	247 [except sub-section 1A]	Sub-section (1A) of section 247
204	Section 217	240	Nil
205	Section 219	239	Nil
206	Section 220	240A	Nil
207	Section 223	241, 246	Nil
208	Section 224[except sub-section (2) and (5)]	242, 244	Section 243
209	Section 225	245	Nil
210	Section 228	Sub-section (8) of Section 234	Nil
211	Section 229	Nil	Nil
212	Section 366	565	Nil
213	Section 367	574	Nil
214	Section 368	575	Nil
215	Section 369	576	Nil
216	Section 370[except proviso]	Section 577 except proviso	Proviso to section 577
217	Section 371	Section 578	Nil
218	Section 374	Nil	Nil
219	Section 379	Nil	Nil
220	Section 380	592, 593	Nil
221	Section 381	594	Nil
222	Section 382	595	Nil
223	Section 383	596	Nil
224	Section 384	600	Nil
225	Section 385	601	Nil
226	Section 386	602	602
227	Section 387	603	Nil
228	Section 388	604	Nil
229	Section 389	605	Nil
230	Section 390	605A	Nil
231	Sub-section (1) Section 391	607	Nil
232	Section 392	598, 606	Nil
233	Section 393	599	Nil
234	Section 394	619A	Nil
235	Section 395	Nil	Nil
236	Section 396	609	Nil
237	Section 397	610A	Nil
238	Section 398	610B	Nil
239	Section 399 except reference of word Tribunal in sub-section (2)	610	Nil
240	Section 400	Nil	Nil
241	Section 401	610D	Nil
242	Section 402	610E	Nil
243	Section 403	611, Schedule X	Nil
244	Section 404	612	Nil
245	Section 405	615	Nil
246	Section 406	620A	Nil
247	Section 407	Explanation to 10FD	Nil
248	Section 408	10FB, 10FC	Nil
249	Section 409	10FD	Nil
250	Section 410	10FR	Nil
251	Section 411	Nil	Nil
252	Section 412	10FX	Nil
253	Section 413	10FE, 10FT	Nil
254	Section 414	10FG, 10FW	Nil
255	Section 439	621, 624	Nil
256	Section 442	Nil	Nil
257	Section 443	624A	Nil
258	Section 444	624B	Nil
259	Section 445	Nil	Nil
260	Section 446	626	Nil
261	Section 447	Nil	Nil
262	Section 448	628	Nil
263	Section 449	629	Nil
264	Section 450	629A	Nil
265	451	Nil	Nil
266	452	630	Nil
267	453	631	Nil
268	Section 454	Nil	Nil
269	Section 455	Nil	Nil
270	456	635A	Nil
271	Section 457	635AA	Nil
272	Section 458	637	Nil
273	Section 459	637AA	Nil
274	Section 460	637B	Nil
275	Section 461	638	Nil
276	Section 462	Nil	Nil
277	Section 463	633	Nil
278	Section 464	11	Nil
279	Section 467	641	Nil
280	Section 468	643	Nil
281	Section 469	642	Nil
282	Section 470	Nil	Nil
	Schedule I	Schedule I	Nil
	Schedule II	Schedule XIV	Nil
	Schedule III	Schedule VI	Nil
	Schedule IV	Nil	Nil
	Schedule V	Schedule XIII	Nil
	Schedule VI	Nil	Nil
	Schedule VII	Nil	Nil

Depreciation on Fixed Assets in Banks

After reading Accounting policy of different banks it has been noted that they refer to"Guidelines of RBI" as regard to Depreciation on computers, but no such guidelines available. The Expert panel for Bank Audit of ICAI also failed to furnish any such guidelines so far.

Besides this some banks are providing depreciation on computers for full year irrespective of date of addition. For other assets some are applying rates of companies act, some are using Income Tax 1961 rates. Some are using 182 days, some are using 180 days and some are using 30th Sep as the period for providing half depreciation. When Each and every bank is having different set of policy as regard to Depreciation how it can be said that they are providing depreciation as per RBI Guidelines or their results are comparable.

Following are extracted from Accounting Policy (schedule-17) of the banks:

Central Bank of India

Fixed Assets (other than computers which are depreciated on Straight Line Method) are depreciated under 'Written Down Value Method'
Depreciation on additions to assets, made upto 30^th September is provided for the full year and on additions made thereafter, is provided for the half year. No depreciation is provided on assets sold before 30^th September and depreciation is provided for the half year for assets sold after 30^th September.

State Bank of India

    In respect of assets acquired during the year for domestic operations, depreciation is charged for half a year in respect of assets used for upto 180 days and for the full year in respect of assets used for more than 180 days, except depreciation on computers and software, which is charged for the full year irrespective of the period for which the asset was put to use.
        
Punjab & Sind Bank
Depreciation is provided for on Computers at 33.33%, on straight-line method; additions are depreciated for the full year irrespective of the date of addition as per RBI guidelines. 
        
Other Fixed assets on written down value method at the rates prescribed by the Income Tax Act 1961; additions effected before 30th September are depreciated for full year and additions effected thereafter are depreciated for half year. 
        
No depreciation is provided on assets sold/disposed of during the year. 
  
      State Bank of Hyderabad
In respect of assets acquired during the year, depreciation is charged for half year in respect of assets used for up to 182 days and for the full year in respectof assets used for more than 182 days, except depreciation on computers/ATMs and software, which is charged for the full year irrespective of the period for which the asset was put to use
        
The rates of depreciation and method of charging depreciation are as under : 
  
Computers /ATMs                                                                          SLM                                         33.33% every year 
        Computer software forming an integral part of hardware                     WDV                                        60%
        Computer Software which does not form an integral part of hardware                                            100%, in the year of acquisition 
        
Oriental Bank of commerce
Depreciation on assets (including revalued assets), is charged on the Written Down Value at the rates prescribed by the Income Tax Rules, 1962; except in respect of computers on which depreciation is provided on Straight Line Method @ 33.33% as per RBI   guidelines
        
Depreciation is not provided in the year of sale/disposal of asset; 
  
      Bank of Baroda
Depreciation on Fixed Assets, other than on computers, is provided under the written down value basis at the rates prescribed in Schedule XIV to the Companies Act, 1956. 
        
Depreciation on computers is provided on Straight Line Method at the rate of 33.33% in line with the guidelines of Reserve Bank of India 
  
While depreciation on additions is provided for full year, no depreciation is provided in the year of sale/disposal.

Dena Bank
  Depreciation is charged on Written Down Value (W.D.V.) method at the rates prescribed under the Income Tax Rules, 1962 except Computer hardware purchased before 01.04.2000 are depreciated @ 25% p.a. on W.D.V. method and purchased on or after 01.04.2000 are depreciated @ 33.33% on Straight Line Method. 
        
United Bank of India
        Software are capitalized with computers
Depreciation on assets other than computers, ATMs and Software is provided for under written down value method, in the manner and as per the rates prescribed under Schedule XIV to the Companies Act, 1956. The rate is rounded off to next absolute number. Depreciation on the revalued portion of the assets is adjusted from Revaluation Reserve. 
        
Depreciation on computers, Automatic Teller Mahchine (ATM) and software are provided on straight-line method @ 33.33% on pro-rata basis from the date of acquisition as per RBI guidelines.
        Canara Bank
Fixed Assets excluding Computers are depreciated under Written Down Value Method at the rates determined by the management on the basis of estimated useful life of the respective assets. As per the guidelines of Reserve Bank of India, depreciation on Computers is charged at 33.33% on Straight-Line Method. 
        Depreciation on additions to fixed/leased assets is charged for the full year irrespective of the date of acquisition.  No depreciation is provided in the year of sale/disposal.

2014-TIOL-153-ITAT-MUM

IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'F' MUMBAI

ITA No.4888/Mum./2012
Assessment Year: 2008-09

ASSTT COMMISSIONER OF INCOME TAX
CIRCLE-1, THANE

M/s FERMENT BIOTECH LTD
DIL COMPLEX, G B ROAD, S V ROAD
MAJIWADE, THANE
PAN NO:AAACF2503N

ITA No.4341/Mum./2012
Assessment Year: 2008-09

M/s FERMENT BIOTECH LTD
DIL COMPLEX, G B ROAD, S V ROAD
MAJIWADE, THANE

ASSTT COMMISSIONER OF INCOME TAX
CIRCLE-1, THANE

R C Sharma, AM And Amit Shukla, JM

Date of Hearing: January 22, 2014
Date of Decision: February 12, 2014

Appellant Rep by: Mr Nitesh Joshi a/w Mr Vipul K Modi
Respondent Rep by: Mr Ravi Prakash

Income Tax - Sections 35(1), 35(2AB), 35(2AB)(1), 35(2A)3, 36(1)(vii), 36(2), 37, 80G, 80IB, 143(3) - weighted deduction - bad debts - scientific research - eligible undertaking - donations - Whether in case the assessee has complied with all the other conditions and procedures in order to avail deduction u/s 35AB in respect of inhouse reasearch, the same can be denied merely on the basis of a procedural defect - Whether in case all the conditions mentioned u/s 36(1)(vii) are satisfied, an assessee can be denied deduction for bad debts for no reason - Whether in case the income of assessee is a negative figure, the claim of deduction u/s 80IB has no impact on the same.

A) The assessee is a company engaged in business of manufacturing, marketing and processing of drug intermediates pharmaceuticals, chemicals and bulk drugs. On a perusal of the return of income, the AO observed that the assessee had claimed deduction of Rs. 1,05,65,392 on account of expenditure made on inhouse scientific research u/s 35(2AB)(1). In response to the show cause notice, the assessee filed a copy of renewal of recognition of inhouse R&D unit issued by the Department of Scientific and Research , issued and signed by "Scientist-G". The AO held that as per the provisions of section 35(2AB), the approval had to be obtained from the prescribed authority who was the Secretary, DSIR, and hence, the assessee cannot be allowed the claim for deduction u/s 35(2AB). Before the AO, assessee had submitted that the Scientist-G was a designated officer of DSIR who issues recognition to inhouse R&D units. The assessee also enclosed Citizens Charter issued by the DSIR which indicated that responsibility of giving recognition to inhouse R&D centre lies with Scientific-G. After considering the assessee's explanation, AO held that the provision of section 35(2AB) were absolutely clear that certificate had to be issued by the Secretary, DSIR, and not by the Scientist. Further, on the reverse side of the renewal certificate, it was clearly mentioned that it was not for the purpose of tax exemption or for quantum of tax concession. Thus, AO disallowed the assessee's claim of Rs. 1,05,65,392.

On appeal before CIT(A), assessee relied heavily upon the decision of the Tribunal in ACIT v/s Meco Instruments Pvt. Ltd., (2010-TIOL-563-ITAT-MUM), wherein it was held that even though the approval was not available in the prescribed form for the relevant AY, the tax payer was still entitled for deduction for the inhouse R&D expenditure. The Tribunal also held that it was only a procedural defect and benefit cannot be denied. The CIT(A) rejected the assessee's submission and held that provisions of section 35(2AB)(1) r/w rule-6 makes it clear that the deduction can be allowed only when the approval was granted by the prescribed authority in the prescribed form. Further, the assessee company had not placed any copy of approval from the prescribed authority in the prescribed form. The copy of letter signed by the "Scientist-G" according recognition to the inhouse R&D unit was neither signed by the prescribed authority nor was in the prescribed form no. 3CM. The letter only indicates approval for the purpose of recognition and not for availing benefit of the deduction u/s 35(2AB). Thus, CIT(A) disallowed the assessee's claim and upheld the action of AO. Before the CIT(A), the assessee also took alternate plea that the actual expenditure incurred by the assessee on the inhouse R&D unit was revenue in nature because the same had been incurred wholly and exclusively for the purpose of business and, therefore, same should be allowed as business expenditure u/s 37. The CIT(A) rejected this plea also on the ground that expenditure on scientific R&D does not come under the category of day-to-day business expenses, but it was incurred keeping in view the long term benefit to the company. The expenditure incurred in R&D will have only long term enduring benefit which was capital in nature.

Before Tribunal, assessee's counsel had submitted that once the assessee had applied for renewal of recognition and approval of inhouse research and R&D facility in the prescribed form and the same had been issued by the DSIR, then, insofar as the assessee was concerned, the obligation gets discharged. AR strongly referred to the decision of the Tribunal in Meco Instruments Pvt. Ltd., wherein the Tribunal had analysed the provisions of section 35(2AB) and concluded that the entire scheme deals with the granting of approval to the facilities and the object was that the R&D facility was not related purely to market research, sales promotion, quality control, testing, commercial production, style changes, routine data collection or activities of a like nature. The purpose was to have R&D facilities which contribute to the technological advancement and not merely limited to earning of profits. Therefore, once the approval was there by the prescribed authority, it could be easily concluded that the same met the basic requirement and merely the same was not in prescribed form, it would not lead to the conclusion that the approval was of no purpose. Further, in any view of the matter, at best it could be said that it was only a procedural defect and from the various decisions, noted in the arguments of Id Counsel for the assessee, it is clear that merely on the ground of technicalities of procedure, the benefit bestowed by legislature cannot be denied. When it comes to follow the prescribed procedure, the exemption provisions have to be liberally construed and if in substance, the assessee has fulfilled the basic requirements then the exemption cannot be denied. IT was further submitted that the order of approval in Form no. 3CM for the subsequent years had been granted by the DSIR which had been signed by the Scientist-G for and on behalf of the Secretary, DSIR. This goes to show that the assessee was eligible for making claim u/s 35(2AB). On the other hand, DR had strongly relied upon the reasoning and conclusion drawn by the CIT(A) that once the approval has not been granted by the prescribed authority, then the claim for deduction u/s 35(2AB) cannot be given.

B) During assessment, AO noted that the assessee company has written of bad debt pertaining to Aurubindo Pharma. In response to the show cause notice, the assessee submitted that the said party was their customer for the last several years and they have not paid the amount due from them, despite making continuous effort for recovery of this amount, therefore, the same were written of in the books of account during the year with the approval of the Board of Directors. The AO had not accepted the assessee's explanation and disallowed the claim on the ground that the assessee could not substantiate its claim by producing any documentary evidence. On appeal before CIT(A), assessee contended that the actual amount written of during the period in respect of bad debt pertaining to Auribindo Pharma was only amounting to Rs. 8,24,978 and not Rs. 1,08,40,951 as disallowed by the AO. It was further contended that all the conditions laid down in section 36(1)(vii) and 36(2) had been fulfilled. The CIT(A) held that the AO should re-examine the case of the assessee and also the amount of bad debt claimed by the assessee. CIT(A) also referred and relied upon the decision of the SC in TRF Ltd. v/s CIT, (2010-TIOL-15-SC-IT).

Before Tribunal, assessee's counsel drew attention to the amount debited to the Profit & Loss account of Auribindo Pharma and submitted that the amount of Rs. 1,08,48,951 pertained to different customers and parties. In the name of Auribindo Pharma, the assessee has claimed only bad debt of Rs. 8,24,978. Further, it was submitted that the law was absolutely clear that once the assessee had written of the bad debts in the books of account, then it had to be allowed while computing the profits. On the other hand, DR relied upon the findings of the AO and submitted that if there was some discrepancy in the figures, the matter can be remanded back to the file of AO.

C) In this ground, assessee had contended that the CIT(A) has directed the AO to examine and give specific findings regarding the claim of deduction u/s 80G and the claim of deduction u/s 80IB without himself allowing the same. The counsel for the assessee submitted that insofar as the claim of deduction u/s 80G was concerned, the assessee's net income itself was in loss, therefore, this ground has not much significance. Hence, the ground was dismissed. However, with regard to the claim u/s 80IB, he submitted that in case there is a positive income after giving effect of this order, then the Assessing Officer should be directed to allow the claim for deduction u/s 80IB.

Held that,

A) ++ once the assessee has filed the application in the prescribed form before the prescribed authority, then insofar as the assessee is concerned, it has fulfilled its obligation. However, there is a rider that such an application form has to be approved or has to be passed by the prescribed authority. These conditions are essential but such a strict interpretation may defeat the very purpose of the legislation intent, if the assessee has complied with all the other conditions and procedures. The purpose of this section r/w relevant rule is to promote scientific research and development facilities which contribute to the technical advancement. If the proper process has been followed by the assessee, then whether the order of approval has been granted by the Secretary, DSIR, or by some Nodal Officer on/or behalf of the Secretary, DSIR, it does not make any difference if all the conditions for granting of approval are satisfied. In this case, it is evident from the documents submitted by the Counsel for the assessee subsequent years that the DSIR has granted order of approval in form no. 3CM which has been signed by the Scientist-G for and on behalf of the Secretary, DSIR. Once the DSIR has authorized any of its Nodal Officer to issue order of approval on or behalf of the Secretary, then for the purpose of section 35(2AB), it can be taken that the approval has been granted by the prescribed authority itself. Whether the order has been signed by the Secretary or by any of the Nodal Officer on his behalf will not make any difference because it is not the fault of the assessee. In such a case, claim for deduction cannot be denied to the assessee;

++ in the present case, however, the assessee could not show us whether, any approval of inhouse R&D facilities has been issued in prescribed form by the DSIR, even if it is signed by any authority like Scientist-G for on/or behalf of the Secretary, DSIR. In the subsequent years, if such an order is available, then the assessee has to show that the order of the approval for inhouse R&D facility has been granted by the DSIR covering the present assessment year. Therefore, we set aside the impugned order passed by the learned Commissioner (Appeals) and restore the issue back to the file of the Assessing Officer with a direction to verify this fact and to examine whether any order of approval of inhouse R&D facilities has been issued for the relevant assessment year. The assessee will provide all the necessary information and evidence. If such an order is available and even if it is signed by the "Scientist-G" on behalf of the Secretary, DSIR, then also it should be taken as if the same has been issued by the prescribed authority. In case, such an order is not being provided by the assessee, then the Assessing Officer shall examine the nature of expenditure incurred by the assessee for the purpose of scientific research, relating to its business and also examine whether such expenditure can be allowed under section 35(1) or as revenue expenditure under section 37. We order accordingly. Thus, the ground no.1 and 2 raised by the assessee are treated as partly allowed for statistical purposes.

B) ++ on a perusal of the details as pointed out by the counsel, it is seen that in the case of Auribindo Pharma, the assessee had shown the amount of bad debt written of at Rs. 8,24,978. It seems that the Assessing Officer has taken the figure of Rs. 1,08,48,951, which pertained to different parties. Thus, to this extent, we are of the opinion that only the figure of Rs. 8,24,978 should be taken into consideration for the purpose of adjudication. On a perusal of the findings of the CIT(A), we find that his observation and conclusion are absolutely correct and is in accordance with the law that the Assessing Officer has to examine the conditions laid down in section 36(1)(vii) and whatever amount has been written of in the books of account as bad debts the same should be allowed in view of the principles laid down by the Supreme Court in TRF Limited. Thus, we do not find any infirmity in the order of the CIT(A) to the extent stated above. Thus, the assessee's ground is treated as partly allowed;

C) ++ it appears that the contention of the assessee is legally tenable because at the time of filing of return of income, the net income was in loss, therefore, the claim of deduction under section 80IB had no meaning. However, if the income is assessed at positive figure, then the same has to be allowed as deduction. Thus, the Assessing Officer while giving effect to this order will keep this in mind and allow this deduction in accordance with the provisions of law. In the result, assessee's appeal is treated as partly allowed for statistical purposes. To sum up, assessee's appeal is treated as partly allowed for statistical purposes and Revenue's appeal is treated as dismissed.

Assessee's appeal partly allowed; Revenue's appeal dismissed

Case followed:

TRF Ltd. v/s CIT, (2010-TIOL-15-SC-IT).

ORDER

Per: Amit Shukla:

These cross appeals are directed against the impugned order dated 30th April 2012, passed by the learned Commissioner (Appeals)-II, for the quantum of assessment passed under section 143(3) of the Income Tax Act, 1961 (for short "the Act") for the assessment year 2005-06.

2. We first take up assessee's appeal in ITA no. 4341/Mum./2012, for the assessment year 2008-09, vide which, following grounds have been raised.

"1. The learned Commissioner of Income-tax (Appeals) erred in upholding disallowance of weighted deductions of Rs.1,05,65,3921- claimed under Section 35(2AB) of the Act.

It is submitted that the both lower authorities have failed to appreciate that the appellant is engaged in the business of conduction research and has incurred an expenditure of Rs. 70,43,595/-. The appellant having fulfilled the conditions of Section 35(2A)3) of the Act is entitled to a weighted deduction of Rs. 1,05,65,392/-.

2. Without prejudice to above and in an alternate to ground 1 above, the Learned Commissioner of Income-tax (Appeals) erred in holding that the expenditure of Rs. 70,43,595/- incurred is capital in nature.

It is submitted that the appellant has incurred the said expenditure wholly and exclusively for the purpose of business. The expenditure of Rs. 70,43,595/- incurred by the appellant is revenue in nature and ought to be allowed as deduction in computing the income for the year. The conclusion arrived at by the Commissioner of Income-tax (Appeals) and the learned Assessing Officer is contrary to the facts and the law.

3. The learned Commissioner of Income-tax (Appeals) erred not directing the assessing officer to delete the addition of Rs. 1,08,48,954/- erroneously made on account of bad debts.

It is submitted that learned Commissioner of Income-tax (Appeals) while adjudicating that bad debts of Rs. 8,24,978/- are to be allowed, ought to given clear direction to delete the addition of Rs. 1,08,48,954/- made on account of bad debts.

4. The learned Commissioner of Income-tax (Appeals) erred in giving direction to the assessing officer to verify the claim for deduction under Section 80G of the Act in respect or donations paid.

It is submitted that based on the documentary evidences available on record, learned Commissioner of Income-tax (Appeals) ought to have quantified and given specific directions to allow deduction under section 80G of the Act.

5. The learned CIT(A) erred in giving direction to the Assessing Officer to verify the claim for deduction under section 80IB in respect of profits derived by the eligible undertaking."

3. Brief facts, qua the issue involved in ground no.1 above are that, the assessee is a company which is engaged in the business of manufacturing, marketing and processing of drug intermediates pharmaceuticals, chemicals and bulk drugs. On a perusal of the return of income, the Assessing Officer observed that the assessee has claimed deduction of Rs. 1,05,65,392 on account of expenditure made on inhouse scientific research under section 35(2AB)(1). In response to the show cause notice, the assessee filed a copy of renewal of recognition of inhouse R&D unit issued by the Department of Scientific and Research (for short "DSIR"), New Delhi, vide letter dated 14th November 2005, issued and signed by "Scientist-G". The Assessing Officer held that as per the provisions of section 35(2AB), the approval has to be obtained from the prescribed authority who is the Secretary, DSIR, and hence, the assessee cannot be allowed the claim for deduction under section 35(2AB). Before the Assessing Officer, the assessee submitted that the Scientist-G is a designated officer ofDSIR who issues recognition to inhouse R&D units. The assessee also enclosed Citizens Charter issued by the DSIR which indicates that responsibility of giving recognition to inhouse R&D centre lies with Scientific-G. After considering the assessee's explanation, the Assessing Officer held that the provision of section 35(2AB) are absolutely clear that certificate has to be issued by the Secretary, DSIR, and not by the Scientist. Further, on the reverse side of the renewal certificate, it is clearly mentioned that it is not for the purpose of tax exemption or for quantum of tax concession. Thus, he disallowed the assessee's claim of Rs. 1,05,65,392.

4. Before the learned Commissioner (Appeals), besides reiterating the explanation given before the Assessing Officer the assessee also relied heavily upon the decision of the Tribunal inACIT v/s Meco Instruments Pvt. Ltd., ITA No.4246/Mum./2009 = (2010-TIOL-563-ITAT-MUM), order dated 20th August 2010, wherein it was held that even though the approval was not available in the prescribed form for the relevant assessment year, the tax payer was still entitled for deduction for the inhouse R&D expenditure. The Tribunal also held that it is only a procedural defect and benefit cannot be denied. The learned Commissioner (Appeals) rejected the assessee's submission and held that provisions of section 35(2AB)(1) r/w rule-6 makes it clear that the deduction can be allowed only when the approval is granted by the prescribed authority in the prescribed form. Further, the assessee company has not placed any copy of approval from the prescribed authority in the prescribed form no. 3CM. The copy of letter dated 14th November 2005, signed by the "Scientist-G" according recognition to the inhouse R&D unit is neither signed by the prescribed authority nor is in the prescribed form no. 3CM. The letter only indicates approval for the purpose of recognition and not for availing benefit of the deduction under section 35(2AB). Thus, he disallowed the assessee's claim and upheld the action of the Assessing Officer.

5. Before the learned Commissioner (Appeals), the assessee also took alternate plea that the actual expenditure incurred by the assessee on the inhouse R&D unit is revenue in nature because the same has been incurred wholly and exclusively for the purpose of business and, therefore, same should be allowed as business expenditure under section 37. The learned Commissioner (Appeals) rejected this plea also on the ground that expenditure on scientific R&D does not come under the category of day-to-day business expenses, but it is incurred keeping in view the long term benefit to the company. The expenditure incurred in R&D will have only long term enduring benefit which is capital in nature.

6. Before us, the learned Counsel for the assessee submitted that once the assessee has applied for renewal of recognition and approval of inhouse research and R&D facility in the prescribed form and the same has been issued by the DSIR, then, insofar as the assessee is concerned, the obligation gets discharged. He strongly referred to the decision of the Tribunal in Meco Instruments Pvt. Ltd. (supra), wherein the Tribunal has analysed the provisions of section 35(2AB) and rule-6 to come to the following conclusion:-

"6.3 Now, we will also examine the issue having regard to the object of legislation. The entire scheme deals with the granting of approval to the facilities and the object is that the research and development facility is not related purely to market research, sales promotion, quality control, testing, commercial production, style changes, routine data collection or activities of a like nature. The purpose is to have research and development facilities which contribute to the technological advancement and not merely limited to earning of profits. Therefore, once the approval is. there by the prescribed authority, it could be easily concluded that the same met the basic requirement and merely the same is not in prescribed form, it would not lead to the conclusion that the approval was of no purpose. As per the terms and conditions of the recognition of In-house R&D unit framed by the Ministry of Science and Technology, the assessee company is required to submit brief summary of the achievements of the R&D unit to the Department of Science and Industrial Research every year which includes paper published, patents obtained and processes developed, new products introduced, awards and prizes received and other achievements. Further, as per clause 8, commercial exploitation of the know-how/process developed by in-house R&D Unit was to be solely governed by the licensing policies in operation from time to time and the decision of the licensing authorities in this regard is considered to be final. Thus, stringent conditions have been imposed by the prescribed authority itself though the said approval was not meant for tax exemption but in substance, there was not much difference between the objects sought to be achieved by these approvals.

6.4 Further, in any view of the matter, at best it could be said that it was only a procedural defect and from the various decisions, noted in the arguments of Id Counsel for the assessee, it is clear that merely on the ground of technicalities of procedure, the benefit bestowed by legislature cannot be denied. When it comes to follow the prescribed procedure, the exemption provisions have to be liberally construed and if in substance, the assessee has fulfilled the basic requirements then the exemption cannot be denied."

7. The learned Counsel for the assessee further submitted that the order of approval in Form no. 3CM for the subsequent years i.e., 1st April 20011 to 31st March 2012 and 1st April 2012 to 31st March 2015 has been granted by the DSIR which has been signed by the Scientist-Gfor and on behalf of the Secretary, DSIR. This goes to show that the assessee is eligible for making claim under section 35(2AB). By way of an alternative submissions, he submitted that if such an expenditure cannot be allowed as deduction under section 35(2AB), then the same should be allowed as revenue expenditure to the extent of Rs.70,43,595. He pointed out to the relevant details, as appearing in Page-120 of the paper book, of such expenses and submitted that these are purely incurred for material purchase, employee's cost and other expenses which are exclusively and wholly for the purpose of assessee's business. In support of his contention that such expenditures are to be allowed, he relied upon the decision of the Tribunal, Delhi Bench, in ACIT v/s Parabolic Drugs Ltd., [2011] 141 TTJ 662 (Del.).

8. The learned Departmental Representative, on the other hand, strongly relied upon the reasoning and conclusion drawn by the learned Commissioner (Appeals) that once the approval has not been granted by the prescribed authority, then the claim for deduction under section 35(2AB) cannot be given.

9. We have heard the rival contentions, perused the findings of the authorities below as well as the material available on record. It is seen that the assessee has made claim for the deduction under section 35(2AB) which is for expenditure incurred on inhouse R&D facilities on the basis of letter dated 14th November 2005, issued by the DSIR, New Delhi, under the signature of "Scientist-G". The contents of the entire letter is reproduced hereunder for the sake of ready reference:-

"F.no.TU/IV-RD/1967/2005
Dated: 14 November 2006
To
M/s. Fermenta Biotech Ltd.
"DIL Complex", Opp. Vidyapeeth
Swami Vivakananda Road Mijiwada, Thane 400 607
Subject: RENEWAL OF RECOGNITION OF IN-HOUSE R&D UNIT (S)

Dear Sirs,
This has reference to your application for renewal of recognition of your in-house R&D unit beyond 31.03.2005 by the Department of Scientific and Industrial Research.

2. This is to inform you that it has been decided to accord renewal of recognition to the in-house R&D unit of your firm at VIII, Takoll, PO Nagwain, Mandi Dist., H.P. upto 31.03.2008. Terms and conditions pertaining to this recognition are given overleaf.

3. Kindly acknowledge receipt of this letter.
Yours faithfully,

Sd/-
(R.R. Abhyankar)
Scientist-G"

10. On the face of the letter, it is evident that the said letter issued by DSIR is only for renewal of recognition of inhouse R&D units. There is no formal order or approval for such inhouse R&D facilities in the prescribed form under section 35(2AB). The Revenue's case is that such a letter has not been issued by the prescribed authority i.e., Secretary, DSIR. Provisions of section 35(2AB) provides that where a company is engaged in the business of biotechnology or any business of manufacturing and production of anything which is not in the list of 11th schedule and incurs any expenditure on scientific research not in the nature of any cost of land and building but on inhouse research and development facility which has been approved by the prescribed authority who is the Secretary, DSIR, Government of India, then the assessee shall be allowed sum equal to 1½ times of the expenditure so incurred. Provisions of sub-section (4) provides that prescribed authority shall submit its report in relation to the approval of the said facilities to the Director General in such form and within such time as may be prescribed. Rule-6 lays down the procedure for making application and obtain approval in the prescribed form which is form no.3CK and the prescribed authority is required to grant or approval in form no. 3CM. Thus, for the purpose of claiming deduction on scientific research expenditure under section 35(2AB), it has to be approved by the prescribed authority and the rules provide that application should be made in proscribed form and also the approval is to be granted in the prescribed form.

11. Once the assessee has filed the application in the prescribed form before the prescribed authority, then insofar as the assessee is concerned, it has fulfilled its obligation. However, there is a rider that such an application form has to be approved or has to be passed by the prescribed authority in form 3CM. These conditions are essential but such a strict interpretation may defeat the very purpose of the legislation intent, if the assessee has complied with all the other conditions and procedures. The purpose of this section r/w relevant rule is to promote scientific research and development facilities which contribute to the technical advancement. If the proper process has been followed by the assessee, then whether the order of approval has been granted by the Secretary, DSIR, or by some Nodal Officer on/or behalf of the Secretary, DSIR, it does not make any difference if all the conditions for granting of approval are satisfied. In this case, it is evident from the documents submitted by the learned Counsel for the assessee subsequent years that the DSIR has granted order of approval in form no. 3CM which has been signed by the Scientist-G for and on behalf of the Secretary, DSIR. Once the DSIR has authorized any of its Nodal Officer to issue order of approval on or behalf of the Secretary, then for the purpose of section 35(2AB), it can be taken that the approval has been granted by the prescribed authority itself. Whether the order has been signed by the Secretary or by any of the Nodal Officer on his behalf will not make any difference because it is not the fault of the assessee. In such a case, claim for deduction cannot be denied to the assessee.

12. In the present case, however, the assessee could not show us whether, any approval of inhouse R&D facilities has been issued in prescribed form by the DSIR, even if it is signed by any authority like Scientist-G for on/or behalf of the Secretary, DSIR. In the subsequent years, if such an order is available, then the assessee has to show that the order of the approval for inhouse R&D facility has been granted by the DSIR covering the present assessment year. Therefore, we set aside the impugned order passed by the learned Commissioner (Appeals) and restore the issue back to the file of the Assessing Officer with a direction to verify this fact and to examine whether any order of approval of inhouse R&D facilities has been issued for the relevant assessment year. The assessee will provide all the necessary information and evidence. If such an order is available and even if it is signed by the "Scientist-G" on behalf of the Secretary, DSIR, then also it should be taken as if the same has been issued by the prescribed authority.

13. In case, such an order is not being provided by the assessee, then the Assessing Officer shall examine the nature of expenditure incurred by the assessee for the purpose of scientific research, relating to its business and also examine whether such expenditure can be allowed under section 35(1) or as revenue expenditure under section 37. We order accordingly. Thus, the ground no.1 and 2 raised by the assessee are treated as partly allowed for statistical purposes.

14. Ground no.3, relates to disallowance of bad debt of Rs. 1,08,48,954.

15. The Assessing Officer noted that the assessee company has written of bad debt pertaining to Aurubindo Pharma. In response to the show cause notice, the assessee submitted that the said party was their customer for the last several years and they have not paid the amount due from them, despite making continuous effort for recovery of this amount, therefore, the same were written of in the books of account during the year with the approval of the Board of Directors. The Assessing Officer did not accept the assessee's explanation and disallowed the claim on the ground that the assessee could not substantiate its claim by producing any documentary evidence.

16. During the course of the appellate proceedings, the assessee contended that the actual amount written of during the period in respect of bad debt pertaining to Auribindo Pharma is only amounting to Rs. 8,24,978 and not Rs. 1,08,40,951 as disallowed by the Assessing Officer. It was further contended that all the conditions laid down in section 36(1)(vii) and 36(2) has been fulfilled. The learned Commissioner (Appeals), after analyzing the provisions of section 36(1)(vii) and law applicable from 1st April 1989, held that the Assessing Officer should re-examine the case of the assessee and also the amount of bad debt claimed by the assessee. He also referred and relied upon the decision of the Hon'ble Supreme Court in TRF Ltd. v/s CIT, [2010] 323 ITR 397 (SC) = (2010-TIOL-15-SC-IT).

17. Before us, the learned Counsel for the assessee drew our attention to the amount debited to the Profit & Loss account of Auribindo Pharma. He submitted that the amount of Rs. 1,08,48,951 pertained to different customers and parties. In the name of Auribindo Pharma, the assessee has claimed only bad debt of Rs. 8,24,978. This is evident from Page-144 of the paper book. Further, he submitted that the law is absolutely clear that once the assessee has written of the bad debts in the books of account, then it has to be allowed while computing the profits.

18. The learned Departmental Representative, on the other hand, relied upon the findings of the Assessing Officer and submitted that if there is some discrepancy in the figures, the matter can be remanded back to the file of the Assessing Officer.

19. We have carefully considered the rival contentions, perused the orders of the authorities below and the material available on record. On a perusal of the details as pointed out by the learned counsel, it is seen that in the case of Auribindo Pharma, the assessee had shown the amount of bad debt written of at Rs. 8,24,978. It seems that the Assessing Officer has taken the figure of Rs. 1,08,48,951, which pertained to different parties. Thus, to this extent, we are of the opinion that only the figure of Rs. 8,24,978 should be taken into consideration for the purpose of adjudication. On a perusal of the findings of the learned Commissioner (Appeals), we find that his observation and conclusion are absolutely correct and is in accordance with the law that the Assessing Officer has to examine the conditions laid down in section 36(1)(vii) and whatever amount has been written of in the books of account as bad debts the same should be allowed in view of the principles laid down by the Hon'ble Supreme Court in TRF Limited (supra). Thus, we do not find any infirmity in the order of the learned Commissioner (Appeals) to the extent stated above. Thus, the assessee's ground is treated as partly allowed.

20. In ground no. 4 and 5, the assessee has contended that the learned Commissioner (Appeals) has directed the Assessing Officer to examine and give specific findings regarding the claim of deduction under section 80G and the claim of deduction under section 80IB without himself allowing the same.

21. The learned Counsel for the assessee submitted that insofar as the claim of deduction under section 80G is concerned, the assessee's net income itself was in loss, therefore, this ground has not much significance. Hence, the ground is dismissed. However, with regard to the claim under section 80IB, he submitted that in case there is a positive income after giving effect of this order, then the Assessing Officer should be directed to allow the claim for deduction under section 80IB.

22. After considering the submissions of the learned counsel, it appears that the contention of the assessee is legally tenable because at the time of filing of return of income, the net income was in loss, therefore, the claim of deduction under section 80IB had no meaning. However, if the income is assessed at positive figure, then the same has to be allowed as deduction. Thus, the Assessing Officer while giving effect to this order will keep this in mind and allow this deduction in accordance with the provisions of law. Thus, the ground no. 5 is treated as partly allowed.

23. In the result, assessee's appeal is treated as partly allowed for statistical purposes.

We now take up Revenue's appeal in ITA no. 4341/Mum./2012 for the assessment year 2008-09, wherein following grounds have been taken:-

"1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition made on account of disallowance of claim of bad debts written off of Rs. 1,08,48,951.

2. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in directing the Assessing Officer to consider the claim of assessee stating that actually only amount despite the act that the assessee has written off Rs. 1,08,48,951 and the debts have not been proved to be bad / irrecoverable and no documentary evidences have been furnished to substantiate the claim."

24. The issue arising out of ground no.1 and 2, raised by the Revenue is identical to the ground no.3 raised by the assessee, wherein, for the detailed reasons stated therein that the direction of the learned Commissioner (Appeals) is correct, subject to the quantum of amount of bad debt. Since the issue as well as the facts and circumstances are identical to the ground raised by the assessee, therefore, the findings given in assessee's appeal will apply to the present ground also. Accordingly, ground no. 1 and 2 raised by the Revenue are treated as dismissed.

25. In the result, Revenue's appeal is treated as dismissed.

26. To sum up, assessee's appeal is treated as partly allowed for statistical purposes and Revenue's appeal is treated as dismissed.

(Order pronounced in the open Court on 12.2.2014)

Regards,

Pawan Singla , LLB

M. No. 9825829075

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