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Implications of reporting incorrect Deductees /PAN in TDS Statements & delayed correction
Many deductor file TDS filed correction statements, which include updations from Valid to Valid PANs, after a significant delay of over an year. Such delayed correction are liable for penalty and other consequences. We have listed below the Implications and action to be taken by deductor to avoid such mistakes.
Implications of reporting incorrect Deductees in TDS Statements:
- The Deductor will not be able to provide TDS certificate within specified time period to correct deductee.
- The correct deductee will not be able to avail the credit of TDS deducted in the same financial year, in which the tax has been deducted.
- Under section 277 of the Income Tax Act, 1961, if a person makes a statement in any verification under this Act or under any rule made thereunder, or delivers an account or statement which is false, and which he either knows or believes to be false, or does not believe to be true is punishable and shall be deemed to be an assessee in default.
Actions to be taken:
- Please note that there are limited opportunities for Valid to Valid PAN Corrections. Correct reporting at the first instance will help in avoiding submitting Correction Statements.
In case of any errors observed in reporting, the Corrections must be reported at the earliest to avoid unwarranted delays.
The Deductor must ensure that the PANs for deductees reported in TDS Statements are valid and correct. TAN-PAN Master can be downloaded from TRACES and should be used to file statements to avoid quoting of incorrect PANs.
Please Login to TRACES and navigate to "Dashboard" to locate "PAN Verification" in the Quick Links menu. The functionality to download Consolidated TAN – PAN File has also been provided that includes all the PANs attached with the respective TANs.
- You can use the facility of Online Corrections at TRACES with Digital Signature to correct PANs.
IT: Bad debts relating to non-rural branches of a bank in excess of credit balance of provisions for bad debts created under section 36(1)(viia), alone would be admissible deduction under section 36(1)(vii)
IT: Disallowance of provision made for leave encashment was justified
IT: Where surplus outstanding was reflected in suspense account over a long period over a large number of years, addition could be made to income
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[2014] 45 taxmann.com 428 (Kerala)
HIGH COURT OF KERALA
South Indian Bank Ltd.
v.
Commissioner of Income-tax, Trichur*
DR. MANJULA CHELLUR, CJ.
AND A.M. SHAFFIQUE, J.
AND A.M. SHAFFIQUE, J.
IT APPEAL NO. 186 OF 2011†
JANUARY 22, 2014
I. Section 36(1)(vii), read with section 36(1)(viia), of the Income-tax Act, 1961 - Bad debts (Rural v. Non-rural loans) - Assessment year 2006-07 - Whether it cannot be said that bad debts relating to non-rural branches of a bank in excess of credit balance of provisions for bad debts created under section 36(1)(viia) alone would be admissible deduction under section 36(1)(vii) - Held, yes [Para 5] [In favour of assessee]
II. Section 43B of the Income-tax Act, 1961 - Business disallowance - Certain deductions to be allowed only on actual payment (Provision on leave encashment) - Assessment year 2006-07 - Assessing Officer disallowed provision made by assessee bank for leave encashment under section 43B(f) - Commissioner allowed claim of assessee - Opinion of Commissioner (Appeals) was set aside by Tribunal in light of stay order of judgment of High Court of Calcutta in Excide Industries case [Pending in SLA (Civil) No. C.C. 12060] and relevant SLP was still pending - Provision seemed to be in force during relevant time in light of stay order granted by Apex court in SLP - Whether, as long as section 43(B)(f) was on statute, said disallowance was justified - Held, yes [Para 6] [In favour of revenue]
III. Section 41(1) of the Income-tax Act, 1961 - Remission or cessation of trading liability (Long outstanding in suspense account) - Assessment year 2006-07 - Assessee realised surplus on sale of jewellery - Said amount stood long for many years in suspense account - Whether this outstanding acquired character of trade surplus and, hence, addition of said amount as income was justified - Held, yes [Para 7] [In favour of revenue]
CASE REVIEW-I
CIT v. South Indian Bank Ltd. [2010] 326 ITR 174/191 Taxman 272 (Ker.) (para 4) No longer good law.
CASE REVIEW -III
Catholic Syrian Bank Ltd. v. Asstt. CIT [IT Appeal No. 10. (Coch.) of 2009, dated 11-2-2011] (para 7)affirmed.
CIT v. T.V. Sundaram Iyengar & Sons Ltd. [1996] 222 ITR 344/88 Taxman 429 (SC) (para 7)followed.
CASES REFERRED TO
South Indian Bank Ltd. v. CIT [2003] 262 ITR 579/130 Taxman 749 (Ker.) (para 3), Exide Industries Ltd. v. Union of India [2007] 292 ITR 470/164 Taxman 9 (Cal.) (para 3), CIT v. South Indian Bank Ltd. [2010] 326 ITR 174/191 Taxman 272 (Ker.) (FB) (para 4), Catholic Syrian Bank Ltd. v. CIT[2012] 343 ITR 270/18 taxmann.com 282 (SC) (para 5) and CIT v. T.V. Sundaiam Iyengar & Sons Ltd.[1996] 222 ITR 344/88 Taxman 429 (SC) (para 7).
P. Balakrishnan and Mohan Pulickal for the Appellant. P.K.R. Menon and Jose Joseph for the Respondent.
JUDGMENT
Dr. Manjula Chellur, CJ. - The above appeal is filed for deciding the following substantial questions of law:
| "A. | Whether on the facts and in the circumstances of the case the Tribunal is correct in law and fact in holding that the bad debt relating to the non rural branches in excess of the credit balance of the provisions for bad debts created under section 36(1)(viia) alone is admissible for deduction under Section 36(1)(vii) ? | |
| B. | Whether on the facts and in the circumstances of the case the authorities are correct in law and fact in not allowing the claim for leave encashment ? | |
| C. | Whether on the facts and in the circumstances of the case the Tribunal is correct in law and fact in holding that the surplus outstanding in the appellant's accounts acquired the character of trade surplus when the appellant had not credited the said sum in their P&L account and there is nothing to show that there is cessation of the liability ?" |
2. The appellant Bank is before us for the assessment year 2006-07. In the above three substantial questions of law, the first issue refers to disallowance of 'bad debt' claimed under Section 36(1)(vii). The second issue is disallowance of 'leave encashment' claimed. The third issue is addition of an amount on account of 'jewellery sales surplus'.
3. So far as the first substantial question of law; the Assessing Officer disallowed the claim of the appellant under Section 36(1)(vii) amounting to Rs. 21,40,05,176/- being bad debts written off. As against this an appeal came to be filed by the assessee/appellant which came to be allowed by the Commissioner of Income Tax(Appeals)[for short 'CIT(Appeals)'] placing reliance on the Division Bench decision of this Court reported in the South Indian Bank Ltd. v. CIT [2003] 262 ITR 579/130 Taxman 749 (Ker). So far as disallowance of leave encashment, CIT (Appeals) allowed the said claim also, placing reliance on Exide Industries Ltd. v. Union of India [2007] 292 ITR 470/164 Taxman 9 (Cal.).
4. Then coming to the third issue, addition of a sum of Rs. 23,221/-, i.e surplus realised on sale of Jewellery, as against the orders of the Assessing Officer, CIT(Appeals) allowed the appeal.
Aggrieved by the said judgment of the CIT (Appeals), Revenue preferred appeal before the Tribunal and Tribunal reversed the finding of CIT (Appeals) so far as Section 36(1)(vii) disallowance by placing reliance on the Full Bench judgment of this Court in CIT v. South Indian Bank Ltd. [2010] 326 ITR 174/191 Taxman 272 (Ker.). So far as Section 43B(f) claim, the Tribunal reversed the finding of the CIT (Appeals) in the light of judgment of Calcutta High Court in Exide Industries Case (pending in SLA (Civil) No.CC.12060 dated 08.09.2008). So far as the third issue, addition of Rs. 23,221/-, being the trade surplus, placing reliance on its earlier decision, the Tribunal, Cochin Bench, confirmed the order of the Assessing Officer reversing the opinion of CIT (Appeals). Aggrieved by the same, the appellant/assessee is before us.
5. The argument of learned counsel appearing for the assessee so far as the first issue, i.e. disallowance of Rs. 21,40,05,176/- towards bad debts being written off, he placed reliance in the case of Catholic Syrian Bank Ltd. v. CIT [2012] 343 ITR 270/18 taxmann.com 282 (SC). As a matter of fact the Full Bench of High Court of Kerala opined that by virtue of proviso to Section 36(1)(vii) the Bank is entitled to claim such bad debts only to the extent it exceeds the provision created for bad or doubtful debts arising out of rural advances under Clause (viia) of Section 36(1) of the Act. According to the Apex Court, the said view was erroneous as the Full Bench ignored the significant expression appearing in both the proviso to Section 36(1)(vii) and Clause (v) of Section 36(2) i.e., "assessee to which Clause (viia) of Sub-section (1) applies". In other words, if the case of the assessee does not fall under Section 36(1)(vii), the proviso/limitation would not apply to the assessee. In that context three Judges Bench of the Apex Court opined that the provisions of Section 36(1)(vii) and (viia) of the Income-tax Act are distinct and independent items of deduction and operate in their respective fields. The Bad debts written off, other than those for which the provision is made under clause (viia), will be covered under the main part of Section 36(1)(vii), while the proviso will operate in cases falling under clause (viia) to limit deduction to the extent of difference between the debt or part thereof written off in the previous year and credit balance in the provision for bad and doubtful debts account made under clause (viia). Thus the proviso would not permit the benefit of double deduction operating with reference to rural loans while, under Section 36(1)(vii), the assessee would be entitled to general deduction upon an account having become bad debt and being written off as irrecoverable in the accounts of the assessee for the previous year. In the light of above observations of the Apex Court, the Full Bench judgment relied upon by the Tribunal is no longer good law, therefore the first substantial question of law is answered in favour of the assessee.
6. Then coming to the second issue, it pertains to the provision made for leave encashment and the disallowance claimed was under Section 43B(f). As already stated above, the opinion of the CIT(Appeals) was set aside by the Tribunal in the light of the stay order of the judgment of the High Court of Calcutta inExcide Industries case (supra) and the SLP stated above is still pending. Therefore, the opinion of the Tribunal so far as disallowance claimed in respect of leave encashment under Section 43B(f) of the Act, as on today, the provision seems to be in force in the light of the stay order granted by the Apex Court in the SLP. Therefore, as long as Section 43B(f) is on Statute, the said disallowance is justified.
7. Then coming to the third issue, i.e. addition of Rs. 23,221/- in respect of trade surplus on sale of jewellery, it was noticed by the Assessing Officer that over long number of years this amount of Rs. 23,221/- was reflected in the suspense account and according to the assessee, this cannot be considered as income because if the borrower demands return of money, it has to be paid back to the borrower. According to the learned Standing Counsel for the Revenue, the very fact that this amount is reflected in the account for long time over number of years as trade surplus amount it has to be considered as income as observed by the Tribunal. In the light of Catholic Syrian Bank Ltd. v. CIT(Asst.) in ITA No.10/Coch/2009 dated 11.02.2011 which again places reliance on CIT v. T.V. Sundaiam Iyengar & Sons Ltd. [1996] 222 ITR 344/88 Taxman 429 (SC), as on today the law declared in T.V. Sundaiam Iyengar and Sons's (supra) case would cover the issue so far as the trade surplus amount. Hence, we cannot find fault with the opinion of the Tribunal.
In the light of above observations, the appeal is partly allowed. Second and third issues are answered in favour of Revenue.
SB †Arising out of order of Tribunal in IT Appeal No. 65 (Coch.) of 2009, dated 30-6-2011.
Leave Travel Concession- Replace "Calendar year" by "Financial year": ICAI
As per the provisions of section 10(5) of the Income-tax Act, 1961, an exemption of the value of leave Travel Concession/Assistance received by the employee from his employer is provided subject to fulfillment of prescribed conditions. Rule 2B provides for the specified conditions to be fulfilled. One of the conditions is that the exemption can be availed only in respect of two journeys performed in a block of four CALENDER YEARS.
The concept of "Calendar year" was introduced in the year prior to 1989 when there was no uniform Previous Year. Since 1989 uniform Previous Year has been introduced i.e. April – March. To be in line with the concept of "financial year" adopted by other provisions of the Income tax Act, it is suggested that the concept of calendar year should be replaced with financial year (April – March) i.e. the calculation of block period shall be shifted from Calendar year to Financial Year.
To be in line with the concept of "financial year" adopted by other provisions of the Income tax Act, it is suggested that the concept of calendar year should be replaced with financial year (April – March).
Source- Pre-Budget Memorandum 2014 on direct taxes by Institute of Chartered Accountants of India
IT: Where payees had included interest income earned from assessee-bank in their total income and paid tax thereon, assessee bank could not be considered as in default in terms of section 201(1) for short deduction of tax on such interest income
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[2014] 45 taxmann.com 509 (Delhi - Trib.)
IN THE ITAT DELHI BENCH 'F'
Punjab National Bank
v.
Assistant Commissioner of Income-tax (TDS)*
R.S. SYAL, ACCOUNTANT MEMBER
AND A.T. VARKEY, JUDICIAL MEMBER
AND A.T. VARKEY, JUDICIAL MEMBER
IT APPEAL NO. 5503 (DELHI) OF 2013
[ASSESSMENT YEAR 2009-10]
[ASSESSMENT YEAR 2009-10]
APRIL 9, 2014
Section 201, read with section 191 of the Income-tax Act, 1961 - Deduction of tax at source - Consequence of failure to deduct or pay (Penal interest) - Assessment year 2009-10 - Assessee-bank filed its e-TDS statement - TDS officer observed that assessee bank had short deducted tax at source on interest paid and held assessee to be in default under section 201(1) and 201(1A) - Assessee-bank submitted that payees had already included such interest in their respective total incomes and paid tax thereon - Whether in view of Hindustan Coca Cola Beverages (P.) Ltd. v. CIT [2007] 243 ITR 226/163 Taxman 355 (SC), if payees had included interest income earned from assessee-bank in their total income and paid tax thereon, assessee could not be considered as in default in terms of section 201(1) - Held, yes - Whether however, interest under section 201(1A) was chargeable for period between date on which tax was deductible till date on which tax was actually paid by payee notwithstanding fact that payee ceased to be an assessee in default for purpose of section 201(1) - Held, yes [Paras 3 & 5] [In favour of assessee]
FACTS
| ■ | The assessee-bank filed its e-TDS statement. | |
| ■ | On perusal of same, the TDS officer concluded that there were 39 instances in respect of which there was total short deduction of tax at source on interest amounting to Rs. 5.71 lakh. The assessee was held to be in default in respect of this amount under section 201(1) and also interest under section 201(1A) amounting to Rs. 1.37 lakh, thereby determining the total liability at Rs. 7.09 lakh. | |
| ■ | On appeal, the assessee-bank argued that the deductees had shown such interest as income in their respective returns and also paid tax thereon. | |
| ■ | The Commissioner (Appeals) noticed that no evidence was placed by the assessee on record about the payment of tax on interest income by the payees and directed the assessee to co-ordinate with the TDS officer for necessary verification in this regard. However, the Commissioner (Appeals) dismissed the appeal filed by the assessee against the order under section 201(1) and 201(1A). | |
| ■ | On second appeal: |
HELD
| ■ | The Supreme Court in Hindustan Coca Cola Beverages (P.) Ltd. v. CIT [2007] 293 ITR 226/163 Taxman 355 has held that where the payee has already paid tax on income of which there was a short deduction of tax at source, paid tax on income of which there was a short deduction of tax at source, recovery of tax cannot be made once again from the tax deductor. The assessee contended that 39 instances in respect of which the assessee short deducted tax at source, the payees had already included such interest in their respective total incomes and paid tax thereon. It appears that impressed with this submission, the Commissioner (Appeals) directed the assessee to co-ordinate with the TDS officer for necessary verification in this regard. However, the fact of the matter is that the Commissioner (Appeals) has no power to remand the proceedings before the Assessing Officer. In view of the foregoing precedent from the Supreme Court, it is clear that if the payees have included such interest income earned from the assessee-bank in their total income and paid tax thereon, the assessee cannot be considered as in default in terms of section 201(1). [Para 3] | |
| ■ | It is further relevant to note that Explanation to section 191 now makes it unequivocal that where the person who is required to deduct any sum in accordance with the provisions of this Act does not deduct or after so deducting fails to pay, or does not pay the whole or any part of the tax as required by or under this Act, he may be deemed to be an assessee in default within the meaning of section 201(1) in respect of such tax, if the deductee has also failed to such tax directly. Thus it is obvious that the person responsible for deduction of tax at source on an income paid can be considered as in default only where the payee has not paid any tax on such income. To put it simply, if the payee has paid tax on such income, then the payer cannot be considered as the assessee in default. The insertion of thisExplanation by the Finance Act, 2008 with retrospective effect from 1-6-2003 is the reiteration of the mandate laid down by the Supreme Court in the case of Hindustan Coca Cola Beverages (P.) Ltd.(supra). In the light of the above discussion, the impugned order is set aside and the matter is sent back to the Assessing Officer for necessary verification. The assessee is directed to produce the relevant evidence in support of its contention that all the payees included such interest income in their total income and paid tax thereon. [Para 4] | |
| ■ | Insofar as the question of interest under section 201(1A) is concerned, the same is chargeable for the period between the date on which tax was deductible till the date on which the tax was actually paid by the payee notwithstanding the fact that the payee ceases to be an assessee in default for the purpose of section 201(1). The Supreme Court in CIT v. EliLilly & Company (India) (P.) Ltd. [2009] 312 ITR 255/178 Taxman 505 has laid down to this extent. The matter of charging interest, wherever chargeable, is also remitted to the Assessing Officer for fresh determination in line with his verification of the liability of the assessee under section 201(1). [Para 5] |
CASES REFERRED TO
Hindustan Coca Cola Beverages (P.) Ltd. v. CIT [2007] 293 ITR 226/163 Taxman 355 (SC) (para 2) and CIT v. Eli Lilly & Co. (India) (P.) Ltd. [2009] 312 ITR 225/178 Taxman 505 (SC) (para 5).
Pankaj Manocha for the Appellant. Ms. Meenakshi Vohra for the Respondent.
ORDER
R. S. Syal, Accountant Member - This appeal by the assessee is directed against the order passed by CIT(A) on 14.8.2013 dismissing the appeal filed by the assessee against the order u/s 201(1) and 201(1A) of the Income Tax Act, 1961 (the Act) in relation to the assessment year 2009-10.
2. Briefly stated the facts of the case are that the assessee bank filed its e-TDS statement. On the perusal of the same it was observed that there was non-payment of TDS, non/low deduction of tax at source and late payment of tax deducted at source in certain cases. On the basis of a chart consisting of 39 entries, which is annexure to the order passed by the ACIT(TDS), it was concluded that there was total short deduction of tax at source on interest amounting to Rs. 5,71,910/-. The assessee was held to be in default in respect of this amount u/s 201(1) and also interest u/s 201(1A) amounting to Rs., 1,37,300/-, thereby determining the total liability at Rs. 7,09,210/-. The assessee argued before the ld. first appellate authority that the deductees had shown such interest as income in their respective returns and also paid tax thereon. Reliance was placed on the judgment of the Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverages (P) Ltd. v.CIT [2007] 293 ITR 226/163 Taxman 355 to contend that the assessee could not be treated as in default. The ld. CIT(A) noticed that since no evidence was placed by the assessee on record about the payment of tax on interest income by the payees, the judgment of the Hon'ble Supreme Court in Hindustan Coca Cola Beverages (P) Ltd. (supra) could not be invoked. In the penultimate para of the impugned order, the ld. CIT(A) observed that: 'In view of these facts, the appellant is directed to co-ordinate with the TDS officer to do necessary verification and allow appellant's contention on this issue as per law.' However, in the final para, the ld. CIT(A) recorded: 'In the result, the appeal is dismissed.' The assessee is aggrieved against the final finding given by the ld. CIT(A) in dismissing the appeal. It was stated on behalf of the assessee that the Assessing Officer has refused to pass any order in view of the fact that the CIT(A) has no power to send the matter back to the A.O.
3. We have heard the rival submissions and perused the relevant material on record. The Hon'ble Supreme Court in Hindustan Coca Cola Beverages (P) Ltd. (supra) has held that where the payee has already paid tax on income of which there was a short deduction of tax at source, recovery of tax cannot be made once again from the tax deductor. The ld. AR contended that 39 instances in respect of which the assessee short deducted tax at source, the payees had already included such interest in their respective total incomes and paid tax thereon. It appears that impressed with this submission, the ld. CIT(A) directed the assessee to co-ordinate with the TDS officer for necessary verification in this regard. However, the fact of the matter is that the ld. CIT(A) has no power to remand the proceedings before the A.O. In view of the foregoing precedent from the Hon'ble Supreme Court, it is clear that if the payees have included such interest income earned from the assessee- bank in their total income and paid tax thereon, the assessee cannot be considered as in default in terms of section 201(1).
4. It is further relevant to note that Explanation to sec. 191 now makes it unequivocal that where the person who is required to deduct any sum in accordance with the provisions of this Act does not deduct or after so deducting fails to pay, or does not pay the whole or any part of the tax as required by or under this Act, he may be deemed to be an assessee in default within the meaning of Sec. 201(1) in respect of such tax, if the deductee has also failed to such tax directly. Thus it is obvious that the person responsible for deduction of tax at source on an income paid can be considered as in default only where the payee has not paid any tax on such income. To put it simply, if the payee has paid tax on such income, then the payer cannot be considered as the assessee in default. The insertion of this Explanation by the Finance Act 2008 with retrospective effect from 1.6.2003 is the reiteration of the mandate laid down by the Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverages (P) Ltd. (supra). In the light of the above discussion, we set aside the impugned order and send the matter back to the A.O for necessary verification. The assessee is directed to produce the relevant evidence in support of its contention that all the payees included such interest income in their total income and paid tax thereon.
5. In so far as the question of interest u/s 201(1A) is concerned, the same is chargeable for the period between the date on which tax was deductible till the date on which the tax was actually paid by the payee notwithstanding the fact that the payee ceases to be an assessee in default for the purpose of Sec. 201(1). The Hon'ble Supreme Court in CIT v. Eli Lilly & Co. (India) (P.) Ltd. [2009] 312 ITR 225/178 Taxman 505 has laid down to this extent. The matter of charging interest, wherever chargeable, is also remitted to the Assessing Officer for fresh determination in line with his verification of the liability of the assessee u/s 201(1).
6. In the result, the appeal is allowed for statistical purposes.
RITESH*In favour of assessee.
IT: Assessing Officer cannot go beyond order passed by Settlement Commission and it is only a consequential demand that can be raised by Assessing Officer while giving effect to order passed by Settlement Commission
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[2014] 45 taxmann.com 431 (Gujarat)
HIGH COURT OF GUJARAT
Mahavir Rolling Mill (P.) Ltd.
v.
Income-tax Officer*
M.R. SHAH AND R.P. DHOLARIA, JJ.
TAX APPEAL NO. 954 OF 2013†
NOVEMBER 26, 2013
Section 245-I of the Income-tax Act, 1961 - Settlement Commission - Order of, to be Conclusive (Binding force of order) - Block period 28-8-1992 to 20-9-1995 - Whether while giving effect to order of Settlement Commission, Assessing Officer cannot go beyond order passed by Commission under section 245D(4) and it is only after giving effect to order passed by Settlement Commission, a demand which is consequential could be raised under section 245D(6) - Held, yes - While Settlement Commission passed final order on issues raised by assessee, Assessing Officer giving effect to said order calculated tax and interest - Assessee disputed period of interest under section 220(2) and submitted miscellaneous application before Settlement Commission, which came to be rejected - Thereafter, assessee submitted application before Assessing Officer to re examine issue of interest levied under section 220(2) - Assessing Officer rejected said application - Whether Assessing Officer was justified - Held, yes [Para 3] [In favour of revenue]
FACTS
| ■ | The assessee-company filed Settlement application pertaining to block period from 20-8-1992 to 20-9-1995. | |
| ■ | The Settlement Commission passed the final order on the issues raised by the assessee. | |
| ■ | The Assessing Officer gave effect to the order passed by the Settlement Commission and calculated tax and interest payable by the assessee. | |
| ■ | The assessee disputed period of interest under section 220(2) and submitted the miscellaneous application before the Settlement Commission which came to be rejected by the Settlement Commission. | |
| ■ | Thereafter, the assessee submitted the application under section 154 before the Assessing Officer and requested to re-examine the charged interest under section 220(2). | |
| ■ | Assessing Officer dismissed the said application by observing that in view of the order passed by the Settlement Commission under section 245D(4) and the order rejecting the miscellaneous application in which similar prayer was made, the Assessing Officer has no authority and/or jurisdiction to pass any order contrary to the order passed by the Settlement Commission. |
HELD
| ■ | The present proceedings are arising out of the order passed by the Assessing Officer rejecting the application of the assessee, submitted under section 154 by which the assessee requested to modify/review the earlier order charging the interest under section 220(2). It is not in dispute that the Assessing Officer originally passed the order under section 245D(6) considering the order passed by the Settlement Commission on 24-1-2007 under section 245D(4). Therefore, as such the Assessing Officer gave effect to the order passed by the Settlement Commission passed under section 245D(4). It is also required to be noted that as such thereafter the assessee preferred miscellaneous application before the Settlement Commission with the same prayer and requested to review/modify the order with respect to the interest under section 220(2), which came to be rejected to by the Settlement Commission. Not only that, even the order passed by the Settlement Commission on the interest chargeable under section 220(2) came to be confirmed by instant Court vide order passed in Special Civil Application No. 10109/2008. Under the circumstances, so long as the order passed by the Settlement Commission with respect to the interest chargeable under section 220(2), which has been confirmed by this Court vide order passed in Special Civil Application No. 10109/2008 stands, it cannot be said that the Assessing Officer committed any error in rejecting the application under section 154. As such the Assessing Officer cannot go beyond the order passed by the Settlement Commission under section 245D(4) and only a consequential demand is to be raised by the Assessing Officer under section 245D(6) after giving effect to the order passed by the Settlement Commission under section 245D(4). [Para 3] | |
| ■ | In view of the above, there is no question of law and/or substantial question of law arises in the present tax appeal. Hence, present tax appeal deserves to be dismissed and is, accordingly, dismissed. [Para 4] |
B.S. Soparkar for the Appellant.
ORDER
M.R. Shah, J. - Feeling aggrieved and dissatisfied with the impugned order dated 30.06.2011 passed by the learned Income Tax Appellate Tribunal [hereinafter referred to as "ITAT"] in IT (SS)A No.52/Ahd/2009 for block period 20.08.1992 to 20.09.1995, the assessee has preferred the present Tax Appeal with the following proposed substantial questions of law:
| "(i) | Whether, in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that there was no need to interfere with the order of the CIT(A) directing the Assessing Officer to charge interest u/s 220(2) of the Act up to the date of the order of the Settlement Commission passed u/s 245D(4) of the Act? | |
| (ii) | Whether, in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that the issue of charging interest u/s 220(2) of the Act as ordered by the Settlement Commission had become conclusive by virtue of the provisions of section 245-I of the Act and cannot be reopened under any proceedings under the Act in light of the fact that the Commission had specifically directed that in case of computational error in calculating interest, resort to appeal/revision/rectification proceedings can be taken? | |
| (iii) | Whether, in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in refraining from expressing any opinion on matter which has been decided upon by the Settlement Commission and made conclusive by section 245-I of the Act? | |
| (iv) | Whether, in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in not following its earlier order passed in the case of ITO v. Malhotra Steel Industries Ltd. in ITA Nos.3020-3021/Ahd/2003? | |
| (v) | Whether, in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in not following a similar situation that had arisen in the appellant's sister concern, Mahavir Inductomelt (P) Ltd., wherein the Assessing Officer passed an order u/s 154 of the Act excluding the period from the date of the order u/s 245D(1) to the date of the order u/s 245D(4) for calculating interest u/s 220(2) of the Act?" |
2. That a search had taken place on 21.09.1995 and assessment under section 158BC was finalized on 30.09.1996. Meanwhile the assessee filed an application under section 245C(1) of the Income Tax Act, 1961 [hereinafter referred to as "Act"] before the Settlement Commission on 27.09.1996 pertaining to the Block Period from 20.08.1992 to 20.09.1995. The application was admitted as per the order under section 245D(1) of the Act passed on 26.05.1998. That thereafter the Settlement Commission passed the final order under section 245D(4) of the Act on 24.01.2007 computing the income as under.
| 1 | Income as per order u/s.158BC dated 30.09.1996 | Rs.2,24,38,039 | |
| Less | |||
| 1 | Burning loss (Para 6.1) | Rs.24,94,321/- | |
| 2 | Telescoping benefit on excess stock (para 6.2) | Rs.11,26,797/- | |
| 3 | Unexplained Money (Para 6.4) | Rs.18,26,023/- | |
| 4 | Unaccounted Sale (Para 6.7) | Rs. 2,10,000/- | |
| 5 | Unaccounted Stock of raw Material (Para 6.8) | Rs. 3,80,000/- | |
| 6 | Travelling expenses (Para 6.9) | Rs. 18,381/- | |
| Rs. 60,55,552/- | |||
| Total undisclosed income for the block period | Rs. 1,63,82,517 | ||
The Settlement Commission also passed an order that since the return of the tax payment are available with the AO, the AO may compute the tax payable including the surcharge and interest, if any, after giving credit of taxes paid by the assessee and issued demand notice under section 245D(6) of the Act.
2.1 That thereafter and after giving effect to the order passed by the Settlement Commission under section 245D(4) of the Act dated 05.03.2007, the AO calculated tax and interest and it appears that there was a dispute raised by the assessee with respect to the date of interest under section 220(2) of the Act. The assessee submitted the miscellaneous application before the Settlement Commission which came to be rejected by the Settlement Commission. The order passed by the Settlement Commission charging the interest under section 220(2) of the Act upto the date of order under section 245D(4) of the Act came to be confirmed by this Court vide order in Special Civil Application No.10109/2008.
2.2 That thereafter the assessee submitted the application under section 144 of the Act before the AO and requested to re-examine the charged interest under section 220(2) of the Act by submitting that the interest under section 220(2) of the Act is chargeable only upto the order under section 245D(1) of the Act. That vide order dated 28.08.2008, the AO has dismissed the said application by observing that in view of the order passed by the Settlement Commission under section 245D(4) of the Act and the order rejecting the miscellaneous application in which similar prayer was made, the AO has no authority and/or jurisdiction to pass any order contrary to the order passed by the Settlement Commission and therefore, consequently, has dismissed the said application.
2.3 Feeling aggrieved and dissatisfied with the order dated 20.08.2008 in rejecting the application under section 154 of the Act, the assessee preferred appeal before the CIT(A) which came to be dismissed against which the assessee preferred further appeal before the learned ITAT and by impugned judgment and order, the learned ITAT has dismissed the said appeal being IT (SS)A No.52/Ahd/2009.
2.4 Feeling aggrieved and dis-satisfied with the order passed by the learned ITAT, the assessee has preferred the present tax appeal with the aforesaid proposed substantial questions of law.
3. Heard Shri Soparkar, learned counsel appearing on behalf of the appellant at length. At the outside it is required to be noted that the present proceedings are arising out of the order passed by the AO rejecting the application of the assessee, submitted under section 154 of the Act, by which the assessee requested to modify/review the earlier order charging the interest under section 220(2) of the Act. It is not in dispute that the AO originally passed the order under section 245D(6) of the Act considering the order passed by the Settlement Commission on 24.01.2007 under section 245D(4) of the Act. Therefore, as such the AO gave effect to the order passed by the Settlement Commission passed under section 245D(4) of the Act. It is also required to be noted that as such thereafter the assessee preferred miscellaneous application before the Settlement Commission with the same prayer and requested to review/modify the order with respect to the interest under section 220(2) of the Act, which came to be rejected by the Settlement Commission. Not only that, even the order passed by the Settlement Commission on the interest chargeable under section 220(2) of the Act came to be confirmed by this Court vide order passed in Special Civil Application No.10109/2008. Under the circumstances, so long as the order passed by the Settlement Commission with respect to the interest chargeable under section 220(2) of the Act, which has been confirmed by this Court vide order passed in Special Civil Application No.10109/2008 stands, it cannot be said that the AO committed any error in rejecting the application under section 154 of the Act. As such the AO cannot go beyond the order passed by the Settlement Commission under section 245D(4) of the Act and only a consequential demand is to be raised by the AO under section 245D(6) of the Act after giving effect to the order passed by the Settlement Commission under section 245D(4) of the Act.
4. In view of the above, there is no question of law and/or substantial question of law arises in the present tax appeal. Hence, present Tax Appeal deserves to be dismissed and is, accordingly, dismissed.
MUMBAI, JUNE 24, 2014: THE issue before the Bench is - Whether the provisions of Sec 153C allow the AO to invoke it casually and need not record any satisfaction. And the answer goes against the Revenue.
Facts of the case
The assessee is a company. Before High Court, the Revenue's counsel had submitted that section 153C had been brought on the statute book so as to enable assessment of the income of any other person. It was submitted that this section opens with a nonobstante clause and enables AO to proceed and assess the income of any other person. It was submitted that whenever the AO was satisfied that any money, bullion, jewelery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153A then, such seized documents or assets and equally requisitioned shall be handed over to AO, having jurisdiction over such other person. It was further submitted that this section mandates that AO must proceed to issue notices and assess or reassess the income of such other person in accordance with the provisions of section 153A. It was further submitted that there was nothing in the language of subsection (2) which would in any manner require AO to hold that the seizure of a document was permissible only if it was incriminating. There was no discretion but the Jurisdictional AO had to issue the requisite notice was the submission. It was further submitted that the findings recorded by the Tribunal render the provisions of section 153C totally redundant. The criticism by the Tribunal of the parliamentary provisions and the approach of the Department was therefore completely uncalled for. The finding of the Tribunal would raise a substantial question of law.
On the other hand, assessee's counsel had submitted that this appeal does not involve any substantial question of law, much less, the questions projected as such before us. It was submitted that the Tribunal had rendered factual findings. The Tribunal had found that the reason for issuance of notice u/s 153C was for applicability of the provisions of section 45(4). That issue was already examined and no addition was found necessary u/s 146(3) after scrutiny. Therefore, the documents do not have any incriminating material relevant for the AY year in question. Thus, the Tribunal observed that in the absence of any incriminating material, the proceedings u/s 146(3) could not have been initiated. It was therefore submitted that the finding cannot be read in isolation but must be read in the backdrop of the stand of the Department already noted. Thus, it was submitted that the view taken was imminently possible and based on the facts and circumstances peculiar to the Assessee's case. It was submitted that the appeal deserves to be dismissed as it does not raise any substantial question of law.
Held that,
++ it is apparent that the Tribunal referred to the seized documents. During the course of the proceedings, it was noted that the seized documents referred to a transaction in relation to transferable development rights, for short TDR. The Tribunal found that the TDR was taken over by the retiring partner. In the earlier round, the issued raised was whether this was a capital asset and therefore required to be dealt with in terms of section 45, particularly subsection (4) thereof. The Assessing Officer proceeded to issue requisite notice and in relation to the transaction evidenced by the said documents. The issue of applicability of section 45(4) was considered. It was found that during the very assessment year, no addition was necessary. It is that issue which was sought to be raised once again and relying on the very document, the Revenue has proceeded against the Respondent. It is in that backdrop that the Tribunal found that the seized documents may relate to the TDR that may have been handed over or taken over by retiring partner. However, whether that attracts the provisions of section 45(4) of the Act was an issue that was considered at length and the factual finding is that it being a stock-in-trade of the firm, the provision invoked was not applicable. That is how the Tribunal proceeded and held that merely because the document evidencing the transaction was in possession of the Department, it could not have issued notice to any other person within the meaning of section 153C of the Act particularly so as to reopen the concluded issue. It is in these circumstances that the Tribunal has made the observations in paragraph 25 of the order and which according to Mr Gupta, proceed on an incorrect reading of the section;
++ we are of the view that in the facts peculiar to this case, any larger or wider controversy need not be decided. The Tribunal, as a matter of caution and in the peculiar facts of this case observed that a casual resort to section 153C of the Act is impermissible. There must be some basis for proceeding under section 153C of the Act. The Tribunal referred to the satisfaction which is recorded by the Assessing Officer. It is only thereafter that he can proceed in accordance with the provisions of the said section. We do not see how the observations by themselves raise any substantial question of law. The observations and findings in paragraphs 24 and 25 of the order must be seen as confined and restricted to the facts peculiar to the case of the Respondent – Assessee. These are findings rendered for the purpose of disposal of the Appeal before the Tribunal. Beyond that nothing is held based on which we can entertain this Appeal. Once we have clarified that every single observation and finding in paragraph 25 of the order of the Tribunal must be read in the backdrop of the facts peculiar to the case of the Respondent – Assessee and not laying down any general rule or law so also the controversy based on construction or interpretation of the provisions not being gone into, then, the apprehension of Mr Gupta need not be taken care of any further. We are of the opinion that in the light of our clarification, the apprehension of Mr Gupta has no basis. The Appeal does not raise any substantial question of law. Appeal is accordingly dismissed with no order as to costs.
Give Amnesty to TDS deductors from Fees under section 234E – ICAI
a) The matters relating to TDS/TCS in a government department is handled by persons with reasonably good education background. Appropriate computer training is also given by the Government to them for day to day functioning of the system. Accordingly, the records are well maintained and seemingly there should be no issues for them in timely furnishing the statement of TDS/TCS within 30 days from the end of the quarter. However, in comparison to the same, the non- Government deductor who is a business man may not necessarily be even a graduate. The non government deductors majorly comprise of non-corporate sector which is not very organized. Approximately less that 6000 assessees are listed companies who take the help of professionals to file statements of TDS/TCS in time. Approximately, 6,60,000 assessees are private limited Companies, but majority of them are family organizations or organizations among the friends registered as Private Limited companies under Companies Act. Further, last year there were approximately 18,00,000 tax audit asseessees. This clearly reflects that more than 66% of the assessees who are liable to deduct TDS are non-corporate entities comprising of Individuals, HUFs, firms etc. In addition to above, certain non corporate and NGOs are also mandatorily liable to deduct TDS.
It has been brought to the notice of ICAI that 15 days time limit is too short for the same causing genuine hardship to the deductor, who has to deduct tax, pay tax through challan, collect the same from the bank, prepare the TDS/TCS statements and
thereafter submit the same to TIN Centre, which may not always be located in the near vicinity. Also, the levy of fees under section 234E has been a matter of great concern.
thereafter submit the same to TIN Centre, which may not always be located in the near vicinity. Also, the levy of fees under section 234E has been a matter of great concern.
It is highly appreciable that the Government has taken an open mind while considering the problems of e-filing of statement of TDS /TCS and has extended the time only for Government deductors. In fact, considering the difficulties being faced by the government deductors, this circular was a step in the right direction. Since the above difficulty equally applies for other deductors also, one time amnesty is sought for all deductors with regard to all TDS statements pertaining to FY 2012-13 and FY
2013-14 to be submitted on or before a cutoff date to be decided appropriately.
2013-14 to be submitted on or before a cutoff date to be decided appropriately.
b) According to the provisions of section 234E, where a person fails to deliver or cause to be delivered a statement within the time prescribed then he shall be liable to pay, by way of fee, a sum of Rs. 200 for every day during which the failure continues. But the amount of fee shall not exceed the amount of tax deductible or collectible, as the case may be.
Considering the hardships being faced by the taxpayers due to various reasons, penal fees for late filing of TDS returns need to be changed to period wise/ slab of days instead of current system.
It is suggested that
a) the time limit to file quarterly TDS return for non-government deductors be also increased to 30 days as available to the government deductors. With this change there will be neither a revenue loss nor any hardship to the deductees.
a) the time limit to file quarterly TDS return for non-government deductors be also increased to 30 days as available to the government deductors. With this change there will be neither a revenue loss nor any hardship to the deductees.
b) It is highly appreciable that the Government has taken an open mind while considering the problems of e-filing of statement of TDS /TCS and has extended the time only for Government deductors. In fact, considering the difficulties being faced by the government deductors, this circular was a step in the right direction. Since the above difficulty equally applies for other deductors also, one time amnesty is sought for all deductors with regard to all TDS statements pertaining to FY 2012-13 and FY 2013-14 to be submitted on or before a cutoff date to be decided appropriately.
It is suggested to follow day wise slab system & it may be taken as:
| Period of Default | Max. Fees u/s 234E |
| Upto 15 Days | Rs. 500/- or tax amount, whichever is higher, but subject to maximum of Rs. 20,000/-. |
| From 15 Days to 1 Month | Rs. 1000/- or tax amount, whichever is higher, but subject to maximum of Rs. 20,000/-. |
| From 1 Month Onwards | Rs. 1000/- + Rs. 200/- per day or tax amount, whichever is higher, but subject to maximum of Rs. 20,000/-. |
Source- Pre-budget Memorandum 2014 on direct taxes by Institute of Chartered Accountants of India
IT : In a case of purchase of shares on credit, assessee's obligation stood discharged under section 69A if he furnished details of cheques, details of banks and addresses of sellers of shares
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[2014] 45 taxmann.com 432 (Allahabad)
HIGH COURT OF ALLAHABAD
Commissioner of Income-tax, Meerut
v.
Smt. Sadhana Jain*
DR. SATISH CHANDRA AND B. AMIT STHALEKAR, JJ.
IT APPEAL NO. 460 OF 2005†
DECEMBER 13, 2013
Section 69A of the Income-tax Act, 1961 - Unexplained moneys (Share dealings) - Assessment year 1995-96 - Whether section 69A comes into play only when transaction is not recorded in books of account and assessee is unable to give an explanation about nature and source of acquisition of money, bullion, jewellery and other valuable articles - Held, yes - Assessee purchased shares on credit from 207 persons - Assessing Officer made addition of amount received on ground that no response was received from persons who were stated to have sold shares - Whether since evidences in nature of cheques, their dates, amounts, particulars of banks and addresses of persons who were stated to have sold shares had been furnished by assessee, burden of assessee stood discharged - Held, yes [Paras 3 & 4] [In favour of assessee]
FACTS
| ■ | The assessee, an individual, purchased shares of a company worth Rs. 91,37,900 on credit from 207 persons and recorded all details in her books of account properly. | |
| ■ | The Assessing Officer made an addition of this amount under section 69A on ground that burden of proof on the assessee remained undischarged because no response was received from the persons who were stated to have sold the shares of that company. | |
| ■ | On appeal, the Commissioner (Appeals) disapproved the order of the Assessing Officer. The Commissioner held that the list of persons from whom the shares had been purchased had already been disclosed by the assessee in her books of account and, therefore, the amount of transaction, its date and the address of the persons could have been verified and burden of proof of assessee stood discharged. | |
| ■ | On appeal by the Department, the Tribunal upheld the order of the Commissioner (Appeals) and held that the details of the shares with distinctive numbers and the details of payments were given by the assessee which could have been verified from the banks and the complete address of the sellers obtained. Therefore, the assessee had discharged its onus. | |
| ■ | On appeal by the Department to the High Court: |
HELD
| ■ | The provisions of section 69A are explicit and come into play when in a particular assessment year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money bullion, jewellery and other article is not recorded in the books of account and the assessee is unable to give any explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable articles. [Para 5] | |
| ■ | In the present case the finding of fact are clearly against the revenue that the details and other evidences in the nature of cheques, their dates, amounts, particulars of banks and addresses of the persons who are stated to have sold the shares, which have also been transferred by the Company in the name of the assessee and, therefore, the burden which initially lay upon the assessee stood effectively discharged and, therefore, no addition ought to have been made. [Para 6] |
A.N. Mahajan and B. Agrawal for the Appellant.
ORDER
1. This is the Department's appeal under section 260-A of the Income Tax Act, 1961 challenging the order of the Income Tax Appellate Tribunal dated 5.4.2005 in I.T.A. No. 2966/Del/2002 for the assessment year 1995-96. On 8.5.2009, the appeal was admitted on the following questions of law as framed in the memo of appeal:
| "1. | Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is justified in law in deleting the addition of Rs. 70,02,178/- made u/s 69-A of the Act ignoring the fact that the assessee failed to discharge the burden which lay on assessee when she claimed that the purchased shares on credit from different 207 persons for Rs.91,37,900/-? | |
| 2. | Whether on the facts and in the circumstances of the case, if the A.O. Had failed to discharge the onus which had shifted on him, the addition could not be deleted by the CIT (A) without the exercise of powers u/s 250(4) of the Act and in that event, the Tribunal was under a legal obligation to restore the issue to the file of the A.O./CIT(A) for the inquiry afresh?" |
2. Briefly stated, the facts are that the respondent-assessee is stated to have purchased certain shares of M/s Electra Exports Ltd. worth Rs.91,37,900/-from 207 persons during the financial year 1994-95 relevant to the assessment year 1995-96. In the return for the year 1994-95, the A.O. however, sought to make an addition of this amount of Rs. 91,37,900/-. On the request of the assessee when notices were handed over to the assessee's representative and no response was received from the persons who were stated to have sold the shares of M/s Electra Exports Ltd. the burden of proof which stood on the assessee was held to have remained undischarged. Aggrieved by the order of the A.O., the assessee preferred an appeal before the CIT (A) who having examined the matter recorded a clear finding that the list of persons from whom the shares had been purchased had already been disclosed by the assessee in her books of account and, therefore, the amount of transaction, its date and the address of the persons could have been verified from these details and, therefore, the assessee had discharged its burden of disclosing the names from whom she had purchased the shares. It was further held that the A.O. had proceeded to make the addition of Rs. 91,37,900/- under section 69A of the Income Tax Act though burden of proof of the assessee stood discharged.
3. It was in the context of the specific provisions of section 69A that the CIT (A) held that since the entire transaction had already been entered in the books of account which could have easily been verified by the A.O., therefore, the initial burden which lay on the assessee stood discharged. The CIT (A), therefore, allowed the appeal of the assessee. Aggrieved the Department approached the Income Tax Appellate Tribunal. The Tribunal has also in paragraph 6 of its order recorded a clear finding of fact that the A.O. had handed over the summons to the assessee's representative and when there was no response from the persons who were stated to have sold the shares to the assessee, the A.O. proceeded to make the addition under section 69A of the Income Tax Act. The Tribunal held that the details of the shares with distinctive numbers which were transferred by the Company in the name of the assessee, the details of payments, such as, cheque numbers and date were given which could have been verified from the banks and the complete address of the sellers obtained. The A.O. instead ignored the details and other evidence available on record and made the additions. The Tribunal, therefore, on the overwhelming evidence on record dismissed the appeal of the Department.
4. We have considered the submissions made by Shri Dhananjay Awasthy, learned counsel appearing for the Revenue. No one has appeared on behalf of the assessee.
The provisions of section 69A of the Income Tax Act read as under:
"69A. Unexplained money, etc.— Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year."
5. The provisions of Section 69-A are explicit and come into play when in a particular assessment year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money bullion, jewellery and other article is not recorded in the books of account and the assessee is unable to give any explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable articles.
6. In the present case the finding of fact are clearly against the Revenue that the details and other evidences in the nature of cheques, their dates, amounts, particulars of banks and addresses of the persons who are stated to have sold the shares, which have also been transferred by the Company in the name of the assessee and, therefore, the burden which initially lay upon the assessee stood effectively discharged and, therefore no addition ought to have been made.
7. In view of the above, the answer to the substantial questions of law is in favour of the assessee and against the Department.
In the result the appeal filed by the Department is dismissed.
SB*In favour of assessee.
†Arising out of order of Tribunal in IT Appeal No. 2966 (Delhi) of 2002, dated 5-4-2005.
Notice issued based on AG Audit objection - AG drops para - Department wants duty
26.06.2014
Thursday
IT is often said that the department is a major litigant before the judiciary and is responsible for chocking the appellate forums. Here is an example.
The officers of CAG raised an objection that the assessee is not entitled for an exemption. Once there is an objection by CAG, whether the department accepts it or not, there should be a protective demand. So, a Show Cause Notice was issued to the assessee. Department contested the audit objection and in a rare gesture, the CAG dropped the para. The Adjudicating Authority (also in a rare gesture) dropped the demand.
Now, the department felt that the Adjudicating Authority was wrong in dropping the demand and filed appeal with the Commissioner (Appeals). The Commissioner (Appeals) in not so rare a gesture upheld the demand. On appeal filed by the assessee, the Tribunal has recently set aside the demand.
Perhaps the litigation-loving department will now go in for appeal to the Supreme Court against the CESTAT Order.
Is there any justification to demand duty when the Audit itself had closed the para, most probably based on the department's reply that there is no case on merits? How can the department take two contrary stand
IT: Even where assessee requested Assessing Officer to treat original return as one in response to section 148 proceeding, notice under section 143(2) was mandatory; otherwise re-assessment would be bad in law
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[2014] 45 taxmann.com 424 (Madras)
HIGH COURT OF MADRAS
Commissioner of Income-tax, Chennai
v.
Alstom T & D India Ltd.*
MRS. CHITRA VENKATARAMAN AND K. RAVICHANDRABAABU, JJ.
TAX CASE (APPEAL) NOS. 1183 & 1186 OF 2006†
SEPTEMBER 3, 2012
Section 147, read with section 143, of the Income-tax Act, 1961 - Income escaping assessment - Issue of Notice (Reasons to believe) - Assessment year 1994-95 - Whether where assessee had requested Assessing Officer to treat original return already filed as one in response to section 148 proceeding, further proceedings regarding compliance of procedure under section 143(2) is to be completed as this section is mandatory in nature - Held, yes - Whether where no notice was issued under section 143(2), finalisation reassessment proceedigns under section 143(3), read with section 147, was bad in law - Held, yes [Para 6] [In favour of assessee]
FACTS
| ■ | A notice under section 148 was issued. Since, there was no response, notice under section 142 was issued. The assessee requested revenue to treat the original return as conclusive return and sought reason for reopening of assessment. | |
| ■ | The Assessing Officer replied that reasons for reopening assessment need not be communicated to the assessee. Ignoring contents of the assessee's letter, the Assessing Officer viewed that the assessee had not filed return and thus, completed assessment. | |
| ■ | On appeal, the Commissioner (Appeals) upheld the reopening of the assessment. | |
| ■ | However, on second appeal, the Tribunal held that completion of the assessment proceedings under section 143(3), read with section 147 without issue of notice under section 143(2) was bad in law. Hence, the Tribunal cancelled the assessment. | |
| ■ | On appeal: |
HELD
| ■ | Even in matter of finalisation of assessment under section 148 compliance of procedure laid down under sections 142 and 143(2) is mandatory. | |
| ■ | When the assessee had requested the officer to treat the return already filed as one in response to section 148 proceedings, further proceedings regarding compliance of the procedure under section 143(2) is mandatory in nature. Since there was no notice issued under section 143(2), Tribunal was right in holding that reassessment framed under section 143(3), read with section 147, was invalid. [Para 6] |
CASES REFERRED TO
S. Narayanappa v. CIT [1967] 63 ITR 219 (SC) (para 3), CIT v. M. Chellappan [2006] 281 ITR 444 (Mad.) (para 4), Sapthagiri Finance & Investments v. ITO [2012] 210 Taxman 78 (Mag.)/25 taxmann.com 341 (Mad.) (para 5) and Asstt. CIT v. Hotel Blue Moon [2010] 321 ITR 362/188 Taxman 113 (SC) (para 5).
T. Ravikumar for the Appellant. M.P. Senthil Kumar for the Respondent.
JUDGMENT
Mrs. Chitra Venkataraman, J. - The above Tax Case (Appeals) arise out of the order of the Tribunal relating to assessment year 1994-95. Following are the questions of law raised for consideration in the above Tax Case (Appeals):—
| "1. | Whether in the facts and circumstances of the case, the Tribunal was right in holding that the re assessment framed under section 143(3) r/w 147 for the assessment year 94-95 is invalid on the ground that no notice under section 143(2) was served before framing the re-assessment ? | |
| 2. | Whether in the facts and circumstances of the case, the Tribunal was right in holding that expenditure on renting a guest house is allowable as a business expenditure as per section 37(4) ? | |
| 3. | Whether in the facts and circumstances of the case, the Tribunal was right in holding that Lucknow property which was exchanged for another property in respect of which the assessee had forgone the tenancy rights was acquired for a valuable consideration and allowing depreciation under section 32 ?" |
2. T.C.(A).No. 1183 of 2006 relates to jurisdictional aspect in not issuing notice under Section 143(2) of the Act. T.C.(A).No. 1186 of 2006 deals with merits of the reassessment.
3. It is seen from the order of assessment that a notice under Section 148 of the Act was issued on 17.3.1997. Since there was no response, notice under Section 142 of the Act was issued on 26.11.1997. The assessee is stated to have filed a letter dated 16.4.1997 stating that the company has already filed its return of income on 30.11.1994 declaring loss and requested to treat the said return as the correct and conclusive return. In response to the notice under Section 142 of the Act, the assessee filed a letter dated 11.1.1999 seeking reasons for reopening of the assessment. The letter dated 11.1.1999 further pointed out to the letter dated 16.4.1997 requesting the Assessing Officer to treat the return filed earlier as a return filed pursuant to the notice under Section 148 of the Act. The Officer however replied on 29.1.1999 by stating that the reasons for reopening the assessment need not be communicated to the assessee as per the decision of the Apex Court S. Narayanappa v. CIT [1967] 63 ITR 219, thus the Assessing Officer called upon the assessee to comply with the notice issued under Section 148 of the Act. The said letter from the Joint Commissioner of Income Tax revealed receipt of the letter dated 11.1.1999 and the assessee was asked to comply with the notice issued under Section 148 of the Act. Ignoring the contents of the assessee's letter dated 11.1.99, the Assessing Officer however viewed that since the assessee had not filed the return, after discussing the matter, the assessment was completed. Aggrieved by this, the assessee went on appeal before the Commissioner of Income Tax (Appeals) questioning the reopening of the assessment on merits as well as on non compliance of the requirements under Section 143(2) of the Act.
4. The first Appellate Authority upheld the reopening of the assessment under Section 147 of the Act. On the quantum, the Commissioner of Income Tax (Appeals) granted partial relief. reassessment. As against the same, assessee filed an appeal before the Income Tax Appellate Tribunal. The Revenue too on its part filed the appeal as against the order of the Commissioner of Income Tax (Appeals) granting partial relief to the assessee. The Tribunal pointed out that the Assessing Officer had not issued notice under Section 143(2) of the Act before completing the assessment. Placing reliance on the decision of this Court rendered in CIT v.M. Chellappan [2006] 281 ITR 444, the Tribunal held that completion of the assessment proceedings under Section 143(3) read with 147 without issue of notice under Section 143(2) was bad in law. Hence, the Tribunal cancelled the assessment. In view of the same, jurisdictional issue raised was decided in favour of the assessee. The Revenue's appeal on the merits of the assessment was dismissed. Aggrieved by the same, the Revenue is before this Court.
5. The facts as stated above are not in dispute. As rightly pointed out by the learned counsel for the assessee, even in the matter of finalisation of the assessment under Section 148 of the Act, compliance of the procedure laid down under sections 142 and 143(2) is mandatory vide order dated 17.7.2012 in Sapthagiri Finance & Investments v. ITO [2012] 210 Taxman 78 (Mag.)/25 taxmann.com 341 (Mad.). Referring to the Apex Court in the decision in Asstt. CIT v. Hotel Blue Moon [2010] 321 ITR 362/188 Taxman 113holding that completion of the assessment proceedings under Section 143(3) read with 147 without issue of notice under Section 143(2) was bad in law, this Court held that when there was failure on the part of the Revenue from complying with the procedure laid down under Section 143(2) of the Act, the assessment had to fail.
6. As already seen, the facts of the case are no different from the case already decided by this Court. When the assessee had requested the officer to treat the return already filed as one in response to Section 148 proceedings, further proceedings regarding compliance of the procedure under Section 143(2) is mandatory in nature. On the admitted fact position that there was no notice issued under Section 143(2) of the Act, we have no hesitation in confirming the order of the Tribunal. Consequently, T.C.(A).No. 1183 of 2006 is dismissed.
7. In view of the decision taken in T.C.(A). No. 1183 of 2006, T.C.(A). No. 1186 of 2006 is also dismissed. There is no necessity to go into the merits of the assessment. Accordingly, both the appeals are dismissed. No costs.
SB *In favour of assessee.
†Arising out of IT Appeal Nos. 1686 & 1747 (Mds.) of 2000, dated 29-7-2005.
Regards,
Pawan Singla , LLB
M. No. 9825829075This admission season, save taxes while applying for an education loan
Admission season is on and it's that time of the year when every student is hoping to get in to a good college to pursue their higher studies. Once the admissions are sorted the next challenging step is to arrange the finances. The admission fee for higher studies is usually not a small amount and many parents and students find it difficult to arrange for it. Thankfully education loans are available in such situations that enable students to pursue their higher studies smoothly. Additionally, one can also save on taxes while incurring this expense. Before we move on to the tax deductions for this, here are some essentials you need to know while applying for an education loan.
Students in the age group of 18-35 who wish to pursue higher education need to be an Indian resident having secured admission in any of the bank's list of approved course or universities for availing an education loan.
The loan covers the following expenses:
- Fee Payable to College/School/Hostel
- Exam/Library/Lab fees
- Caution deposit / Refundable deposit asked by the institution/Building fund – supported by Institution bills/receipts
- Purchase of Books/equipments/instrument/uniforms
- Travel expenses/passage money for studies abroad
- Purchase of computers – essential for completion of the course
- Any other expense required to complete the course – like study tours, project work, thesis, etc.
Tuition & hostel fee will be disbursed directly to the educational Institute as per the schedule of fee given by the Institute/college.
As far as the tax implications are concerned, only the interest paid on an educational loan is allowed as deduction u/s. 80E of The Income Tax Act, 1961("ITA"), out of his/her income chargeable to tax i.e. deduction will be allowed for a period of 8 years only when actual interest is paid.
The loan should be taken either by an individual for pursuing higher education of self, spouse or his /her children. Hence parents are also eligible to claim deduction of interest paid by them on loan taken for their children's education. Loan should be taken from an approved financial institution or from an institution established for charitable purposes and approved by the prescribed authority under clause (23C) of section 10 or an institution referred to in clause (a) of sub-section (2) of section 80G. Loan will be applicable for full-time studies for any graduate or postgraduate course in engineering, medicine, management or for post-graduate course in applied sciences or pure sciences including mathematics and statistics.
Please note: 1) An Individual is also entitled to claim deduction u/s. 80 C of The Income Tax Act, 1961 up to Rs. 1,00,000 in the year of payment in respect of as tuition fees (excluding any payment towards any development fees or donation or payment of similar nature), whether at the time of admission or thereafter,
(a) To any university, college, school or other educational institution situated within India;
(b) For the purpose of full-time education of self, spouse or his /her children's;
2) Financial institution" means a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act); or any other financial institution which the Central Government may, by notification in the Official Gazette, specify in this behalf.
The article is written by Mr. Vikram Ramchand, Founder at MakeMyReturns.com
TDS can be recovered only if dept shows that recipient of income has not paid due taxes thereof
Lapse on account of non-deduction of tax at source is to be visited with three different consequences – penal provisions, interest provisions and recovery provisions. The penal provisions in respect of such a lapse are set out in Section 271 C. So far as penal provisions are concerned, the penalty is for lapse on the part of the assessee and it has nothing to do with whether or not the taxes were ultimately recovered through other means. The provisions regarding interest in delay in depositing the taxes are set out in Section 201(1A). These provisions provide that for any delay in recovery of such taxes is to be compensated by the levy of interest. As far as recovery provisions are concerned, these provisions are set out in Section 201(1) which seeks to make good any loss to revenue on account of lapse by the assessee tax deductor. However, the question of making good the loss of revenue arises only when there is indeed a loss of revenue and the loss of revenue can be there only when recipient had a liability to pay the tax and he has not paid tax. Therefore, recovery provisions under section 201(1) can be invoked only when loss to revenue is established, and that can only be established when it is demonstrated that the recipient of income has not paid due taxes thereof and the recipient of the amounts had the liability to tax. In the absence of the statutory powers to requisition any information from the recipient of income, the assessee is indeed not always able to obtain the same. The provisions to make good the short fall in collection of taxes may thus end up being invoked even when there is no shortfall in fact. On the other hand, once assessee furnishes the requisite basic information, the Assessing Officer can very well ascertain the related facts about payment of taxes on income of the recipient directly from the recipients of income. It is not the revenue's case before us that, on the facts of this case, such an exercise by the Assessing Officer is not possible. It does put an additional burden on the Assessing Officer before he can invoke Section 201(1) but that' show Hon'ble High Court has visualized the scheme of Act and that's how, therefore, it meets the ends of justice.
As far as levy of interest under sect ion 201(1A) is concerned, this interest is admittedly a compensatory interest in nature and it seeks to compensate the revenue for delay in realization of taxes. Hon'ble Bombay High Court, in the case of Bennett Coleman & Co Ltd Vs ITO (157 ITR 812) has held so. Therefore, levy of interest under section 201(1A) is applicable whether or not the assessee was at fault.
However, since it is only compensatory in nature it is applicable for the period of the date on which tax was required to be deducted till the date when tax was eventually paid. However, in a case in which the recipient of income had no tax liability embedded in such payments, there will obviously be no question of delay in realization of taxes and the provisions of section 201(1A) will not come into play at all. The computation of interest is to be redone in the light of this legal position.
The matter thus stands restored to the file of the Assessing Officer for fresh adjudication in accordance with the law and in the light of our observations above. While doing so, the Assessing Officer will give a due and fair opportunity of hearing to the assessee and dispose of the matter by way of a speaking order. We direct so. As regards all other issues, on facts and in law, these issues will be required to be dealt with only in the event of there being a tax demand under section 201(1) and 201(1A) after implementing the above directions. These issues are left open for the time being as these issues are in fructuous at this stage.
INCOME TAX APPELLATE TRIBUNAL, AGRA
[ Coram : Bhavnesh Saini, JM, and Pramod Kumar, AM]
I.T.A. No.:448 to 454/Agra/2011 – Assessment year: 2001-02 to 2007-08
Allahabad Bank Vs. Income Tax Officer (TDS and Survey)
Date of pronouncing the order : June 20, 2014
ORDER
Pramod Kumar:
1. All these seven appeals call into question correctness of a common order dated 27th September, 2011, passed by the CIT(A) Ghaziabad, in the matter of tax withholding demands under section 201(1) and 201(1A) r.w.s. 194 A for the assessment years 2001-02 to 207-08. All these pertain to the same assessee, involve a common issue and were heard together. As a matter of convenience, therefore, all these appeals are being disposed of together by way of this consolidated order.
2. To adjudicate on these appeals, only a few material facts need to be taken note of. The assessee before us is branch of a nationalized bank, and it was subjected to a survey, for examining compliance with tax withholding obligations, by the income tax authorities. During the course of this survey, it was noticed that the assessee has not complied with tax deduction at source obligations inasmuch as taxes were not properly withheld in respect of interest on certain deposits placed by the customers with the assessee. It was in this backdrop that the demands under section 201(1), in respect of non deduction of tax at source, and under section 201(1A), in respect of delay in depositing the tax the assessee ought to have withheld, were raised on the assessee. Aggrieved, assessee carried the matter in appeal but without any success. The assessee is not satisfied and is in appeal before us.
3. There are many other factual aspects raised and discussed in the orders of the authorities below, but, for the reasons we will set out in a short while and bearing in mind that the impugned demands raised before us are under section 201, we see no need to deal with those aspects of the matter.
4. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case in the light of the applicable legal position.
5. In our considered view, it is important to bear in mind the settled legal position that a short deduction of tax at source, by itself does not result in a legally sustainable demand u/s 201(1) and u/s 201(1A). As held by Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverage Pvt. Ltd. Vs. CIT (293 ITR 226), the taxes cannot be recovered once again from the assessee in a situation in which the recipient of income has paid due taxes on income embedded in the payments from which tax withholding requirements were not fully or partly, complied with. Hon'ble jurisdictional High Court, in the case of Jagran Prakashan Ltd Vs DCIT [(2012) 21 taxmann.com 489 All] also has, inter alia, observed as follows:
…………. it is clear that deductor cannot be treated an assessee in default till it is found that assessee has also failed to pay such tax directly. In the present case, the Income tax authorities had not adverted to the Explanation to Section 191 nor had applied their mind as to whether the assessee has also failed to pay such tax directly. Thus, to declare a deductor, who failed to deduct the tax at source as an assessee in default, condition precedent is that assessee has also failed to pay tax directly. The fact that assessee has failed to pay tax directly is thus, foundational and jurisdictional fact and only after finding that assessee has failed to pay tax directly, deductor can be deemed to be an assessee in default in respect of such tax …..
6. It is thus clear that the onus is on the revenue to demonstrate that the taxes have not been recovered from the person who had the primarily liability to pay tax, and it is only when the primary liability is not discharged that vicarious recovery liability can be invoked. Once all the details of the persons to whom payments have been made are on record, it is for the Assessing Officer, who has all the powers to requisition the information from such payers and from the income tax authorities, to ascertain whether or not taxes have been paid by the persons in receipt of the amounts from which taxes have not been withheld. As a result of the judgment of Hon'ble Allahabad High Court in Jagran Prakashan's case (supra), there is a paradigm shift in the manner in which recovery provisions under section 201(1) can be invoked. As observed by Their Lordships, the provisions of Section 201(1) cannot be invoked and the "tax deductor cannot be treated an assessee in default till it is found that assessee has also failed to pay such tax directly" . Once this finding about the non-payment of taxes by the recipient is held to a condition precedent to invoking Section 201(1), the onus is on the Assessing Officer to demonstrate that the condition is satisfied. No doubt the assessee has to submit all such information about the recipient as he is obliged to maintain under the law, once this information is submit ted, it is for the Assessing Officer to ascertain whether or not the taxes have been paid by the recipient of income. This approach, in our humble understanding, is in consonance with the law la id down by Hon'ble Allahabad High Court.
7. It is also important to bear in mind that the lapse on account of non-deduction of tax at source is to be visited with three different consequences – penal provisions, interest provisions and recovery provisions. The penal provisions in respect of such a lapse are set out in Section 271 C. So far as penal provisions are concerned, the penalty is for lapse on the part of the assessee and it has nothing to do with whether or not the taxes were ultimately recovered through other means. The provisions regarding interest in delay in depositing the taxes are set out in Section 201(1A). These provisions provide that for any delay in recovery of such taxes is to be compensated by the levy of interest. As far as recovery provisions are concerned, these provisions are set out in Section 201(1) which seeks to make good any loss to revenue on account of lapse by the assessee tax deductor. However, the question of making good the loss of revenue arises only when there is indeed a loss of revenue and the loss of revenue can be there only when recipient had a liability to pay the tax and he has not paid tax. Therefore, recovery provisions under section 201(1) can be invoked only when loss to revenue is established, and that can only be established when it is demonstrated that the recipient of income has not paid due taxes thereof and the recipient of the amounts had the liability to tax. In the absence of the statutory powers to requisition any information from the recipient of income, the assessee is indeed not always able to obtain the same. The provisions to make good the short fall in collection of taxes may thus end up being invoked even when there is no shortfall in fact. On the other hand, once assessee furnishes the requisite basic information, the Assessing Officer can very well ascertain the related facts about payment of taxes on income of the recipient directly from the recipients of income. It is not the revenue's case before us that, on the facts of this case, such an exercise by the Assessing Officer is not possible. It does put an additional burden on the Assessing Officer before he can invoke Section 201(1) but that' show Hon'ble High Court has visualized the scheme of Act and that's how, therefore, it meets the ends of justice.
8. As far as levy of interest under sect ion 201(1A) is concerned, this interest is admittedly a compensatory interest in nature and it seeks to compensate the revenue for delay in realization of taxes. Hon'ble Bombay High Court, in the case of Bennett Coleman & Co Ltd Vs ITO (157 ITR 812) has held so. Therefore, levy of interest under section 201(1A) is applicable whether or not the assessee was at fault.
9. However, since it is only compensatory in nature it is applicable for the period of the date on which tax was required to be deducted till the date when tax was eventually paid. However, in a case in which the recipient of income had no tax liability embedded in such payments, there will obviously be no question of delay in realization of taxes and the provisions of section 201(1A) will not come into play at all. The computation of interest is to be redone in the light of this legal position.
10. The matter thus stands restored to the file of the Assessing Officer for fresh adjudication in accordance with the law and in the light of our observations above. While doing so, the Assessing Officer will give a due and fair opportunity of hearing to the assessee and dispose of the matter by way of a speaking order. We direct so. As regards all other issues, on facts and in law, these issues will be required to be dealt with only in the event of there being a tax demand under section 201(1) and 201(1A) after implementing the above directions. These issues are left open for the time being as these issues are in fructuous at this stage.
11. In the result, the appeal is allowed for statistical purposes in the terms indicated above. Pronounced in the open court today on 20th day of June, 2014.
Related Party Transactions under the Companies Act 2013
CS S. DhanapalCompanies Act, 2013 has unveiled a new era in the Indian Corporate Sector which places more reliance on disclosure norms rather than on regulatory approvals. One such area is "related party transactions". While the Companies Act, 1956 warranted approval of Central Government for related party transaction by large cap companies, Companies Act, 2013 calls for greater disclosures with members' approval. The scope of transactions have also been widened to include transactions relating to immovable property also which were earlier left outside the ambit of Section 297 of the Companies Act, 1956.
Under the Companies Act, 2013, the whole concept of related party transactions has been capsulated in a single section, namely Section 188 which combines the erstwhile Sections 314 and 297 of the Companies Act, 1956 and also contains many new provisions within its scope. The section is deeply layered with many set of provisions and leaves the mind perplexed with its scope and coverage.
In this article, we have made an attempt to the analyse the concept of related party transactions under the Companies Act, 2013 as contained in Section 188 read with relevant rules made thereunder
Analysis of Section 188 of Companies Act, 2013 read with Rule 15 of
Companies (Meetings of Board and its Powers) Rules, 2014
Section 188 is placed in "Chapter 12 – Meeting of Board and its Powers". Section 188 requires a company to obtain approval of the Board and of the members, in certain situations, prior to entering of any transaction or agreement with a related party. An analysis of Section 188 requires understanding the following:
- Applicability of the Section
- Definition/Meaning of Related Party
- Transactions which are deemed as related party transactions
- Nature of approvals required
- Disclosure norms
- Exemptions/Non-applicability
- Consequences of non-compliance
We will proceed to understand the above provisions.
◊ Applicability of the Section
Section 188 is applicable to both private as well as public companies and is applicable with effect from 01.04.2014
◊ Definition/Meaning of Related Party
Section 2(76), read with rule 3 of Companies (Specification of definitions details) Rules, 2014, defines a related party as under:
"related party", with reference to a company, means—
- a director or his relative;
- a key managerial personnel or his relative;
- a firm, in which a director, manager or his relative is a partner;
- a private company in which a director or manager is a member or director;
- a public company in which a director or manager is a director or holds along with his relatives, more than 2% of its paid-up share capital;
- any body corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager;
- any person on whose advice, directions or instructions a director or manager is accustomed to act:
Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or instructions given in a professional capacity;
- any company which is—
(A) a holding, subsidiary or an associate company of such company; or
(B) a subsidiary of a holding company to which it is also a subsidiary;
- a director or key managerial personnel of the holding company or his relative
COVERAGE OF "RELATED PARTY"
Inclusion of NBFC's as Business Correspondents – RBI implements recommendation of Nachiket Mor Committee
CS Vinita Nair, Debolina Banerjee
Background
The concept of "Business Correspondents" can be dated back to 2006 when a significant step in this direction was taken by way of issue of RBI guidelines in January 2006 (2006 guidelines)[1] for engagement of Business Correspondents by banks for providing banking and financial services. Since then, the regulatory framework for the Business Correspondent model has been progressively honed to ensure that consumer protection is not compromised while facilitating enhanced outreach of banking services.
Business Correspondents- Meaning and Scope of activities
Business Correspondents (BCs) are basically retail agents engaged by banks for providing banking services at locations other than a bank branch/ ATM. In simpler terms BCs enable a bank to expand its outreach and offer limited range of banking services at low cost. They are therefore an integral part of a business strategy for achieving greater financial inclusion.
The scope of activities may include (i) identification of borrowers; (ii) collection and preliminary processing of loan applications including verification of primary information/data; (iii) creating awareness about savings and other products and education and advice on managing money and debt counselling; (iv) processing and submission of applications to banks; (v) promoting, nurturing and monitoring of Self Help Groups/ Joint Liability Groups/Credit Groups/others; (vi) post-sanction monitoring; (vii) follow-up for recovery, (viii) disbursal of small value credit, (ix) recovery of principal / collection of interest (x) collection of small value deposits (xi) sale of micro insurance/ mutual fund products/ pension products/ other third party products and (xii) receipt and delivery of small value remittances/ other payment instruments.
The activities to be undertaken by the BCs would be within the normal course of the bank's banking business, but conducted through the BCs at places other than the bank premises/ATMs
Eligible entities to act as BCs
Eligible entities in the 2006 guidelines that could act as BC included registered NBFCs not accepting public deposits. However, the Committee on financial inclusion under the Chairmanship of Dr. C. Rangarajan in their discussion paper[2] examined the inclusion of NBFC as eligible entity to act as BC, extract whereof is reproduced hereunder:
"Should NBFCs be allowed to act as BCs:
17. Another related issue for consideration is the case for allowing non banking financial companies (NBFCs), especially micro finance companies to act as business correspondents of banks. The pros and cons of this are discussed below:
Pros
- The Committee on Financial Inclusion (Chairman: Dr C. Rangarajan) had observed that NBFCs engaged in micro finance could be recognized as BCs of banks for providing only savings and remittance services. The rationale is that in case of such services there will not be any conflict of interest as NBFCs are not permitted to undertake such business.
- NBFCs have their own wide network of outlets and franchisees who are already trained in and have experience of providing all financial services such as loan , mutual fund and insurance products. They have the manpower, knowledge, skill and the requisite infrastructure to work as BC for Banks. There could be significant synergies if such networks are leveraged upon.
- NBFCs engaged in micro finance already have a large number of borrower clients who today do not have easy access to bank accounts, payments system, remittance services and insured deposits and if engaged as BCs can further the objective of financial inclusion.
Cons
- In case of deposit taking NBFCs there is a conflict of interest as they are engaged in the same business.
- If non deposit taking NBFCs are engaged only for deposit products and payments / remittance services, the objective of providing affordable credit as a major component of financial inclusion could be defeated. It is reported that currently NBFC –MFIs charge between 20 and 35 per cent per annum for micro loans which is much more than what banks charge for small loans.
- There could be conflict of interest if the NBFC provides its own loan product as principal and bank's loan product as agent. There are also risks of co-mingling of funds.
- NBFCs mostly offer services through field officers and the branches are removed from the location where transactions take place closer to the customer. . Hence using them as retail outlets would be impractical.
Subsequently, in the revised guidelines on BC rolled out in 2010[3], NBFCs were excluded from the list of eligible entities/ individuals that could act as BC. The List of eligible entites/ individuals appeared as under:
"2. Eligible individuals/entities
The banks may engage the following individuals/entities as BC.
i) Individuals like retired bank employees, retired teachers, retired government employees and ex-servicemen, individual owners of kirana / medical /Fair Price shops, individual Public Call Office (PCO) operators, agents of Small Savings schemes of Government of India/Insurance Companies, individuals who own Petrol Pumps, authorized functionaries of well run Self Help Groups (SHGs) which are linked to banks, any other individual including those operating Common Service Centres (CSCs);
ii) NGOs/ MFIs set up under Societies/ Trust Acts and Section 25 Companies ;
iii) Cooperative Societies registered under Mutually Aided Cooperative Societies Acts/ Cooperative Societies Acts of States/Multi State Cooperative Societies Act;
iv) Post Offices; and
v) Companies registered under the Indian Companies Act, 1956 with large and widespread retail outlets, excluding Non Banking Financial Companies (NBFCs).
Nachiket Mor Committee.
A major breakthrough in the concept of BCs came into action when RBI on September, 2013 had set up a "Committee on Comprehensive Financial Services for Small Businesses and Low-Income Households''[4], under the Chairmanship of Dr. Nachiket Mor. This committee popularly known as the Nachiket Mor Committee recommended sweeping changes in the banking structure of India. The committee highlightened the fact that "close to 90 per cent. of small businesses have no connection with formal financial institutions and 60 per cent. of the rural and urban population don't have a functional bank account." NBFCs can be considered as the best medium for achieving more financial inclusion.
Most importantly it suggested setting up of specialized banks to cater to low income households and also to enable widespread reach of the banking services through its agents. Though there may still be rising concerns about co-mingling of deposits raised through its BC activity, yet the Committee was of the view that this can be effectively handled through technology driven solutions.
Present Circular.
The RBI vide its circular RBI/2013-14/653 DBOD.No.BAPD.BC.122/22.01.009/2013-14 dated 24th June, 2014[5] and giving due consideration to the First Bi- Monthly Monetary Policy Statement 2014-15 wherein it was expressly stated that the recommendations of the Nachiket Mor Committee on the enlargement of the eligible entities as BCs was under review. In tune with the recommendations the RBI thereby amends the existing guidelines on the BC models. A bird's eye view of the amendments made by RBI is as under:
i. Eligible individuals/entities
The services of Non- Deposit taking NBFCs (ND-NBFC) can be engaged by banks as business correspondents. However such engagement is subject to the following conditions:
a) There should not be any co-mingling of bank funds and those raised as BC activity;
b) The existence of a contractual arrangement between the bank and such NBFCs should be in place to address effectively any cases of conflicts;
c) Such NBFCs should not adopt any restrictive practices such as offering savings or remittance functions only to its own customers.
d) There should not be any forced bundling of services between the bank and such NBFCs.
II. Distance Criteria
Vide RBI Circular on 28th September,2010 wherein it was stated that to ensure adequate supervision over the operations and activities of the retail outlet/sub-agent of BCs by banks, every retail outlet/sub-agent of BC is required to be attached to and be under the oversight of a specific bank branch designated as the base branch. Moreover the distance between the place of business of a retail outlet/sub-agent of BC and the base branch should ordinarily not exceed 30 kms in rural, semi-urban and urban areas and 5 kms in metropolitan centers.
With regard to the same RBI vide the present circular and to ensure operational flexibility to banks and in light of technological developments in the banking sector has reviewed to remove the condition regarding the distance criteria between the place of business of a retail outet/sub-agent of BC and the base branch. The RBI has left it to the discretion of the banks to modify extant distance criteria while formulating the board-approved policy for engaging BCs keeping in mind the objectives of adequate oversight of the BCs as well as provision of services to the customers.
Conclusion.
Thus the recommendations of the Nachiket Mor Committee has finally been put to action by RBI to hasten the financial inclusion by extension of Banking Services. This has brought forth a new era of operations for the NBFCs.
[The above post is contributed by CS Vinita Nair and Debolina Banerjee at Vinod Kothari & Co. They can be contacted at vinita@vinodkothari.com and mt@vinodkothari.com respectively]
—–
[1] http://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=2718
[2] http://rbi.org.in/scripts/bs_viewcontent.aspx?Id=2234
[3] http://rbi.org.in/scripts/NotificationUser.aspx?Id=6017&Mode=0
[4] http://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/CFS070114RFL.pdf
[5] http://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=8955&Mode=0
Old format & Forms to continue for annual return applicable for Financial Year 2013-14
General Circular No. 22/2014,
Dated : 25th June. 2014
Subject: Clarification with regard to format of annual return applicable for Financial Year 2013-14 and fees to be charged by companies for allowing inspection of records.
Government has received requests for clarification about the applicability of form of annual return (MGT-7) prescribed under rule 11(1) of the Companies (Management and Administration) Rules, 2014 for financial year(s) commencing earlier than 1st April, 2014. The matter has been examined in the light of provisions of section 92(1) of the Act which requires annual return to contain particulars as they stood on the close of the financial year. It is, clarified that Form MGT-7 shall not apply to annual returns in respect of companies whose financial year ended on or before 1st April, 2014 and for annual returns pertaining to earlier years. These companies may file their returns in the relevant Form applicable under the Companies Act, 1956.
2. Companies have also sought clarity about permitting free of cost inspection of records under rule 14(2) and rule 16 of the rules cited above and till a fee is prescribed for the purpose in the Articles. It is clarified that until the requisite fee is specified by companies, inspections could be allowed without levy of fee.
3. This issues with the approval of the competent authority.
No. 1/ 34 /2013-CL-V (Part-I)
Yours faithfully,
(KMS Narayanan)
Assistant Director (Policy)
23387263
see the transparency!!! New fee structures for retired person!!! I C A I will give some though over this?
CALIFORNIA BOARD OF ACCOUNTANCY E-NEWS
Temporary Fee Reductions and New "Retired Status" Soon to Take Effect.
For more information, please visit http://www.dca.ca.gov/cba/misc_notices/2014/not14-12.pdf.
You are receiving this e-mail because you have subscribed to the CBA E-News.
To change your subscription, please visit: https://www.cba.ca.gov/forms/enews/enews.html?email=djshah1944@yahoo.com
California Board of Accountancy
webmaster@cba.ca.gov
Temporary Fee Reductions and New "Retired Status" Soon to Take Effect.
For more information, please visit http://www.dca.ca.gov/cba/misc_notices/2014/not14-12.pdf.
You are receiving this e-mail because you have subscribed to the CBA E-News.
To change your subscription, please visit: https://www.cba.ca.gov/forms/enews/enews.html?email=djshah1944@yahoo.com
California Board of Accountancy
webmaster@cba.ca.gov
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