MCA advertisement for awareness of general public who invest in Deposit Scheme of Companies- A Welcome measure
Recently, MCA came out with an advertisement in national dailies apprising the investors of the new regulations which the Companies should follow while inviting deposits from general public.
This is a very desirable measure on the part of Ministry. This shall go a long way in educating gullible investors who easily fall prey to lucrative deposit schemes of Companies. The general public while investing in such companies is poorly left unaware of the avenues where the companies shall invest the depositor's money. The Government's apathy towards educating the stakeholders to their rights and privileges gives a free hands to Companies to invest deposits in non stated avenues while recklessly flouting the legal provisions.
Through this exhibit, MCA has tried to educate general public about Sec 73 and Sec 76 of Companies Act, 2013 and The Companies ( Acceptance of Deposit) Rules, 2014. This is directed to help stakeholders exercise due caution before investing their money in seemingly attaractive deposit schemes of Companies. The Ministry has also tried to instruct stakeholders to check the various mandatory disclosures to be made by Company before introducing any deposit scheme.
Apparently, this may seem to be a non related advertisement to majority of readers. But, surprisingly there is also a vast strata of population who invest in such Companies (majorly infrastructure and Real Estate developer Companies) scheme of deposits in smaller towns and cities. ( Recall Pearl group going bust after it defaulted in payment to stakeholders)
This shall also ensure that large companies work in stakeholders interest since their actions, decisions shall be closely monitored by the general public.
MCA is also requested to come out with similar advertisements and awareness issues on
- the rights of general public in AGM,
- the power of resolutions,
- the recently introduced electronic voting mechanism in AGM's,
- the meaning of rights issue,
- the responsibilities and duties of directors etc.
Merely enacting a new act to strengthen the regulatory mechanism may not serve an effective purpose, unless the stakeholders are informed of the provisions of law and their rights under the newly enacted/ refurbished law.
Through such exhibits MCA shall be duly benefiited since educating stakeholders is the best antidote to regulate defaulting, bogus and fraudulent companies. By delegating this duty to stakeholders, MCA is able to exercise an effective supervision and control over Companies.
A highly welcomed initiatives by MCA.
Author- Ankur Aggarwal
ankur@klaggarwal.com
www.klaggarwal.com
7 things people want to know about Income-tax 'Scrutiny'
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CA Utsav R. Doshi
Many individuals, companies and firms, at some point, would have received a notice u/s 143(2) of Income tax Act, often known by the public as "Scrutiny". People panic when they receive such a notice and a layman often feels as if a search, survey or a raid has been initiated. The following points will help you understand the subject better:
1. What is Scrutiny?
Once the assessee files his return of income, irrespective of whether it is filed within the due date or in pursuance to a notice requiring the assessee to file his return, the department can initiate scrutiny proceedings if it has reason to believe that income is escaping assessment, i.e. income is under stated of expenditure is over stated. Therefore, a notice is issued on the assessee asking him to attend the department's office and produce additional documents if any required. A mere receipt of a notice does not indicate any crime; it simply indicates conducting of investigation to find out if any income has escaped assessment. Please understand that scrutiny is a tool used in an on-going assessment proceeding, so where the return per se is not filed, the question of issuing a notice does not arise.
2. Why is only my case chosen for Scrutiny?
If your return of income has been made subject to scrutiny, there necessarily has to be a reason for it. For each year, there is a pre-determined criteria that is followed by the department for identifying scrutiny cases. For instance, one of the criteria for financial year 2013-14 was to select cases where an addition in excess of Rs 10 lacs has been made in any of the previous years and which has not been set aside. The list of criteria was previously not accessible by general public however as per the recent High Court order, this information has now been made public and anyone can view it. The department also uses a software specifically designed for this purpose which enables the officer to identify potential tax evasion cases. The output of this software is based on inputs like short term capital gains earned by the assessee, deductions claimed, advance tax paid, etc. The software is intelligent enough to correlate all the data and indicate if anything looks fishy. Apart from cases which are generated out of these pre-determined criteria, there are other instances also where a scrutiny investigation is initiated.
3. What are the myths pertaining to the subject of Scrutiny?
There are lot of myths surrounding the topic of scrutiny. People make their own conclusions based on their personal experience. Some myths like filing returns online means higher chances of being subject to scrutiny or buying an expensive car will draw the attention of department are completely baseless. It is true that if you are declaring very low income as against an unreasonably high expenditure, it naturally indicates that the expenses are being funded through other sources of income that are not otherwise declared. But take example of a farmer who is filing return of income each year for say Rs 4,50,000 only and in one particular year he sells a large piece of land for which he declares a gain of Rs 2 crore. In this case, even if he buys 5 cars in the same financial year, there is a clear source of income for the expenses made and should proper disclosure be made it would be incorrect to assume that merely because cars are purchased, the case could be subject to scrutiny.
On a technical side, one of the biggest myths which even Professional & qualified Accountants have is that the time limit for issuing notice is to be counted from the end of the relevant assessment year. This will not hold true where the filing of return of income itself is delayed as the computation of validity is to be counted from the end of the year in which return was filed and not from the end of the relevant assessment year.
4. What is the time limit for receiving the notice?
If 6 months have elapsed since the end of the financial year in which the return was filed, then a notice for scrutiny cannot be served upon the assessee. For instance, for the financial year ending 2013-14, assuming return of income is duly filed; notice cannot be served under whatsoever circumstances after 30th September, 2015. It is advisable that the assessee should always retain a copy of the sealed envelope which indicates the "date of receipt" of the notice. This helps in assessing the constitutional validity of the notice.
It may sound surprising but the fact is that if you do not raise an objection for being served a delayed notice, and at a later point of time, out of the blue, if you are bringing this to the attention of the tax officers, then there is a clear provision in the Act which says that your objection shall be rejected as you are deemed to have accepted the notice. So, before proceeding any step further, you must first check the date of notice in order to confirm its legality.
5. Are all inquiry notices received from department a subject matter of Scrutiny?
The department makes inquiry in pursuance to the return filed by you. As against the notice pertaining to "scrutiny" which generally requires the assessee to be produced before the department along with an exhaustive list of documents, a notice u/s 142(1) is a simple inquiry in order to complete the assessment wherein certain missing information or clarifications are sought for. Such notices are often confused by assessees as if a scrutiny has been initiated which although is not the case. In fact, most people would receive a notice u/s 142(1) and there is nothing prima facie to bother about it. Over and above these, there are other enquiry notices which are being served but on a very case by case basis.
6. What to do when a Scrutiny notice is received?
If you have received a notice from the department u/s 143(2) asking for additional information, you must co-operate. The notice generally requires the assessee to produce an exhaustive set of documents, like details of bank accounts, gifts made and received, copies of credit card statements, details of foreign travel and the source of expenditure, details on club membership and annual subscriptions, along with personally producing himself in front of the officer. If you feel that you do not have all the documents ready that have been asked for submission, you must convey properly to the department. Presence of a Chartered Accountant or any other professional can make the process efficient to a great extent.
7. What if I don't respond or co-operate to a Scrutiny notice?
Failure to co-operate leads to completion of assessment on a "Best Judgment" basis, which means that the department can confirm the assessment and finalize your income and tax liability thereon as they deem fit, on the basis of information available to them. The assessee is given an opportunity of being heard but which generally becomes redundant for not choosing to answer the questions earlier posed. Apart from being fined on failure to respond, there is a possibility that your failure will lead to suspicion in the eyes of the department and such suspicions can be followed by initiation of a more detailed & painful investigation called "Survey".
[Author is associated with R. K. Doshi & Co., Chartered Accountants, and can be contacted for any queries or comments on utsav@rkdoshi.com]
Need for Shedding the 'GAAR' Weight
Dr. Suresh Surana
At present, the General Anti-Avoidance Regulations (GAAR) in India are set to kick in effective April 1, 2015. The Budget 2014 which was expected to recast and defer GAAR has remained silent. However, the subsequent announcement by the Finance Minister to revisit GAAR provisions in its current form and the effective date of its implementation is a welcome move.
There is no doubt that the GAAR provisions need to be recast and deferred for at least 2 years due to the following factors:
Onus on the taxpayer:
In the present form, the onus for justification that the transaction is not an impermissible avoidance arrangement whose main objective is to obtain tax benefit lies entirely on the tax payer. This effectively means that the taxpayer is deemed to be guilty unless he proves his innocence. The burden of proof must be on the tax authorities to demonstrate that the transaction is impermissible under GAAR.
Unbridled power with the Tax authorities:
The provisions of GAAR in its current form provide for far reaching and unbridled powers with the tax authorities. This power coupled with the ground level realities of tax administration will result in great uncertainty and will result in great uncertainty. The recent developments in case of Vodafone, Shell and others do not inspire confidence that these provisions will be implemented in an objective and tax friendly manner. The implementation of the advanced provisions of GAAR needs intense training to the tax authorities as (i) the onus of justification is on the tax payer, (2) the provisions in current form have an overriding effect on the tax treaties which India has with more than 86 countries. The tax administration needs to demonstrate greater objectivity and transparency to inspire confidence of all stakeholders.
Adverse Impact on Investment Climate:
In the past couple of months, we have witnessed a renewed resurgence of interest by Multinationals and Indian corporates in the Indian growth story and perhaps as the most preferred investment destination in the world. We as a country cannot let this opportunity go. The GAAR in its current form, if implemented would act as a huge dampener to the confidence of the investor community. To leverage India's position as a leading investment destination and to improve ease of doing business, it is imperative to recast and defer GAAT provisions for the moment.
(Above are the views of Dr. Suresh Surana, Founder, RSM Astute Consulting Group)
Practical Guide to Advance Tax Calculation and payment
CA Pratik Anand
This is an attempt to help the professionals especially the newly qualified, accountants and the general public in making an estimate of advance taxliability and its payment.Advance Tax Provisions under the Income Tax Act'1961
1) Advance Tax is applicable for all assessees whose Tax Liability exceeds Rs. 10,000/- during the financial year.
2) Advance Tax is payable as follows:
| Particulars | For Companies | For other than Companies |
| Up to 15th June of financial year | 15% of Tax Payable | N.A. |
| Up to 15th September of financial year | 45% of Tax Payable | 30% of Tax Payable |
| Upto 15th December of financial year | 75% of Tax Payable | 60% of Tax Payable |
| Upto 15th March of financial year | 100% of Tax Payable | 100% of Tax Payable |
Points to remember:-
ü Advance Tax provisions are not applicable in case of assessees having income under head PGBP U/s 44AD and 44AE i.e presumptive income.
ü Advance Tax provisions are not applicable in case of senior citizens aged above 60 years, but if senior citizens have business income then Advance Tax provisions are applicable.
ü Note above points are applicable for residents only i.e exemptions are available only for residents. No exemption for senior citizens if such individual is Non-resident.
ü Advance Tax can be paid by challan ITNS 280 under the minor head code 100 and Major Head code is 0020 for tax on Companies and 0021 for Tax on other than Companies.
ü Tax can be paid by challan either by cheque, cash or by the online mode.
Advance Tax calculation-Individuals
Advance calculation for individuals is like filing the return of income, therefore involves similar steps.
Steps Involved
Step-1 First of all the form 26AS of the individual is to be taken into account for calculating income. Take all incomes into consideration shown in the form 26AS on which TDS is deducted or not. Such income may not be of the whole year while calculating advance tax, therefore has to be projected for the whole year while calculating Advance Tax. Remember to also take TDS for the whole year.
Step-2 Now see if there is any other income of the assessee during the year by talking to the individual or by examining his bank statements. Also, take into account previous years incomes while considering incomes of this year (some incomes accrue every year therefore, have to be taken into account every time).The incomes in step-2 are those on which TDS is not deducted, therefore not shown in 26AS.
Step-3 See the investments of the assessee to project the deductions under chapter VI-A like 80C, 80G etc.
Step-4 Once this is done and the total income is projected, then apply tax rates as applicable in the financial year for which tax is deducted and project the advance tax.
ADVANCE TAX CALCULATION
For firms, companies and other business entities
A. For a company whose accounts are reliable and up to date as on date of calculation
Step-1- Just see the P&L upto the previous month or previous day (from date of calculation),if the accounting is complete/up to date. For Ex: Accounts upto 28th feb'2014 can be seen for calculation Advance Tax for March'14.
Step-2 See if all entries are taken upto that month/date i.e whether the accounting is complete. If not then take entries into account which are not yet entered.
Step-3 On the basis of figures till last month or previous day (based on the date of calculation), project the figures for the current month so that P&L A/c for upto the period required for calculation is made.
Some items can be taken on actual or close to actual figures while projecting the figures for the month like:
a) Electricity
b) Water
c) Salaries and other employee based expenses
d) Telephone
e) Other Recurring Expenses which occur every month.
f) Depreciation should be calculated on actual basis based on the rates applicable.
Other items of expenses can be projected on a percentage basis seeing total percentage of indirect and direct expenses as in the last year.
Sales and purchases can be forecasted based on the average of the monthly figures of previous months and also look at the previous year average for the final forecast.Purchase percentage generally should remain within a range on a year on year basis.
Step-4 Now since the P&L is made, have a look at the gross profit & Net profit figures. The G.P & N.P ratios cannot be less than last year unless there is major change in turnover compared to last year. Based on this principle,arrive at a Net profit figure on which Advance Tax should be calculated (G.P & N.P Ratio may be increased a bit for current projection).
Step-4 Once advance Tax is calculated, you could pay 90% of the amount due. The 90% principle saves money (10%) and also interest. u/s 234B is saved. Only 234Cinterest is to be paid which is less than the amount earned by saving 10% of the amount.
B. For Companies/Firms etc. whose accounts are not upto date or reliable as on date of calculation
Step-1 Forecast the sales figures of the current year based on the data available till date.
Step-2 Based on the sales figures, arrive at Gross profit and net profit amounts by taking the Gross and net profit ratio (%)of the previous years. Last year's ratios should be increased slightly.
Step-3 Based on the net profit arrived at, Calculate the amount of tax.
Points to Remember
1) Do not forget to take into account necessary expenses like depreciation, remuneration in case of firms(Remuneration should only be on Income under the head PGBP).
2) Incomes taxable under other heads of income should be separated i.e. deductedand not taken while calculating net profit under the head PGBP.Incomes taxable under other heads should be taken separately and tax should be calculated separately on these incomes. Example: Income under the head capital gains.
3) Expenses which are to be disallowed are to be added back while calculating net profit. Eg: Expenses disallowed on account of personal use.
4) Any income or expense which have not occurred yet but is expected to be done based on previous experience should be taken into accountwhile calculating profit and consequently tax figures.
5) In case of Companies, remember to be add back depreciation as per books(i.e.as per Companies Act) and deduct Depreciation as per the Income Tax Act.
6) Keep an eye on the surcharge applicable where total income exceeds Rs. 1 crore. In that case extra 10% is to be added on basic amount of tax without Cess.
Hope you find the above information relevant and useful in your daily practise.
The author is a CA in practice at Delhi and can be contacted at:
E-mail: capratikanand@gmail.com
Mobile: +91-9953199493
PSF, PFY and Tow- Ache din aa gaye hai
There was litigation on the point of taxability of 'Tow' which is an intermediate product in the manufacturing of Polyester Staple Fiber (PSF) and Polyester Filament Yarn (PFY) manufactured from plastic waste or scrap or plastic waste including waste polyethylene terephthalate (PET) bottles. The clarification on this issue was much required by manufacturer of Tow because they are not ready to pay excise duty on the same due to the fact that this was an ongoing product and at the same time, duty free deemed clearance of the said product is not allowed by the department. As a consequence, there are a number of cases pending based on this issue before various authorities. Thus, amendment was much required on this point.
Erstwhile Provision:
Earlier there was dispute on duty liability and classification of Polyester Staple Fiber (PSF) and Polyester Filament Yarn (PFY) manufactured from plastic waste or scrap or plastic waste including waste polyethylene terephthalate (PET) bottles. The classification was decided by the government in the Finance Bill 2012, vide TRU Letter No. D.O.F. No. 334/3/2012-TRU dated 16.03.2012 wherein it was stated that chapter note has been inserted in Chapter 54 to provide that notwithstanding anything contained in Note 1, man-made fibre such as polyester staple fibre and polyester filament yarn manufactured from plastic and plastic waste including waste polyethylene terephthalate bottles shall be classified as textile material under Chapter 54 or Chapter 55, as the case may be. This amendment is being carried out with retrospective effect from 29.06.2010. Duty in respect of clearances already made is to be recovered from the manufacturers of these goods within one month of the date of enactment of the Finance Bill, 2012 failing which interest at the rate of 24% is payable." Accordingly, it was specified that man made fibre such as polyster staple fibre and polyster filament yarn manufactured from plastic waste including waste PET bottles would be classifiable under chapter 55 with retrospective effect and would be leviable for duty from 29.06.2010. Not only this, central excise duty demands were also being raised for the goods cleared after 29.06.2010. However, simultaneously, the government also granted exemption to the said products vide notification no. 24/2012-CE dated 08.05.2012 wherein entry no. 172A was inserted wherein the said products were granted exemption from payment of excise duty. However, this notification was applicable with effect from 08.05.2012, and so the litigation arose for the period from 29.06.2010 to 07.05.2012. The reason for the dispute was that classification was confirmed from 29.06.2010 but no retrospective exemption was given to such manufacturer of PSF and PFY during the period prior to 07.05.2012.
But the dispute did not end here. The energetic field formation came up with another dispute of taxability of Intermediate product 'Tow' arising during the course of manufacture of such PSF/PFY. They said that since the final product is exempted then the duty is payable on intermediate product. The manufacturer pleaded that this is emerging during the ongoing process and cannot be taken out of the machine. Hence it is not marketable and not liable to excise duty following the number of Apex Court decisions on this issue.
Another dispute was regarding valuation of this intermediate product. The department was asking for valuation from Cost Accountant in form CAS-4 for valuation but the cost accountant was also finding it difficult to computing this cost as apportionment of direct expenses for such intermediate product was very difficult.
Circular by CBEC:
Recently, CBEC has also issued a circular that the matter as regards taxability of intermediate product "TOW" should be kept pending as the issue has been referred to them and they are considering the same. This circular raised the hopes of the manufacturers that the issue will come to an end.
Budget declaration:
The new dynamic Finance Minister has clarified these issues in his budget speech. The issue relating to manufacturing of PSF and PFY has been exempted from payment of Excise Duty retrospectively w.e.f. 29.06.2010 to 07.05.2012. An intermediate product Tow arising from the manufacturing of PSF and PFY is also being exempted retrospectively w.e.f. 29.06.2010 to 10.07.2014 so as to provide relief to the manufacturers of such PSF/PFY.
But with effect from 11.07.2014, the PSF and PFY will be taxable @2% without Cenvat credit facility by virtue of notification 1/2011-C.E dated 1.3.2011 as amended by Notification number 8/2014-C.E dated July 11, 2014 [New Serial No. 70A]. The manufacturers also have an option to pay duty @6% with Cenvat facility as per serial number 172A of notification number 12/2012-CE dated 17.03.2012 as amended by Notification no. 12/2014 dt 11.07.2014.
Conclusion:
Thus, this amendment has clarified the issues relating to taxability of PSF and PFY and intermediate product "tow" manufactured from Plastic scrap or waste or plastic waste including waste polyethylene terephthalate (PET) bottles. These PSF and PFY are made exempted retrospectively from levy of excise duty for the period from 29.06.2010 to 07.05.2012. Thus, all demands or pending cases will be set aside or terminated which would provide a great relief to the manufacturers.
On the other hand, 'Tow', an intermediate product, is also made exempted retrospectively from 29.06.2010 to 10.07.2014. Thus, this amendment has released assessee or manufacturer of 'Tow' from the burden of Excise Duty.
With effect from 11.07.2014, the product "PSF" and "PFY" is brought under the regime of Excise. This will be taxable @2% (without Cenvat) or @6% (With Cenvat). Since all scrap of PET bottles are coming duty free, hence the manufacturer procuring such material will opt for 2% duty. But other set of manufacturers who are importing these input, they will take the credit and opt for 6% duty because there is CVD on imported input of which credit is admissible.
However, if the product is being sold to end user, who is unable to avail cenvat credit, he will compel the manufacturers to pay 2% duty. There is another difficulty also as the manufacturer who are manufacturing other products in the same factory will find it very difficult to maintain separate records for input services used commonly in the manufacture of all the products. They may forgoe the credit attributable to input services so as to avoid the obligations of Rule 6 of the Cenvat Credit Rules, 2004.
However, with the retrospective exemption from levy of excise duty, the litigation has by and large come to an end. The manufacturers of these products have seen very tough time while fighting with the department. A lot of representation and correspondences with the department are result of the amendment. But it can be said now that:-"Ache din aa gaye hai."
An article by:-
CA. Pradeep Jain
CA Neetu Sukhwani
Ankit Palgauta
Mid-year Changes in Tax Audit Report in Form 3CD Are Undesirable
CA Sudhir Halakhandi
New Format Tax Audit Report- The Midyear Changes in Tax Audit Report in Form 3CD Are UndesirableThe Central Board of Direct Taxes has issued a new set of formats for Tax audit report in the form of Form 3CA, Form 3CB and Form 3CD thorough Notification No. 33/2014 dated 25/07/2014. In all they have introduced 24 changes and seek more information from the tax auditor. There is no dispute about the right of our lawmakers (here the CBDT) to draft these formats and ask the information which in their opinion is required for the task in hand but the timing of introduction of these changes is not only crucial and sudden but irritating also.
See here, the financial year related to the assesseement year 2014-15 has come to an end on 31/03/2014 and the audits for the financial year under consideration can be started any time on or after 01/04/2014 hence the formats of the audit report in this respect should be introduced on or before 1/04/2014. Why two sets of audit report in a single assessment year.
Here, the question is not about the requirement and usefulness of the information newly asked in the format of Tax audit report and form 3CD but there should be a systematic approach which should strictly be followed by the regulators and the Law makers also. If they have taken time to draft these revised formats and the task was not completed on 01/04/2014 then the applicability should also be declared from the Next year.
Further the law makers have enormous resources at their disposal but see, there is always delay in introduction of the ITRs for e-filing every year. The schema for Tax audit report was changes on weekly basis in 2013. It seems there are bottlenecks and these should be overcome first before making the system more complicated by introducing the midyear changes.
The Format of audit reports, the Schema of E-filing ITRs should be introduced on or before 1st Day of April every year because meeting this deadline is not an impossible task so that the concerned Taxpayers and professionals can plan their work accordingly. This is very simple and reasonable demand and it should be considered in the same way.
No doubt that our Law makers have very difficult task in their hand because the number of taxpayers is too large and accordingly there may be lot of planning to be done to regulate the whole system of Direct taxation but the attitude "when procedure is ready at our end we will introduce it" should be changed and this is not very urgent matter which required to be introduced in middle of the year.
The New formats of Tax audit report should be made applicable for the assessment year 2015-16 for the sack of only one reason that these should not be introduced in middle of the year.
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-CA Sudhir Halakhandi, -CA Abhas Halakhandi
Halakhandi And Company, Chartered Accountants
"Halakhandi", Laxmi Market, Beawar-305901(Raj)
Cell- 9828067256, MAIL –sudhirhalakhandi@gmail.com
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