Most TP Audit Report by CAs unreliable with pathetic professional work
Wrigley India Pvt Ltd vs. ACIT (ITAT Delhi), I.T.A. Nos. 5648, 5649 and 5650/Del/12, Date of pronouncing the order : December 31, 2014.
It seems CAs are under attack from all parts of the world for good or not so good reasons. Recently CAG in its report Criticised CAs for alleged Mistakes in Tax Audit Report and signing of Tax Audit Reports more than the prescribed limit.
ITAT Mumbai has also sounded warning on falling standards of CA profession in the case of Vijay V Meghani vs. DCIT.
In One more blow Finance Ministry has already Proposed to amend the definition of the word Accountant under the Direct Tax law and to include Cost Accountant, Company Secretary etc. in the definition. This will enable other professionals also to Conduct Tax Audit and other Certification under the Income Tax which is till now the sole domain of Chartered Accountants.
In a new blow to CA Professionals ITAT Delhi has held in the case of Wrigley India Pvt Ltd vs. ACIT has drawn the following conclusion from Transfer pricing Study Reports prepared by CAs and studied by them over a period of time:-
- These TP reports as also certifications by the chartered accounts inspire no confidence.
- Nothing can justify pathetic level of professional work done by chartered accountants.
- Chartered Accountants also responsible for frivolous litigation.
- No purpose served by TP Reports of chartered accountant when reports do not even point glaring infirmities in taxpayers approach vis-a-vis the transfer regulation.
- in an alarming number cases, these audit reports, rather than painting a true and fair picture of the relevant facts, tend to epitomize the art of constant hedging and manoeuvring by the professionals so as they stay within the confines of permissible professional conduct and are yet able to sidestep the inconvenient realities.
Relevant Para of the Judgment is as follows :-
Having held so, we must also point out that the transfer pricing reports with respect to the impugned determination of ALP leave a lot to be desired. Just because the action of the authorities below, in adopting cost plus method in the above manner, is legally unsustainable, the ALP determination by the assessee cannot be taken as correct. These TP reports as also certifications by the chartered accounts inspire no confidence and, quite to the contrary, raise doubts about efficacy of the built in checks and balances in transfer pricing regulations. It is somewhat fashionable to criticize the revenue authorities for their lack of objectivity or even inefficiency but what in the world can justify such a pathetic level of professional work relied upon by even the large corporate entities. If the tax judicial system is clogged by frivolous litigation today and if the tax finality still takes decades to reach, these saviours of taxpayers are as much to be blamed for this situation as anybody else. No purpose can be served in reporting by a chartered accountant when suchreports do not even point out glaring infirmities in taxpayer's approach vis-à-vis the transfer regulation, in a comparison of budgeted profits margin with actual profit margins realized by the comparables which is stated to be ascertainment of ALP on the basis of the TNMM. It appears that in an alarming number cases, these audit reports, rather than painting a true and fair picture of the relevant facts, tend to epitomize the art of constant hedging and manoeuvring by the professionals so as they stay within the confines of permissible professional conduct and are yet able to sidestep the inconvenient realities. Of course, it will be much worse a situation if they are actually so naïve as to be oblivious of simple provisions of law, of their onerous responsibilities or of the legitimate public expectations. It is not to belittle the brilliant work being done by many a professionals but it is just to point out the dilemma of those who explore the possibilities of relying upon such audit reports and certifications, and also the inertia of those who can do something to salvage this situation and, to thus avoid an inevitable systemic rejection of the ritualistic certifications. We are particularly pained today as the financial period before us is mostly even more than a decade old and yet since the TP reports and certifications before us are, in our considered view, are so much devoid of credibility that, instead of deciding the things one way or the other, we have no choice except to remit the matter to the file of the TPO for fresh ascertainment of ALP on the basis of residuary method, i.e. TNMM. (Para 24)
(Article is Compiled by CA Sandeep Kanoi)
PFA
Implementation of GST is set to be the biggest tax reform hitherto ushered in the country. GST will be a Destination based Consumption Tax & will cover both intra State and Inter State trade & Commerce. Inter State Sales will be subjected to IGST which is combination of CGST & SGST. CA Sandeep Kanoi | January 3, 2015 at 9:09 pm | Tags: CA Mukund Abhyankar, goods and services tax | Categories: GST | URL: http://wp.me/p3ulce-gKm
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Interest paid on money borrowed for the purchase of an open plot of land constitutes part of the actual cost of the asset to the assessee for the purpose of determining the capital gain derived from the sale of the land.[Addl. CIT v. K.S. Gupta [1979] 119 ITR 372 (AP)/CIT v. Mithlesh Kumari [1973] 92 ITR 9 (Delhi)].
PFA
Maxim of "audi alteram partem"cannot be sacrificed at the altar of administrative convenience or celebrity
Hon'ble Delhi ITAT has in the case of Raman Kumar Kapoor v/s ACIT has held that Maxim of "audi alteram partem"cannot be sacrificed at the altar of the administrative convenience or celebrity. In the case assessment was done wherein certain additions were done. Aggrieved by the same the appellant filed an appeal before the CIT(A) . The appellant could not be present for the hearing of the appeal and had sought adjournments a couple of time. Finally after adjourning the case the CIT(A) passed the order ex-parte by confiming the assessment order. Aggrieved by the same appeal was filed before the Hon'ble ITAT who remanded the matter back to the CIT(A) after considering the Maxim of "audi alteram partem". The Hon'ble ITAT observed as under :-
"The underlying principle of natural justice evolved under the common law is to check arbitrary exercise of power by the State or its functionaries. Accordingly, the principle by its very nature implies the duty to act fairly i.e. fairIt is seen that the right to be heard is an important right to which a party who is faced with an adverse view is entitled to. "Audi alteram partem" is one of the most famous and celebrated Rule of Natural Justice. The principles of natural justice are those which have been laid out by the Courts as being the minimum protection of the rights of an individual against the arbitrary procedure that may be adopted by a judicial, quasi-judicial and administrative authority while making an order affecting those rights. play in action must be evident at every stage. Fair play demands that nobody shall be condemned unheard.
In the celebrated judgement of the Apex Court in the case of A.K.Kraipak –vs- Union of India (1969) 2 SCC 262, it is observed that the aim of rules of natural justice is to secure justice or to put it negatively to prevent miscarriage of justice. The said rules are means to an end and not an end in themselves and though it is not possible to make an exhaustive catalogue of such rules however it can be readily said that there are two basic maxims of natural justice namely "audi alteram partem" and "nemo judex in re sua". In the present facts of the case we are concerned with the maxim audi alterm partem which again may have many facets two of them (a) notice of the case to be met; and (b) opportunity to explain. Their Lordships have cautioned that these rules cannot be sacrificed at the altar of the administrative convenience or celebrity.
Having thus addressed the legal position qua the right to be heard we are necessarily required to address the corresponding duty of the party invoking the said right. It is necessary to bear in mind as a caution that it cannot be overemphasized that the Right to be heard has a corresponding duty that the party invoking the discretion of the Court has to itself ensure that it does not abuse the exercise of discretion in its favour. It is seen that in the facts of the present case the assessee who has been represented through his counsel has repeatedly sought an adjournment which is evident from the above quoted paras. However being of the view that the assessee should not suffer on account of the fault of the counsel and considering the plea raised by the assessee before the Tribunal by way of the present appeal we deem it appropriate to restore the issue back to the file to the CIT(A) with the direction to decide the same in accordance with law after giving the assessee a reasonable opportunity of being heard"
Source- Raman Kumar Kapoor v/s ACIT (ITAT Delhi), I.T.A .No.-3261/Del/2013, Date of Pronouncement- 03.01.2014
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