Pr. CIT vs. ITAT, Jindal Steel & Power (P&H High Court)

Posted on November 29, 2015 — 1 Comment ↓

COURT:	P&H High Court
CORAM:	Rajive Bhalla J, Rekha Mittal J
SECTION(S):	254(1)
GENRE:	Domestic Tax
CATCH WORDS:	prosecution, stay of prosection proceedings, Writ jurisdiction
COUNSEL:	Ajay Vohra, Rohit Jain
DATE:	October 31, 2015 (Date of pronouncement)
DATE:	November 29, 2015 (Date of publication)
AY:	-
FILE:	Click here to download the file in pdf format
CITATION:
S. 254(1): The ITAT has no jurisdiction to grant a stay of prosecution proceedings as such proceedings are not directly & substantially flowing from the orders impugned before it

The High Court had to consider the following two questions:

(a) Whether Section 254 of the Income Tax Act, 1961 empowers the Income Tax Appellate Tribunal to interfere in prosecution proceedings either at the stage of show cause notice or at any other stage?

(b) Whether pendency of quantum appeals by the assessee and the revenue, appeals against penalty and appeals challenging orders passed consequent to an order passed under Section 263 of the Income Tax Act, would confer power/jurisdiction upon the Tribunal to stay a show cause notice calling upon the assessee to show cause why prosecution be not launched?"

HELD by the High Court:

(i) Section 254(1) confers the power to decide an appeal and "pass such orders thereon as it thinks fit" and when read along with the proviso includes the power to pass interim orders, "in any proceeding relating to an appeal", thereby indicating that the stay order so passed must relate to proceedings in the appeal pending before the Tribunal. The aforesaid expressions confine the power of a Tribunal, to pass an interim order in relation to matters pending before the Tribunal and at best to matters that are so intrinsically linked to the lis pending before the Tribunal, as to be inseparable. The exercise of power must be confined to matters that are directly and substantially in issue or matters that flow directly and substantially from the order impugned before the Tribunal but cannot be extended to matters in which the Tribunal has no jurisdiction even, though, these matters may be incidentally affected by the outcome of the appeal.

(ii) This apart once it is accepted that proceedings for prosecution are independent of assessment and penalty, and the Tribunal is neither the appellate nor the revisional authority in a case where prosecution is launched, the mere fact that the decision in the appeal may have an impact on the prosecution, in our considered opinion, cannot be used to read into the expressions "pass such orders thereon as it thinks fit" or "any proceedings relating to an appeal", a power in the Tribunal to direct that prosecution or a show cause notice shall be kept in abeyance. There is another aspect of the case, namely, if such a power, as has been canvassed by the assessee, were available to the Tribunal, prosecution would have to await the final outcome of proceedings up to the Supreme Court.

(iii) We are unable to discern any legislative intent or power as would confer upon the Tribunal power to stay consideration of a show cause notice proposing to initiate prosecution, by reading into Section 254, the power to stay independent proceedings merely because they may be affected by the decision of a pending appeal. The legislature having conferred power to grant stay in terms, used in Section 254 (1) and the first proviso, we cannot add to or subtract from the words and expressions used in Section 254(1) or by a process of interpretation confer jurisdiction which legislature did not intend to confer. A prosecution being a consequence of infractions by an assessee cannot be said to be act of harassment or mischief so as to confer power upon the Tribunal, to order that prosecution shall be kept in abeyance.

(The Commissioner of Income Tax (Central-II) v. Income Tax
Appellate Tribunal and others, Gulab Chand Sharma v. H. P. Sharma etc., (1974) ILR 1 (Delhi), 190; P.Jayappan v. S.K.Perumal, First Income Tax Officer, Tuticorin, 1984 (149) ITR, 692(Mad); P.Jayappan v. S.K.Perumal, First Income Tax Officer, Tuticorin,, 1984 (149) ITR 696(SC); Ashok Buscuit Works and Ors v. Income Tax Officer, Hyderabad, 1988 (171) ITR 300 (AP): Rinkoo Steels and others v. K.P.Ganguli, Income Tax Officer and another, 1989 (179) ITR 482 (Delhi); Sant Parkash and Ors. V. Commissioner of Income tax and Ors., 1991 (188) ITR 732 (P&H): Universal Supply Corporation and Ors. v. State of Rajasthan and another, 1994 (206) ITR 222; Commissioner of Income Tax v. Bhupen Champak Lal Dalal and Anr. Etc., 2001 (248) ITR, 830 (SC), The Assistant
Commissioner, Assessment-II, Bangalore and ors v. Velliappa
Textiles Ltd. and Ors., 2003(263) ITR, 550 (SC) Madras Bar Association v. Union of India, 2014 (10) SCC 1 referred)

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Pr. CIT vs. ITAT, Jindal Steel & Power (P&H High Court)

S. 254(1): The ITAT has no jurisdiction to grant a stay of prosecution proceedings as such proceedings are not directly & substantially flowing from the orders impugned before it

once it is accepted that proceedings for prosecution are independent of assessment and penalty, and the Tribunal is neither the appellate nor the revisional authority in a case where prosecution is launched, the mere fact that the decision in the appeal may have an impact on the prosecution, in our considered opinion, cannot be used to read into the expressions "pass such orders thereon as it thinks fit" or "any proceedings relating to an appeal", a power in the Tribunal to direct that prosecution or a show cause notice shall be kept in abeyance. There is another aspect of the case, namely, if such a power, as has been canvassed by the assessee, were available to the Tribunal, prosecution would have to await the final outcome of proceedings up to the Supreme Court

CIT vs. Five Vision Promoters Pvt. Ltd (Delhi High Court)

Posted on November 29, 2015

COURT:	Delhi High Court
CORAM:	S. Muralidhar J, Vibhu Bakhru J
SECTION(S):	68
GENRE:	Domestic Tax
CATCH WORDS:	bogus share capital, share application money, share premium
COUNSEL:	C. S. Aggarwal
DATE:	November 27, 2015 (Date of pronouncement)
DATE:	November 29, 2015 (Date of publication)
AY:	2007-08, 2008-09
FILE:	Click here to download the file in pdf format
CITATION:
S. 68 (share capital): (i) It is a fallacy to assume that a company which has not commenced business has unaccounted money, (ii) Fact that investors have a common address is not relevant, (iii) Fact that shares were subsequently sold at reduced rate is not relevant

(i) There is a basic fallacy in the submission of the Revenue about the precise role of the Assessee, Five Vision. The broad sweeping allegation made is that "the Assessee being a developer is charging on money which is taken in cash". This, however, does not apply to the Assessee which appears to be involved in the construction of a shopping mall. In fact for the AYs in question, the Assessee had not commenced any business. The construction of the mall was not yet complete during the AYs in question. The profit and loss account of the Assessee for all the three AYs, which has been placed on record, shows that only revenue received was interest on the deposits with the bank. Assessee is, therefore, right in the contention that the basic presumption of the Revenue as far as the Assessee is concerned has no legs to stand. Correspondingly, the further allegation that such 'on money' was routed back to the mainstream in the form of capital has also to fail.

(ii) The other submission that the Assessee was itself being used as a conduit for routing the 'on money' or that the investment in the Assessee was also for routing such 'on money' has not even prima facie been able to be established by the Revenue. On the one hand there is an attempt to treat the cash credit found in the Assessee's books of accounts to be 'undisclosed income of the Assessee' by showing the investors to be 'paper companies'. On the other hand, the attempt is to show that this money in fact belongs to certain other entities whose source has not been explained by the Assessee.

(iii) Coming to the core issue concerning the identity, creditworthiness and genuineness of the investor companies, it is seen that as far as the Table I investors were concerned, only 9 were searched and in their cases, the ITAT on a very detailed examination was satisfied that they not only existed, but that the Assessee had discharged the primary onus of proving their creditworthiness and genuineness. They had responded to the summons issued to them. Directors of 14 of these companies appeared before the AO and produced their books of accounts.

(iv) The mere fact that some of the investors have a common address is not a valid basis to doubt their identity or genuineness.

(v) Also, the fact that the shares of the Assessee were subsequently sold at a reduced price is indeed not germane to the question of the genuineness of the investment in the share capital of the Assessee. The question of avoidance of tax thereby may have to be examined in the hands of the person purchasing the shares.

(M/s. Nova Promoters and Finlease (P) Ltd. 342 ITR 169 (Del), CIT v. Winstral-Petrochemicals Pvt. Ltd. 330 ITR 603 (Del), CIT v. Lovely Exports (P) Ltd. 216 CTR 195 (SC), CIT v. Divine Leasing and Finance Ltd. (decision dated 21st January 2008 of the Supreme Court in Special Leave to Appeal (Civil) (CC) 375 of 2008) and decision dated 17th September 2012 of the Supreme Court in CIT v. Kamdhenu Steel & Alloys Limited [SLP (Civil) CC 15640 of 2012)], CIT v. Divine Leasing and Finance Ltd. 299 ITR 268, CIT v. Sophia Finance Ltd. (1994)205 ITR 98 (FB) (Del) referred).

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CIT vs. Five Vision Promoters Pvt. Ltd (Delhi High Court)

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Shamsher Singh Verma vs. State of Haryana (Supreme Court)

Posted on November 29, 2015 — 1 Comment ↓

COURT:	Supreme Court
CORAM:	Dipak Misra J, Prafulla C. Pant J
SECTION(S):	S 3 of Indian Evidence Act
GENRE:	Other Laws
CATCH WORDS:	CD, Compact Disc, Document, Evidence Act
COUNSEL:	Mahalakshmi Pawani
DATE:	November 24, 2015 (Date of pronouncement)
DATE:	November 29, 2015 (Date of publication)
AY:	-
FILE:	Click here to download the file in pdf format
CITATION:
S. 3 of Indian Evidence Act: A "Compact Disc" (CD) is a "document" and is admissible as evidence

(1) Word "document" is defined in Section 3 of the Indian Evidence Act, 1872, as under: – 'Document' means any matter expressed or described upon any substance by means of letters, figures or marks, or by more than one of those means, intended to be used, or which may be used, for the purpose of recording that matter.

(ii) In R.M. Malkani vs. State of Maharashtra (1973) 1 SCC 471: 1973 (2) SCR 417, this Court has observed that tape recorded conversation is admissible provided first the conversation is relevant to the matters in issue; secondly, there is identification of the voice; and, thirdly, the accuracy of the tape recorded conversation is proved by eliminating the possibility of erasing the tape record.

(iii) In Ziyauddin Barhanuddin Bukhari vs. Brijmohan Ramdass Mehra and others (1976) 2 SCC 17: 1975 (Supp) SCR 281, it was held by this Court that tape-records of speeches were "documents", as defined by Section 3 of the Evidence Act, which stood on no different footing than photographs, and that they were admissible in evidence on satisfying certain conditions.

(iv) In view of the definition of 'document' in Evidence Act, and the law laid down by this Court, as discussed above, we hold that the compact disc is also a document. It is not necessary for the court to obtain admission or denial on a document under sub-section (1) to Section 294 CrPC personally from the accused or complainant or the witness. The endorsement of admission or denial made by the counsel for defence, on the document filed by the prosecution or on the application/report with which same is filed, is sufficient compliance of Section 294 CrPC. Similarly on a document filed by the defence, endorsement of admission or denial by the public prosecutor is sufficient and defence will have to prove the document if not admitted by the prosecution. In case it is admitted, it need not be formally proved, and can be read in evidence. In a complaint case such an endorsement can be made by the counsel for the complainant in respect of document filed by the defence.

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S. 3 of Indian Evidence Act: A "Compact Disc" (CD) is a "document" and is admissible as evidence

In view of the definition of 'document' in Evidence Act, and the law laid down by this Court, as discussed above, we hold that the compact disc is also a document. It is not necessary for the court to obtain admission or denial on a document under sub-section (1) to Section 294 CrPC personally from the accused or complainant or the witness. The endorsement of admission or denial made by the counsel for defence, on the document filed by the prosecution or on the application/report with which same is filed, is sufficient compliance of Section 294 CrPC

Case Studies: Client Accounting Services

5 firms share their experiences with outsourced accounting services

November 30, 2015

By Danielle Lee

Firm: KBL

Of all the professional developments made possible by the Internet, the ability to interact with your clients and their systems in real time, no matter where you are, has to offer some of the greatest opportunities for accountants.

This power has led to new forms of outsourced CFO and client accounting services, with firms leveraging the speed and constant integration of cloud-based accounting platforms to help clients run their businesses better. We spoke to five firms that are exploring this new type of relationship to see how it's working for them and their clients.

Keeping the wheels on

Size: 15 staff, 3 partners

Product: GrowthForce

Commencement date: 2014

On record: Partner Richard Levychin

Challenge/objective: Providing CFO support and controller-level services to rapid-growth companies that need growth management beyond pure accounting.

Process: KBL has been offering outsourced accounting services for roughly three years, but using GrowthForce for online CFO-level services for about 18 months. While KBL currently serves as the front office, offering advisory and client-facing work, "what we're looking to do is front office and back office, outsourcing GrowthForce on a white label," said Levychin.

Currently, "We're getting companies that are growing rapidly. ... Their accounting and finance platform was not managing their growth and the wheels were going to come off — they were going to grow themselves out of business," he explained.

KBL's first step in meeting with prospects is conducting a technical assessment engagement outlining the problems they observe in their accounting processes. "What that does is create a written roadmap that serves as a starting point for issues that are in the company's finance or accounting department," Levychin explained. "We usually capture a minimum of 70 percent of the issues … . While working through the engagement another 30 percent come flushing out."

If the client chooses to engage after the assessment, KBL gets to work "re-engineering the company," Levychin said. The firm offers different models based on client needs, ranging from bringing in another CPA to handle QuickBooks integrations (as that isn't KBL's specialty) to hiring the client's auditors and then managing the entire audit process. On the outsourcing front, the firm provides GrowthForce for CFO support services and Insperity for outsourced HR.

KBL currently has eight clients on GrowthForce, with most using the full platform to fulfill their CFO and controller-level needs.

Results: KBL has been happy with the success of the current model. Though the firm is exploring offering back-office services through a white-label solution with GrowthForce, "You should always position yourself as the front office," Levychin said. "When it's just the front office, it's a more high-profile and a profitable area. You can identify issues and billable projects at a higher rate."

Labor constraints also cut into margins, he added. "The thing is, we're in New York City — we're not going to get the same labor rates GrowthForce is getting in Texas."

KBL has been able to scale up its services dramatically with the outsourced model. "We, as a firm, are 15 people. ... We can't do CFO services and controller services as economically and as well as GrowthForce can."

Next steps: KBL is in the process of mapping out what a white-label CFO and controller platform would look like with GrowthForce. "The client doesn't care if you're giving a part of it away to someone else, as long as you're telling them how to use it," Levychin said.

Scaling for success

Firm: Habif Arogeti & Wynne

Size: 14 staff in the BPO practice

Product: NetSuite

Commencement date: May 2015

On record: Director of client accounting services William Estes and CEO and managing partner Richard Kopelman

Challenge/objective: To provide premium outsourced services for businesses.

Process: After months of market research and analysis, the firm began drawing up the business plan at the end of January to establish its vision: packaging outsourced services with technology to create scalable solutions empowering businesses to thrive.

"That was key: Making sure it was actually scalable," Estes explained. "With the research I did for a couple of months, the one constant in most failures was that it wasn't scalable, and that has a lot to do with the technology. That's why we went toward NetSuite."

On NetSuite's platform, HA&W created the outsourced accounting model for its existing practice expertise, which ranges from startups to multi-subsidiary international companies. All the clients the firm has onboarded so far were existing HA&W clients who have "been wonderful early adopters," Estes reported. Though the practice is still very new to the firm, those clients are "seeing improved efficiencies in the way they process [days sales outstanding] for [accounts receivable]."

Still, BPO is "something that's not easy to enter into," Kopelman cautioned. "We did market research and interviews with over 50 companies over months. It's a very difficult thing to figure out how to get it right and we continue to tweak it every day. It's a long process, so you have to make sure you've planned appropriately."

Results: HA&W surpassed its entire (admittedly modest) 2015 goal in 60 days, making the new practice a "tremendous success story" according to Estes.

Implementation included large initial workloads as they brought accounting processes — and all their attendant inefficiencies — in-house, "transitioning to a more efficient model and leveraging NetSuite technology [to convert] an entire business processing operation for a business established for decades in a matter of days or weeks. The volumes in workload are the biggest learning curve we've had. But it smooths out in a relatively short period of time."

The firm has a dedicated BPO partner manager at NetSuite that helps with day-to-day operations, overall relationships, and assisting in closing deals and evaluating whether the prospect is a good fit. NetSuite also provides a "very good" BPO partner program, according to Estes.

"Probably the most important advice is learning when to say no," he added. "We've said 'No' to more than have said 'No' to us, because we really want to make sure it's a long-term relationship and continues to be a long-term commitment to one another. A tremendous amount of work goes into this on both sides. It's a disservice to be engaging if it's not a good fit."

Next steps: HA&W will continue growing the business and plans to double the BPO team, Estes said: "The challenge when launching something like this is firm culture, and partner buy-in is pretty critical, and extremely challenging in public accounting—getting broad firm partner buy-in."

Beyond the shoebox

Firm: Anders CPAs & Advisors

Size: Two staff

Product: QuickBooks Online

Commencement date: 2013

On record: Director of outsourced CFO/accounting Scott Hoffmann

Challenge/objective: Provide outsourced CFO and accounting services, ranging from an entire accounting department or CFO role to portions of those services, like accounts payable or payroll.

Process: Anders' outsourcing practice is still in its infancy, currently serving under 50 clients, with the firm really only ramping up these services over the last year.

The firm, which Hoffmann said has always had the traditional "shoebox approach," faces a cultural shift with the new practice: "What we're doing is technology-based, with 24/7 real-time accounting, so closing the books, the old proverbial 'at month end' is somewhat meaningless to us — that's the goal."

While right now that "us" is Hoffmann and one staff accountant, "That's what's so cool about this technology — you can leverage the daylights out of it, keep bringing on these clients, and you don't have to build a lot of staff."

The firm is using QuickBooks Desktop and Online, but the goal is to convert most clients over to QBO, he said. "While desktop can do some things QuickBooks Online can't from an efficiency standpoint, QBO allows us a lot more advantages in hooking up the apps."

Results: Hoffmann has found major benefits in those app integrations and the expanding QBO ecosystem, flipping him from a skeptical QBO user a year ago to one of its biggest proponents today: "If I want to find an application specific to an industry, I can probably find one, and chances are it's going to hook up to QBO."

Clients' most-requested apps align with those most popular in the QBO ecosystem, with payments processor Bill.com and expense report solution Tallie among the most integrated at Anders.

"On occasion, I've taken on clients on other accounting platforms, which has made it difficult to be efficient and leverage," Hoffmann shared. "With those clients, it takes probably twice as long to do the same work."

As someone who began in public accounting and then served as a CFO for private and public companies, Hoffmann observed, "Most companies still have no idea this world exists, and they're relying on accountants to help them with that … . My goal is to expose those shoebox clients to this technology. Some will always like to have their shoebox, and that's O.K. — there's a place for them." But, he added, "I'm sold on it."

"If I knew about this technology four years ago, as the CFO of a food management company, the things I could've done, the money I could've saved," he said. "We were putting together a seven-figure ERP program for 80-plus locations. With the technology today, I could spend less than $50,000 and have something so much better and so much more seamless than what we had back then."

Next steps: Hoffmann's practice will continue selling the value proposition to clients, often through gradual progression. "With most clients, unless they're in technology or a startup or progressive, they're probably not as willing to bite off the entire apple, so we tend to do things in steps," he said.

Moving forward, Hoffmann will be communicating these advantages through greater use of social media messaging and marketing.

Starting up with startups

Firm: Upsourced Accounting

Size: Five staff

Product: Xero

Commencement date: 2011

On record: Co-owner Ryan Baker

Challenge/objective: Provide real-time accounting collaboration with clients with no geographic restrictions.

Process: Virtual accounting firm Upsourced Accounting has been a cloud-based, Xero-only shop since its inception. With clients in 13 to 14 different states, collaboration comes via Xero's discussion box, periodic Skype meetings, and the recent adoption of chat messaging app Slack.

The firm's primary service is outsourced accounting, though it also provides bookkeeping, financial statement preparation, and payroll setup assistance. Upsourced can assist with the budgeting and forecasting needs of its main verticals. The firm's Columbus, Ohio, location also helps attract startups with its vicinity to growing startup hub Cincinnati. The firm grows with those companies until they're large enough to need a CFO.

When the firm first takes clients on, the process varies based on their previous accounting system. Once clients are converted to Xero and their transactions pulled into the system, Upsourced "gives them as much visibility as possible to their transactions." Upsourced familiarizes themselves with how clients spend and deposit money and what their invoices look like, meeting (usually virtually) with them a month later to offer more detailed advice.

Results: Xero supports Upsourced's mission to centralize clients' financials for key collaboration, while customizing the experience via specific integrations and add-ons. "They have built a pretty good central accounting engine that doesn't do specific things great but has specific add-ons we can use with Xero's add-on marketplace," Baker said. "It's almost a kind of build-your-own accounting system."

Xero is also an ideal fit for Upsourced's client base, for "which we're talking hundreds of transactions, not thousands."

Next steps: Upsourced will continue targeting that client sweet spot. "Over the last couple years, we've narrowed down into the kind of business owners that benefit most [from Xero] and find more of those."

While the firm has served "a little bit of everything," including e-commerce and manufacturing, "I think we're going to focus on two verticals: professional service markets and recently funded startups," Baker said. "We have to figure out how to market and grow. We've found that even though we are a virtual firm, we have a presence [in Columbus] that does result in leads coming through. The best way for us to grow is traditional marketing in our current community."

Inside and out

Firm: Cordia Partners

Size: 50 staff and a number of independent contractors

Product: Intacct

Commencement date: 2012

On record: Partner Mitchell Weintraub

Challenge/objective: Leveraging the people-processes-technology model to deliver outsourced accounting.

Process: Cordia has two lines of business with Intacct, serving as an outsourced accounting partner and, more recently, becoming a value-added reseller. Cordia's outsourced accounting clients are primarily not-for-profits, government contractors and technology companies.

Cordia's outsourced accounting practice began when the firm did in 2006, but they partnered with Intacct three years ago based on the software provider's endorsement from the American Institute of CPAs, its "unbelievable reporting tools," and their training resources, Weintraub said.

Cordia typically brings on clients who have had problems in the three areas of people, processes and technology — high turnover in their accounting departments, using "old or small technology," and having trouble producing financial statements.

The implementation process begins with Cordia learning the client's business before setting up the chart of accounts and Intacct's system to meet their specific needs. "We go into the situation, implement Intacct, and help them re-engineer their business processes," Weintraub said.

Results: Weintraub touts Intacct's flexibility, reporting capabilities, cloud heritage and support. That agility includes the software's full integration with Bill.com and ability to link to other popular apps like Tallie, Concur and Nexonia.

The Intacct partnership also provides some internal benefits. "In my business, my challenge as an MP is to get and keep great people," Weintraub added. "Our folks are eager to learn Intacct — 25 people have gone through Intacct training and many have gone through the sales and implementation training."

Next steps: Cordia will continue onboarding clients, a process Weintraub said is aided by the AICPA seal of approval: "When CPA.com and the AICPA endorse it, it's very easy when speaking to a prospect or client and they ask you why you chose Intacct."

More specifically, Cordia will focus on growing partner connections and going to market with an integrated Salesforce CRM and Intacct solution. "We want to be able to further build out our processes and our workflow around the Intacct/Salesforce model and expand and build out our relationship with their application partners," Weintraub said.

The firm also plans to expand to other verticals. "There are a few other industries that we're targeting, where we know Intacct has great depth," he added. "Another reason we chose Intacct was the solid industry clusters they support."

The first of those on Cordia's radar are the technology and family office sectors

Ground Rules for Corporate Gift Giving to Avoid Breaking the Law

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By Michael Cohn

November 25, 2015

Deloitte is advising corporate clients to be careful about their holiday gift giving so they don't run afoul of laws like the Foreign Corrupt Practices Act.

In a recent poll, Deloitte found that 20.4 percent of companies don't assess their employee gift-giving corruption risk, even though 43.4 percent of the survey respondents expect anti-corruption enforcement to rise next year. Of all the organizations that indicated they do monitor compliance, only 8.4 percent use visualization and data analytics tools to support their anti-corruption efforts.

"The awareness for multinational companies has continued to increase," said Deloitte Advisory partner Bill Pollard. "I'd say five years ago the awareness was starting to really pick up as the government focused on this particular topic and you saw an increase in enforcement actions. Over the ensuing five years plus, many multinationals got their act together and started putting in programs, policies and procedures to address the risk. What we're actually seeing now is a whole new wave of companies that maybe previously were not global—or their operations are now expanding more globally—having a renewed interest in this area. The government's attention hasn't really waned, but will probably increase going forward."

Bill Pollard

Deloitte's poll results indicate that anti-corruption policies for giving gifts to non-U.S. government officials vary widely. While 18.2 percent of the survey respondents said their company maintains a no-gift policy and provides no gifts to customers, 16.4 percent give only small company logo items, 15.7 percent restrict the gift value, and 6.1 percent use separate policies for non-U.S. government officials as opposed to other customers and third parties.

"The practice of giving gifts in general is changing," said Pollard. "In certain cultures, either as a way of introduction or as a courtesy or a show of good faith in building a relationship, gift giving is still a common practice. Multinational companies are attempting to do a better job of understanding the risk associated with those common cultural practices and then identifying ways to mitigate that risk. Some companies are making the decision not to give gifts at all, whereas others just want to understand the risk and then, based on their understanding of the risk, make sure that there are the right kinds of controls and policy and procedure in place to address the risk."

Pollard pointed out there is already some official guidance available for what companies can give, and he believes accountants can help their companies and clients comply.

"The SEC and DOJ came out with a document in 2012 providing guidance to companies in a number of areas, including gift giving," he said. "Where accountants are the most effective is in a few different areas—helping companies put in the proper controls to address the risks, making sure there's enough visibility into who is and isn't a government official, what types of gifts are being given, how those gifts are being recorded in the books and records, and tracking and monitoring type mechanisms around gift giving, assuming companies choose to do that. That's on the front end, and then on the back end there's the ability to test and monitor those policies and procedures, going in and actually mining transaction data and looking to see if what's reflected in the expense reports of a salesperson is consistent with the policy or the procedure that they are expected to comply with. Those are the types of activities that are well suited for accountants to play a role in."

Some leading practices recommended by Deloitte to prevent and detect corruption in gift giving include:

• Set ground rules clearly: Describe the nature and type of acceptable gifts, payments, travel and entertainment. Escalate all gifts for government officials to compliance for review. Create an approval process with aggregate dollar limits. Define disciplinary process for non-compliance.

• Act globally: Ensure rules are consistent not only with U.S. laws but local laws and customs. Translate that guidance into all appropriate languages in which your organization operates.

• Keep gifts corporate: Give gifts with company logos, reflect the organization's products and ensure they are intended for official—not personal—use (such as a business card holder).

• Make gifting inclusive: Give gifts publicly and transparently, and involve teams as opposed to individuals (such as specialty baked goods for a team to share).

• Prohibit cash gifts as well as gift cards.

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Riviera Home Furnishing vs. ACIT (Delhi High Court)

Posted on November 29, 2015 — No Comments ↓

COURT:	Delhi High Court
CORAM:	S. Muralidhar J, Vibhu Bakhru J
SECTION(S):	10A, 10B
GENRE:	Domestic Tax
CATCH WORDS:	derived from the undertaking
COUNSEL:	Ved Jain
DATE:	November 19, 2015 (Date of pronouncement)
DATE:	November 29, 2015 (Date of publication)
AY:	2008-09
FILE:	Click here to download the file in pdf format
CITATION:
S. 10B: Deemed Export Drawback, Customer claims, Freight subsidy & Interest on fixed deposit receipts (under lien for LC & bank guarantee) are all derived from the undertaking & are eligible for deduction

(i) The submissions made on behalf of the Revenue proceed on the basic misconception regarding the true purport of the provisions of Chapter VIA of the Act and on an incorrect understanding of Section 80A (4) of the Act. The opening words of Section 80A (4) read "Notwithstanding anything to the contrary contained in section 10A or section 10AA or section 10B or section 10BA or in any provisions of this Chapter…..". What is sought to be underscored, therefore, is that Section 80A, and the other provisions in Chapter VIA, are independent of Sections 10A and 10B of the Act. It appears that the object of Section 80A (4) was to ensure that a unit which has availed of the benefit under Section 10B will not be allowed to further claim relief under Section 80IA or 80IB read with Section 80A (4). The intention does not appear to be to deny relief under Section 10B (1) read with Section 10B (4) or to whittle down the ambit of those provisions. Also, the revenue is not right in contending that the decisions of the High Courts referred to above have not noticed the decision of the Supreme Court in Liberty India v. Commissioner of Income Tax (2009) 317 ITR 218. The Karnataka High Court in CIT v. Motorola India Electronics Pvt. Ltd (2014) 46 Taxmann.com 167 (Kar) makes a reference to the said decision. That decision of the Karnataka High Court has been cited with approval by this Court in Hritnik Exports (decision dated 13th November 2014 in ITA Nos. 219 and 239 of 2014) and Universal Precision Screws decision dated 6th October 2015 in ITA NO 392 of 2015. In Hritnik Exports (supra) the Court quoted with approval the observations of the Special Bench of the ITAT in Maral Overseas Ltd. (supra) that "Section 10A/10B of the Act is a complete code providing the mechanism for computing the 'profits of the business' eligible for deduction u/s 10B of the Act. Once an income forms part of the business of the income of the eligible undertaking of the assessee, the same cannot be excluded from the eligible profits for the purpose of computing deduction u/s 10B of the Act."

(ii) As regards the decision of the ITAT in not accepting the Assessee's plea in regard to 'customer claims' 'freight subsidy' and 'interest on fixed deposit receipts' even while it accepted the Assessee's case as regards 'deemed export drawback', the contention of the Assessee as regards customer claims was that it had received the claim of Rs. 28,27,224 from a customer for cancelling the export order. Later on the cancelled order was completed and goods were exported to another customer. The sum received as claim from the customer was non-severable from the income of the business of the undertaking. The Court fails to appreciate as to how the ITAT could have held that this transaction did not arise from the business of the export of goods. Even as regards freight subsidy, the Assessee's contention was that it had received the subsidy in respect of the business carried on and the said subsidy was part of the profit of the business of the undertaking. If the ITAT was prepared to consider the deemed export draw back as eligible for deduction then there was no justification for excluding the freight subsidy. Even as regards the interest on FDR, the Court has been shown a note of the balance sheet of the Assessee [which was placed before the AO] which clearly states that "fixed deposit receipts (including accrued interest) valuing Rs.15,05,875 are under lien with Bank of India for facilitating the letter of credit and bank guarantee facilities." In terms of the ratio of the decisions of this Court both in Hritnik Exports (supra) and Universal Precision Screws (supra), the interest earned on such FDR ought to qualify for deduction under Section 10B of the Act.

ICAI Objects To Proposal Of Income-tax Dept To Exclude CAs From Practice Of Taxation Law

The ICAI has addressed a letter dated 27.11.2015 to the Principal Commissioner of Income-tax, Chandigarh, raising objections to the alleged proposal of the department not to allow Chartered Accountants and non-Advocates to "practice law" in the course of proceedings before the tax authorities. The ICAI has pointed out that taxation is one of the "core-competence" areas of Chartered Accountants and that they have expertise in accounting, auditing and taxation. It is also pointed out that these subjects are dealt with in great depth in the CA curriculum and that the ICAI has dedicated committees on taxation. It is emphasized that a chartered accountant, on passing his final examination and completing his articled training, is an expert in taxation, accountancy, auditing, company law and other laws etc., and he is fully qualified to practice in these fields. The ICAI has also drawn attention to several legislation and judicial pronouncements to support its contention that CAs are qualified to practice taxation law and cannot be barred from the same.

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Ground Rules for Corporate Gift Giving to Avoid Breaking the Law

Riviera Home Furnishing vs. ACIT (Delhi High Court)

ICAI Objects To Proposal Of Income-tax Dept To Exclude CAs From Practice Of Taxation Law