Writ dismissed by HC as statutory remedy of filing an appeal against order of DCIT was available with assessee
August 6, 2014[2014] 47 taxmann.com 82 (Allahabad)
IT : Where alleging failure to deduct tax at source, Deputy Commissioner treated assessee as assessee-in-default under section 201, writ petition thereagainst was to be disallowed as assessee had statutory alternative remedies of filing appeal before Commissioner as well as further appeal before Tribunal, if required
No time-limit for assessment of income excluded from one year but included in another year; HC upholds reassessment
August 6, 2014[2014] 47 taxmann.com 138 (Calcutta)
IT: Reassessment of escaped income, without any express 'finding' or 'direction' could be made under Explanation 2 to section 153 (3)
ITAT teaches basics to AO - Agricultural land situated beyond 8 K.Ms. of municipal limits isn't a capital asset
August 6, 2014[2014] 46 taxmann.com 452 (Jodhpur - Trib.) (TM)/[2014] 163 TTJ 1 (Jodhpur - Trib.) (TM)
IT : Where assessee sold a piece of land during relevant year, in view of fact that land was situated beyond eight kilometers from local municipal limits and, moreover, it was actually cultivated throughout period of holding, said land was to be regarded as agricultural land and, thus income earned from sale of it could not be brought to tax
MUMBAI, AUG 06, 2014: THE issues before the Bench are - Whether refund claimed by the assessee could be granted only on a fresh assessment u/s 240; Whether refusal of assessing officer to grant refund to the assessee on ground of pendency of final assessment order would amount to collection of taxes without the authority of law and Whether a refund claim is to be allowed to an assessee consequent to an order passed in an appeal irrespective of whether a fresh assessment order has been passed by the AO in this regard. And the verdict favours the assessee.
Facts of the case
The assessee a company had duly filed its return declaring total income to a certain extent. The AO however, assessed the assessee's income to a greater extent and raised a further tax demand of such amount inclusive of interest. Being aggrieved, the assessee preferred an appeal against the order of the AO to the CIT(A). In the mean time, the assessee in consequence of the assessment order deposited some amount and the AO suo moto adjusted the refund due to the assessee for the earlier A.Ys to the extent of remaining amount against the total dues payable for the A.Y in question. In the result, the assessee had deposited with the Revenue an amount/ pending the disposal of its appeal by the CIT(A). This deposit was in excess of the tax payable on the returned income. The CIT(A) set aside the assessment order and restored the file to the AO for proper adjudication. The AO however, did not comply with the directions for reassessment and in due course, the time to pass assessment order had expired. However, in view of the failure of the AO to pass any assessment order, the assessee addressed a communication to the Chief CIT and sought direction to the AO to refund the tax and the interest paid by the assessee. In response to assessee's representation, the AO denied the assessee's request for refund on the ground that the refund could not be granted by virtue of Section 240(a).
The counsel for assessee submitted that the impugned order of AO refusing to grant due refund on the ground that refund during the pendency of final assessment order amounted to collecting taxes without the authority of law. The counsel submitted that the Revenue was taking advantage of its own wrong in first not passing the assessment order and thereafter on the basis of above failure, unlawfully retaining the assessee's property without authority of law. It was submitted that though the CIT(A) had remanded the matter to the file of AO for denovo adjudication, the AO had not passed the reassessment order till date. Therefore, there was no occasion to invoke section 240(a). It was further submitted that this issue was concluded in favour of assessee by the decision of the Supreme Court in CIT v. Shelly Products.
However, the Departmental Representative contended that no assessment order ought to be passed by the AO as the order of CIT(A) directing denovo adjudication was never received by the AO. Thus, in the absence of the order of the appellate authority being served upon the AO, the period of limitation did not begin to run and the AO being a creature of the IT Act was bound to act in a manner as mandated by section 240(a) i.e. no refund could be granted on the basis of the order of the Appellate authority till a reassessment order was passed as directed by the CIT (A).
Having heard the parties, the High Court held that,
++ we have considered the rival submissions. Section 240 casts an obligation upon the Revenue to refund any amount due to an assessee as a consequence of an order passed in appeal without the assessee having to make any claim to that effect and the proviso (a) u/s 240 has been incorporated only to ensure that when an assessment has been restored to the AO for fresh assessment order then the refund which is due on account of the appellate order will be granted only after a fresh assessment order is passed by the AO. So far as proviso (b) to Section 240 is concerned, it clearly provides that where assessment is annulled by the appellate authority and the refund becomes due to an assessee, the refund to be paid would only be the excess of the tax paid to the tax payable on the returned income. In this case, the assessee is not seeking refund of the tax payable on the basis of the returned income but seeking refund of the tax and interest paid in excess of that payable on the returned income. This was consequent to the assessment order passed by the AO. An identical issue was subject matter of consideration before the Supreme Court in CIT vs. Shelly Products, wherein the Supreme Court has observed that :
The assessee a company had duly filed its return declaring total income to a certain extent. The AO however, assessed the assessee's income to a greater extent and raised a further tax demand of such amount inclusive of interest. Being aggrieved, the assessee preferred an appeal against the order of the AO to the CIT(A). In the mean time, the assessee in consequence of the assessment order deposited some amount and the AO suo moto adjusted the refund due to the assessee for the earlier A.Ys to the extent of remaining amount against the total dues payable for the A.Y in question. In the result, the assessee had deposited with the Revenue an amount/ pending the disposal of its appeal by the CIT(A). This deposit was in excess of the tax payable on the returned income. The CIT(A) set aside the assessment order and restored the file to the AO for proper adjudication. The AO however, did not comply with the directions for reassessment and in due course, the time to pass assessment order had expired. However, in view of the failure of the AO to pass any assessment order, the assessee addressed a communication to the Chief CIT and sought direction to the AO to refund the tax and the interest paid by the assessee. In response to assessee's representation, the AO denied the assessee's request for refund on the ground that the refund could not be granted by virtue of Section 240(a).
The counsel for assessee submitted that the impugned order of AO refusing to grant due refund on the ground that refund during the pendency of final assessment order amounted to collecting taxes without the authority of law. The counsel submitted that the Revenue was taking advantage of its own wrong in first not passing the assessment order and thereafter on the basis of above failure, unlawfully retaining the assessee's property without authority of law. It was submitted that though the CIT(A) had remanded the matter to the file of AO for denovo adjudication, the AO had not passed the reassessment order till date. Therefore, there was no occasion to invoke section 240(a). It was further submitted that this issue was concluded in favour of assessee by the decision of the Supreme Court in CIT v. Shelly Products.
However, the Departmental Representative contended that no assessment order ought to be passed by the AO as the order of CIT(A) directing denovo adjudication was never received by the AO. Thus, in the absence of the order of the appellate authority being served upon the AO, the period of limitation did not begin to run and the AO being a creature of the IT Act was bound to act in a manner as mandated by section 240(a) i.e. no refund could be granted on the basis of the order of the Appellate authority till a reassessment order was passed as directed by the CIT (A).
Having heard the parties, the High Court held that,
++ we have considered the rival submissions. Section 240 casts an obligation upon the Revenue to refund any amount due to an assessee as a consequence of an order passed in appeal without the assessee having to make any claim to that effect and the proviso (a) u/s 240 has been incorporated only to ensure that when an assessment has been restored to the AO for fresh assessment order then the refund which is due on account of the appellate order will be granted only after a fresh assessment order is passed by the AO. So far as proviso (b) to Section 240 is concerned, it clearly provides that where assessment is annulled by the appellate authority and the refund becomes due to an assessee, the refund to be paid would only be the excess of the tax paid to the tax payable on the returned income. In this case, the assessee is not seeking refund of the tax payable on the basis of the returned income but seeking refund of the tax and interest paid in excess of that payable on the returned income. This was consequent to the assessment order passed by the AO. An identical issue was subject matter of consideration before the Supreme Court in CIT vs. Shelly Products, wherein the Supreme Court has observed that :
["….If the AO cannot make a fresh assessment in accordance with the provisions of the Act it amounts to deemed acceptance of the return of income furnished by the assessee. In such a case the AO is denuded of its authority to verify the correctness and completeness of the return, which authority it has while framing a regular assessment. It must accept the return as furnished and shall not in any event raise a demand for payment of further taxes. Accepting the income as disclosed in the return of income furnished by the assessee, it must refund to the assessee any tax paid in excess of the liability incurred by him on the basis of income disclosed. Even if the tax paid is found to be less than that payable, no further demand can be made for recovery of the balance amount since a fresh assessment is barred…."]
++ these observations of Supreme Court are applicable to the facts of the assessee's case. Moreover, the stand of the AO that no refund could be granted as no assessment order on remand could be passed because copy of the order of CIT(A) was not served upon him is not acceptable for the reason that the AO could have himself called for a copy of the same from the office of the CIT(A). In any case a copy of the order was served upon the AO with a copy of this petition some time in 2005 and since then no order of assessment has yet been passed by the AO. Once CIT(A) has remanded the proceedings to the AO for passing fresh assessment order, it is not open to the AO not to carry out the directions of the CIT(A) to the detriment of the assessee. If the revenue's submission that no refund can be granted to an assessee consequent to an order passed in an appeal unless the AO passes a fresh assessment order is accepted, then in that event Revenue would be able to deprive all assessees of their property without the authority of law by merely stating that it is helpless on account of its failure to pass an assessment order consequent to an order of appeal;
++ the Punjab & Haryana High Court in case of Bharti Engineering Corporation vs. Union of India and ors, took a view that revenue is bound to refund the amount in excess of the tax payable of the return. The AO is under legal bar to pass a fresh order because of the expiry of the period permitted under law and the assessee cannot be made to suffer on account of lapse on the part of the AO or any other officer of the Department. These observations equally apply to the present facts. In view of the above, the revenue is directed to grant refund of the amount along with interest in accordance with law after due verification.
++ the Punjab & Haryana High Court in case of Bharti Engineering Corporation vs. Union of India and ors, took a view that revenue is bound to refund the amount in excess of the tax payable of the return. The AO is under legal bar to pass a fresh order because of the expiry of the period permitted under law and the assessee cannot be made to suffer on account of lapse on the part of the AO or any other officer of the Department. These observations equally apply to the present facts. In view of the above, the revenue is directed to grant refund of the amount along with interest in accordance with law after due verification.
Education System for Super Power India
CA Rajesh Pabari
The moments of inspiration for this article – It was 9th July, 2014, I was checking my Facebook newsfeeds where I found this status update from a Second Year Junior College student from Mumbai "Our reaction when four lectures of presentation got cancelled…..Wopppppppppieeeeeee *_* I am loving it #dancing………..".
The trigger moment: This simple act of posting status on social networking platform where one can easily shout out and broadcast his/her feelings and emotions and creative ideas. Out of my curiosity about knowing psychology for everything happening around me, my mind started analyzing this simple act of happy status when lectures get cancelled and my mind started pondering over possible issues with education system and probable solutions. Can we do something with our education system where students may post "Ohh gosh, lectures got cancelled, missed the opportunity to learn something new" If you are excited to read something which, if implemented, can really make this happen please read further.
My mental agony towards the education system from my College Days: A mental agony was developed since year 2002, the time I had joined college and had so many thoughts and curiosity to learn as many things as possible during my time in college. The dreams did not materialize because the education system is not providing a space to allow students learn by themselves and improve their analytical skills required for the world outside. (But, we do learn things on our own by not paying attention in college lectures or bunking the lectures, thank god I learnt many things by myself just because of these reasons, I did bunked lectures very often and today am very happy about it).
Our education system is crippling us (It's killing our creativity and out of box thinking capabilities): Coming to the real problem, I observed that our education system is making us crippled. After so many years of study and graduating from colleges, we are left with a feeling that we have done nothing (Except learning accounts, little bit of business law, little bit of management concepts and bits and parts of few other things – A typical commerce graduate degree gave me this in spite of joining one of the most reputed college in Mumbai). While the practical world (industry) requires people with different set of skills which educationists are either unaware about it or they are not paying attention to it or they are totally ignoring the needs of the time or they are helpless in making any changes.
A creativity expert 'Sir Ken Robinson' has challenged the way education is being imparted in the world. His TED talk says it all.
http://www.ted.com/talks/ken_robinson_says_schools_kill_creativity the talk is viewed 2.74 crore times since it was first hosted in Feb 2006. It's worth a watch. His other talks on TED stage are equally impressive and noteworthy by every person related to education.
http://www.ted.com/talks/ken_robinson_how_to_escape_education_s_death_valley
http://www.ted.com/talks/sir_ken_robinson_bring_on_the_revolution
What business world and industry really need? Of course, the job and business does not need one to be master in each of the following, but yes, one should have understanding of all the aspects and mastery over one thing out of several aspects listed below. Kindly note that it took me nine years to understand the below mentioned points, so please don't misjudge them as extracted from any books or anything of that sort. Kindly also not take the list as exhaustive list.
- Understanding of Economics
o How do government decisions and policies affect my business? Whether am a businessman, a professional, a dealer, a retailer, an investor, a salaried person, a teacher, a trainer, HR professional and so on
o How does global changes affect my local business or profession consequently what kind of preventive measures will be sufficient to address the issues coming up
o How does the digital revolution affect my business, profession or my job?
♠ Understanding of Business
o Customer relations
- Retaining customers
- Attracting and tapping new markets
- Wowing the customers with excellent services and support and more importantly the thinking part of it, the creative part of it
o Marketing strategies
- Ways and means of marketing
- Understanding of latest trends in marketing (Social media, digital transformation)
- Social responsibility obligations vis-à-vis advertising value
o Impact of business decisions on cost management (for those in relevant field)
o Simple understanding of Production process or manufacturing process and facilities
o Simple understanding of Inventory management system
o Procedural aspects of import and export and relevant matters if the company is doing such business
♠ Dealing with Government agencies – In India, If I talk about this openly, I may see jail soon. So better I write only the topic here and then it will be reader's duty to explore this subject in detail. I hope the situation will change soon with new government in power.
♠ Leadership Qualities
o How to handle employees (good and bad)
o How to motivate employees and managers
o How to create a creative and pro innovation organization
o How to drive growth in an organization
o What kind of culture should be established in the organization
♠ Communication skills
o How to talk to clients, how to talk to customers
o How to talk to other employees, managers and seniors
o How to communicate your ideas through written memos or emails
o What are the email etiquettes
o How to give presentations to managers and seniors
o How to express yourself in words (oral and written)
o Public speaking (representing your employer or your own business in front of people)
o How to conduct and handle meetings, how to behave in meetings
o How to teach your juniors (learning the art of teaching and delegating)
♠ Technology skills
o How to operate computer efficiently (Microsoft Excel, Word, Powerpoint, Internet Surfing, Microsoft outlook, Emailing softwares, accounting packages, ERP, SAP etc.)
o How to google search like a pro (Very important these days)
o What are the best websites to obtain news worth reading or articles worth reading
o Where to find good articles of business or professional interest (and not the crap from everywhere)
o How to operate Microsoft Excel efficiently (nowadays useful for every individual but especially those in accounting and finance industry)
♠ Business development and learning skills
o How can business grow
o What an organization should do to create a great organization
o What are the popular myth about business development and business growth
The possible solutions
- Students should be instructed and told to read and discuss biographies and autobiographies of business leaders (Example – Jamsetji Tata, Narayan Murthy, Aditya Birla, Dhirubhai Ambani, Ratan Tata, Steve Jobs, etc) and more important it should be discussed amongst them, expressing their views, what they liked, what not and so on. In other words, collaborative learning environment should be promoted in colleges and institutes.
- Students should be told stories about innovative ideas and innovative companies that are coming into existence. Special mention .com companies. There are plenty of them to discuss, even two years of MBA is not enough to discuss these stories and learning from them. Some of them are careerlauncher.com, imagesbazaar.com, naukari.com and so on.
- Students should be encouraged to discuss amongst them about creative business ideas and improvements about existing businesses and industries around them. We should encourage them to be entrepreneurs rather than finding a secured job of least interest to them.
- We should try to motivate them and encourage them to find out their passion during their college time and studies when they have friends around them who can help to brainstorm ideas and come out with even better business models and ideas.
- The youngsters should be taught about how they can approach the venture capital funds and venture capitalists for obtaining funding for starting up their own business or bringing into existence their own ideas into practicality.
- Don't just teach them to be good managers; we should aim to make them leaders of tomorrow. They are the ones who will drive the growth of India and make India a super power. If we don't guide them well, what will make India a super power? Americans or Europeans will not come and lead India, our own people and youth only will make that happen. It's our responsibility to make great leaders out of them.
- Students should be encouraged to talk about creativity in the digital world. There are dozens of new Applications and websites coming up every now and then with great ideas and great contribution to the society. If they discuss those new ideas, they become smarter and they can run the future businesses smartly. They will be great assets to industry and businesses all around the globe.
- Students should be taught lateral thinking. "Lateral thinking is the ability to use your imagination to look at a problem in a fresh way and come up with a new solution. Without lateral thinking, companies can't innovate and create new products – they're just stuck with doing the same old thing, perhaps more efficiently than before, but they won't be able to lead the way. Any company that wants to stay ahead of the competition needs to recruit graduates who are capable of lateral thinking. This skill is highly prized in creative industries such as the media and publishing, and is valued across a range of different industries and professions, including retail, law, management consultancy and IT. Any graduate who takes up a management role is likely to need to draw on lateral thinking skills to solve problems and take forward the work of the team." Extract from http://targetjobs.co.uk/careers-advice/interview-techniques/321043-give-an-example-of-your-lateral-thinking-tricky-graduate-interview-question – A book by Edward De Bono on Lateral Thinking will be of great help. Note: He did not invented lateral thinking but he took initiative to put it in papers and present to the world.
- Students should be guided to read articles from magazines and websites like inc.com, forbes.com, entrepreneur.com, yourstory.com, storypick.com, hrb.org, stanford.edu, mckinsey.com, bcgperspectives.com and so on there are a lot many of them to get useful resources and case studies.
- Students should be taught "How to learn" by themselves. It's not tough. You will realize this by watching the TED talk given by Sugata Mitra. He experimented with backward region kids and I believe at least college level students are capable enough to learn on their own
o First talk given by him in August 2008 got 1,105,418 Views http://www.ted.com/talks/sugata_mitra_shows_how_kids_teach_themselves
o Second talk given by him in September 2010 was viewed 1,959,819 times http://www.ted.com/talks/sugata_mitra_the_child_driven_education
o Third talk given by him in February, 2013 was viewed 2,053,682 times http://www.ted.com/talks/sugata_mitra_build_a_school_in_the_cloud
- Students should be given chance to collaborate with one another as many times as possible. It's high time we should understand that the curiosity in them should not die throughout their life. The new generation has all the means, capabilities and intelligence to explore the world on their own. The teachers and professors are required to only guide them what to explore.
- Role of teachers and professors will only be limited to giving them powerful questions to explore. Rest you have to leave it on the students to explore. Today, even four or five years kids are capable of operating mobile phone, and I am surprised because I had got my first phone at the age of 19 and that too with basic functions of messaging, calling, storing few memos/notes, simple calculator and calendar. So, you can imagine what the future holds for them. If we don't change the education system to match their capabilities, it will be a fiasco on part of all of us to drean that India will be able to attain super power position ever. It's the new generation that will make India super power, we are just facilitators for them, we should predict the future needs and make a way for them and voila, all will be done. "Kehte hai na ki Padhega India tabhi toh Badhega India". Those who are getting the facility for studying are not making best out of it just because it is established for many years. Now, if we don't do anything, there is no worse thing that can happen to this country.
- Students should be taught success and failure stories of entrepreneurs. It's the right time to teach them about entrepreneurship. At present, am observing around me that every youngster has aspiration to start his/her own business or profession. If not now then at some other point of time in future. They should be taught lessons about how to become entrepreneur and what kind of character you need to have in order to become entrepreneur.
- The future of education is through videos. I was awestruck while I watched many TED videos which gave me great insights into this beautiful world, I can't explain in words. The talks are amazing and freely downloadable on from www.ted.com I can guarantee that if teaching is done by showing in classrooms, these talks are going to make a different India and different and more intelligent Indians. This is just one source; there are so many other sources from which we can obtain videos for educating students and I believe these are best tools to teach and educate them. Who will like to listen to me as a professor if they have an option to listen to Nandan Nilekani (watch this talk on TED by Nandan Nilekani and then give your views how it was and how much it is necessary to show this video to current student community) 6 lac views since Feb 2009
http://www.ted.com/talks/nandan_nilekani_s_ideas_for_india_s_future
- Kindly also watch this video where a person named Salman Khan runs an academy where he teaches through videos and urges teachers to consider flipping the traditional classroom script – give the videos to students to watch at home and discuss the learnings in classroom when teacher is present.
http://www.ted.com/talks/salman_khan_let_s_use_video_to_reinvent_education the video has got 3,401,956 views so far since it was first hosted on Ted.com in March 2011
- We should teach them about what is the real 'Brain Drain' is. The real brain drain is intelligent class of India working for Multinational Corporations. Before 1990s liberalization, people cared and discussed about 'Brain Drain' because in order to export intelligent people's talents and to work for foreign countries, they had to physically leave the country and work outside Indian borders. So, it was visible 'Brain Drain'. But today, the foreign companies have come to India and set up business, so we don't really realize what the brain drain is. To my mind, real 'Brain Drain' problem is more serious today than ever. Why? Because foreign companies pay them well.
- I was surprised to see a report on 'Top 100 universities in the world' http://www.timeshighereducation.co.uk/world-university-rankings/2014/reputation-ranking , the heartbreaking this I noticed was that no university of India was placed in first 100 universities. I was almost in tears. So, I decided that I will do something for the education in India. Next day, I resigned from my job for this noble task. Its huge task but not impossible. I will give my best.
To make India a super power, we have to do something at ground level. Yes, we have heard of this before, but according to me the ground level is education. If we can't work on it right away, no dream will come true. Forget about super power, other countries are capable enough to surpass us in all way.
Let's hope to become a great nation in next ten years. Yes, we can do it.
(Feedback can be sent to the author of this article at carajeshpabari@gmail.com or WhatsApp on +919022780919)
Challenges for Auditor in Companies Act, 2013
Atul Khurana
Overview to the Companies Act, 2013:The new Companies Act (hereinafter referred as COMPANIES ACT 2013) is replacing old Companies Act, 1956
The Companies Act 2013 makes comprehensive provisions to govern all listed and unlisted companies in the country. The CA2013 is partially made effective w.e.f. 12th September, 2013, by way of implementing 98 Sections and repealing the relevant sections corresponded with Companies Act 1956.
Seeking greater transparency and corporate responsibility, the Companies Act, 2013 has changed the role of auditors in companies.
Firstly, there is a need to understand section 139 that deals with the Appointment of Auditors
Appointment of Auditor:
→ In case of Govt. Company:
Auditor will be appointed by the C&AG within 180 days from the commencement of the Financial Year, who shall hold office till the conclusion of the AGM.
→ In case of other than Govt. Company:
Every other company shall at the first AGM appoint an individual or a firm as an Auditor who shall hold office from the conclusion of that AGM till the conclusion of its sixth AGM and thereafter till the conclusion of every sixth meeting.
Even if the auditor is appointed for 5 years, then also members of the Company should ratify such appointment at every AGM. The manner and procedure of the appointment of the Auditor is prescribed by CG.
Before the appointment of the auditor the written consent of the auditor to such appointment and certificate showing compliance of Section 141 and other conditions as prescribed, should be obtained.
Notice of Appointment of Auditor should be filled with the Registrar within 15 days of the meeting in which the auditor is appointed.
Where at an AGM, no auditor is appointed or re-appointed, the existing auditor shall continue to be the auditor of the Company.
→ In case of resignation by auditor:
Casual Vacancy to be filled by BOD within 30 days but the same should be approved by the members in a general meeting (EGM) to be convened within 3 months of the recommendation of the Board. He shall hold office till the conclusion of next AGM.
Mandatory rotation of Auditors:
The New Companies Act (Section 139(2)) read with the draft rules provide for the mandatory rotation of auditors. Individual auditors will be compulsorily rotated every five years and the audit firm will be rotated every ten years in all companies except one-person companies and small companies.
This step was inserted to ensure that auditors do not increase their familiarity and reduce their independence by continuing to audit a company for an unlimited period of time.
"After taking the command, the companies' act 2013 has emerged with certain new challenges for the auditors and these are imposed on them by changing the role and responsibilities of an auditor and incorporated certain provision which deals with the restrictions in their work. So, let us discuss these new role and responsibilities imposed on an auditor which has become challenges for them."
AUDITOR's LIABILITIES/RESPONSIBILITIES UNDER COMPANIES ACT, 2013
√ SA 620 "Using the work of an Auditor's Expert" discusses the auditor's responsibility in relation top and the procedures the auditors should consider in using the work of an expert as audit evidence. During the audit, the auditor may seek to obtain, in conjunction with the client, or independently the audit evidence in the form of reports, valuation, statements, and opinions of an expert.
√ Before relying on advocate's opinion the auditor should verify that the statement given by an expert is prima facie dependable
√ SA 620 makes it incumbent on the part of an auditor to resolve the inconsistency by discussion with the management and expert.
√ In case, the expert's statement does not support the related representation in financial information the inconsistency in the legal opinions could have been detected by the auditor if he had gone through the same.
AUDITOR's LIABILITY IN CASE OF UNLAWFUL ACTS OR DEFAULT BY CLIENTS:
The auditor's basic responsibility is to report that whether in his opinion the accounts show a true and fair view and in discharging his responsibility he has to see as how the particular situations affect his position.
The INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA has considered the role of a chartered accountant in relation to taxation frauds by the assesses and has made the following major recommendations:
- A professional accountant should keep in mind the provisions of section 126 of the EVIDENCE ACT whereby a barrister, an attorney or vakil is barred from disclosing any information made to him the course of and for the purpose of his employment.
- If the fraud relates to the past years when the CA did not represent the client, the client should be advised to make a disclosure. The accountant should also be careful that the past disclosure should not affect the current tax matters.
- In case of fraud relating to the accounts examined by the accountant himself, he should advise the client to make a complete disclosure. In case, client refuses tom do so, the accountant should inform him that he is entitled to dissociate himself from the case and he would make a report to the authorities that the accounts prepared and examined by him are unreliable on account of certain information obtained later.
- In case of suppression in current accounts the clients should be asked to make a full disclosure. If he refuses to do so, the accountant should make a complete reservation in his report and should not associate himself with the return.
AUDITOR's LIABILITY TO THIRD PARTIES IN RELATION TO ISSUE OF PROSPECTUS:
Under section 35 of THE COMPANIES ACT 2013,
(1)Where the person has subscribed for securities of a company acting on any statement included, or the inclusion or omission of any matter, in the prospectus is misleading and he has sustained any loss or damage as a consequence thereof, the company and every person who-
√ Is a director the company at the time of issue of the prospectus;
√ Has authorized himself to be named and is named in the prospectus as a director of the company or as agreed to become as a director either immediately or after an interval of time;
√ Is a promoter of a company;
√ Is an expert referred in sub section 5 of the section 26, shall without prejudice to any punishment to which any person may be liable under the section 36, be liable to pay the compensation to every person who has sustained such loss or damage.
(2) No person shall be liable under sub section (1), if he proves
√ That having consented to become a director of the company, he withdrew his consent before the issue of prospectus, and that it was issued without his authority or consent.
√ That the prospectus was issued without his consent and that on becoming aware of this issue he forthwith gave a reasonable public notice that it was issued without his knowledge or consent.
(3) Now withstanding anything contained in this section, where it is proved that prospectus has been issued with intent to defraud the applicants for the securities of a company or any other fraudulent purposes, every person referred to in the subsection (1) shall be personally responsible, without any limitation or liability, for all or any of the losses.
What does the section 144 of companies act 2013 talks about?
There was no provision in Companies' Act 1956 in respect to restrictions for providing certain services by the statutory auditors. The newly inserted section 144 of the Companies Act 2013 is the new provision that comes with the list of services that statutory auditors are restricted to render to their clients.
- As per this section, the auditor shall provide only such services to the company that is approved by the board of director of the company or the audit committee. It should not be misunderstood that the services approved by the BOD shall override the provisions of this act. It should be clear that the services are to be approved by the BOD or audit committee keeping in mind the provisions of this act.
There are certain services that the statutory auditor cannot render to their clients either directly or indirectly (i.e., the company or its holding company or subsidiary company):
(i) In case the auditor is an individual:
Rendering of services either by himself or through his relative or any other person connected or associated with him through any other entity, whatsoever, in which such individual has significant influence or control or whose name or trademark or brand is used by such individual.
(ii) In case the auditor being the firm:
The services rendered by itself or through any other of its partners or its parent, subsidiary or associate entity or through any other entity, whatever may be the case where the firm or any partner of the firm has significant influence or control or whose name or trademark or brand is used by the firm or any of its partners
The list of restricted services is:
(a) Accounting and book keeping services;
(b) Internal audit;
(c) Design and implementation of any financial information system;
(d) Actuarial services;
(e) Investment advisory services;
(f) Investment banking services;
(g) Rendering of outsourced financial services;
(h) Management services; and
(i) Any other kind of services as may be prescribed.
- In case of non-compliance of section 144, section 147 takes the command which states that, the company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than ten thousand rupees but which may extend to one lakh rupees, or with both.
- Where, in case of audit of a company being conducted by an audit firm, it is proved that the partner or partners of the audit firm has or have acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to or by, the company or its directors or officers, the liability, whether civil or criminal as provided in this Act or in any other law for the time being in force, for such act shall be of the partner or partners concerned of the audit firm and of the firm jointly and severally.
Conclusion:
Seeking greater transparency and corporate responsibility and making auditors more-independent, the changes brought out in the form of THE COMPANIES ACT, 2103 will prove more, efficient and effective.
(For any query related to above article author may be contacted at atulkhurana9@gmail.com – Mob:9888855340)
Allahabad Bank – Empanelment for Concurrent & Revenue Audit
HEAD OFFICE : 2, NETAJI SUBHAS ROAD, KOLKATA-700 001
CONCURRENT AUDIT CELL, PHONE – 2242 – 0919
FAX -2231-2422, E-MAIL- ho.ins@allahabadbank.in
BIODATA FORMAT – ( Year 2014 –15 )
1. Allahabad Bank invites applications in the under noted prescribed format from practicing firms of Chartered Accountants of India who are willing to have their firm empanelled as Concurrent / Revenue Auditor in the Bank.
2. The panel of auditors maintained last year (excluding existing concurrent auditors) since expired and will not be further used.
3. The Bio-data should be submitted in the under-noted format to the Dy.General Manager, Inspection Deptt, Concurrent Audit Cell, Head office, Fourth Floor, 14, India Exchange Place, Kolkata –700001 only by postal service / courier.
4. "Application for empanelment for Concurrent & Revenue Audit-2014" should be mentioned on the envelope carrying Bio-data
5. Mere submission of application does not, in any way, constitute guarantee for allotment of any audit job from the bank. After empanelment, the work will be allotted as & when need arises at the sole discretion of the Bank.
6. The following type of audit firms are not required to submit their Bio-data:
a ) if Firm / it's proprietor / any partner has been disqualified / depanelled or whose appointment has been terminated by RBI/ ICAI/ Bank / any other Bank on an earlier occasion.
b ) Audit firms who have conducted statutory audit of Allahabad bank branches for the year 2013-14.
c) Associate concerns of Audit firms who have conducted statutory audit of Allahabad bank branches for the year 2013-14, defined as under by RBI:
"Associate concerns means any corporate body or partnership firm wherein the proprietor and/or partner(s) of the statutory audit firm and/or their relative(s) is/are Directors or partners and/or jointly or severally hold 20% or more of the interest in the corporate body or partnership. "Relative" for this purpose will mean the spouse or any lineal ascendant or descendant of the proprietor or partner of the statutory audit firm."
7. If the space provided for against any item in the Bio-data format is not sufficient, details may be furnished in a separate sheet..
8. All enclosures must be attested as true copy under seal by the proprietor / at least one partner in case of partnership firm)
9. Any change in the Bio-data format will result in rejection of the same.
10. The last date for receipt of Bio-data is 18th August, 2014. Please dispatch Bio – Data in such way that it must reach to above address (mentioned at point no. 3), latest by 18th August 2014 positively. Please note that application received thereafter will not be entertained.
The selection and eligibility criteria of Concurrent Auditors will be as under:
a. The firm should be selected from the RBI panel of CA Firms as per the gradation suggested for Statutory Branch Auditor appointment
b. The firm should preferably be a partnership firm of Chartered Accountants and should be in existence for more than 5 years.
c. One of the Auditors (any of the partner or employed CA) should be qualified as Information System Auditors (CISA / DISA) with necessary exposure to the Systems Audit.
d. Weightage to be given to the firms, where the partners themselves are exbankers or the firm has got tie-up with ex-bankers with requisite experience and exposure.
e. The Ex-staff of our Bank should not be involved in the Concurrent Audit work.
f. It is to be ensured that the audit firm or any sister / associate concern / network firm is not conducting the Statutory Audit of the Bank or any of its Branches.
g. Weightage to be given to a firm having exposure in conducting Concurrent Audit of the Bank Branches of a few public sector / major private sector Banks.
h. The firm should have necessary office set up and adequate personnel to ensure proper deployment and timely completion of the assignments.
11. Concurrent Audit Fee Structure :
| Branches with total Business as on 31st March 2014 | Audit Fee (in Rupees, Per Month Rs. ) |
| Up to 50 Cr | 12,000 |
| Above 50 Cr to 100 Cr | 13,000 |
| Above 100 Cr to 150 Cr | 14,000 |
| Above 150 Cr to 200 Cr | 16,000 |
| Above 200 Cr to 500 Cr | 18,000 |
| Above 500 Cr to 1000 Cr | 20,000 |
| Above 1000 Cr & FCTM | 25,000 |
12. Zonal Manager / Inspection Department may not pay the bill if any report is not submitted as per the time schedule / not submitted within the time schedule / or if the same has not been compiled as per the instructions / guidelines or not submitted in the prescribed format or is otherwise found unsatisfactory or monthly Report (E-Report) is not received as per guidelines. However, if the delay in submission of the report has been caused due to genuine difficulty / exigencies, payment to the CA firm can be approved by DGM / GM, Inspection Deptt, HO on the recommendations of Zonal Manager.
13. Bank reserves right to initiate stringent disciplinary action against the Concurrent Auditor in case Frauds / sizeable income leakage are reported at later date in Concurrent Audit Branches & fact may be reported to RBI & ICAI.
14. Empanelled Chartered Accountants are allotted the Concurrent Audit workinitially for a period of one year. On completion of the year, if the performance is found satisfactory, the assignment may be renewed for subsequent years on yearly basis, subject to maximum of three years. Then one year cooling period is given compulsorily to the Auditors, during which no Concurrent Audit work of any Branch is allotted. On completion of cooling period, the Auditor may be given Concurrent Audit work of other Branch if found suitable.
15. The Bank reserves its right to review the appointment at any point of time and if necessary, can cancel the appointment by giving one month's notice. In case the firm fails to report serious irregularities / high value income leakage, Bank reserves right to report the matter to RBI / ICAI / IBA & initiate disciplinary action. Such firms will be black listed and they will not be eligible for assignment of audit work with Bank for next five years.
16. Concurrent Audit has very important role in identifying System lapses,irregularities of every type, income leakage, ensuring compliance of terms of sanction for advances, detecting frauds, pointing out symptoms of sickness in time, etc.
17. Quality of Concurrent Audit is reflected in reducing number of irregularities, absence of persisting irregularities as RBI envisages that Auditor should also educate staff about hazards of deviation from Systems and Procedures. If Concurrent Audit is effective, it should also result in up gradation of the Branch in annual inspection and / or maintaining higher-level ratings obtained ( Low – medium risk under RBIA)
18. If the RBIA rating of the Branch is downgraded, the performance of the Concurrent Auditor shall be critically examined and reviewed for deciding continuance of service or otherwise.
19. If the Concurrent Auditor fails to detect and report irregularities/deviations from laid down policies/norms, his services are liable to be terminated without any notice.
20. If the Concurrent Auditor fails to attend the Branch on day-to-day basis or the attendance of the Partner / Proprietor of the firm is found to be poor, his services are liable to be terminated without any notice.
Day before yesterday the Delhi High Court emphatically held that the Department had no power to audit the Service Tax assessees routinely.
The assessee petitioner challenged before the High Court a letter dated 07-11-2012 of the respondent Commissioner seeking records for the period 2007-08 till 2011-12 for scrutiny of an audit party; Rule 5A (2) of the Service Tax Rules is also impugned as ultra vires .It is contended that the powers of an assessing officer to call for records in respect of any period during which the respondents seek to intensively scrutinize receipts etc. i.e. a special audit can be ordered by recourse to Section 72-A of the Finance Act, 1994. Barring these, the Finance Act, does not contain any substantive power to call for records for scrutiny as is permissible under Rule 5A(2) or for the purpose of scrutiny by any authority outside of those created under the Act, such as the Comptroller and Auditor General's office.
The petitioner also challenged the CBEC instruction in F. No. 137/26/2007-CX.4 dated 1.1.2008.
Rule 5A directs the assessee, in sub-rule (2), to provide records to an audit party. It reads:
"Rule 5A. Access to a registered premises.(1) An officer authorised by the Commissioner in this behalf shall have access to any premises registered under these rules for the purpose of carrying out any scrutiny, verification and checks as may be necessary to safeguard the interest of revenue.(2) Every assessee shall, on demand, make available to the officer authorised under sub-rule (1) or the audit party deputed by the Commissioner or the Comptroller and Auditor General of India, within a reasonable time not exceeding fifteen working days from the day when such demand is made, or such further period as may be allowed by such officer or the audit party, as the case may be,-(i) the records as mentioned in sub-rule (2) of rule 5;(ii) trial balance or its equivalent; and(iii) the income-tax audit report, if any, under section 44AB of the Income-tax Act, 1961 (43 of 1961), for the scrutiny of the officer or audit party, as the case may be.
The CBEC instruction in F. No. 137/26/2007-CX.4 dated 1.1.2008, states:
"… A new Rule 5A has also been incorporated in the said Rules to prescribe that an officer authorised by the Commissioner shall have access to any premises registered under the Service Tax Rules for the purpose of carrying out any scrutiny, verification and checks as may be necessary to safeguard the interest of revenue and that the assessee shall provide, on demand, the specified records including trial balance or the equivalent. It may be noted that this rule does not envisage issue of any notification by a Commissioner for such authorisation of officers. The requirement of authorisation could be fulfilled by issue of an office order.2. In this regard, it is clarified that records/documents required to be maintained under various laws such as the Income Tax Act, Companies Law the CENVAT Credit Rules, 2004, VAT and other State legislation would be acceptable, and the amendment made in the rule does not cast any additional responsibility on taxpayers in terms of maintenance of records.3. The list of records, as required to be provided under said sub-rule (2) should be submitted once only. Once filed, further intimation would be required to be given only in case there is any change in the list (i.e. addition, deletion, modification in the types of records maintained) that had been furnished by the assessee.4. A copy of the list furnished by the assessee would be sent by the jurisdictional superintendent to the audit section.5. The audit team or any other officer authorised by the Commissioner to visit the registered premises of an assessee shall give prior intimation to the assessee along with the list of documents that he requires for the purposes of scrutiny, verification or audit.6. That taxpayer shall provide the records as required by the authorized officer within a period of fifteen days from the date of request. In case, the taxpayer is unable to produce any of the records called for within the stipulated time, he shall intimate the same along with reasons, for non-production of records, and the officer may also further time for production of such records keeping in view the overall facts into account.7. These amendments have been made in the service tax rules to enable the duly authorised offices to carry out audit or scrutiny as may be necessary to safeguard the interest of revenue. However, it may be ensured that only such records are demanded which are necessary for conducting such audit scrutiny or verification."
The only provision in Chapter V of the Finance Act on scrutiny and audit of records of the assessee is Section 72Aof the Finance Act, 1994, which reads:
"72A. (1) If the Commissioner of Central Excise, has reasons to believe that any person liable to pay service tax (herein referred to as ''such person''),-(i) has failed to declare or determine the value of a taxable service correctly; or(ii) has availed and utilised credit of duty or tax paid-(a) which is not within the normal limits having regard to the nature of taxable service provided, the extent of capital goods used or the type of inputs or input services used, or any other relevant factors as he may deem appropriate; or(b) by means of fraud, collusion, or any wilful misstatement or suppression of facts; or(iii) has operations spread out in multiple locations and it is not possible or practicable to obtain a true and complete picture of his accounts from the registered premises falling under the jurisdiction of the said Commissioner,
he may direct such person to get his accounts audited by a chartered accountant or cost accountant nominated by him, to the extent and for the period as may be specified by the Commissioner.
The High Court observed,
Section 72A envisages an audit of an assessee's records only in special circumstances, namely, when there is a failure to declare or compute the value of the taxable service, when the utilization of CENVAT credit in excessive of the limit permissible or by fraud etc., and when the business operations of the assessee are dispersed across multiple locations. Apart from Section 94, the Revenue could not show any other substantive provision which justifies a probe into the records of the assessee, under conditions akin to those contemplated by Rule 5A(2). The Revenue was also unable to show the compulsion of arming authorities with such sweeping powers, under the Rules.
It is well known that if the legislature contemplates a situation and enacts or provides for a part of it, the other parts are deemed to have been excluded. The law is also well settled that a rule acquires statutory force, so long as it first, conforms to the provisions of the statute under which it is framed and second, it must be within the rulemaking power of the executive authority charged with framing the rules.
The mere fact that a rule-making power is phrased in terms that indicates a general delegation of power, cannot lead to the inference that such power may be exercised to make rules that exceed the bounds of the statute. Rules may only give effect to the statute's provisions and intent and cannot be used to create substantive rights, obligations or liabilities that are not within the contemplation of the statute.
It is apparent that the only type of audit within the contemplation of the statute is that stipulated for in Section 74A, i.e. a special audit when only certain circumstances are fulfilled. The Parliament thus had a clear intention to provide for only a special audit. The fact that Section 74A prescribes the conditions meriting such special audit compels the necessary inference that the Parliament did not intend to provide for a general audit that "every assessee" may be subjected to, "on demand". This Court is thus of the opinion that any attempt to include provision for such a general audit through the back-door, such as through the impugned rule, is ultra-vires the rule making power conferred under Section 94(1). Rule 5A(2) must consequently be struck down.
Likewise, this Court finds that the impugned CBEC instruction, being in furtherance of Rule 5A(2), which rule is ultra-vires the Finance Act, 1994, is void for the same reasons. Executive instructions without statutory force, cannot possibly override the law; consequently, any notice, circular, guideline etc. contrary to statutory laws cannot be enforced.
The impugned circular seeks to put in place a mechanism for audit and scrutiny of documents with the objective of safeguarding the interests of the Revenue, in furtherance of the amendments made in the Service Tax Rules, as indicated in paragraph 7 of the circular. Since the parent statute in this regard, the Finance Act, 1994 itself does not authorise a general audit of the type envisioned by the impugned Rule 5A(2), and furthermore only stipulates that a special audit can be undertaken if the circumstances outlined in Section 72A are fulfilled, this Court finds that the impugned CBEC circular is not only an attempt to widen the scope of the law impermissibly but also is patently contrary to the statute. The impugned circular, to the extent it provides clarifications on a Rule5A(2) audit, is hereby quashed; consequently, the impugned letter is quashed and set aside.
The Service Tax Audit Manual, 2011 is merely an instrument of instructions for the service tax authorities; it is but obvious that it is not a statutory instrument and has no statutory force. Thus, Rule 5A(2) cannot be sought to be justified as against it.
So, now there is no Rule 5A -the Commissioner or the CAG cannot authorize his officers to barge into the premises of the assessee and demand records and documents for auditing. The assessee is not required to entertain any such demands.
Even earlier, the Allahabad High Court had in 2014-TIOL-120-HC-ALL-ST held that the Departmental officers had no power to audit.
We bring you the judgement today. Please see 2014-TIOL-1304-HC-DEL-ST
Please also see
1. Should AG's Audit be allowed to visit factories and Premises of Service Tax Assessees? (DDT 1298 )
2. AG's Audit Visit to Factories and Premises of Assessees? (DDT 1776 )
6. Audit under Service Tax only by Chartered Accountants - not by officers of Department: HC - (DDT 2283)
Judgement applicable throughout the country: JK Mittal, the Advocate who argued the case on behalf of the assessee says that this judgement has force throughout the country as statutory Rule was under challenge and the same is struck down. He adds, "Throughout India, members of trade and industry have been subject to serious harassment for the last several years as central excise officers routinely for conducting audit issuing letters seeking voluminous records for the last 5 years as well numerous information in self specified formats which are not there under the law and these officers visits assessee's premises for audit. Similarly, officers of Comptroller & Audit General of India also visit the assessee's premises for conducting audit of Service Tax and Central Excise Assessees. All this being done on the basis of so called Rule 5A(2) and internal audit manual of the Department. This has led to serious resentment among members of the trade and industry as this practice has been followed all around the country without any check which was not only breeding large scale corruption and frivolous demands and unnecessary litigation across the country. The matter was taken up several times with Ministry of Finance at highest level but all in vain.
At last the Court has given relief as rule 5A(2) has been struck down as ultra vires, and CBEC instruction is also declared void and it was declared audit manual of department has no statutory force."
__._,_.___
No comments:
Post a Comment