Asset Side of Balance Sheet cannot be isolated from Liability side
CA Prarthana Jalan
Facts of the case – The assessee is engaged in agricultural and allied activity. This company is one of the group companies constituted by Shri B.Ramalinga Raju and his family members. During the course of scrutiny proceedings, the Assessing Officer called for the books of account of the assessee, wherein it was found that there were certain additions to the fixed assets during the previous year relevant to the assessment year under consideration. The assessee was called upon to explain the source of such investments. In the opinion of the Assessing Officer, the company failed to produce any evidence in support of the additions to the fixed assets, and therefore, the same were treated as unexplained investments in the hands of the assessee under S.69 of the Act. The Assessing Officer thus made an addition of Rs.4,52,713 under S.69 of the Act.
Contention of the Assessee – Assessing Officer wrongly invoked S.69 of the Act, as in fact, credit in the bank account is self-explanatory to the fact that the payment was by way of fund transfer. The Assessing Officer, having accepted the Liability Side of the Balance Sheet, is not justified in isolating the 'Assets Side' of the Balance Sheet, since source of investment is proved.
Observation of CIT (A)- CIT(A) observed that these expenses/investments were not items of expenditure that were debited to Profit & Loss Account; more importantly, they cannot be called as 'unexplained', as they are extracted from 'Application of Funds' and the Asset Side of the Balance Sheet. In other words, the source of fund is explained. Though the learned CIT(A) observed that these cannot be treated as unexplained, he proceeded on a different footing that if the expenses were capitalized, the allowance of the same as expenditure can be considered in a subsequent year, i.e. as and when the lands are sold. This implies that the led CIT(A) has not given a categorical finding about the source of funds or application of funds and the final observations are based on incorrect appreciation of facts.
Held by ITAT- Admittedly, assessees have made investments in fixed assets and the source of such investments was the inflow available on the Liability Side of the Balance Sheet. Since the Assessing Officer has not properly appreciated the facts, before the learned CIT(A), the source was explained, and the same was accepted by the learned CIT(A). Having accepted the source of funds, there cannot be any addition made in this year and even in the subsequent year, i.e. in the year of sale, the source of investment cannot be disputed. Therefore, the learned CIT(A) is not justified in giving direction to the Assessing Officer to consider the source of investment in the year of sale. In these circumstances, we set aside the directions of the learned CIT(A) and hold that it is not a fit case for making the addition under S.69 of the Act.
Merger of ING Vysya And Kotak Mahindra Bank
The banking industry is largely fragmented in India with more than half of the commercial banks being state-run entities. Also amongst them only two of them figure among the world's 100 largest banks. Besides, there have not been many mergers in Indian banking space and the merger of ING Vysya Bank with Kotak Mahindra Bank is one of the major deals since private sector leader ICICI Bank's takeover of Bank of Rajasthan about four years ago and Axis Bank acquiring erstwhile UTI Bank. The Kotak Mahindra and ING Vysya, both are private sector banks, run by professional managers, and similar in size with a degree of commonality in business and risk approaches.
The Deal:
The proposed merger is an all stock merger. 1000 shares of Rs.10 each of ING Vysya will receive 725 shares of Rs.5 each of Kotak Mahindra Bank.
This exchange ratio indicates an implied price of Rs.790 for each ING Vysya share based on the average closing price of Kotak shares during one month to November 19, 2014, which is a 16% premium to a like measure of ING Vysya market price. The proposed merger will result in issuance of approximately 15.2% of the equity share capital of the merged Kotak.
If we calculate the premium as on 01/12/2014:
| Price of 1 share of Kotak Mahindra Bank | Rs. 1200 |
| Therefore the price of 725 shares | Rs. 8,70,000 |
| Price of 1 share of ING Vysya Bank | Rs. 834 |
| Price of 1000 shares | Rs. 8,34,000 |
| Premium to shareholders will be Rs.36,000 which is 4.31% | |
Amalgamation is subject to the approval of shareholders. Other approvals required are –
- Reserve Bank of India
- Competition Commission of India and
- Other regulatory approvals
Shareholding Pattern
About Companies
About Kotak Mahindra Bank:
Since the inception of the erstwhile Kotak Mahindra Finance Limited in 1985, it has been a steady and confident journey leading to growth and success.
Kotak Mahindra Bank Ltd is a one stop shop for all banking needs. The bank offers personal finance solutions of every kind from savings accounts to credit cards, distribution of mutual funds to life insurance products. Kotak Mahindra Bank offers transaction banking, operates lending verticals, manages IPOs and provides working capital loans. Kotak has one of the largest and respected Wealth Management teams in India, providing the widest range of solutions to high net worth individuals, entrepreneurs, business families and employed professionals.
About ING Vysya:
ING Vysya Bank Ltd is a premier private sector bank with retail, private and wholesale banking platforms that serve over two million customers. With over 80 years of history in India (former Karur Vysya Bank) and leveraging ING's global financial expertise, the bank offers a broad range of innovative and established products and services. The Bank, which has close to 10,000 employees, is also listed in Bombay Stock Exchange Limited and National Stock Exchange of India Limited. ING Vysya Bank was ranked among top 5 Most Trusted Brands among private sector banks in India in the Economic Times Brand Equity – Nielsen survey 2011.
The bank was formed from the 2002 acquisition of an equity stake in Indian Vysya Bank by the Dutch ING Group.
About ING Group:
ING is a global financial institution of Dutch origin offering banking services through its operating company ING Bank and holds significant stakes in listed insurers NN Group NV and Voya Financial, Inc. ING Bank's 53,000 employees offer retail and commercial banking services to customers in over 40 countries.
ING draws its experience and expertise, commitment to excellent service and its global scale to meet the needs of a broad customer base, comprising individuals, families, small, businesses, large corporations, institutions and governments.
Rationale of the Merger
- Revenue Synergies & cost efficiency:
- Less need for branch expansion.
- Save on product introduction costs.
- Origination cost savings – higher throughput of products through network.
- Save on overlap of infrastructure.
2. Benefits to Employees:
- Experience, expertise and diversity of employees is a significant asset for ING Vysya
- ING Vysya employees will have growth opportunities across Kotak group.
- Kotak employees would be part of a larger and deeper pan India franchise.
The employees of ING Vysya will also be at benefit as Mr Kotak has announced that there will be no drastic job cuts post-merger. Employees are the major concern in the service industry. As the employees will be satisfied, there will be no post-merger difficulties.
3. To Customers:
- ING Vysya's diverse customer segments with more than 2 million customers, will now have access to Kotak's wide product suite across financial services.
| Particulars | ING Vysya | Kotak | Kotak (Merged) |
| Branches (nos) | 573 | 641 | 1214 |
| ATMs (nos) | 635 | 1159 | 1794 |
| Employees (nos) | 10,591 | 29,220 | 39,811 |
| Customers (millions) | 2 | 8 | 10 |
After the acquisition, the prevailing interest rate of the acquiring bank is applicable on all savings accounts. So the account holders of the acquired bank could gain if the rate is higher than that offered by their existing bank. Since ING Vysya offers a 4 per cent annual interest rate and Kotak Mahindra gives 6 per cent for a balance of over Rs 1 lakh, the ING Vysya account holders stand to gain. For a balance of up to Rs 1 lakh, they can earn an interest rate of6 per cent per annum now.
4. Wider Coverage and Balanced Footprint:
| Branch Density Complementary in Key Cities Branches | ING Vysya1 | Kotak | Kotak (Merged) |
| West | 12% | 46% | 30% |
| North | 20% | 34% | 27% |
| South | 64% | 15% | 38% |
| East | 4% | 5% | 5% |
| Total | 573 | 641 | 1,214 |
If we go through the table of branch density, number of branches of ING Vysya are more in South Region. As far as Kotak Mahindra is concerned it has less number of branches in South Region whereas branch density in west and North Region is more. The merger would give Kotak Mahindra a wider coverage and balanced footprint in three regions.
Financial Comparison of Kotak Mahindra Bank:
(Rs. In crores)
| Particulars | 2013-2014 | 2013-14 ( Merged) | Percentage increase |
| Net Total Income | 10,923 | 13,576 | 24.29% |
| Profit After Tax | 2,465 | 3,169 | 28.56% |
Comparison for half yearly results for FY 2015:
(Rs. In crores)
| Particulars | H1FY15 | H1FY15 ( Merged) | Percentage increase |
| Net Total Income | 6,617 | 8,057 | 21.76% |
| Profit After Tax | 1,416 | 1,740 | 22.88% |
It seems that in both of the cases, the percentage of Increase in PAT is more than Net Total Income.
After announcement of merger share price Of Kotak Mahindra Bank rose from Rs.1078 to Rs.1200 and the share price of ING Vysya increased from Rs.728 to Rs.816.
Regulatory approvals:
As banks are not companies registered under The Companies Act, 1956, it needs to follow the separate procedure for approval of the merger from the shareholders.
- As per Section 44A of the Banking Regulation Act, 1949, draft scheme of amalgamation has to be approved by the shareholders of each banking company by a majority in number representing two-thirds in value of the shareholders.
- Before convening the meeting for the purposes of obtaining the shareholders' approval, the draft scheme of amalgamation needs to be approved individually by the Boards of Directors of the two banking companies.
- A dissenting shareholder is entitled, in the event of the scheme being sanctioned by the Reserve Bank, to claim from the banking company concerned, in respect of the shares held by him in that company, their value as determined by the Reserve Bank when sanctioning the scheme and such determination by the Reserve Bank as to the value of the shares to be paid to the dissenting shareholders shall be final for all purposes.
- As per RBI act, no promoter can exercise voting rights more than 10% so getting approval of public shareholder is one of the challenges. In this case though, such approval is almost a pre-gone conclusion though the legal aspects entail the following.
The first thing both banks need is approval from their shareholders. That approval threshold is based on those present and voting at the shareholder's meeting. The resolution needs approval of 'a majority in number representing two-thirds in value of the shareholders' of those present and voting including proxies. Two-thirds, that is 67 percent, which in the case of both banks would have been easy in the ordinary case, because in each case the promoter owns approximately 40 percent. So in both cases, assuming full attendance at the meeting of every owner of every share – the maximum public support needed would be 27 percent or even less. But banking regulations cap an individual's voting rights in a bank to 10 percent, which means Uday Kotak cannot exercise full 40 percent vote and nor can ING. Hence in both cases they will need public support than they would have needed otherwise.
Illustration: Imagine that Kotak Bank equity capital was 100 shares and all 100 shares were present at shareholder meeting. 67 shares would need to vote in favour of the deal. Of that 67, Uday Kotak has 40 shares, so public shareholder support needed would be 26. But Uday Kotak cannot exercise all 40 shares, he can vote on only 10. Hence, the base become 70 shares as 30 are non-voting. 2/3rds of 70 is 47 shares. Of that 47, Uday Kotak has 10. So he now needs 37 public shares in his favour. Same is the case for ING.
Our view:
The two largest private banks in the country, HDFC Bank and ICICI Bank, have taken over small banks in the past. The Reserve Bank of India has also had to prescribe direct mergers of banks to ensure that one of the merging entities do not collapse. But the Kotak-Vysya marriage is completely voluntary and has been made for strategic reasons. After evaluating the transaction, we can conclude that merger is done from the view of cost avoidance rather than cost efficiency. It will help both banks, their shareholders and customers and the industry in general. Both banks have different geographical bases and customer segments. The limited reach in terms of presence and profiles had constrained both of them. The merger will enable them to complement each other and make a good business fit. It is acquisition by Kotak of 573 branches which is much cheaper than cost of setting up new branch. The deal also addresses requirement that promoters' holding in the bank should come down.
Conclusion:
Banking industry is one, where having a critical mass is the sine qua non for meeting competition. Regardless of the other factors how so ever meritorious, without the critical mass the best of the banks is bound to either vegetate or be a target for getting gobbled up by a larger bank sooner or later. The main aspect of the critical mass is the geographical spread and man power, which this deal seeks to address more than anything else. ING Vysya is firmly grounded in the South with a well experienced human resource and Kotak Mahindra in the West and North. Together they will stand up to any competition if they continue to focus on their strengths and carve out a niche for themselves.
Dr. Haresh Shah FCA; LLB; PhD (M&A) – Author is the Chairman at HU Consultancy Pvt. Ltd., a Consultancy Firm dealing in Corporate Restructuring, JV's and Financial Re-Engineering. For queries, author can be reached at email id: contact@huconsultancy.com
Online facility for Response to Outstanding Income Tax Demand
CA Chirag Chauhan
Many a times there are Mis match between TDS shown in Form 16 / Form16A and actually deposited by Employer / Other party. However at the time of filing Income Tax Return the assessee claims full TDS as per TDS certificate received. Due to this at the time assessment CPC / AO send intimation of Demand. Further there are various reason and stages where demand raise, however there is no consolidated date based of status of each demand. To make it easier for assessee and to fasten the process Income tax Department has made online option available to update and Reply for any Outstanding Demand Notice Received by Assessee.
You need to visit income tax Site https://incometaxindiaefiling.gov.in under option My Account select Demand Status. You will get details of Record as per CPC, Section in which demand raised, Demand Identification Number, Date of Demand Raised, Outstanding Amount, Upload by, and Rectification Rights, and option for Submitting Response and to View Response.
Currently Income Tax Department has made available three online options for Assessee to Reply to the Demand Raise.
1. Demand is Correct: Once this option is selected you cannot change later
2. Demand is partially Correct : You need to mention amount of demand which is partially correct and partially incorrect
3. Disagree with Demand : There are multiple option which one can select depending upon situation
a. Demand Paid – In case of No CIN number assessee has to provide details of amount paid number, Date of Payment, Amount and Remarks if any. Assessee can also upload the Challan Copy with maximum size of file as 50MB. In cases were there is CIN No available provide details of BSR Code, Date of Payment, Serial Number of Challan, amount and Remark. There is no need to upload the Challan Copy.
b. Demand already reduce by Rectification / Revision – In case were rectification / revision letter is filed with AO, we need to provide details of order date, amount, AO number and upload copy of order passed by AO with maximum size of file as 50MB.
c.Demand already reduce by Appellate Order but appeal effect to be given – In case were Appellate Order has been passed we need to provide date of Order, order passed by High Court / CIT / SC / ITAT, reference no of Order and Demand after appeal effect
d. Appeal Has been Filed – In cases were appeal has been Filed we need to provide Stay Petition Filed with High Court / CIT / SC / ITAT and Date of Appeal. Or Stay Granted by High Court / CIT / SC / ITAT and Date of Appeal and also upload copy of Order with maximum size of file as 50MB. Or Installment granted details by AO / Add CIT / High Court / CIT / SC / ITAT and Date of Appeal and also upload copy of Order with maximum size of file as 50MB
e. Rectification / Revised Return Filed with CPC – We need to Select option from Rectification or Revised, mention E Filing Ack No, Remarks and upload Challan Copy, TDS certificate, Letter Requesting Rectification, and Indemnity Bond with maximum size of file as 50MB
f. Rectification File with AO – We need to mention date when filed for rectification and Remarks if any
g. Others – We can mention various reasons why we disagree with the demand in the remarks column.
Following are the additional Notes which need to be kept in mind while replying:
1. Kindly validate all the demands as per your records.
2. In case, you confirm "Demand is correct" then the demand will be taken up for adjustments against refund.
3. In case, you "Disagree with demand", then please furnish details for disagreement along with reasons thereof.
4. Please contact assessing officer or concerned Income Tax Authority for further details in case rectification has been sought or if any petition has been filed. To know your assessing officer, Logon on www.Incometaxindiaefiling.gov.in go to service Tab then click Know your Jurisdictional A.O
5. To request for resend of orders from CPC, please select Resend of intimation request
6. Demand position gets updated every day
7. Interest demand u/s (2) is linked to the principal demand of the same assessment year. This indicates that principal demand is already adjusted / paid and interests demand is only outstanding value. Hence does not require any confirmation.
8. If demand is shown to be uploaded by AO in the above table and rectification right is with Assessing Officer, please contact your jurisdictional Assessing Officer for the same.
9. For the demand against which there is "No Submit response option" available such demand is already confirmed by Assessing Officer. Kindly contact your Jurisdictional Assessing officer.
For any query you can write to Chirag@cachauhan.in . Before making any decisions do consult your Professional / tax advisor. Author does not take any responsibility for misrepresentation or interpretation of act or rules. Neither the author nor the firm accepts any liability neither for the loss or damage of any kind arising out of information in this document nor for any action taken in reliance there on.
 | |||||||
Black Money – CBDT directs AOs to Finalize Assessments
Relevant Portions of the Second Report of the Special Investigation Team (SIT) on Black Money Released; On the Directions of SIT, CBDT Directs Various Assessing Officers to Finalize the Assessments for all Actionable Cases (427), whose names are appearing in the HSBC List Received by the Department.
Placed below are the relevant portions of the Second Report of the Special Investigation Team (SIT) on Black Money which was recently submitted by the SIT to the Hon'ble Supreme Court:
I. In response to the directions issued by the SIT, CBDT has directed various Assessing Officers to finalize the assessments for all actionable cases (427), whose names are appearing in the HSBC list received by the Department.
As per the information received from France, there are in all 628 persons/entities (except in 2 cases where the same names have appeared twice). Out of these 628 persons/entities, amounts/balances are shown against 339 persons and no amounts/ balances are shown against 289 persons/entities. In respect of the latter category also, further investigations and assessments are being taken to logical end.
Out of the said 628 persons, 201 are either non–residents or non–traceable, leaving 427 persons' cases as actionable cases.
The amount involved in these cases as per details available in the information received, is about Rs.4,479 crores approximately ($ converted @ Rs.45). Out of these, Department has finalized assessment of 79 assessees (involving more than 300 assessments). An amount of Rs.2,926 crores has been brought to tax towards the undisclosed balances in the accounts relating to these persons. For the said amount, these assessees have been levied tax and interest at the appropriate rates. Penalty proceedings under Section 271 (1)(c) of the Income Tax Act, 1961 (I.T. Act) have been initiated in 46 cases. Such penalties have been levied in 3 cases so far. With regard to the other assessees, proceedings are pending.
Further, prosecutions have been initiated in 6 cases u/s. 276C (1) of the Income Tax (I.T.) Act for willful attempt to evade taxes and in 5 cases, proceedings have been initiated u/s. 276D of the I.T. Act on account of willful failure to furnish information in response to the notices issued by the Income Tax Department.
Show Cause Notices for filing prosecution have been issued in 10 more cases and further action would be taken at the earliest.
In other cases, necessary action is being expedited and substantial progress is expected in coming months.
II. Apart from HSBC list, further actions taken by various agencies on the basis of directions given by SIT:-
1. Directorate of Revenue Intelligence:––
a) Details have been furnished in respect of 31 cases of iron ore export cases.
In 11 cases, the concerned parties have admitted the undervaluation and before issuance of show cause notices, paid Rs.116.73 crores. Further action would be taken, in accordance with law.
In 10 cases, show cause notices have been issued. Preparation of show cause notice is in progress after completion of investigation in other cases.
b) In respect of other categories of trades, investigation is pending in 33 cases. In some cases, references have been made to Financial Intelligence Unit – India (FIU–IND), ED and CBDT. According to the agency, the total amount involved could be Rs. 14957.95 crores.
2. Directorate of Enforcement:––
a) From the details furnished by Directorate of Enforcement in relation to mining cases, on the basis of previous illegal mining of iron ore reports relating to Orissa, Goa and Karnataka, action has been taken. In one case of Orissa, accused persons were taken into custody by the Enforcement Directorate and properties worth more than Rs. 400 crores have already been identified and are under process of attachment. Regarding other cases, the efforts are on to get the data from the Director of Intelligence Bureau and State Government.
b) In respect of Karnataka, 3 attachment orders have been passed attaching deposits in bank worth Rs.54.84 crores, properties (Rs.37 crores) and shares (Rs.904.13 crores) and the orders have been confirmed by the adjudicating authority.
c) Further efforts have been made to ascertain whether any other proceeds of crime exist so that they can be provisionally attached. In respect of Goa and Jharkhand, the preliminary scrutiny and investigation is in progress.
d) It has been pointed out that because of stay order passed by the Hon'ble Kolkata High Court, the Directorate is facing difficulty in taking coercive action in Ponzi/chit fund scheme cases.
e) In respect of certain other cases, prosecution complaints have been filed. In case of one group case in Jharkhand, provisional attachment orders attaching properties worth Rs. 452.43 crores were passed and adjudicating authority has confirmed attachment of properties worth Rs. 263.73 crores.
f) 5 Letters Rogatories (LRs) have been issued by the PMLA Court. Replies to 4 LRs are pending while 1 LR has been returned and effort is being made to issue fresh LR.
g) In another mining case in Karnataka, provisional attachment for Rs.884.13 crores have been issued and confirmed by the adjudicating authority. Appeals are pending.
h) In respect of another group cases of Andhra Pradesh, provisional attachment orders for Rs.1093.10 crores have been confirmed by the adjudicating authority. It is directed that necessary steps be taken immediately for realization of the amounts involved.
In respect of most of the above noted cases, the CBDT has reported about the actions taken by the assessing officers.
SUGGESTIONS AND RECOMMENDATIONS FOR TAKING ACTION TO CONTROL BLACK MONEY
1. Suggestion made by Financial Action Task Force (FATF) on TBML in its report, as quoted above, that Data Analysis & Research for Trade Transparency System adopted by USA requires to be adopted and accepted, as it would control over/under invoicing to some extent. There should be institutional mechanism through a dedicated set up which examines mismatch between export/import data with corresponding import/export data of other countries on at least a quarterly, if not a monthly basis.
2. It is established since years that over invoicing or under invoicing is known method for stashing black money outside the country. Main question is how to control this malady. If there is proper vigilance to a large extent by the Customs Department, mis–invoicing can be controlled because, now–a–days, price of various goods/machineries is known in the international markets. For this, data is also published and is available on computer at any point of time. Hence, it was suggested that in a Bill of Export/shipping Bills, an entry should be included, namely, what is the international market price of the goods/machineries which were sought to be exported. The said suggestion is under consideration and is likely to be implemented within short time.
3. Further, it is of utmost necessity to curb the creation of fake/bogus bills. One important step which can be taken to curb this menace is to make declaring of PAN number mandatory for all sales, where payment is in cash or through bank, above a value of Rs. One lakh. The purchaser would also be under obligation to ensure that the invoices he gets have the PAN number of the seller.
Further, considering the fact that at present, purchase or sale of goods/services by cash is rampant, which undoubtedly utilizes/generates unaccounted money in the society. For this purpose, a suitable rule is required to be brought under I.T. Rule 114 B made under Section 139 A (5) of the IT Act. By such amendment, purchaser is required to disclose his identity either by PAN number or UID (Aadhar card) or any other centrally recognized documents of identity.
Transactions relating to purchase and sale of goods, provision of services of any nature where the payment/consideration is Rs. One lakh or above, either by cash or cheque, may be covered under this rule.
4. It is suggested that for regulating the possession and transportation of cash, particularly putting a limitation on cash holdings for private use and including provisions for confiscation of cash held beyond prescribed limits, provision in the Act should be made. It is to be stated that a number of European countries bar any cash transaction above a particular limit. This can be done in India too. Again, while implementing the suggestions, to ensure that small transactions, which make a bulk of common man's daily transactions, are not affected and for that, a threshold limit could be kept.
Further, for holding of cash/currency notes also, there should be a limit, by prescribing a reasonable threshold, may be Rs.10 lacs or Rs.15 lacs. This would control holding of unaccounted money to a large extent. This would also control transfer of unaccounted cash from one destination to other, which at present is rampant, may be by Angadias or by other means.
5. The aforesaid suggestion is also in conformity with the observations in the case of Rajendran Chingaravelu vs. UoI, in CA No.7914 of 2009; ORDER DATED November 24, 2009 (320 ITR 1)) by the Hon'ble Supreme Court. Therein, it had been observed that "The nation is facing terrorist threats. Transportation of large sums of money is associated with distribution of funds for terrorist activities, illegal pay offs, etc. There is also rampant circulation of unaccounted black money destroying the economy of the country."
This is known to all concerned and, therefore, suggestion made above, be implemented.
6. Financial Action Task Force (FATF) on Money laundering recommends "tax crimes" to be made a predicate offence so that action can be taken under Prevention of Money Laundering Act, 2002. There are more than 25 countries in the world which have made "tax crimes" as a predicate offence. The Government needs to seriously examine the issue and take steps to make "tax crimes" as a predicate offence. To prevent any hardship to salaried or small tax payer, a high threshold of say, more than Rs.50 lakh of tax evasion could be considered as being a predicate offence.
7. Foreign Exchange Management Act, 1999 (FEMA) provides for confiscation of any property held abroad, if found to be held in violation of Section 4 of the Act. For various reasons, it is difficult to proceed against property held abroad. To strengthen the provisions, S. 13 and S. 37 need to be amended to provide for seizure and confiscation of property of equivalent value within the country, if it is held that property held abroad is in violation of Section 4 of FEMA.
8. FIU is uniquely positioned as the national center for receiving, analyzing and disseminating information related to suspected cases of money laundering. Its unique architecture connects it to the entire financial sector on one hand to law enforcement authorities and on the other through an electronic network that makes it possible for information to flow freely in a secure environment. Further, FIU is also connected to the other FIUs of the world through the Egmont Secure Web which makes it possible to access information in foreign jurisdictions. This unique architecture can be harnessed to exchange actionable intelligence on proceeds of crime. Some recommended measures are as follows:-
a. FIU should be given access to law enforcement information (i.e. information about perpetrators of crime) that can be shared with the reporting entities to locate proceeds of crime laundered in the financial system. This will be in line with the FATF standards which require that "FIU should have access to widest possible range of financial, administrative and law enforcement information."
b. The latest amendments to the PML Rules (2013) have introduced a new report to be furnished to FIU every month i.e. Cross Border Wire Transfer Report in respect of all transactions of more than Rs. Five lakh whose origin or destination is in India. As FIU builds this database over a period of time, the information could be used, in conjunction with information available with other relevant agencies, to analyze suspected cases of cross border illicit financial flows, which have been identified by the OECD and other global bodies as a major area of concern, especially as they relate to significant transfer of funds from developing countries.
c. FIU's international network (Egmont Group) should be fully harnessed to exchange information/intelligence on proceeds of crime transferred abroad. However, for this to be successful, utmost importance should be given to following protocol for international exchange of information so that it is done in a sustainable and credible manner.
d. The law enforcement authorities, through the FIU, invest in improving reporting entities capacity to identify and report suspicious transactions. Substantial proceeds of crime may be laundered in the domestic financial system but the reporting entities may be constrained by lack of access to information on perpetrators of crime. Facilitating access to such information, through FIU, and sharing red flag indicators for suspected proceeds of crime would lead to better quality, actionable intelligence/information from the reporting entities.
e. Post investigation, feedback should be shared jointly with FIU and reporting entities in order to develop better understanding of money laundering trends and typologies, which in turn will improve capacity to identify and report suspicious transactions. There should be a more dynamic interaction among between the stakeholders, i.e., reporting entities, FIU and the law enforcement authorities, which are part of the same value chain.
9. Malady of present enforcement system may be organic problem which leads to increase in corruption and that corruption money is always unaccounted. On occasions, officers fear to take appropriate action for various reasons. These can be controlled only by appropriate directions by the concerned Ministry that in a case where a person is involved in offence relating to taxation or money laundering, evasion of duty and levies, then in such cases, higher officers should not intervene in midst of investigations.
10. It appears that for one or other reasons, Enforcement Directorate attaches the property of a defaulting assessee, then income tax department is not in position to recover the income tax dues, as it is contended that the property is attached by ED. This appears to be unreasonable. Income tax dues are also amount payable to the Central Government and this problem can be sorted out easily by mentioning in the attachment order passed by the E.D. that it would be open for the Income Tax Department to recover its dues in respect of the attached property. There can not be any conflict of interest between two Departments of Central Government. For this, even statutory rule can be made, if required.
11. It appears that, in number of cases, income tax dues or other duty recoveries are stayed without referring to the law laid down by the Hon'ble Court; namely Siliguri Municipality Vs. Amulandu Das, AIR 1984 SC 653, Somariyas Trading Co. Pvt. Ltd. Vs. S. Samuel AIR 1985 SC 61, Asstt. Collector Vs. Dunlop India Ltd., (1985) 19 ELT 22 and Benara Valves Ltd. Vs. Commissioner Central Excise, (2006) (204 ELT) 513. It is also noticed that in many cases, even at the show cause notice stage, stay orders are passed staying further proceedings which delay the entire process. Hence, it is submitted that the aforesaid ratio of the judgments may be reiterated.
12. At present, for entering into financial/business transactions, persons have option to quote their PAN or UID or Passport number or driving license or any other proof of identity. However, there is no mechanism/system at present to connect the data available with each of these independent proofs of ID. It is suggested that these data bases be interconnected. This would assist in identifying multiple transactions by one person with different IDs. A central KYC Registry should be established with all law enforcement agencies, Registrar of Companies and financial institutions having access to its database.
13. As suggested in first report, at least 5 Additional Chief Judicial Magistrates Courts in Mumbai are required to be established for deciding approx. 5000 pending IT prosecution cases. It appears that without direction by the Hon'ble Court, it would be difficult to establish 5 Courts as suggested. For the establishment of 5 courts, Central Government shall bear the entire cost.
Finally, we submit that appropriate directions may be issued to the Central Government for implementation of suggestions/recommendations made above so that substantive result could be achieved in curbing the menace of black money and stashing thereof in foreign tax havens.
JUSTICE M. B. SHAH (RETD.)
CHAIRMAN
JUSTICE ARIJIT PASAYAT (RETD.)
VICE–CHAIRMAN
Harassment of Tax Payers – No centralized system of maintaining database of complaints
Fishing Expedition of CBDT Officers
The complaints including complaints regarding harassment of tax payers by the income tax officers are received by the Government and various income tax authorities all over the country. There is no centralized system of maintaining category-wise database of complaints, which are dealt with by the officers concerned as per prescribed procedures.
A communication dated 7.11.2014 issued by the Central Board of Direct Taxes (CBDT) listing steps towards a non-adversarial tax regime, inter-alia, directs:
- Effective monitoring and supervision of the subordinates by senior officers;
- Periodic review and inspection of scrutiny assessment orders to ensure that long and non-specific questionnaires are not issued so that frivolous additions or high-pitched assessments are not made without proper basis;
- Limiting of scrutiny only to that information on the basis of which the case was selected and wider scrutiny, if necessary, with the approval of higher authorities;
- Processing of recovery and stay of demand as per guidelines;
- Attending to taxpayer grievances in time; and
- Filing of appeals before courts only on merits of the case.
The officers and staff at all levels have been advised to follow these directions scrupulously. Non adherence to the 12 guidelines specified in the above mentioned communication is to be viewed seriously.
This information was given by the Minister of State of Finance, Shri Jayant Sinha in written reply to a question in Lok Sabha today.
Attachment of Properties Against Income Tax Tax Arrears
Total amount of direct taxed arrear demand as on 31.10.2014 is Rs. 6,15,295 crore. An amount of Rs. 23,653 crore has been collected/recovered during the period 1.4.2014 to 31.10.2014.
The target for cash collection out of arrear demand by the field authorities for the FY 2014-15 has been fixed at Rs. 41,997 crore. Out of the total arrear demand as above, demand of Rs. 5,82, 106 crore has been categorized as being difficult to recover, as on 31.10.2014.
Income-tax Act, 1961 gives the power to the Assessing Officers/Tax Recovery Officers to attach the properties, movable or immovable, in appropriate cases of tax defaulters. It also empowers the Central Government to publish the names of the tax-defaulters, if it considers necessary or expedient in the public interest and in accordance with the prescribed guidelines.
Total amount of tax arrears outstanding, as on 31.10.2014, against notified persons under the Special Court (Trial of Offences relating to Securities) Act, 1992 is Rs. 36, 254 crore. The Central Government appoints the Custodian/s, for the purposes of the said Act, who is/are empowered to notify the persons to be covered under this Act. All properties, movable or immovable or both, are attached simultaneously with the issue of the notification. Any recovery of tax arrears in case of these notified persons is made through the office of the Custodian/s, Income-tax authorities regularly follow up with the Special Court in matters of recovery of tax demand in such cases.
This information was given by the Minister of State of Finance, Shri Jayant Sinha in written reply to a question in Lok Sabha today.
Govt not to change tax law retrospectively if it creates a fresh liability
Concept of Retrospective Taxation
Retrospective taxation means bringing changes in the legislation which impact the tax consequences of certain actions undertaken before the enactment of such legislation.
The policy of the Government in respect of retrospective taxation has been spelt out in the speech of the Finance Minister while present the Finance (No.2) Bill, 2014 in the Lok Sabha on 10.7.2014 wherein it was stated that:
• The Government will not ordinarily bring about any change retrospectively which creates a fresh liability;
• Cases which have come up in various courts and other legal fora consequent upon certain retrospective amendments to the Income-tax Act, 1961 undertaken through the Finance Act, 2012 are at different stages of pendency and will naturally reach their logical conclusion; and
• All fresh cases arising out of the retrospective amendments of 2012 in respect of indirect transfers and coming to the notice of the Assessing Officers will be scrutinized by a High Level Committee to be constituted by the CBDT before any action is initiated in such cases.
Government has constituted a three member Committee of officers by order dated 28.8.2014 under Section 119 of the Income-tax Act, 1961 for approval of the action to eb initiated by the Assessing Officer in fresh cases arising out of retrospective amendments of 2012 in respect of indirect transfer of assets.
The Committee is required to submit its first report in respect of references decided by it for the period ending 31.12.2014.
This information was given by the Minister of State of Finance, Shri Jayant Sinha in written reply to a question in Lok Sabha today.
[TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY, PART II,
SECTION 3, SUB-SECTION (i)]
GOVERNMENT OF INDIA
MINISTRY OF FINANCE
(DEPARTMENT OF REVENUE)
New Delhi dated the 11th December, 2014
Notification No. 25/2014-Central Excise
G.S.R. (E).- In exercise of the powers conferred by sub-section (1) of section 5A of the
Central Excise Act, 1944 (1 of 1944), the Central Government, being satisfied that it is
necessary in the public interest so to do, hereby exempts all goods falling under the First
Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) donated or purchased out of
cash donations, for the relief and rehabilitation of the people affected by the floods in the
State of Jammu and Kashmir from the duty of excise leviable thereon under the Central
Excise Act, 1944, subject to the following conditions, namely:-
(i) that it is certified by the manufacturer of such goods on the relevant clearance
documents that the goods are intended to be donated for the relief and rehabilitation of the
people affected by the floods in the said State free of cost;
(ii) that the goods are sent directly from the factory of the manufacturer or
warehouse to the Central Government, the Government of Jammu and Kashmir; or as the
case may be, the relief agencies of the Central Government, the Government of Jammu
and Kashmir including the relief agencies duly approved by the Central Government or the
Government of Jammu and Kashmir; and
(iii) that the manufacturer produces before the jurisdictional Deputy Commissioner or
the Assistant Commissioner of Central Excise, as the case may be, within six months from
the date of removal of the goods or within such extended period as the said officer may
allow, a certificate from the District Magistrate of the affected area in the State of Jammu
and Kashmir that the said goods have been donated for use for the aforesaid purpose.
2. This notification shall remain in force upto and inclusive of the 31st March, 2015.
[F.No. 356/24/2014-TRU]
(Akshay Joshi)
Under Secretary to the Government of India
SECTION 3, SUB-SECTION (i)]
GOVERNMENT OF INDIA
MINISTRY OF FINANCE
(DEPARTMENT OF REVENUE)
New Delhi dated the 11th December, 2014
Notification No. 25/2014-Central Excise
G.S.R. (E).- In exercise of the powers conferred by sub-section (1) of section 5A of the
Central Excise Act, 1944 (1 of 1944), the Central Government, being satisfied that it is
necessary in the public interest so to do, hereby exempts all goods falling under the First
Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) donated or purchased out of
cash donations, for the relief and rehabilitation of the people affected by the floods in the
State of Jammu and Kashmir from the duty of excise leviable thereon under the Central
Excise Act, 1944, subject to the following conditions, namely:-
(i) that it is certified by the manufacturer of such goods on the relevant clearance
documents that the goods are intended to be donated for the relief and rehabilitation of the
people affected by the floods in the said State free of cost;
(ii) that the goods are sent directly from the factory of the manufacturer or
warehouse to the Central Government, the Government of Jammu and Kashmir; or as the
case may be, the relief agencies of the Central Government, the Government of Jammu
and Kashmir including the relief agencies duly approved by the Central Government or the
Government of Jammu and Kashmir; and
(iii) that the manufacturer produces before the jurisdictional Deputy Commissioner or
the Assistant Commissioner of Central Excise, as the case may be, within six months from
the date of removal of the goods or within such extended period as the said officer may
allow, a certificate from the District Magistrate of the affected area in the State of Jammu
and Kashmir that the said goods have been donated for use for the aforesaid purpose.
2. This notification shall remain in force upto and inclusive of the 31st March, 2015.
[F.No. 356/24/2014-TRU]
(Akshay Joshi)
Under Secretary to the Government of India
__._,_.___
No comments:
Post a Comment