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C.V.O. CA’S NEWS & VIEWS VOL. 19 NO. 12 / JUNE 2016
3
From the desk of ChairmanA Word for The Wise…..
NEWS BULLETINCOMMITEE
ChairmanCA Champak Dedhia
Office BearerCA Ketan Gada
AdvisorCA Ramesh Chheda
ConvenorCA Ameet Chheda
Jt. ConvenorCA Deepesh Chheda
MembersCA Poojan Dedhia
CA Mitul FuriaCA Virav Dedhia
CA Vishesh SangoiCA Tejas GangarCA Kaushik Gada
Sp. InviteesCA Rakesh Vora
C O N T E N T S
ASSOCIATION NEWS
Forth ComingEvents ....................... 4
Events Retrospect ..... 4
Notice of AGM .......... 5
A R T I C L E S
MinimumAlternate TaxRegime ...................... 6
Companies(Auditor's Report)Order, 2016 ............ 12
Levy of ServiceTax on the Servicesprovided byGovernment ora Local Authorityto BusinessEntities Relatingto Real Estate/ConstructionIndustry ................... 20
Digital OfficeProductivity SeriesPart 3:BackupManagement ........... 25
LEGAL UPDATESCentral ExciseUpdates ................... 27
FEMA Updates ........ 29
Success is not the key to happiness. Happiness is the key to success. If you love what you are doing,you will be successful.
True KnowledgeWilliam Blake, a renowned English poet and a mystic writer once said “Knowledge is an eternaldelight”. However cryptic as it may sound, it is very profound in its exact context. Simply put, TrueKnowledge is one that fills us with eternal delight; everlasting bliss that does not beget arrogance ofits attainment.
Look round and what we find is that knowledge in current time is often mistaken for information. Weoften feel insecure, unhappy because we apparently do not possess those super skills of interpretingand assimilating constant barrage of information that is bombarded on us. Preoccupied with effortsin interpreting, we not only feel inadequate but forget the joy that true knowledge brings in our lives.As Eric Berne writes “That moment a little boy is concerned with knowing which is jay and which isa cuckoo, he has lost his joy of hearing them sing”.
It is the lack of True knowledge that deprives us from progressing towards the real purpose of ourlives- which is to attain eternal joy by enlightening ourselves.
What is a True Knowledge?
True Knowledge is wisdom that life in human form is a blessing endowed by the Almighty totranscend beyond ‘Have and have not’. It is a journey which may begin with yearning for ‘ many andmore’ but culminates where there is sheer abundance without possessions. It is something whichgives sense of fulfilment not from physical or intellectual possessions but from enlightenment aboutcosmic laws of universe.
These cosmic laws are:
1. Freedom of choice :Greatest of human freedom is the ability to make choices in life. Realisationthat we are what we have chosen to become can be a life-changing experience. No one can makeus sad or inadequate, unfulfilled and unaccomplished without our consent. Power of knowing thatlife as given is a blank slate where we have choice to determine our roadmap both by thought andaction is the supreme knowledge which is extremely potent.
2. Process of evolution :Knowledge that life is an evolving process brings great serenity in our lives.Nature wants us to learn from our mistakes, not punish us with low self esteem. Every mistake thatwe make, every obstacle that we face is a great lesson for us to move forward in life by knowingwhat ought to have been done. It gives us opportunity to integrate ourselves seamless with theprocess of change that nature desires for our growth and betterment. This knowledge teaches usto flow and not resist.
3. Abundance:The thin line dividing humanity from divinity is a knowledge that everything inuniverse is in abundant supply. The understanding that we mustcultivate is that universe is madeup of energy which is constantly flowing. In order to get more from life we must be prepared togive more. This giving should not originate from compulsion or expectation of receivingsomething in return but out of sheer love and compassion of giving. Giving can be a compliment,help, charity or even a benign smile. When we learn to give, we create space for positive energiesin our lives which in turn creates space for positive magneticforce of attracting like- minded peopleand environment conducive to achieving a true sense of fulfilment and bliss.
German Philosopher Frederic Nietzsche wrote “If you want to be a devotee of truth then enquireinto what seems intangible”. A simple question ‘Who amI?’ led Almighty to his salvation. Why then,not begin the search for True Knowledge right from today? Why not yearn for that treasure which shallbring an eternal delight in our lives.
Let us seek True Knowledge to live a fulfilled life.
Warm Regards,
9th June, 2016. CA Champak K. Dedhia
VOL. 19 NO. 12 / JUNE 2016 C.V.O. CA’S NEWS & VIEWS
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Compiled by :CA. Ameet ChhedaCA. Deepesh Chheda
ASSOCIATIONNEWS
FORTH COMING EVENTS
STUDY CIRCLE COMMITTEE has organizedstudy circle onDISPUTE RESOLUTION AND INCOMEDECLARATION SCHEME AS NOTIFIEDUNDER FINANCE ACT, 2016.Day & Date : Thursday, 16th June-2016.Venue : D.R.Ghalla Memorial HallTime : 5.30 P.M. to 8.30 P.M.Faculty : CA Nimesh Chotani.
MEMBERS IN INDUSTRY & ASSOCIATESCOMMITTEE has organizedRole of Women CA-Practice / Industry /Entrepreneur and Corridor of Opportunities forWomen CADay & Date : Saturday, 18th June, 2016.
Venue : SNDT College Dome,
Cama Lane, Ghatkopar-(w)
Time : 4.00 P.M. to 7.00 P.M.
Role of Women CA-Practice/ CA Bhavna DoshiIndustry/Entrepreneur Past CCM, ICAI
PANEL DISCUSSIONStatutory Audit, CA AshaInd AS, IFRS RamanathanDirect & International CA Neetu VinayekTaxation Partner, KPMGIndirect Taxation CA Deepali Mehta
Partner, Shah & SavlaInternal Audit, Controls, CA Sumangali Shah,Risk Management VP Internal Controls-
Kohinoor ConstructionsCorporate Laws, SEBI & other CA Neha Gada,regulatory compliances Ex BSE Surveillance HeadOpportunities from ICAI & CA Priti SavlaPanel Moderator RCM-WIRC of ICAI
Programme Committee has organized publicprogramme onREAL ESTATE REGULATION ACT, 2016 &REDEVELOPMENT OF SOCIETYDay & Date: Saturday, 25th June-2016.Venue : King George School Auditorium,
Dadar (CR)Time : 9.00 A.M. to 1.00 P.M.Faculties : Shri Sumit Vadhavkar, Advocate
Shri Dhiren Nandu, Advocate & Solicitor
Do not be embarrassed by your failures, learn from them and start again.
EVENTS RETROSPECTCCA Course Committee had organizedORIENTATION PROGRAMME OFCCA COURSE ( BATCH-3)Day & Date : Saturday, 28th May-2016.Venue : D.R.Ghalla Memorial HallTime : 6.30 P.M. to 7.30 P.M.Attendance : 15 Persons
STUDY CIRCLE COMMITTEE had organizedSTUDY CIRCLES on(A) AUTOMATION IN MVAT &
E-FILING OF NEW MVAT RETURNS.Day & Date : Tuesday, 17th May-2016.Venue : Mysore Auditorium, Matunga.Time : 5.00 P.M. to 8.30 P.M.Faculty : Nitin Shaligram & Team.
Project Director,Dy Comm & Staff )
Attendance : 275
(B) “REPORTING ON INTERNAL FINANCECONTROL (IFC) & CARO” UNDER THECOMPANIES ACT - 2013.Day & Date : Tuesday, 31st May-2016.Venue : D.R.Ghalla Memorial HallTime : 5.30 P.M. to 8.30 P.M.Faculty : Ripan H.Gada
(Asst. Vice President ofEdelweiss Group - ( NBFCs Div).
Chairman : CA Hasmukh Dedhia.Attendance : 50+
Membership & Recreation Committee (MRC) has planned“CVO PICNIC”. Enjoy rejuvenating and exchangingfellowship amongst CVO CA Members and their Family atSHILPI HILL RESORT, SAPUTARA, GUJARAT.
Departure : Sat, 13th Aug 2016 6.00 am
Date of return : Mon, 15th Aug 2016
Venue : Shilpi Hill Resort, Saputara, Gujarat.
Charges : Rs.9,500/- per person- twin sharing basis.Additional person (same room sharing)will be Rs. 5,000/- per person.(Includes transportation to Saputara)
For queries contactCA Ketan Gada 9819748830CA Ameet Chheda 9967564433
For more pictures visit hotel websiteor https://www.makemytrip.com
C.V.O. CA’S NEWS & VIEWS VOL. 19 NO. 12 / JUNE 2016
5Success is simple. Do what’s right, the right way, at the right time.
NOTICE OF ANNUAL GENERAL MEETING
The 34th Annual General Meeting of the Association will be held on Sunday, 26th June 2016 at 3.00 p.m.at Chinchpokli Mahajanwadi's Shri Velji Lakhamshi Napoo Hall, Shri K V O Sthanakwasi Jain Mahajanwadi,Dr. Ambedkar Road, Opp. Voltas, Chinchpokli, Mumbai - 400 012 to transact the following business :
1. To adopt the minutes of the 33rd Annual General Meeting of the Association held on 4th July 2015.
2. To receive and adopt the Audited Balance Sheet as at 31st March, 2016 and Income & Expenditure Account for theyear ended on that date.
3. To receive and adopt the Annual Report of the Managing Committee for the year 2015-2016.
4. To elect 13 (Thirteen) members of the new managing committee for the term 2016-18 and to declare its results.
5. To Appoint the Honorary Auditor of the Association for the year 2016-2017.
6. Distribution of Prizes:
(i) To distributes Late Shri D. R. Ghalla and M/s. Damji Merchant & Co. Prizes.
(ii) To honour the students who have passed both the groups together in first attempt at Intermediate/Finalexamination of C.A., I.C.W.A. and / or C.S. courses and to felicitate students who have passed Final exams ofthe said courses as also merit rank holders in Entrance (CPT) of said courses, results of which have beendeclared during 04th July, 2015 to 25th June 2016
(iii) To present prize to the contributors of the Best Article in the News & Views of the Association for the period July,2015 to June, 2016
7. Any other matters with the permission of the Chair.For C. V. O. Chartered & Cost Accountants' Association
Place : Mumbai CA Nilesh T. DedhiaDate : 03/06/2016 Secretary
NOTES1. In the absence of quorum at the appointed time, the meeting shall be adjourned and such adjourned meeting will be
convened after half an hour at the same place and the business transacted thereat shall be deemed to be in order.
2. The meeting shall be followed by self contributory dinner, charges of which are Rs.100/- per person for the members,their spouse and children above 5 years.
3. Books of Account for F.Y. 2015-2016 shall be available for inspection by members between 20th June, 2016 & 22ndJune, 2016 from 4.00 p.m. to 6.00 p.m. at Association's Office.
4. TENTATIVE PROGRAMME3:00 p.m. to 3:30 p.m. Fellowship over Tea & Coffee3:30 p.m. to 5:45 p.m. Annual General Meeting6:00 p.m. to 9:00 p.m. Entertainment Programme8:00 p.m. to 9:00 p.m. Dinner
(Arrangements for Chouvihar at 6.00 pm)
5. K.V.O. CA's Wives Forum will organise the games and entertainment programme for their members and children from3:00 p.m. to 5:45 p.m. at another banquet hall of the venue.
VOL. 19 NO. 12 / JUNE 2016 C.V.O. CA’S NEWS & VIEWS
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BACKGROUNDMinimum Alternate Tax (MAT) was effectively
introduced in India by the Finance Act of 1987, videSection 115J of the Income Tax Act, 1961 (Act), to
facilitate the taxation of ‘zero tax companies’. It had
been observed that many companies, despite showing
high profits in their books of accounts and paying
substantial dividends, were paying marginal or no
tax, by taking advantage of various tax concessions
and other incentives, in a manner so as to avoid
paying tax1. MAT was thus envisaged as levying a
minimum tax on such companies by deeming a
certain percentage of their book profits, computed
under the Companies Act, as taxable income. Section
115J was, however, made inoperative from
Assessment Year 1991-922.
The MAT provisions were subsequently reintroduced
in 1996 by the Finance Act (No. 2) of 1996, through
section 115JA; and then by the Finance Act of 2000,
which replaced section 115JA with Section 115JB.
BASIC PROVISIONSection 115JB provides that in case the tax payable
on the total income of a company in respect of any
previous year, computed under the Act, is less than
18.5% of its book profit, such book profit shall be
deemed to be the total income of such company. The
tax payable for the relevant year for such company
shall then be 18.5% of its book profit.Book profit
represents net profit as per profit and loss account
subject to certain additions and deletions specified
therein.
If in any year the company pays liability as per MAT,
then it is entitled to claim credit of MAT paid over
and above the normal tax liability in the subsequent
year(s).The provisions relating to carry forward and
adjustment of MAT credit are given in section
115JAA.
ISSUES AND ANALYSISThere are many issues related to section 115JB,
which have been the matter of contention between
the assessees and the Department. While some of the
issues have been settled by way of amendment in the
Act, the other few issues still remain to be addressed.
MINIMUM ALTERNATE TAX REGIME
Contributed by :CA Tejas Gangara member of the association
he can be reached attejasgangar@gmail.com
The key challenges while dealing with MAT along
with certain important aspects of MAT are discussed
as follows:
Q Is withdrawal from ‘provision created in a MAT
year’ allowed as reduction only if such provision
actually suffered MAT in that year?
A The significance of the phrase‘Where this
section is applicable’ is merely to indicate the
general applicability of MAT provisions in the
year of withdrawal and it does not mean that
MAT should actually become payable. In
Circular No. 8 of 2002 dated 27 August 2002
which has explained the purpose of the said
proviso in s.115JB is reproduced below:-
“It also provides that any amount withdrawnfrom a reserve or a provision created on or after1st day of April, 1997, and which is credited tothe profit and loss account shall not be reducedfrom the book profit, unless the book profits in theyear of creation of such reserves or provisionswere increased by the amount transferred to suchreserves or provisions at that time.”
The above extract makes it clear that there is no
pre-condition of MAT liability being triggered in
the year of creation of reserve/provision. In any
case, applicability of section 115JB does not
necessarily mean incurrence of MAT liability. It
only means that the company is required to
compare normal tax and tax on ‘book profit’.
Q. Whether deduction of extra depreciation as
arrears of past years while computing book
profit is allowable?
A. Although, the assessee has an option under the
Companies Act of adopting a straight line
method or written down value method for
claiming depreciation; however, deduction of
extra depreciation as arrears of past years while
computing book profit is not allowable, as has
been held by the Madhya Pradesh High Court in
the case of Gilt Pack Ltd. vs. Union of India
[2007] (163 Taxman 331). While arriving this
conclusion, the High Court followed the
judgement of the Hon’ble Supreme Court in the
case of Karnataka Small Scale Industries
Development Corporation vs. CIT [2002] (AIR
SCW 4926).
1 Circular No. 495, dated 22 September, 1987: [1987] 168 ITR (St.) 87.2 Circular No. 572 dated 3 August, 1990: [1990] 186 ITR (St.) 89
Success means doing the best we can with what we have.Success is the doing, not the getting; in the trying, not the triumph.
C.V.O. CA’S NEWS & VIEWS VOL. 19 NO. 12 / JUNE 2016
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Q. A taxpayer is liable to pay INR 100mn taxes
under MAT provisions. Against this, INR 80mn
can be availed of by the taxpayer as MAT credit
under section 115JAA in future against its taxes
under the provisions of the Act other than MAT
and is therefore, recognised as an asset in its
financial statements and disclosed in the profit
and loss account as a separate line item.
Therefore, a question arises as to what is the
amount that needs to be adjusted for
determining book profits for the purpose of MAT
(INR 100mn or INR 20mn).
A. As the taxpayer is liable to pay tax under MAT,
in effect the income-tax provision (other than
MAT) for the current year is INR 20mn.
Explanation 1 to section 115JB(2) provides for a
formula to arrive at book profits. Clause (a) to
this explanation provides that “net profit as
shown in Profit and Loss account….as increased
by – (a) the amount of income-tax paid or
payable, and the provision therefore.”
Explanation 2 provides that for purpose of
clause (a) of Explanation 1, the amount of
income-tax shall include certain specified items,
such as tax on distributed profits, interest,
surcharge and cess. This provision does not
specify that MAT credit (under section 115JAA),
that can be availed of in future, should be
factored in while computing “book profit”. Also,
according to Accounting Standards
Interpretation (ASI) 6, MAT is “current tax”.
Hence, it would appear that the adjustment
contemplated would have to be gross amount of
INR 100mn under clause (a). However, this
would lead to an absurd result of requiring to
add back INR 100mn, whereas the net impact to
the profit and loss account on account of taxes is
only INR 20mn. Also, this would result in
effectively having to pay MAT on MAT credit (of
INR 80mn).
It may be noted that clauses (h) and (viii) have
been inserted in the Explanation to section
115JB(2) by the Finance Act, 2008 to provide for
an adjustment on account of deferred tax. The
memorandum explaining the introduction of the
explanation provides as follows:
“As per the Explanation after sub-section (2), theexpression “book profit” means net profit asshown in the profit and loss account prepared inaccordance with the provisions of Part II and IIIof Schedule VI to the Companies Act, 1956 as
increased or reduced by certain adjustments, asspecified in that section. Clause (a) of theaforesaid Explanation, inter-alia, provides forincreasing the book profits by income-tax paid orpayable and the provisions therefore; if debited toprofit and loss account.
The intention behind these add backs is that theitems which mainly appear “below the line” inthe profit and loss account should be added backto arrive at the “book profit” if they appear “abovethe line” in the profit and loss account. Section115JB has not specifically provided for add backof some such “below the line” items like deferredtax, dividend distribution tax, etc. as they werethought to be included in the term “income-tax”.However, there has been some ambiguityregarding add back of these items, if debited toprofit and loss account.
With a view to clarifying the intention, it isproposed to insert a new clause after clause (g) ofthe Explanation 1 as so numbered so as toprovide that the book profit shall be increased bythe amount of deferred tax and the provisiontherefor, if debited to profit and loss account.”
Therefore, it may be possible to adopt a position
that MAT credit is also contemplated to be
adjusted as a “deferred tax” under Explanation
(1)(viii) to section 115JB(2) of the Act, if credited
to the Profit and Loss Account, such that the
objective of items which appear “below the line”
are adjusted to arrive at the “book profit”. Also,
MAT credit may be considered as a “negative”
current tax requiring adjustment to arrive at the
net figure of INR 20mn under clause (a).
Thus, in the example provided above, where the
current year provision is on account of MAT
liability (INR 100mn as MAT, against which a
MAT credit for INR 80mn would be available in
future) the amount debited to the Profit and loss
account on account of income tax would be INR
20mn, in which the case, the adjustment for
current year tax under Explanation (1)(a) to
section 115JB(2) could be INR 20mn, because
effectively the Profit and loss account is debited
by that amount.
Q. Whether comparison of unabsorbed losses and
depreciation should be on year to year basis?
A. There are two views on this as explained below:
View 1: Year to year basis
Action is the foundational key to all success.
VOL. 19 NO. 12 / JUNE 2016 C.V.O. CA’S NEWS & VIEWS
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Reference is drawn to the Central Board of Direct Taxes (CBDT) Circular 495 dated 22 Sept 1987 (168 ITR
St. 110) to illustrate the position as may emerge if the quantification is done on a year to year basis:
Year Profit Lower of Loss or(excluding Net Book of depreciationdepreciation) Depreciation profit/loss Set off Profit carried forward
1984 (300,000) (100,000) (400,000) (400,000) (100,000)
1985 500,000 (200,000) 300,000 (100,000) 200,000
1986 (1,000,000) (200,000) (1,200,000) - (1,200,000) (200,000)
1987 1,000,000 (200,000) 800,000 (200,000) 600,000
The methodology approved by the Circular can be explained as follows:
z The process of comparison of depreciation or business loss is to be carried out every year.
z In case of loss year, or the successive loss years, the loss component or the depreciation component,
whichever is lower of the respective year is to be carried forward.
z In case of profit year, the lower of the brought forward component will be set of to the extent profit
and losses remaining unabsorbed will be carried forward.
The methodology suggested in the Circular has been largely accepted by the Authority of Advance Ruling
(AAR), New Delhi in the case of RashtriyaIspat Nigam Ltd. In re. [2006](285 ITR 1).
View 2: Consolidated approachThe consolidated figure brought forward business loss at the beginning of the year is traced to two
components: the aggregate unadjusted amount of business loss and the aggregate unadjusted amount of
depreciation comprised in the consolidated loss. The lower of the two is accepted as permissible set off
amount.
Year Profit /(loss) (excluding depreciation) Depreciation Profit/loss after depreciation
1984 (300,000) (100,000) (400,000)
1985 500,000 (200,000) (300,000)
1986 (1,000,000) (200,000) (1,200,000)
Aggregate (800,000) (500,000) (1,300,000)
1987 1,000,000 (200,000) 800,000
As per this approach, for the year 1987, the brought forward loss as per books of account is INR 1,300,000
which comprises of brought forward losses of INR 800,000 and unabsorbed depreciation of INR 500,000.
The lower of the two, being unabsorbed depreciation of INR 500,000is allowed to be set-off. The Mumbai
Tribunal in the case Amline Textiles Ltd vs. ITO [2009](27 SOT 152) upheld the above view.
The method suggested as per CBDT Circular of 1987 may not be the preferred method as it requires
reckoning of carry forward of losses from inception of the Company. It appears that in absence of mandate
in section 115JB, the consolidated review approach appears closer to language of clause (iii) of Explanation
1 of section 115JB in as much as:
z Pursuant to this method, the amount of losses and unabsorbed depreciation will not be different from
the amount brought forward as per books of accounts
z The method did not contemplate, the preparation of parallel set of records of year to year working
which is different from the accounts prepared and presented under the Companies Act.
I cannot give you the formula for success, but I can give you the formula for failure which is: Tryto please everybody.
C.V.O. CA’S NEWS & VIEWS VOL. 19 NO. 12 / JUNE 2016
9
Q. Whether comparison between tax payable as per the regular provisions of the Act and the tax payable as
per section 115JB of the Act is required to be made before or after taking credit for the foreign taxes?
A. The issue can be examined as follows:
Particulars Tax Computation
As per regular As perprovision (INR) MAT (INR)
Foreign sourced income on which tax in foreign country
is paid at 20%
- Eligible for section 10A deduction ….(I) 600 600
- not eligible for section 10A deduction 100 100
Domestic income
- Eligible for section 10A deduction ….(II) 100 100
- Not eligible for section 10A deduction 200 200
Total Income before section 10A deduction 1000 1000
Deduction under section 10A of the Act …(I+II) 700 NIL*
Chargeable Total Income …(III) 300 1000
Tax liability at 30%/18.5% respectively of III above** …(IV) 90 185
Doubly taxed income included in IV above …(V) 100 700
FTC available at 20% /18.5% respectively on doubly taxed
income as per III above …(VI) 20 130
Net Taxable Income after FTC (IV minus VI) …(VII) 70 65
*No deduction under section 10A of the Act is admissible in computation of MAT profit
** Rates presumed
View 1 – Comparison of tax liability should be made at level IV i.e. before claiming credit for foreign taxes
paid. This view proceeds on the basis that foreign tax payment is a mode of discharging tax liability. This
requires comparison to be made between normal tax liability of INR 90 and MAT liability of INR 185. From
INR 185, foreign taxes of INR 130would be deducted and the balance amount of INR 65 would be payable
by the taxpayer. The contents to support this view are:
z Section 115JB of the Act requires comparison between ‘income-tax payable’ as computed under the
regular provisions of the Act and income-tax @18.5% on book profits. The term ‘tax payable’ would
mean the gross liability of tax i.e tax liability before deducting advance tax, tax deduction at source
(TDS) and rebates and relief which may be available.
z Section 91 of the Act, which provides for unilateral relief (in absence of DTAA), provides for
“…deduction from income-tax payable’. Section 91 of the Act requires that the relief for FTC be
computed on the basis of the comparison of the Indian rate of tax with the rate of tax of foreign
country. For the purpose of this section, the Indian rate of tax is determined by dividing the amount
of Indian income-tax (before deduction of any relief) by the total income.
z The provisions of section 234B/234C of the Act also seem to equate FTC as an alternative mode of
discharging a tax liability as an alternative to tax deducted at source.
· The Income-tax Return form clearly indicates that double taxation relief is to be provided after
application of provisions of section 115JB of the Act and not in the process of determination of liability
under this section.
You’ve got to get up every morning with determination if you’re going to go to bed with satisfaction
VOL. 19 NO. 12 / JUNE 2016 C.V.O. CA’S NEWS & VIEWS
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View 2 – The comparison is made at Level VII.
As per this view, if FTC obliterates the Indian
tax liability, the tax liability as per regular
provisions of INR 70 is payable as it is higher
than the MAT liability of INR 65.
As per section 4 of the Act, the charge of income
tax is subject to the provisions of the Act and
hence, the charge of income-tax is subject to
relief from tax provided under sections 90 and 91
of the Act and MAT payable, after considering
the credit for foreign taxes paid in each of the
computations. On the basis of the foregoing
discussion, View 1 appears to be a better view.
Q. Does the draft rules provide for any guidance for
grant of FTC where MAT is payable
A. The CBDT vide notification dated 18 April 2016
released draft rules on FTC. One of the aspects
considered is in respect of grant of FTC where
tax is payable under the provisions of section
115JB of the Act. The draft rule provides that
the credit of foreign tax shall be allowed against
MAT in the same manner as is allowable against
tax payable under the normal provisions of the
Act. However, the said provision has come with
a rider that where the amount of FTC available
against the tax payable under the provisions of
section 115JB exceeds the amount of tax credit
available against the normal provisions, then
while computing the amount of credit under
section 115JAA in respect of the taxes paid
under section 115JB, as the case may be, such
excess shall be ignored. The said provision is
clarificatory and will obviate taking claim of
excess FTC twice, first, directly upon payment of
taxes when being paid under MAT and second,
indirectly by means of MAT credit against future
tax liabilities.
Q. Whether the taxpayer has choice of selecting the
period for availing MAT credit u/s 115JAA in
view of non-claim of credit in an intervening
period.
A. MAT credit will need to be claimed for the
consecutive assessment years starting from the
year in which the credit becomes allowable. It is
not the option of the taxpayer to pick and choose
the year in which the credit may be claimed
within the overall limitation period of ten years.
This can be supported by following reasons:
z In terms of section 115JAA(1A) / (2A), the
MAT credit is quantified by taking into
account the difference between MAT
liability and normal tax liability. This
necessarily requires comparison between
the tax liabilities for the given assessment
years under the alternative computation
mechanism. By implication, the
quantification is related to the respective
assessment year and is not impacted by the
actual date of payment of tax.
z Proviso to section 115JAA(2A) provides that
there is no interest payable in respect of tax
credit which is allowed under section
115JAA. section 234A to section 234C make
it clear that in determining the quantum of
interest liability, credit allowed to be set off
in accordance with the provisions of section
115JAA needs to be considered.
z The CBDT Circular No 3 of 2006 dated 27
Feb 2006 while explaining the
reintroduction of section 115JAA w.e.f. A.Y.
2006-07 does also make it clear that the
provisions need to be implemented on year
on year basis with clear FIFO application
when a given year has MAT credit available
from more than one year.
Q. Whether the provisions of advance tax are
applicable on companies paying MAT?
A. It has been clarified by Circular No.13/2001
dated 9 September 2001 that provisions of
advance tax are also applicable on the
companies paying MAT and interest under
section 234B/C is levied in case of default by
these companies. This view has been affirmed by
the Honb’le Supreme Court in the case of JCIT
vs. Rolta India Ltd. [2011](196 Taxman 594).
Q. Whether MAT credit is preferred to credit for
advance tax/ TDS payment while working out
interest liability u/s 234B or while granting
interest u/s 244A to the taxpayer on refund of
advance tax paid?
A. It is true that in few cases as also SC ruling in
the case of Tulsyan NEC Ltd [2010](330 ITR
226), Courts have considered MAT credit in
preference to advance tax/ TDS payment while
working out interest liability u/s 234B or while
granting interest u/s 244A to the taxpayer on
refund of advance tax paid. However, in all these
cases Tax Authority had tried to create double
whammy or absurd situation for the taxpayers
wherein inspite of eligible MAT credit being
available for set off, Tax Authority levied
Success is going from failure to failure without losing enthusiasm
C.V.O. CA’S NEWS & VIEWS VOL. 19 NO. 12 / JUNE 2016
11
interest under section 234B or denied grant of
interest under section 244A in such situations
i.e. despite MAT credit standing to the account
of the taxpayer, it’s liability gets increased
instead of getting reduced.
In the case of CIT vs Bharat Aluminium Co. Ltd.
[2007](160 Taxman 388), theDelhi High Court
held that MAT credit is available for adjustment
on the first date of the previous year even before
the instalment of advance tax is due on the
current income. Further, in case of Sami Labs
[2011](ITA No. 231 of 2009), the Karnataka High
Court held that MAT credit is as much as a tax
paid in earlier year and is available by way of
credit to be adjusted in future years.
In light of above and given the fact that there is
no specific provision to set out priority under the
Act, the taxpayer has an option to appropriate
his entitlement i.e. TDS, advance tax, MAT
credit against the liability which it owes in
favour of the tax department.
Q. Whether penalty under section 271(1)(c) is
levied for situations where the income
determined under the general provisions is less
than the income declared for the purpose of MAT
under section 115JB of the Act?
A. In this regard, the CBDT Circular No.25 of 2015
dated 31 December 2015 states the following:
The Delhi High Court in the case of Nalwa Sons
Investment Ltd. [2010] (194 taxman 387) held
that when the tax payable on income computed
under normal procedure is less than the tax
payable under the deeming provisions of section
115JB of the Act, then penalty under section
271(1)(c) of the Act could not be imposed with
reference to additions /disallowances made
under normal provisions.
Subsequently, Explanation 4 to section 271(1) of
the Act have been substituted by Finance Act,
2015 with effect from 1 April 2016, provides the
methodologyfor calculating the amount of tax
sought to be evaded for situations even where
the income determined under the general
provisions is less than the income declared for
the purpose of MAT under section 115JB of the
Act.
Q. Whether MAT is applicable to foreign
companies?
A. Vide Finance Act 2016, Explanation 4 to section
115JB(2) has been introduced (effective from
assessment year 2001-02 to provide for non-
applicability of MAT to a foreign company if-
z It is a resident of a country with which India
has a Double Taxation Avoidance
Agreement (DTAA) and does not have a
permanent establishment in India; or
z It is a resident of a country with which India
does not have a DTAA and the foreign
company is not required to register under
any law applicable to companies.
Q. Whether MAT credit can be transferred to a
buyer by means of slump sale as compared to a
merger
A. Transition of MAT credit to the purchaser by
way of slump sale, inter alia, may not be allowed
on account of following reasons:
z transaction of a slump sale involves
transfer between two private parties which
is distinguishable from merger where there
is direction flowing from the Court order
which may guide one to a different
conclusion.
z MAT credit being in the nature of advance
tax is an asset of the taxpayer and not of the
undertaking. As credit for advance tax is
allowed to the person who makes payment
of the taxes, one may argue that only the
company which has paid tax u/s 115JB is
entitled to carry forward and set off of MAT
credit.
z MAT credit binds the taxpayer and the Tax
Department, a third party cannot
participate in the same.
Our Association’s mouthpiece “News & Views” hasreadership circulation of more than 1250 charteredaccountant and student members.
We have now started accepting advertisement forany vacancy for staff. In case you have any vacancyat your office or at any of your client for qualifiedchartered accountants or students or anyadministrative job, we will publish your requirementin the Journal.
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VOL. 19 NO. 12 / JUNE 2016 C.V.O. CA’S NEWS & VIEWS
12
COMPANIES (AUDITOR'S REPORT)ORDER, 2016
Contributed by :Dhrumi Dedhiaa student member of the association
she can be reached atdhrumi.dedhia@gbcaindia.com
BackgroundSec 143(11) of the Companies Act, 2013 (‘the Act’) mandates the auditors of certain class of companies to report
on some additional prescribed matters as an annexure to the main audit report. These reporting requirements
have been prescribed under the Companies (Auditor’s Report) Order (CARO), 2016 issued by the Ministry of
Corporate Affairs (MCA) on 29th March, 2016, replacing the existing CARO, 2015, thereby bringing in some
additional reporting requirements, removing a few clauses as well as remolding certain existing provisions.
ApplicabilityCARO 2016, shall apply to financial year commencing on or after 1st April, 2015.
Applicability Non-Applicability
z All private companies which z Banking Company2
are subsidiaries or holding z Insurance Company3
companies of any public z Companies Incorporated with charitable objects4
company irrespective of z Small Company as defined under Sec 2(85)5 of the Act
their capital, borrowings, z One Person Company as defined under Sec 2(62)6 of the Act
turnover etc. z Private Company satisfying all of the following conditions:
z Foreign Company as defined a) Paid Up Capital + Reserves & Surplus < 1 Crore as on
under Sec 2(42)1 of the Act. Balance Sheet date(Previously Rs.50 Lakhs)
b) Borrowings from Bank or Financial Institutions < 1 Crore at
any time during the Financial Year (Previously Rs.25 Lakhs)
c) Revenue < 10 Crore during the financial year
(Previously Turnover Rs.5 Crore)
z CARO, 2016 shall not apply to Consolidated
Financial Statements (CFS)
The scope of applicability of CARO has now been relaxed. The increase in the thresholds will relieve the small
and medium sized entities from the burden of additional reporting. By virtue of this move, many entities that
were previously liable to report under CARO, now might not be covered due to the revised limits.
Reporting Requirements
1. Sec 2(42) of the 2013 Act defines foreign company as ‘any company or body corporate incorporated outside India which
z Has a place of business in India whether by itself or through an agent, physically or through electronic mode and
z Conducts any business activity in India in any other manner’
2. Banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949
3. Insurance company as defined under the Insurance Act, 1938
4. Companies licensed to operate under section 8 of the Companies Act,2013
5. As per sec 2(85) a Small Company means a company other than a Public Company, that satisfies both of these conditions:
z Paid-up share capital which does not exceed 50 lac rupees AND
z Turnover of which as per its last profit and loss account does not exceed 2 crore rupees
6. As per sec 2(62), One Person Company means a company which has only one member.
“Happiness is the art of never holding in your mind the memory of any unpleasant thing that has passed.”
C.V.O. CA’S NEWS & VIEWS VOL. 19 NO. 12 / JUNE 2016
13
Additional Reporting
Clause Additional Reporting Points to be taken into consideration
Clause (i)(c) Whether title deeds of z TDRs (Transferable Development Rights), Plant and
Fixed Assets immovable properties are Machinery embedded in land etc., are not considered as
held in the name of the an immovable property.
company. If not, details
to be provided. z The auditor should carry out detailed examination in the
cases where immovable property is transferred as a
result of conversion of partnership firm or LLP into
company or amalgamation of companies, as in such cases
title deeds may be in the name of the erstwhile entity.
Clause (iv) In respect of loans, z Section 185 prohibits advance of any loan to directors,
Loans & investments, guarantees, etc., directly or indirectly.
Investments and security whether
provisions of section z For this purpose, the auditor should carry out the
185 and 186 of the Act, following procedures:
have been complied with. (i) Obtain from the management the details of the
If not, provide the directors or any other person in whom the director
details thereof. is interested. He may also check the details of the
persons covered under this clause from Form
MBP-1 and from the Register maintained u/s 189
of the Act.
(ii) Obtain and check the details of the transactions
carried out with such persons, including of any
guarantee given and security provided.
(iii) Further examine the details to find out whether any
of the transaction is attracting the provisions of
section 185 of the Act.
(iv) In case of transactions that are covered under the
exceptions as provided under section 185, the
auditor should obtain the necessary evidence in
support of such exception
z Sec 186 of the Act governs with giving of loans, and
guarantee or providing any security in connection with
a loan, by a company to any person or other body
corporate and acquiring securities of any other body
corporate by a company. The section also prohibits
a company from making investments through more than
two layers of investment companies.
z For this purpose, the auditor should carry out the
following procedures:
(i) Obtain the details of, loans given to any person or
other body corporate, guarantee given or security
provided in connection with a loan to any other body
corporate or person and securities acquired of any
other body corporate by way of subscription,
purchase or otherwise, made during the year as well
as the outstanding balances as at the beginning of
the year.
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VOL. 19 NO. 12 / JUNE 2016 C.V.O. CA’S NEWS & VIEWS
14
Clause Additional Reporting Points to be taken into consideration
(ii) Check whether, at any point of time during the year
in case of aforesaid transactions, the company has
exceeded the limit of sixty per cent of its paid-up
share capital, free reserves and securities premium
account or one hundred per cent of its free reserves
(as defined in section 2(43) of the Act and securities
premium account, whichever is more. If it exceeds
the limits specified above, whether prior approval by
means of a special resolution passed at a general
meeting has been obtained.
(iii) Check whether the company has made investments
through more than two layers of investment
companies.
(iv) Check whether the company has disclosed the full
particulars of the loan given, investment made or
guarantee given or security provided in the financial
statement including the purpose for which the same
is proposed to be utilized by the recipient
(v) Check whether the company has passed the board
resolution as prescribed and obtained the prior
approval, wherever required, from the public
financial institution concerned where any term
loan is subsisting.
(vi) Check whether rate of interest is not lower than the
prevailing yield of one year, three year, five year or
ten year government security closest to the tenor of
the loan granted.
(vii) Check if the company is in default in the repayment
of any deposits accepted or in payment of interest
thereon, then the company is not allowed to give any
loan or guarantee or any security or an acquisition
till such default is subsisting.
(viii) Check whether the company has maintained a
register (as per Form MBP-2) in the manner
as prescribed and also check the compliances of
other provisions and relevant rules.
z It may be noted that the aforesaid section is not
applicable in respect of loan made, guarantee given or
security provided by banking company or an insurance
company or a housing finance company in the ordinary
course of its business or a company engaged in the
business of financing of companies or of providing
infrastructural facilities. However, the restriction with
regard to the investment through more than two layers
of investment companies would be applicable for such
companies also. The auditor may ensure compliance
accordingly.
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C.V.O. CA’S NEWS & VIEWS VOL. 19 NO. 12 / JUNE 2016
15
Clause Additional Reporting Points to be taken into consideration
Clause (xi) Whether managerial z Section 197 of the Act prescribes that the maximum
Managerial remuneration has been ceiling for payment of managerial remuneration by a
Remuneration paid or provided in public company to its directors, including managing
accordance with the director and whole-time director and its manager
requisite approvals which shall not exceed 11% of the net profit of the
mandated by the provisions company in that financial year, computed in
of section 197 read with accordance with section 198 of the Act, except that
Schedule V to the the remuneration of the directors shall not be
Companies Act ? If not, deducted from the gross profits.
state the amount involved
and steps taken by the z It may be noted that section 197 applies only to a
company for securing public company. Thereby, it is not applicable to a
refund of the same Private Company, and, accordingly, reporting under
this clause would not be required.
Clause (xii) Whether the Nidhi § It may be noted that Rule 5(1) of the Nidhi Rules, 2014
Nidhi Company* has complied prescribes the requirements for minimum number
Company with the Net Owned Funds of members, net owned fund etc.
to Deposits in the ratio of § As per this rule every Nidhi shall, within a period of
1: 20 to meet out the one year from the commencement of these rules,
liability and whether the ensure that it has—
Nidhi Company is (i) not less than two hundred members
maintaining ten per cent (ii) net owned funds of ten lakh rupees or more;
unencumbered term (iii) unencumbered term deposits of not less than ten
deposits as specified in per cent of the outstanding deposits as specified in
the Nidhi Rules, 2014 to Rule 14; and
meet out the liability (iv) ratio of net owned funds to deposits of not more
than 1:20.
Clause (xiii) Whether all transactions § The auditor should obtain written representations from
Related Party with the related parties management and, where appropriate, those charged
Transactions are in compliance with with governance that:
sections 177 and 188 (i) They have disclosed to the auditor the identity of
of the Act, where applicable the entity’s related parties and all the related party
and the details have been relationships and transactions of which they are
disclosed in the Financial aware; and
Statements etc., as required (ii) They have appropriately accounted for and disclosed
by the applicable such relationships and transactions in accordance
accounting standards with the requirements of the framework.
Clause (xiv) Whether the company has z It is not necessary to establish a one-to-one relationship
Preferential made any preferential with the amount of fund raised and its utilisation.
Allotment/ allotment or private z It may so happen that the funds raised during the year
Private placement of shares or fully might not have been applied for the stated purpose
Placement or partly convertible during the year, for example, the funds were raised at
debentures during the the fag-end of the year. In such a case, the auditor should
year under review and mention in his audit report that the funds raised during
if so, as to whether the the year has not been utilised. This also implies that the
requirement of section 42 of auditor, while making inquiry in respect of this clause,
the Act have been complied should also consider that the funds raised, which were
* Section 406(1) of the Act defines “Nidhi” to mean a company which has been incorporated as a Nidhi with the object of cultivating the habit of thrift and savingsamongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit, and which complies with such rules as are prescribed bythe Central Government for regulation of such class of companies.
Success does not consist in never making mistakes but in never making the same one a second time.
VOL. 19 NO. 12 / JUNE 2016 C.V.O. CA’S NEWS & VIEWS
16
Clause Additional Reporting Points to be taken into consideration
with and the amount raised raised in the previous accounting period but have been
have been used for the actually utilised during the current accounting period.
purposes for which the
funds were raised. If not,
provide the details in
respect of the amount
involved and nature of
non-compliance
Clause (xv) Whether company has § Section 192 of the Act deals with restriction on certain
Non-cash entered into any non-cash noncash transactions involving directors or persons
transactions transactions with directors connected with them unless it meets the conditions laid
or persons connected with out in the said section.
him and if so, whether the § For reporting on the first leg of the reporting clause,
provisions of sec 192 of the starting point of the auditor’s procedures could be
the Act have been complied obtaining a management representation as to whether
the company has undertaken any non-cash transactions
with the directors or persons connected with the
directors, as envisaged in section 192(1) of the Act.
§ The auditor would need to corroborate the management
representation with sufficient appropriate
audit evidence.
Clause (xvi) Whether the Company is " The auditor is required to examine whether the company
NBFC required to be registered is engaged in the business which attract the
under section 45-IA* requirements of the registration.
of the Reserve Bank of " The registration is required where the financing activity
India (RBI) Act, 1934 and if is a principal business of the company.
so whether the registration " The auditor should report incorporating the following: -
is obtained (i) Whether the registration is required under section
45-IA of the RBI Act, 1934.
(ii) If so, whether it has obtained the registration.
(iii) If the registration not obtained, reasons thereof.
* Sec 45-IA of the RBI Act, 1934 states the requirement to obtain certificate of registration for carrying on the business of a Non-Banking Financial Company (NBFC).
A NBFC is a company registered under the Companies Act, its principal business being that of carrying on Financial activity.
Financial activity as principal business is when a company’s financial assets constitute more than 50 per cent of the total assets and income from financial assets constitutemore than 50 per cent of the gross income.
A company which fulfils both these criteria will need to be registered as NBFC by RBI.
Deleted Clauses
Inventory § Are the procedures of physical verification of inventory followed by the
Clause (ii)(b) & (ii)(c) management reasonable and adequate in relation to the size of the company
and the nature of its business? If not, the inadequacies in such procedures
should be reported
§ Whether the company is maintaining proper records of inventory and
whether any material discrepancies were noticed on physical verification
and if so, whether the same have been properly dealt with in the books of
account
Internal Control Is there an adequate internal control system commensurate with the size of
systemClause (iv) the company and the nature of its business, for the purchase of inventory
and fixed assets and for the sale of goods and services? Whether there is a
continuing failure to correct major weaknesses in internal control system.
I attribute my success to this: I never gave or took any excuse.
C.V.O. CA’S NEWS & VIEWS VOL. 19 NO. 12 / JUNE 2016
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Statutory Dues Whether the amount required to be transferred to Investor education and
Clause (vi)(c) protection fund (IEPF) in accordance with the relevant provisions of the
Companies Act, 1956 and rules made thereunder has been transferred to
such fund within time.
Accumulated Losses Whether in case of a company which has been registered for a period not
Clause (viii) less than five years, its accumulated losses at the end of the financial
year are not less than 50% of its net worth and whether it has incurred
cash losses in such financial year and in the immediately preceding
financial year
Guarantee for loans taken Whether the company has given any guarantee for loans taken by others
Clause (x) from bank or financial institutions, the terms and conditions whereof are
prejudicial to the interest of the company
Reporting on Internal Financial Control System has now been made a regulatory mandate under the
Companies Act, 2013.Therefore, in order to avoid duplication, certain clauses of CARO requiring to
comment on the Internal Controls of a company have been removed. Moreover, the auditor is now excused
from the obligation to report on timely transfer of amounts to IEPF. However, the Companies (Audit and
Auditors) Rules, 2014 requires the auditor to report on anydelays in transferring the amounts to the said
fund in the Independent Auditor’s report.On one hand, the requirement to comment on whether the terms
and conditions of any guarantee for loans given by the company are prejudicial to its interest has been done
away with and on the other hand an additional responsibilityto report compliance with Sec 185 & 186 of
the Act has been added. Moreover, the compliance burden has reduced by deletion of the clause to comment
on Accumulated Losses
Modified Provisions
Clause Existing Provision Modified Provision Analysis
Clause (iii) Whether the company Whether the company z The limit of Rs.1 Lakh for overdue
Granting has granted any loans, has granted any loans, amount has been removed and
of Loans secured or unsecured secured or unsecured to instead any amount due for more
to companies, firms or companies, firms,Limited than 90 days needs to be
other parties covered Liability Partnerships or reported now.
in the register other parties covered in z Additionally, the auditor is now
maintained under the register maintained required to comment whether the
Sec 189 of the under Sec 189 of terms and conditions of the loans
Companies Act. If so, the Act granted to parties (including LLPs)
(b) If overdue amount (a) Whether the terms covered under Sec 189, are
is more than rupees and conditions of the prejudicial to the interests of the
one lakh, whether grant of such loans are company.
reasonable steps not prejudicial to the z Also the erstwhile provision did not
have been taken company's interest; mention to report the amount
by the company for (c) If the amount is overdue, however, now any amount
recovery of the overdue, state the total overdue more than 90 days needs
principal and interest amount overdue for to be stated and reported.
more thanninety days, z An amount is considered to be
and whether reasonable overdue when the payment has not
steps have been taken by been received on the due date as
the company for recovery per the lending arrangement.
of the principal and z This has enhanced the duty of the
interest. auditor by enhancing the reporting
requirement.
z It may so happen that a party
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VOL. 19 NO. 12 / JUNE 2016 C.V.O. CA’S NEWS & VIEWS
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Clause Existing Provision Modified Provision Analysis
listed in the register maintained
under section 189 of the Act might
have taken a loan from a company
and repaid it during the same
financial year. Therefore, while
examining the loans, the auditor
should also take into consideration
the loan transactions that have
been squared-up during the year
and report such transactions under
this clause.
Clause(viii) Whether the company Whether the company z Additional reporting requirement
Default in has defaulted in has defaulted in in case of default in loans and
repayment repayment of dues to repayment of loans or borrowings from Government also
of Loans a financial institution borrowing to a financial to be reported and in case of any
or bank or institution, bank, default in repayment, other than to
Debenture holders? Government or dues to debenture holders, the same needs
If yes, the period and debenture holders? If yes, to be reported lender wise.
amount of default to the period & the amount z Under this clause the auditor is
be reported; of default to be reported required to give lender wise details
(in case of defaults to in case of banks, financial
banks, financial institutions and Government only
institutions, and and not in respect of individual
Government, debenture holders
Lender wise detailsto be provided).
Clause(ix) Whether term loans Whether moneys raised by z The Auditors are now additionally
Applicationwere applied for the way of Initial Public Offer required to report regarding
of term purpose for which (IPO) or Further Public moneys raised by way of IPO or
loans/ the loans were Offer (FPO) (including FPO (including debt Instruments).
Public obtained debt instruments) and z Earlier this reporting requirement
Issue/ term loans were applied was limited only for the purpose of
Follow for the purposes for which term loans. Also, in case the
on offer those are raised. If not, moneys are not applied for the
the details together with specified purpose, the auditors now
delays or default and need to report on the details of
subsequent rectification, default or delay.
if any, as may be z This disclosure requirement was
applicable, be reported already covered for listed
companies under SEBI Regulation.
By making this applicable to
private and unlisted public
companies, a sphere of enhanced
compliance burden is created.
z The auditor should obtain a
representation from the
management as to the complete-
ness of the disclosure with regard
to the end-use of money raised as
well as actual end utilization of
money raised by IPO or FPO
(including debt instruments).
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C.V.O. CA’S NEWS & VIEWS VOL. 19 NO. 12 / JUNE 2016
19
Clause Existing Provision Modified Provision Analysis
z If the auditor is not able to verify
the end-use of money raised from
IPO or FPO (including debt
instruments), he should state that
he is not able to comment upon the
disclosure of end-use of money by
the company since he could not
verify the same.
Clause (x) Whether any fraud on Whether any fraud by the z This is a move towards reducing the
Fraud or by the company has company or any fraud on scope of reporting requirement.
Reporting been noticed or reported the Company by its Earlier, the auditor was liable to
during the year; If yes, officers or employees report on any fraud on or by the
the nature and the has been noticed or company. Now, the reporting is
amount involved is reported during the year; restricted to only those frauds
to be indicated. If yes, the nature and committed on the company by its
the amount involved officers or employees. The auditor is
to be indicated. now not liable to report on third
party frauds on the company
z It may be noted that this clause of
the Order, by requiring the auditor
to report whether any fraud by the
company or on the company by its
Officer or employees has been
noticed or reported, does not relieve
the auditor from his responsibility to
consider fraud and error in an audit
of financial statements.
ConclusionCARO, 2016 has cast much more responsibility on the statutory auditors by introducing a number of new
reporting requirements. For a number of reasons, the necessity for preserving working papers by the auditors
assumes greater importance in the context of the requirements of the Order. The auditor now needs to be
vigilant with regards to compliance with various provisions of the Act. The major change is the revision in the
limits of its applicability. On the other hand, certain clauses that were resulting in a duplication in reporting
have been casted out. In a nut shell, CARO, 2016 has restricted its scope of applicability but increased the
reporting requirements to ensure compliance with various provisions of the Act
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VOL. 19 NO. 12 / JUNE 2016 C.V.O. CA’S NEWS & VIEWS
20
LEVY OF SERVICE TAX ON THE SERVICES PROVIDEDBY GOVERNMENT OR A LOCAL AUTHORITY TO
BUSINESS ENTITIES RELATING TO REAL ESTATE/CONSTRUCTION INDUSTRY
Contributed by :CA Jinesh Gadaa member of the association
he can be reached atcajineshgada@gmail.com
Any service provided by Government or a local
authority to a business entity has been made taxable
w.e.f. 1st April 2016. Post Budget 2016,
representations have been received from several
quarters including business and industry
associations in respect of various aspects pertaining
to the taxation of such services. Accordingly, few
clarifications are issued vide circular No. 192/02/
2016-Service Tax dated 13th April 2016 issued by
Government of India, Ministry of Finance,
Department of Revenue (Tax Research Unit), F.No.
334/8/2016-TRU.
z Services provided by Government or alocal authority to another Government or alocal authority have been exempted vide
Notification No. 25/2012-ST dated 20-06-2012 as
amended by Notification No. 22/2016-ST dated
13-04-2016(Entry 54). However the said
exemption does not cover services specified in
sub-clauses (i), (ii) and (iii) of clause (a) of section
66D of the Finance Act, 1994, the same is
reproduced below:
Section 66 D Negative list of services:The negative list shall comprise of the followingservices, namely:—(a) services by Government or a local authority
excluding the following services to the extentthey are not covered elsewhere -
(i) services by the Department of Posts by wayof speed post, express parcel post, lifeinsurance and agency services provided to aperson other than Government;
(ii) services in relation to an aircraft or a vessel,inside or outside the precincts of a port or anairport; ;
(iii) *transport of goods or passengers; or* exempted for railways w.e.f.02.07.2012 to30.09-2012 vide Notification No 43/2012-ST dated 02.07.2012
z Service Tax on Taxes, cesses or duties are notconsideration for any particular service as suchand hence not leviable to Service Tax. Thesetaxes, cesses or duties include excise duty,customs duty, Service Tax, State VAT, CST,income tax, wealth tax, stamp duty, taxes onprofessions, trades, callings or employment,octroi, entertainment tax, luxury tax andproperty tax.
Service Tax on abovementioned Taxes, cesses or
duties including property tax is rightly
exempted as there is no element of service. By
specifying Property tax under exemption, the
same will act as a major relief to Real Estate/
Construction Industry as due to increase in
rates of Property tax, the said component is very
high in case of development/redevelopment/
reconstruction. Hence controversy to charge
service tax on property tax will not take place.
z Service Tax on fines and penalties :It is clarified that fines and penalty chargeable
by Government or a local authority imposed for
violation of a statute, bye-laws, rules or
regulations are not leviable to Service Tax.
Fines and liquidated damages payable to
Government or a local authority for non-
performance of contract entered into with
Government or local authority have been
exempted vide Notification No. 25/2012-ST
dated 20-06-2012 as amended by Notification
No. 22/2016-ST dated 13-04-2016 (Entry 57).
z Services provided in lieu of fee charged byGovernment or a local authority :It is clarified that any activity undertaken by
Government or a local authority against a
consideration constitutes a service and the
amount charged for performing such activities is
liable to Service Tax. It is immaterial whether
such activities are undertaken as a statutory or
mandatory requirement under the law and
irrespective of whether the amount charged for
such service is laid down in a statute or not. As
long as the payment is made (or fee charged) for
getting a service in return (i.e. as a quid pro quo
for the service received), it has to be regarded as
a consideration for that service and taxable
irrespective of by what name such payment is
called. It is also clarified that Service Tax isleviable on any payment (exceeding Rs.5,000) , in lieu of any permission or licensegranted by the Government or a localauthority.
Above clarification has created havoc in the Real
Estate/Construction Industry because many
permissions or licenses are required to complete
any Real State projects which is granted by the
Government or a local authority, and to acquire
Things may come to those who wait, but only the things left by those who hustle.
C.V.O. CA’S NEWS & VIEWS VOL. 19 NO. 12 / JUNE 2016
21
the same heavy official fees are to be paid to
them. As per above clarification the same will be
covered under service tax net on reverse charge
basis, hence from 01-04-2016 14.5% and from
01-06-2016 after introduction of 0.5% of Krishi
Kalyan Cess 15% service tax has to be paid by
business entities on reverse charge basis as a
result of which cost of Real Estate Developers
will increase tremendously and the said increase
of cost will indirectly be passed on the
consumers. As everybody is knowing that prices
in real estate industry have reached sky high,
now further addition to the same will increase
burden on the lacklustre demand. Buying a flat
for middle class people in Mumbai is like a
dream which will never be fulfilled.
Approval process for Real Estate Projects –Maharashtra (Mumbai) includes following:
a) Ownership Certificate/Extract
b) Building Layout Approval
c) Obtain Intimation of disapproval (IOD)(building permit) from the Building Proposal
office. Scrutiny fees is to be paid along with cost
for IOD varies depending upon whether
construction is of residence or commercial. The
Intimation of disapproval is issued with a list of
no-objection certificates which the applicant
must obtain separately from various
departments & government authorities.
d) Final Clearance to build “CommencementCertificate” (CC) will only be given once the
company obtains all NOCs and meet all IOD
conditions. There are about 40 IOD conditions to
be met by the builder to be eligible for applying
for commencement certificate (CC). Major
NOCs/ IOD conditions are listed below.
i) Non-Agriculture (NA) permission : Granted
by Revenue Department
ii) Obtain NOC from Tree Authority Committee
of Municipal Corporation.
The Tree Authority must ascertain what
trees (if any) will be cut down as a result of
construction. If trees are to be cut down, the
building company will have to plant trees to
replace them.
iii) Obtain NOC from storm water & Drain
Department (Municipal)
iv) Obtain NOC from Sewerage Department
(Municipal)
v) Obtain NOC from the Electric Department
(Municipal):
The electric consultant hired by the
developers works out load requirements,
transformer capacity etc., Load is
sanctioned by power requirements along
with a copy of application submitted for
building plan approval. BEST will assess
whether an electrical sub-station up-grade
is required at this stage.
vi) NOC from the traffic & Co-ordination
Department (Municipal)
vii) Obtain NOC from the Chief Fire Officer
(Municipal): In Mumbai buildings above 24
meters in height requires Chief Fire Officer
(CFO) clearance.
viii) Environment Clearance : The environment
consultant hired by the company prepares
the Environment Impact Assessment
Report which is submitted to the State level
expert Appraisal Committee which refers it
to the State Environment Impact
Assessment Authority (SEIAA).
Approving Authority: Ministry of
Environment/State Environment Impact
Assessment Authority (SEIAA)/ State level
expert Appraisal Committee
ix) NOC if near Coastal area: Approving
Authority: Coastal Zone Management
Authority. Construction is not allowed up to
500 meters from the coast line.
x) Permission for Excavation/ Royalty
payment
xi) Other common facilities Approval (Internal
Infrastructure services)
xi) Road Access Highway/Expressway:
Approving Authority NHAI/PWD
xii) Chief Escalator Installation Approval:
Approving Authority Public Works
Department.
xiii) Electrical substation NOC for all substation
transformers in building (Electric Service
Provider). Approving Authority: Electricity
Distributor Authority
ix) Ancient Monument Approval : Approving
Authority : Archaeological Survey of India
x) Consent to establish & operate: Ministry of
Environment has authorised Pollution
Control Board to monitor the environment
related compliances by the developer which
includes setting up of Sewage Treatment
Plant (STP) etc.
xi) NOC from Airport Authority of India :
Approving Authority : Civil Aviation
Department
e) Submit structural plans approved bystructural engineer to the BMC/Municipal.
The IOD is only an approval of the civil plans.
Spend eighty percent of your time focusing on the opportunities of tomorrow rather than the problems of yesterday
VOL. 19 NO. 12 / JUNE 2016 C.V.O. CA’S NEWS & VIEWS
22
Review of the structural plan is done in parallel
with the NOC process. No approval to this plan
is required from the Municipal Corporation but
copies are required to be submitted.
f) Obtain Occupancy Certificate (OC) fromthe BMC (Municipal)The OC allows the building company to occupy
the building but is not considered the final
document because the building company still
requires the certificate of completion. The
company’s architect must submit a formal letter
stating that construction has been completed
according to the standards set forth in the IOD &
CC.
g) Obtain Building completion certificatefrom the BMC (Municipal)The Building Completion Certificate is
considered to be the ultimate document that the
building company requires to fully occupy the
building and connect it to utilities like water,
power, sewerage connection etc.
Hence based on above one can conclude that
Builder/Developer/Contractor has to obtain n no.
of permissions/licenses granted by the
Government or a local authority. To obtain the
said permissions/licenses builder/developer/
contractor have to pay huge official money on
which now service tax will be applicable from 01-
04-2016 as a result of which now Builder/
Developer/Contractor have to shell out huge
amount of service tax i.e. at present 14.5% and
from 01-06-2016 15% on amount spent by them
for getting above permissions/licenses from
government or a local authority.
“Government” means the Departments of the
Central Government, a State Government and
its Departments and a union territory and its
departments but shall not be include any entity,
whether created by a statute or otherwise, the
accounts of which are not required to be kept in
accordance with article 150 of the Constitution
or the rules made their under
“Local Authority” means-
(a) a Panchayat as referred to in clause (d) of
article 243 of the Constitution;
(b) a Municipality as referred to in clause (e) of
article 243P of the Constitution;
(c) a Municipal Committee and a District
Board, legally entitled to, or entrusted by
the Government With, the control or
management of a municipal or local fund;
(d) a Cantonment Board as defined in section 3
of the Cantonments Act, 2006 (41 of 2006);
(e) a regional council or a district council
constituted under the Sixth Schedule to the
Constitution;
(f) a development board constituted under
article 371 of the Constitution; or
(g) a regional council constituted under article
371A of the Constitution;
M.C.G.M. is covered under local authority but
MHADA is not covered under local authority
definition but it can fall under government
authority which is not included in the said
circular no 192/02/2016-Service tax dated 13-04-
2016. Hence whether one can argue that all
payment in lieu of any permission or license
granted by BMC is not exempt but MHADA is
exempt.
However, Ministry of Finance vide its
notification no. 02/2014 dated 30.01.2014
widened the scope of the definition of the
Governmental Authority. The earlier definition
as provided under the mega Exemption
Notification dated 20.06.2012 was substituted
with the following:
‘(s) “governmental authority” means an
authority or a board or any other body;
i. set up by an Act of Parliament or a State
Legislature; or
ii. established by Government,
with 90% or more participation by way of
equity or control, to carry out any function
entrusted to a municipality under article
243W of the Constitution;’
Maharashtra Housing & Development
Authority (MHADA) is a Government of
Maharashtra owned Organisation established in
1977. Hence MHADA cannot be considered as
Government but certainly can be considered as
Government Authority.
z However, services provided by the Government
or a local authority by way of :
i) Registration required under the law;
ii) testing, calibration, safety check or
certification relating to protection or safety
of workers,, consumers or public at large,
required under the law have been exempted
vide Notification No. 25/2012-St dated 20-
06-2012 as amended by Notification No. 22/
2016-ST dated 13-04-2016 (Entry 58).
z Services in the nature of allocation ofnatural resources by Government or a localauthority to individual farmers have been
exempted vide Notification No. 25/2012-ST
dated 20-06-2012 as amended by Notification
Life isn’t about finding yourself. Life is about creating yourself.
C.V.O. CA’S NEWS & VIEWS VOL. 19 NO. 12 / JUNE 2016
23
No. 22/2016-St dated 13-04-2016 (Entry 59).
Such allocation/auctions to categories of persons
other than individual farmers would be leviable
to Service tax.
z Services in the nature of change of landuse, commercial building approval, utilityservices provided by Government or a localauthorityRegulation of land use, construction of buildings
and other services listed in the twelfth schedule
to the constitution which have been entrusted to
Municipalities under Article 243W of the
constitution, when provided by governmental
authority are exempt under Notification No. 25/
2012-ST dated 20-06-2012. The said services
when provided by Government or a local
authority have also been exempted from service
tax vide Notification no. 25/2012-ST dated 20-
06-2012 as amended by Notification No.22/2016-
ST dated 13-04-2016 (Entry 39).
Following are the list of services listed in the
Twelfth Schedule to the Constitution which
have been entrusted to Municipalities under
Article 243W of the constitution:
1. Urban planning including town planning.
2. Regulation of land-use and construction of
buildings.
3. Planning for economic and social
development.
4. Roads and bridges.
5. Water supply for domestic, industrial and
commercial purposes.
6. Public health, sanitation conservancy and
solid waste management.
7. Fire services.
8. Urban forestry, protection of the
environment and promotion of ecological
aspects.
9. Safeguarding the interests of weaker
sections of society, including the
handicapped and mentally retarded.
10. Slum improvement and up gradation.
11. Urban poverty alleviation.
12. Provision of urban amenities and facilities
such as parks, gardens, playgrounds.
13. Promotion of cultural, educational and
aesthetic aspects.
14. Burials and burial grounds; cremations,
cremation rounds and electric
crematoriums.
15. Cattle pounds; prevention of cruelty to
animals.
16. Vital statistics including registration of
births and deaths.
17. Public amenities including street lighting,
parking lots, bus stops and public
conveniences.
18. Regulation of slaughter houses and
tanneries.
Following few above mentioned servicesare exempt as per Notification No. 25/2012-ST dated 20-06-2012 which are displayed asunder:
12. Services provided to the Government, a localauthority or a governmental authority byway of construction, erection,commissioning, installation, completion,fitting out, repair, maintenance, renovation,or alteration of -
a) a civil structure or any other original worksmeant predominantly for use other than forcommerce, industry, or any other businessor profession;
(b) a historical monument, archaeological siteor remains of national importance,archaeological excavation, or antiquityspecified under the Ancient Monuments andArchaeological Sites and Remains Act, 1958(24 of 1958);
c) a structure meant predominantly for use as(i) an educational, (ii) a clinical, or (iii) anart or cultural establishment;
d) canal, dam or other irrigation works;e) pipeline, conduit or plant for (i) water
supply (ii) water treatment, or (iii) seweragetreatment or disposal; or
f) a residential complex predominantly meantfor self-use or the use of their employees orother persons specified in the Explanation 1to clause 44 of section 65 B of the said Act;
13. Services provided by way of construction,erection, commissioning, installation,completion, fitting out, repair, maintenance,renovation, or alteration of,-
a) a road, bridge, tunnel, or terminal for roadtransportation for use by general public;
b) a civil structure or any other original workspertaining to a scheme under JawaharlalNehru National Urban Renewal Mission orRajiv Awaas Yojana;
c) a building owned by an entity registeredunder section 12 AA of the Income tax Act,1961(43 of 1961) and meant predominantlyfor religious use by general public;
d) a pollution control or effluent treatmentplant, except located as a part of a factory; or
Not he who has much is rich, but he who gives much.
VOL. 19 NO. 12 / JUNE 2016 C.V.O. CA’S NEWS & VIEWS
24
a structure meant for funeral, burial orcremation of deceased;
14. Services by way of construction, erection,commissioning, or installation of originalworks pertaining to,-
a) an airport, port or railways, includingmonorail or metro;
b) a single residential unit otherwise than as apart of a residential complex;
c) low- cost houses up to a carpet area of 60square metres per house in a housing projectapproved by competent authorityempowered under the ‘Scheme of AffordableHousing in Partnership’ framed by theMinistry of Housing and Urban PovertyAlleviation, Government of India;
d) post- harvest storage infrastructure foragricultural produce including a coldstorages for such purposes; or
e) mechanised food grain handling system,machinery or equipment for unitsprocessing agricultural produce as foodstuff excluding alcoholic beverages;
Slum improvement & up gradation is mentioned
under Twelfth Schedule to the Constitution but
the same is not covered under mega exemption
provided under Notification No. 25/2012-ST
dated 20-06-2012 hence permissions or licenses
granted by the Government or a local authority
under Slum Rehabilitation schemes (SRA)
cannot be exempted.
Similarly Regulation of land-use and
construction of buildings is mentioned under
Twelfth Schedule to the Constitution but the
same is not covered elaborately i.e. residence
complex built for self use or for employees is
covered under mega exemption provided under
Notification No. 25/2012-ST dated 20-06-2012
but residences built under redevelopment
schemes are not covered hence permissions or
licenses granted by the Government or a local
authority under redevelopment schemes cannot
be exempted.
CENVAT Credit be availed in respect of services
provided by Government or a local authority on
the basis of challan evidencing payment of
Service Tax by the Service recipient (Clause (e)
of sub-rule (1) of rule 9 of the CENVAT Credit
Rules,2004).
Conclusion :1) It is clarified via Circular No. 192/02/2016 –
Service Tax dated 13-04-2016 that Service tax is
leviable on any payment (exceeding RS 5,000/-),
in lieu of any permission or license granted by the
Government or a local authority. Above
clarification has created havoc in the Real Estate/
Construction Industry because many permissions
or licenses are required to complete any Real
State projects which are granted by the
Government or a local authority, and to acquire
the same heavy official fees are to be paid to them.
As per above clarification the same will be
covered under service tax net on reverse charge
basis, hence from 01-04-2016 14.5% and from 01-
06-2016 after introduction of 0.5% of Krishi
Kalyan Cess 15% service tax has to be paid by
business entities on reverse charge basis.
2) M.C.G.M. is covered under local authority but
MHADA is not covered under local authority
definition but it can fall under government
authority which is not included in the said
circular no 192/02/2016-Service tax dated 13-04-
2016 as only Government or local authority is
included. Hence whether one can argue that all
payment in lieu of any permission or license
granted by BMC is not exempt but MHADA is
exempt.
3) If Slum Rehabilitation Projects & Redevelopment
projects as can be considered as part of Twelfth
Schedule to the Constitution which has been
entrusted to Municipalities under Article 243W of
the constitution hence the same can be added by
the service tax department under mega
exemption notification no. 25/2012-ST dated 20-
06-2012 then builder/developer lobby will be
benefited otherwise they have to pay huge service
tax on amount payable by them in lieu of any
permission or license granted by the Government
or a local authority.
4) As everybody is knowing that prices in real estate
industry has reached sky high, now further
addition to cost of developers will increase burden
on the lacklustre demand faced by the Real Estate
Industry.
5) By specifying Property tax under exemption, the
same will act as a major relief to Real Estate/
Construction Industry as due to increase in rates
of Property tax, the said component is very high
in case of development/redevelopment/
reconstruction. Hence controversy to charge
service tax on property tax will not take place.
If the only tool you have is a hammer, you tend to see every problem as a nail.
FROM :NEWS & VIEWS COMMITTEE
C.V.O. CA’S NEWS & VIEWS VOL. 19 NO. 12 / JUNE 2016
25
In a modern CA Office, where the high availability of
data and applications is a critical requirement for
smooth operation, the inability to recover data is a
disaster waiting to happen. Backing up our data and
being able to recover and restore it in case of any
incident, becomes crucial. There is more to back-up
than just zipping the working files and storing it on
alternate media. The litmus test is being able to
restore the data, applications and the supporting
systems to the best working point, and that too, with
least possible waste of resources, especially time.
Internal Spreadsheets, ITR’s, Tax Forms,
Presentations, Word documents, Department
representations, submissions, Knowledge banks and
so much more. Today’s CA practice, no matter what
size, generates more data than ever before. Not
coincidentally, IT has never been more critical to the
successful running of our offices. As computer
hardware and software systems have become more
reliable over the years, the number of catastrophic
failures from breakdowns seems to have dwindled
leaving many of us with a false sense of security. After
all, if you’ve never lost everything, you probably don’t
think much about the consequences if it were to
happen to you.
We CA’s are jacks-of-all-trades. We’re busy managing
clients, Auditing & Assuring, Attending cases in front
of Tax Authorities, Attending CPE’s, managing
articles, staff and whatever else needs to be done.
What’s your plan if you lose all of your data? If you
don’t have a backup strategy and you lose it all, your
hectic life just got impossible while you try to rebuild
your data.
Luckily, the per-gigabyte cost of hard disk drives and
associated storage technologies has never been lower,
while the advent of technology such as cloud storage
offers even greater opportunities to do more with less.
Backup is more than just sum of hardware and
software, its more of a strategy which will combine all
four cornerstones that contribute to complexity of
data recovery - Security, reliability, manageability
and affordability. Since needs for individual
organizations invariably differ, a one-size-fits-all
mentality is doomed to offer a mediocre fit in terms of
either budget or functionality. Rather than outline a
fixed strategy, I will highlight the most common
storage capabilities and Best backup practices which
can be combined to craft the right storage & recovery
strategy. Here’s how;
1. Determine Optimum Storage Capabilities :There are many storage technologies available in
the market today. Rather than go into every single
storage technology that’s available today, it’s
better to evaluate the various categories of storage
options. These can be combined to craft the right
storage strategy.
a. Direct attached storage (DAS) : Direct
Attached Storage devices are those that are
physically connected to a computer, typically
using a USB 2.0 or USB 3.0 peripheral port.
While this ensures that the data is nearby and
within reach, one weakness of DAS is that you
need to do ad-hoc or batch backups which are
often done manually, and could contain out-of-
date versions of files.
b. Network attached storage (NAS): A NAS
appliance is a storage device that connects
directly to the network. It features the
attendant capabilities of a file server and
accepts multiple storage drives. NAS devices
usually come equipped with redundancies, like
RAID capabilities; it also supports a range of
protocols to allow users to directly access a PC.
Some NAS models offer the capability to
synchronize specific data with a suitable
remote NAS system.
c. Disaster protected storage : Disaster
Protected Storage systems are specialized
storage devices that can withstand disasters
that typically erase or corrupt unprotected
data. These systems can exist as DAS or NAS.
Most of these devices are made out of durable
military grade materials, and offer a range of
protection features such as water-proofing,
fire-proofing, etc. Some disaster protected
storage appliances can withstand fire for up to
30 minutes and total immersion in water for
days.
d. Online Storage: Online Storage for this
purpose typically means third party cloud
storage vendors. While when one talks about
cloud, most people typically associate it with
storage services, there are some companies
like Amazon and MozyPro which provide
online back-up’s as well. The only downside of
online storage is that online data recovery can
take a long time and can eat up a lots of
Internet Bandwith, especially in a case of full-
recovery, since the data is being recovered
from a remote location.
DIGITAL OFFICE PRODUCTIVITY SERIESPART 3: BACKUP MANAGEMENT
Contributed by : CA Maitri Paras Savla(a member of the association)
he can be reached atmaitrichheda@gmail.com
Success means having the courage, the determination, and the will to become the person youbelieve you were meant to be.
VOL. 19 NO. 12 / JUNE 2016 C.V.O. CA’S NEWS & VIEWS
26
e. Private Cloud: If one prefers not to leave
your sensitive data under the protection of 3rd
party cloud vendors, one could even opt to
build own private cloud service. And although
it might not have been practical for small
offices to invest in their own cloud, new
innovations now allow them to get private
cloud storage on a budget.
f. Offline Media : While this technology may
seem to be Stale, its known to saved giants like
google and facebook during hack attacks and
data outages. It’s amazing how cheap external
storage devices have become. They almost all
connect via USB making them easy to swap in
and out and perfect for data backup devices. I
suggest having 2 or 3 of these devices with
each one large enough to hold all of your data.
2. Centralize your DataAs our offices increasingly turn ‘online’, our devices
increase too. A typical small CA office is now
equipped with multiple devices and it’s not
uncommon to file all your data scattered in File
Servers, Local Hard drives, Local USB Hard drives,
USB Thumb Drives, CD’s , DVD’s, Laptops.
The Problem with these many devices is that the
data is also duplicated and scattered all over the
devices, which makes it literally impossible to
collate the data and decide what’s to be backed up.
Here, File Management Tips (discussed in
previous articles) will come handy.
3. Determine what needs to be backed up: This
exercise is purely personal and changes from
organization to organization. However typically a
CA office will generate a lot of Client data and that
needs to be backed up. Frequency and availability
of the same needs to be determined individually.
Some Common Pointers :
a. Periodicity : Take one Full Backup every
month or at the beginning and end of a work
season (eg. July to September) and then take
incremental back-ups every day or week
depending on the strategy best decided by you.
b. Don’t Back up Programs: If your programs
(Practice management software’s or TAX
preparation utilities like CAOffice or KDK etc)
came on installation CD’s, don’t back them up.
You can always reinstall the programs from
the original installation CD’s. If you
downloaded your software to install it, backup
the installation program one time – you don’t
need to back it up over and over. Sometimes
downloadable software’s require regular
updates so be sure to delete the redundant
ones so as to free up your backup space. Also,
be sure to store your installation keys or serial
numbers some place where you can easily find
them. If you don’t need to backup your
programs every night, your backups will run
faster and you won’t need as much storage.
c. Don’t forget remote users: A CA office
typically has many articles and staff deployed
at client place. Those people are generating
data as well. Perhaps they are doing it by
accessing applications via the Internet. But
more than likely, they are creating documents,
spreadsheets, and audit trails etc. for your
organization and storing it on their or clients
local devices. Don’t forget about their data in
your backup plan. Just because it’s far away
doesn’t mean it isn’t critical to your
organization.
d. Backup Hosted Data : There is a lot of data
which is hosted on various websites like
Income Tax, Sales Tax, VAT, TDS, ROC etc
This data is hosted on the respective websites
and we access it via internet. It is a good idea
to back these up as well.
e. Consider an image-based backup solutionthat takes periodic snapshots of the system,
application and data for total protection.
Image-based solutions are much easier to use
and deliver fast backup and recovery. They
also enable more frequent backups to help
reduce the risk of data loss.
f. Use data deduplication to reduce storage
requirements and associated costs.
4. Back It up - Strategies :
a. 2 + 1 = Data Backup Best Practice; Make
Two Full copies of sensitive and critical data
on one of the Storage options given above. In
Addition, a third copy should be kept offline,
stashed at a different location.
b. Data Storage Strategy Depends on Budget,
Data Volume : Formulate the data strategy
after doing a thorough risk evaluation.
c. Store the Backups at different locations and
Rotate Your Backups
5. Test Your BackupAfter having gone through such a lot to ensure
that one back up the data well, what good would
it be if it couldn’t be restored properly? As a part
of good back up strategy, restoring the data as a
part of test is very important. This saves a lot of
heartburn when after a disaster, the backed up
data won’t restore properly. Testing your Backup
exercise should happen at least once in a quarter.
Disaster-proofing the lifeblood of your practice
can take a little time and cost a little money, but
it’s not nearly as expensive as rebuilding from
scratch after a catastrophe. Take steps now and
you’ll rest easier no matter what the future
brings. Do share your views and experience with
me on maitrichheda@gmail.com
Never limit yourself because of others’ limited imagination;never limit others because of your own limited imagination.
C.V.O. CA’S NEWS & VIEWS VOL. 19 NO. 12 / JUNE 2016
27
A. Notifications:
a) Tariff:
1. Concessional rate of duty withdrawn on specified wireless data modems
Now, wireless data modem cards with PCMCIA or USB or PCI express ports falling under tariff heading
8517 will be chargeable to excise duty at the applicable tariff rate.
(Notification No. 20/2016-CE dated 5th May, 2016 andNotification No. 21/2016-CE dated 5th May,2016)
2. Amendments to Mega Exemption Notification No. 12/2012-CE dated 17th March, 2012a) The rate of excise duty payable has been reduced from 9.50% to 9.35% on specifiedgold bar, other than
tola bar manufactured in a factory:
¾ Starting from the stage of:
z Gold ore or concentrate
z Gold dore bar
z Silvedore bar
¾ During the process of copper smelting
b) The populated circuit boards used in manufacture of broadband modem, routers, set-top box, Digital
Video Recorder (DVR)/Network Video Recorder, (NVR), specified lithium batteries, CCTV cameras
and reception apparatus for televisionshall not be entitled to exemption from duty.
c) Concessional rate duty benefit provided to speakers for manufacture of mobile handsets is now
withdrawn. Also, exemption from duty applicable to inputs or parts or sub-parts for manufacture of
speakers of mobile handsets is also been withdrawn.
d) Concessional rate of duty of 4% is conditionally prescribed for manufacture of populated printed
circuit board of- Lithium-ion battery other than battery for mobile handset, Broadband Modem,
Router, Set-top box for gaining access to internet, Digital Video Recorder (DVR)/Network Video
Recorder, (NVR), CCTV Camera/IP Camera etc. Furthermore, parts or components used in said
manufacture of goods is also granted exemption.
e) Alkyl esters of long chain fatty acids obtained from vegetable oils, commonly known as bio-diesels
would enjoy exemption from excise duty upto 31st March, 2017.
f) Newly inserted items comprising organic chemical and misc. chemical products:-
Sr No. CETSH Description of excisable goods Rate Date of effect
113B 2905 or The following goods for use in the manufacture Nil Applicable upto
3823 11 12 of alkyl estersof long chain fatty acids obtained 31.03.2017
from vegetable oils,commonly known as
bio-diesels, namely:-
(i) RBD Palm Stearin (ii) Methanol
(iii) Sodium Methoxide.
113C 29 or 38 Alkyl esters of long chain fatty acids obtained 6% Applicable from
from vegetable oils, commonly known 1st April,2017
as bio-diesels.
113D 2905 or The following goods for use in the manufacture 6% Applicable from
3823 11 12 of alkyl esters of long chain fatty acids obtained 1st April,2017
from vegetable oils, commonly known as
bio-diesels, namely:- (i) RBD Palm Stearin
(ii) Methanol (iii) Sodium Methoxide
(Notification No. 22/2016-CE dated 5th May, 2016; Notification No. 23/2016-CX dtd. 17 May, 2016)
I. CENTRAL EXCISE UPDATES
Compiled by :CA. Jayesh Gogri
The secret of success in life is for a man to be ready for his opportunity when it comes.
VOL. 19 NO. 12 / JUNE 2016 C.V.O. CA’S NEWS & VIEWS
28
b) Non-Tariff:
1. Insertion to abatement notification relating to Retail Sale price (RSP)
Notification No. 49/2008-CE(NT) dated 24th December, 2008 notifies goods which are valued at RSP less
permissible abatement. Now, abatement is also made available to ‘Routers’covered under tariff item 8517
69 30@ 20% of the RSP.
(Notification No. 25/2016-CE (NT) dated 5st May, 2016)
2. Infrastructure Cess on export of goods
Infrastructure cess on Specified goods is considered as a duty of excise for the purpose of export of goods.
If, goods are exported without payment of duty under rule 19 of Central Excise Rules (CER) no
infrastructure cess has to be paid. Moreover, where goods are exported under the claim of rebate under rule
18 of CER, rebate of infrastructure cess can be claimed.
(Notification No. 26/2016-CE (NT) dated 5st May, 2016)
B. Circulars
1. Extension of time limit for obtaining of registrationbyJewellery manufacturers
Time limit for taking central excise registration of an establishment by a jeweller is being extended upto
01.07.2016. Further, jewellers may dischargetheir duty liability for the month of March, April and May
2016 along-with the payment of excise duty for the month of March, 2016.
(Circular No. 1026/14/2016-CX dated 23th April, 2016)
2. Withdrawal of Circulars/Instruction on excisability of bagasse, aluminium/ zincdrossskimmings
Hon’ble Supreme Court in case of M/S. Union of India and Orsvs M/s DSCL Sugar Ltd [2015-TIOL-240-
SC-CX] dated 15.07.2015 have examined the issue of excisability of bagasse and similar other by-products
or wastes arising during the course of manufacture of an excisable productand held that bagasse is not a
manufactured product.
Therefore, circulars of the Board on the aforesaid subject viz. 904/24/2009-CX dated 28.10.2009, 941/02/
2011-CX dated 14.02.2011 and instruction issued vide F.No.17/02/2009-CX(Pt.) dated 12.11.2014 have
becomenon-est and are rescinded.
Reversal of CENVAT credit of inputs and input services shall be applicable on bagasse, dross and
skimmings of non-ferrous metals or any such byproduct or waste, which are non-excisable goods and are
cleared for a consideration from the factory shall be treated as exempted goods in accordance with Rule 6
of Cenvat Credit Rules, 2004 (as amended).
(Circular No. 1027/15/2016-CX dated 25th April, 2016)
3. Clarification on segregation of impurities viz. iron, steel, rubber, plastic, dust etc. from honeygrade brass scrape
This circular provides clarification in respect of activity of segregation of imported foreign material (honey
grade brass scrap) undertaken by brass manufacturers which involves removal of impurities viz. iron,
steel, rubber, plastic, dust etc.
Upon examination it is clarified that the clearance of segregated foreign materials namely iron, steel,
rubber, plastic, dust etc. from honey grade brass scrape before feeding in the furnace cannot be treated as
removal of “inputs as such” as envisaged under Rule 3(5) of CENVAT Credit Rules, 2004. The segregated
foreign material in such situation shall be cleared on payment of Central Excise duty on transaction value
as per its appropriate classification and rate of duty determined on merits.
(Circular No. 1029/17/2016-CX dated 10th May, 2016)
Life’s real failure is when you do not realize how close you were to success when you gave up
C.V.O. CA’S NEWS & VIEWS VOL. 19 NO. 12 / JUNE 2016
29
II. FEMA UPDATES
Compiled by :CA. Manoj Shah
1 Issuance of Rupee Denominated Bonds
A.P. (DIR Series) Circular No. 60 dated April13, 2016The maximum amount which can be borrowed by an
entity in a financial year under automatic route by
issuance of rupee denominated bonds will be Rs. 50
billion. Proposals to borrow beyond Rs. 50 billion in
a financial year will require RBI approval.
The rupee denominated bonds can only be issued in
a country and can only be subscribed by a resident
of country:
¾ That is a member of Financial Action Task Force
(FATF) or a member of a FATF-style Regional
Body; and
¾ Whose securities market regulator is a
signatory to International Organisation of
Securities Commission’s (IOSCO’s) Multilateral
Memorandum of Understanding (Appendix A
signatories) or a signatory to bilateral
memorandum of understanding with the
Securities and Exchange Board of India (SEBI)
for information sharing arrangements; and
¾ Should not be a country identified in the public
statement of the FATF as:
i. A jurisdiction having a strategic anti-money
laundering or combating the financing of
terrorism deficiencies to which counter
measured apply; or
ii. A jurisdiction that has not made sufficient
progress in addressing the deficiencies or has
not committed to an action plan developed with
the FATF to address the deficiencies.
It has been decided to reduce the minimum average
maturity to three years in order to align with the
maturity prescription regarding foreign investment
in corporate bonds through the Foreign Portfolio
Investment (FPI) route.
Borrowers issuing rupee denominated bonds should
incorporate clause in the agreement/offer document
so as to enable them to obtain the list of primary
bond holders and provide the same to the regulatory
authorities in India as and when required. The
agreement/offer document should also state that
bonds can only be sold / transferred / offered as
security overseas subject to compliance with
aforesaid IOSCO/FATF jurisdictional
requirements.
2 Foreign Exchange Management (Transfer orIssue of Security by a Person Resident outsideIndia)
Notification No. FEMA.363/2016-RB datedApril 28, 2016Following amendments have been made to FEMA
Notification No. 20:
Regulation 2:
A. After the existing sub-regulation (ii), a new sub-
regulation shall be inserted namely:-
“(iiA) ‘Category I Alternative Investment Fund
(Cat-I AIF)’ means an Alternative Investment
Fund registered under the Securities and
Exchange Board of India (Alternative
Investment Funds) Regulations, 2012 which
raises money and invests in such funds or
sectors or activities or areas in accordance with
the said Regulations.”
B. The existing sub-regulation (vb) shall be
deleted.
C. After the existing sub-regulation (x), a new sub-
regulation shall be inserted namely:-
“(xA) ‘startup’ shall mean an entity,
incorporated or registered in India not prior to
five years, with an annual turnover not
exceeding INR 25 Crores in any preceding
financial year, working towards innovation,
development, deployment or commercialization
of new products, processes or services driven by
technology or intellectual property,
Provided that such entity is not formed by
splitting up, or reconstruction of a business
already in existence.
For this purpose,
i. ‘entity’ shall mean a private limited company (as
defined in the Companies Act, 2013), or a
registered partnership firm (registered under
section 59 of the Partnership Act, 1932) or a
limited liability partnership (under the Limited
Liability Partnership Act, 2008.
ii. the expression ‘turnover’ shall have the same
meaning as assigned to it under the Companies
Act, 2013.
iii. An entity is considered to be working towards
innovation, development, deployment or
commercialization of new products, processes or
services driven by technology or intellectual
property if it aims to develop and commercialize
(a) a new product or service or process; or (b) a
significantly improved existing product or
service or process that will create or add value
for customers or workflow.
Success usually comes to those who are too busy to be looking for it.
VOL. 19 NO. 12 / JUNE 2016 C.V.O. CA’S NEWS & VIEWS
30 There are two types of people who will tell you that you cannot make a difference in this world:those who are afraid to try and those who are afraid you will succeed.
Provided that it will not include the mere act of developing (a) products or services or processes which do not have
potential for commercialization; or (b) undifferentiated products or services or processes or (c) products or
services or processes with no or limited incremental value for customers or workflow.
Regulation 5 - In Regulation 5, the existing sub-regulation (5) shall be substituted by the following namely:-
“(5) A Foreign Venture Capital Investor registered with SEBI may make investment in the manner and
subject to the terms and conditions specified in Schedule 6.”
Schedule 6 - In the principal regulations, the existing Schedule 6 is also amended. Kindly refer the revised
amended Schedule 6 and other amendments details at –
3 Policy on foreign investment for Asset Reconstruction Companies
DIPP Press Note No. 4 (2016 Series) dated May 06, 2016The Government of India has liberalized the foreign investment limits for Asset Reconstruction Companies.
Accordingly paragraph 6.2.18.1 of the Consolidated FDI Policy Circular of 2015 is amended to read as below:
Sector / Activity % of Equity/FDI Cap Entry Route
6.2.18.1.1 ‘Asset Reconstruction Company’ (ARC) means a company
registered with the Reserve Bank of India under Section 3 of the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (SARFAESI Act) 100% Automatic
6.2.18.1.2 Other Conditions:a. Persons resident outside India can invest in the capital of Asset Reconstruction Companies (ARCs)
registered with Reserve Bank of India, up to 100% on the automatic route.
b. Investment limit of a sponsor in the shareholding of an ARC will be governed by the provisions of
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 as
amended from time to time. Similarly, investment by institutional/non-institutional investors will also be
governed by the said act, as amended from time to time.
c. The total shareholding of an individual FII/FPI shall be below 10% of the total paid up capital.
d. FIIs/FPIs can invest in the Security Receipts (SRs) issued by the ARCs registered with the Reserve Bank
of India. FIIs/FPIs may be allowed up to 100% of each tranche in SRs issued by ARCs subject to directions/
guidelines of Reserve Bank of India.
e. All investments would be subject to provisions of the SARFAESI Act as amended from time to time.
4 Foreign Exchange (Compounding Proceeding) Rules, 2000
A.P. (DIR Series) Circular No. 73 dated May 26, 2016To ensure more transparency and greater disclosure, it has now been decided as hereunder:
I. Public Disclosure of Compounding OrdersThe compounding orders passed on or after June 1, 2016 will be hosted on website of Reserve Bank in following
format:
Sr. No. Name of Amount imposed under Whether the amount DownloadApplicant compounding order imposed has been paid Order
A new sub para no. 8.6 is added in Master Direction on Compounding.
II. Public Disclosure of guidelines on the amount imposed during compoundingIt has been decided to put the guidance note for calculation of amount imposed during compounding on the
Bank’s website for information of general public. The guidance note is meant only for the purpose of broadly
indicating the basis on which the amount imposed is derived by the compounding authorities. The actual amount
imposed may vary depending on the circumstances of the case taking into account the factors mentioned at para
7.3 of Master Direction.
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