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Volume II Part 2 January 25, 2013 1 Business Advisor

BusinessAdvisor

(Fortnightly inputs for professionals and executives)

Volume II Part 2 January 25, 2013
http://businessadvisor.co/


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Contents

Mandatory CSR

T. N. Pandey - All companies will have to spend 2% of average

net profit during three preceding years on CSR.

OPC: Success is doubtful

Dr S. Chandrasekaran - The concept of one person company

(OPC) was first recommended by an expert committee constituted

under the leadership of Dr J. J. Irani, in 2005.

Fragile circular on recovery of tax demands

Dr Sanjiv Agarwal - It would be fair and reasonable that no

coercive steps are taken during the pendency of stay

applications.

Where are we likely to move?

Dr B. Yerram Raju - Rational pessimism, to borrow Joseph

Stiglitzs phrase, has given way to irrational hooliganism.

Toothless GAAR

Cartoon by Bimbadhar Mishra

Case laws update

V. K. Subramani - Inter-corporate deposit written off in the first

year not eligible for deduction as bad debt.

(Cover images: Thiruvannamalai Srinivasa Perumal temple steps)

Subscriptions:http://bit.ly/ShriMagz

Disclaimer: "Management and editors do not necessarily agree with the

views of the authors in their articles and of the readers in their letters,

and of the query editors in their replies. The editors, authors and / or

publishers shall not be responsible for any kind of result generated out

of any action taken on the basis of suggestions, etc., made in any of the

write ups, interviews contained in any part of the magazine or for any

error, omission, commission to any person, whether subscriber or

otherwise. The copyright of all the materials printed herein including

articles, queries and replies etc., rests with the publishers".
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Mandatory CSR

T. N. Pandey

The Companies Bill, 2012 (as passed by Lok Sabha)

mandates corporates to contribute for social sectorresponsibilities. When passed by Rajya Sabha, the Bill

will be legalising a practice which is being presently

pursued by limited companies in the country concerning

social sector responsibilities as corporate social

responsibility (CSR). The Bill provides (vide clause 135)

that all companies will have to spend 2% of its average

net profit during three preceding years on CSR. The

Explanation to the clause provides that average net profit shall becalculated in accordance with the provisions of section 198 (and clause 198

of the Bill mentions the method relating to

calculation of profits).

The legal provision in nutshell

(i) The Bill provides that the new law will

apply to every company with a net worth of

Rs 500 crore or more, turnover of Rs 1,000crore or a net profit of Rs 5 crore or more

during any financial year;

(ii) The amount has to be minimum of 2%

of average profit as explained earlier.

The amount has to be spent in 9 broad areas that results in social good as

under (as given in Schedule VII to the Bill). The areas are:-

(i) eradicating extreme hunger and poverty;

(ii) promotion of education;

(iii) promoting gender equality and empowering women;

(iv) reducing child mortality and improving material health;

(v) combating human immunodeficiency virus, acquired immune deficiency

syndrome, malaria and other diseases;

(vi) ensuring environmental sustainability

(For the full issue, subscribe athttp://bit.ly/ShriMagz)

All companies will

have to spend 2% of

average net profit

during three preceding

years on CSR.
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Case laws update

V. K. Subramani

Once application for registration under section 12AA

has been rejected there is no provision forreconsidering the application

In Kadakkal Educational Trust v. CIT (2013) 81 DTR (Ker)

345the application of the assessee for registration under

section 12A was rejected. The assessee after rectifying the

defects submitted an application for reconsideration of

the same.

Later the assessee filed an application for approval under section 10(23C)(vi)before Chief CIT and upon which it was presumed that the assessee was not

complying/ pressing for registration under section 12A. Subsequently, the

assessee filed a writ that registration under section 12A has to be

considered by the Revenue which the court held as no longer pending.

On conclusion of such finding by the court, the assessee cannot again make

a request for reconsideration of the application for registration under section

12A.

Defect in declaration in Form No. 15G cannot lead to disallowance

under section 40(a)(ia)

In Pareek Electricals v. Asst. CIT (2013) 81 DTR (Ctk)(Trib) 342there was

some infirmity in Form No. 15G filed by the assessee which prompted the

Assessing Officer to disallow the expenditure claim by way of rent.

The tribunal held that the claim of non deduction must be considered under

the provisions of section 194-I read with section 197A of the Act.

Disallowance under section 40(a)(ia) cannot be made for the infirmity in the

declaration filed by the recipient of income.

Interest payable to co-operative bank not covered by section 43B

In CIT v. Upendra T. Kapadia (2013) 81 DTR (Bom) 279it was held that

interest payable to a co-operative bank not mentioned in the Second

Schedule of the Reserve Bank of India, 1934 nor covered by any other bank

mentioned in the Explanation to section 11(5)(iii) of the Income-tax Act, will

not lead to disallowance under section 43B of the Act.


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Inter-corporate deposit written off in the first year not eligible for

deduction as bad debt

In Bharti Televentures v. Addtl. CIT (2013) 81 DTR (Del) 225the assessee

made inter-corporate deposit for the first time during the year and claimed

the same as bad debt after writing off the amount in its books of account.

The court held that being the first year the inter-corporate deposit claimed

as bad debt was not a trade debt or part of any money-lending business.

Accordingly, the claim of deduction was disallowed by the court.

Amount received towards carbon credit is a capital receipt, hence not

chargeable to tax

In My Home Power Ltd v. Dy. CIT (2013) 81 DT (Hyd) (Trib) 173the assessee

received a sum towards carbon credit given to another person who had

negative point of carbon credit. It was held that the amount received was a

capital receipt and hence could not be charged to tax.

Amount in Personal Ledger Account (PLA) is deductible under section

43B

In CIT v. Maruti Suzuki Ltd (2013) 81 DTR (Del) 152it was held that the

amount shown in personal ledger account under the central excise law is

deemed to be an expenditure incurred. Such sum hence cannot besubjected to disallowance was the verdict of the tribunal and which the

court upheld as valid.

Return has to be filed before the due date under section 139(1) to be

eligible for deduction under section 10A

In Saffire Garments v. ITO (2013) 81 DTR (Rajkot) (SB) (Trib) 131 it was held

that non-filing of return within the due date prescribed under section 139(1)

would lead to denial of deduction under section 10A. The tribunal held thatthe provisions of section 10A are mandatory.

Business not in existence at the time of formation of trust cannot be

called property held under trust

In CIT v. Mehta Charitable Prajnalay Trust (2013) 81 DTR (Del) 104it was

held that a business not held at the time of formation of the trust cannot be

called property held under trust.

Thus section 11(4A) will not apply. When the business carried on by the

trust is not incidental to the achievement of the objects, it will not fall under

section 11(4) and thus it is not entitled to exemption under section 11.


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Actual expenditure paid to supplier for windmill is to be reckoned for

depreciation regardless of the fact that it was returned earlier by a

previous customer to the supplier

In Navlakha Translines v. ITO (2013) 81 DTR (Pune) (Trib) 103the assessee

acquired windmills from the supplier who took those windmills from a

customer who surrendered the same because of its inability to pay the cost

of windmills. In spite of the previous customer availing depreciation thereon

the assessee who acquired windmills by incurring actual cost was held as

eligible to claim depreciation. It held that the fact of previous sale and

return of such machineries by a customer will not alter the eligible

depreciation claim.

A composite housing project with eligible and ineligible units entitles

deduction under section 80-IB in respect of eligible units

In Viswas Promoters (P) Ltd v. Asst. CIT (2013) 81 DTR (Mad) 68it was held

that in a housing project consisting of eligible and non-eligible units, the

assessee could claim deduction under section 80-IB in respect of eligible

units notwithstanding non-eligible units also form part of the same project.

(V. K. Subramani is Chartered Accountant, Erode)

Budget 2013 expectations

Business Advisorinvites business

leaders and professionals to mail in

Budget 2013 expectations.

State in about 100 words what you

wish the Finance Minister should do in

the forthcoming Budget, and email

along with your photo to

dmurali [at] outlook.com.

Rush in before February 15, 2013.


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List of contributors to this issue

T. N. Pandey, Former Chairman, CBDT, Noida

Dr S. Chandrasekaran, Chandrasekaran Associates, Delhi

Dr Sanjiv Agarwal, Agarwal Sanjiv & Company, Jaipur

Dr B. Yerram Raju, Regional Director, PRMIA, Hyderabad

Bimbadhar Mishra, Andhra Bank, Hyderabad

V. K. Subramani, Chartered Accountant, Erode


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Published by:Shrinikethan, Chennai http://bit.ly/ShriMap

Edited by:D. Murali http://bit.ly/dMurali http://bit.ly/TopTalk

January 25, 2013

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