ISSUE NO. 04 - AUGUST 2017(Subscribers copy not for sale)

NEWSLETTER

PUNE BRANCH OF WIRC OF ICAI

"Giveyourselfanevengreaterchallengethantheoneyouaretryingtomasterandyouwilldevelopthepowersnecessarytoovercometheoriginaldif�iculty.

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FORTHCOMING PROGRAMMES

OF PUNE BRANCH OF WIRC OF ICAI

“Thegreaterdangerformostofusisn'tthatouraimistoohighandmissit,butthat

itistoolowandwereachit.”

SR.

NO.

DATE SEMINAR NAME VENUE TIME FEES

CPE HRS.

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30th Aug, 2017

GST GYAN SATRA

SERIES-II-

GSTR 1,2,3

ICAI Bhawan, Bibwewadi, Pune

411037

5:00 pm To 7:00

pm

Fees Rs.250/-

2 Hrs

3

1st September,

2017

Convocation Ceremony for

Newly Qualified CA’s

Tilak Maharashtra Vidyapeeth

Auditorium, Opp. Katariya High

School,Gultekadi, Pune 411 037

3:00 pm To 6:30

pm

N. A. N. A.

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2nd & 3rd Sept, 2017

32nd Regional Conference of WIRC of ICAI

Hotel Grand HYATT,

Santacruz, Mumbai

9:00 am To 6:00

pm

Fees Rs. 5015/-

12 Hrs

5

7th Sept, 2017

GST GYAN SATRA

SERIES-II-Typical Issues in

GST Era and Practical Case

Studies

ICAI Bhawan, Bibwewadi, Pune

411037

5:00 pm To 7:00

pm

Fees Rs.250/-

2 Hrs

6

9th Sept, 2017

ICDS & Tax Audit-

Computation of Income &

Disclosures In Tax Audit Report

Will be update Shortly on

puneicai.org

10:00 am To

1:00 pm

Fees Rs.400/-

3 Hrs

15th Sept, 2017

Co-operative Study Group

Meeting

ICAI Bhawan, Bibwewadi, Pune

411037

5:00 pm To 8:00

pm

Fees Rs.1770/- 3 Hrs

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The ERP, Enterprise Resource Planning in common parlance indicates the optimistic

use of available resources - man, materials, machines etc. However, on today's date we

use the ERP to denote something more.

Automation is hardly absent anywhere. Large organizations either hire the

Information Technology companies or buy a product like SAP, Finacle, etc. for their

business solutions. Likewise, the Small and Medium Enterprises too have bought the

small customized or tailor-made softwares like Tally, Microsoft etc. to make the business

activities automated.

The large organizations do have their own team of hardware and software

professionals to run the application or they can afford to pay large Information

Technology firms to get support.

Though the Small and Medium Enterprises also intend to do that, they face many

limitations. They cannot afford to pay the price of complete business solutions so they

have to go for small type of applications which may have many deficiencies and cannot

employ the required staff.

Most of the owners or managers of Small and Medium Enterprises are technical

persons who remain busy with production, sales etc. They wish to make automation of

business activities but lack knowledge and time. It has been observed that the small

players in the software market develop certain modules, which are most of the times

inconsistent with the requirements and sell them to these Small and Medium

Enterprises. Due to lack of sufficient knowledge, the Small and Medium Enterprises

remain unsuccessful in effective use of such incomplete software. They spend lot of

time and money on these experiments and conclude with negative impressions about

the so called ERPs.

A detailed study of these attempts has revealed that the major causes of failure

are as under -

1) Majority of the owners of Small and Medium Enterprises and some of the developers

of software do not understand the exact requirements of the automation. In other

words it can be described as constructing the floors of a building without foundation.

2) The Small and Medium Enterprises avoid consulting experts in the field before they

place an order for software buying. Secondly they are always in a hurry to get the

solutions on finger tips.

ERP IMPLEMENTATION - AN OPPORTUNITY…….

By CA. Vijay Ashtekar

Email: - ashtekar@ashtekarca.com

“Whateveryoucando,ordreamyoucan,beginit.Boldnesshasgenius,magic,andpowerinit."

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3) The Small and Medium Enterprises don't follow the sequence of operations i.e. the

basic things first, then the vertical or horizontal expansions. In majority of the cases it

is seen that the material accounting is not done correctly, however material

requirement planning is expected to be worked upon.

4) The Small and Medium Enterprises, even if they get right software, they find it difficult

to operate effectively as they don't have the required trained staff to work on it.

5) The Small and Medium Enterprises fail to understand that no software is complete in

all respects howsoever it is developed by a well-known and large Information

Technology firm. It requires constant improvement as the business requirements

change day in and day out. The Small and Medium Enterprises face difficulties on this

count, as they don't understand that such process is not a onetime exercise.

6) Another important aspect is the constant monitoring of the process at least for a few

operating cycles of installation, which is missing in majority cases. The Small and

Medium Enterprises cannot afford to spare an independent person to carry out the

exercise and the result is loss of interest in implementation process.

7) Small and Medium Enterprises find it difficult to understand the complexities of the

implementation process. They are unable to estimate the time line of entire process.

Further they expect the product to be complete in all respects at once, which is hardly

possible.

8) Prediction or imagination or estimation of all the functionalities at the beginning is next

to impossible which the Small and Medium Enterprises hardly understand.

9) Most of the time they look at the cost of development and implementation process as

revenue expenditure, hence reluctant to incur. In fact, this cost has no depreciable life

although for the sake of accounts, it is amortized.

The Role…….

A Chartered Accountant can play a very vital role in the process of implementation.

He has thorough knowledge of accounting, taxation and also substantial knowledge of

systems of business. He can bridge the gap between the owners of the Small and

Medium Enterprises and the Information Technology professionals to develop and

successfully implement an ERP. With his expert knowledge and comprehensive

experience, he can understand the requirements of the business in a better way and

transform them to the Information Technology professionals. He knows the data

resources to be integrated and the reports to be generated from the data processing. To

achieve this, he has to take some more efforts to understand the basics of hardware and

software process.

The client has always confidence with the chartered accountant so he is more

comfortable with the arrangements of implementation process being handled by the

"Byrecordingyourdreamsandgoalsonpaper,yousetinmotiontheprocessofbecomingthepersonyoumostwanttobe.Putyourfutureingoodhands—yourown."

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chartered accountant.

ERP implementation is a fast emerging area of service for Chartered Accountants.

The process is very much challenging and requires analytical skills, application of

knowledge to think, work independently, no due dates and good returns. The

opportunity gives you chance to learn many new things, insights of unusual things which

we don't follow in conventional practice. Since the implementation process is

continuous, you have the continuous work flow to do.

The Chartered Accountant is aware of the business process of his client, however for

this kind of service, he has to look beyond the normal scope of audit and assurance

practice. He needs to understand the business process at micro or even nano level.

Moreover, the exercise becomes a kind of system audit. With the help of the client, he

has to define the processes at macro level and then sub processes at micro level,

describe each small process with relation to other processes, prepare process flow

charts, prepare various kinds of forms and compile all these things in the form of a work

book. Review the workbook at least twice and then interact with the information

technology professionals for the next process of development. A Chartered Accountant

being a non technical person, has no role in development and testing process. Once the

development cycle is over, may be in totality or module by module, again he has to get

involved into the functional testing process. Functional testing a very important step of

implementation process which requires techno commercial approach. The Chartered

Accountant with the help of the client starts testing of the modules with the hypothetical

examples or sometimes with actual business data.

He has to monitor the use of every module of the application carefully.

Simultaneously, he has to ensure functional accuracy of the existing manual system as

well as the hybrid system, i.e. combination of manual and automation. The initial or

basic data entry or masters creation is very important and tedious job which he has to

handle.

Both the systems i.e. existing one and new ERP should run parallel at least for one

year to ensure the accuracy and correctness of the data being processed and reports

generated.

The implementation process has too many complexities which cannot be explained

or described in one or two paragraphs. The detailed process may require compilation of

a book itself.

Everybodyhasthat.Butachampionneeds,inhisattitude,amotivationaboveandbeyondwinning."

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HIGH LEVEL STEP PLAN TO COMPLY WITH ANTI-PROFITEERING PROVISIONS

Post GST implementation, whilst taxpayers await clarity on multiple provisions and

rules, 'Anti-profiteering' provision has been at the forefront of taxpayers woes.

Apparently, the Central GST law, as passed by the Parliament, contains 'Anti-

profiteering' provision to ensure that the benefits arising during the transition phase from

current tax regime to GST regime should be passed on to the consumers.

Globally, Australia is said to be the first country to introduce anti-profiteering

provisions during GST introduction in the year 2000, followed by Malaysia in the year

2015. Though there are no empirical studies to prove its benefits, still as a deterrent,

Government appears to be inclined to experiment with these provisions in India.

The precisely 10 lines long, section 171 of Central GST Act, mandates that benefits

arising due to rate reduction and more credits being available in GST regime should be

passed on to the consumer by way of commensurate reduction in prices. This section

also empowers the Government to constitute an authority or entrust an existing

authority to ensure compliance of anti-profiteering provisions. Thus, it is essential to

compute the likely benefit and have a step-plan ready to pass on the same to the

consumer.

How to compute impact of 'Anti-profiteering provision'?Though at present, guidelines to compute the benefits are not prescribed, still on a

broad level, the taxpayer can compute the likely benefits arising. Anti-profiteering

provision categorizes the likely benefits in two baskets, one, more input tax credits

becoming available and the second, reduction in tax rates. First let us understand which

are the likely benefits expected to arise from input tax credits perspective.

At present, Central Sales Tax is a cost in the supply chain and in GST, there will be no

CST. This could be construed as a benefit arising due to transition to GST. At present,

service providers cannot claim credit of VAT paid on goods and traders cannot claim

credit of excise/ CVD and Service tax. Going forward, these credits are expected to

accrue to a taxpayer.

Taxpayer should identify these benefits arising on account of transition to GST at an

organizational level. Further, basic cost sheet, even tax benefits may also be computed

at the product level.

Once the benefits arising from credit are captured, next step should be to compute

benefits from rate reduction, if any. This benefit may be computed at product level. Say

for example, a toothpaste of Rs. 10 at present attracts excise and vat of Rs. 3 and in

By :-CA Pritam Mahure

Email: -capritam@gmail.com

“Motivationiseverything.Youcandotheworkoftwopeople,butyoucan'tbetwopeople.Instead,youhavetoinspirethenextguydownthelineandgethimtoinspire

hispeople."

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GST regime the GST payable on toothpaste is say Rs. 2, then Re. 1 would be the likely

benefit.

It may be noted while aforesaid steps will give clarity in understanding how much

benefit is arising at organizational level, the business will also have to ensure that their

vendors also pass on the benefits by way of price reduction. In this regard, for computing

the aforesaid details, business entity will be required to obtain cost data from vendors. In

case details are shared by the vendors, then veracity of the details shared by vendor

could be internally verified by the Company or through another independent firm.

However, in case details are not shared by vendors, then based on industry knowledge,

few sample cost sheets may be prepared. The expected amount of benefits thus

arrived, could be shared with vendors for confirmation and used for the purposes of

negotiation.

From contracts perspective, it will be advisable to add appropriate anti-profiteering

clause in the agreements with the vendor wherein the clause may state that the vendor

agrees to comply with anti-profiteering provisions and vendor agrees to share authentic

and verified data to ensure that the benefit is appropriately passed on to the company in

accordance with anti-profiteering provisions. Even going a step further, a clause can

state that in case appropriate benefit is not passed, then the vendor will be liable to pay

any future disputed liability along with interest, fine, penalty, litigation cost etc.

It is pertinent to note that anti-profiteering provisions are very brief and thus have

invoked multiple questions such as how to change MRPs if the products are already at

the retailer store, whether compliance will be mandatory even if the product is covered

under drug pricing control order etc. So, let us hope that anti-profiteering provisions

should not be perceived as 'anti-industry' and the Government issues detailed

guidelines to ensure industry specific challenges which will be appropriately addressed.

"Farandawaythebestprizethatlifeoffersisthechancetoworkhardatworkworthdoing."

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SELECTION OF RPM AS MOST APPROPRIATE METHOD BY TPO, IN PREFERENCE TO

TNMM METHOD SELECTED BY ASSESSEE, COULDN'T BE UPHELD

Case Law Citation:-Zee Entertainment Enterprises Ltd. vs. Additional Commissioner of Income-tax, range-

11 (1), Mumbai (Mumbai - Trib.); [2017] 81 taxmann.com 379; Date of pronouncement

MAY 5, 2017; AY 2008-09

Brief of the Case:-Where TPO hadn't brought out any justifiable reasons to depart from adopting TNMM

method, which was otherwise found to be applicable in assessments of past as well as

subsequent assessment years, on principle of consistency, selection of RPM as most

appropriate method by TPO in preference to TNMM method selected by assessee

couldn't be upheld.

Case Summary:-Facts of the case:

The assessee was purchasing as well as producing in-house general

entertainment programmes, current affairs and films for telecasting on its

channels in India. After exhibiting and telecasting its programmes on Indian

channels, the assessee sold the telecasting rights of such programmes and films

to its associated enterprise ATL for telecasting on its channels in UK, USA, Africa,

Middle East, etc. at pre-determined prices.

ATL had, in turn, entered into agreements with Zee TV, USA and Asia TV, USA for

distribution of programmes on channels via satellite and cable networks, for a

fixed fee.

Further, sale of TV programmes and films to the associated enterprise was

benchmarked by applying the Transaction Net Margin Method (TNMM), and the

PLI was determined at 56.36 per cent based on the formulae of Operating

Profit/Operating Cost (OP/OC). It was asserted that since the margin of the

selected comparables was 0.13 per cent, the stated value of the international

transaction of sale of TV programmes and films was at an arm's length price.

The TPO rejected the TNMM Method selected by the assessee and selected the

Resale Price Method (RPM) as most appropriate method in order to benchmark

the international transaction of sale of programmes and films. Secondly, he

selected ATL, Mauritius as the tested party and computed the gross profit earned

by ATL, Mauritius and attributed 90 per cent of such profits to the assessee and in

this manner an addition was computed.

CA Suraj R. Agrawal

asuraj@deloitte.com

“Motivationissimple.Youeliminatethosewhoarenotmotivated."

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The Commissioner (Appeals) affirmed the stand of the Assessing Officer, which

was in conformity with the addition determined by the TPO.

In the instant appeal, assessee pointed out that the selection of RPM as the most

appropriate method by the TPO was incorrect, inasmuch as, ATL didn't make any

further sale of the TV programmes and films but had only transacted in giving

telecasting rights to Zee, USA & Asia TV, UK, which were mere distribution

companies; they were being remunerated on commission basis; and, that there

was no sale of TV Programmes and films by ATL, Mauritius to Zee TV and Asia

TV unlike the transaction between assessee and ATL. Secondly, it was

emphasized that even if the transactions of ATL with Zee TV- USA and Asian TV

UK were to be understood as that of sale, yet it couldn't justify adoption of the

RPM because such transactions were between related parties.

Ruling of Honorable ITAT/Court:

· Firstly, it is to be noted that the impugned international transaction of sale of TV

programme and films is not specific to the year under consideration and rather, it

has been entered in terms of Memorandum of Understanding, which shows that

similar transactions have been entered by the assessee in the past years also. In

fact, at the time of hearing, it has been emphasized that such transactions have

been entered in the past as well as in the subsequent years and in none of the

years upto assessment year 2012-13, the transactions have been viewed as

dubious by the assessing authority. Therefore, with this background, the stand of

the Transfer Pricing Officer in the instant year becomes suspect, and, in any

case, it lends a heavy burden on the Transfer Pricing Officer to demonstrate the

'dubious' nature of the transactions. The moot point is whether such a burden has

been discharged by the Transfer Pricing Officer? The discussion in the order of

Transfer Pricing Officer reveals two reasons which have weighed with him to

conclude that the transactions are dubious.

· Firstly, according to him, the programmes have been sold at 'throw away prices'

to the associated enterprise as compared to the actual cost of production. At the

time of hearing, the assessee pointed out that the reference to such values was a

misnomer, because they are prices at which TV programmes and films have

been sold to non-associated enterprises. It is seen that such a point was raised

by the assessee even before the Commissioner (Appeals) but the same has

been merely brushed aside. Thus, it becomes quite clear that the stand of the

Transfer Pricing Officer is based on a misconception, and is devoid of any factual

support.

· The unsustainability of the approach of the Transfer Pricing Officer in selecting

the RPM can also be gauged if one takes into consideration the provisions of rule

10C of the rules. As noted earlier, the computation of arm's length price under

section 92C (1) is required to be made in terms of the most appropriate method

"Motivationisa�irefromwithin.Ifsomeoneelsetriestolightthat�ireunderyou,chancesareitwillburnverybrie�ly."

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prescribed therein. Sub-section (1) of section 92C also enumerates the methods

prescribed and rule 10C(1) of the rules postulates that the most appropriate

method shall be the method which is 'best suited to the facts and circumstances

of each particular international transaction', and which provides the "most

reliable measure" of an arm's length price in relation to the international

transaction. Sub-rule (2) of rule 10C provides the factors which shall be taken into

consideration while selecting the most appropriate method. Quite clearly, the

entire discussion in the order of the Transfer Pricing Officer does not reflect any

justifiable factors for selecting the RPM method in preference to the TNMM

method selected by the assessee as the most appropriate method.

· Moreover, it is factually evident that assessee has undertaken similar

international transactions of sale of television programmes and film rights to its

associated enterprises in the past as well as in subsequent years and the same

were benchmarked by considering the TNMM method as most appropriate

method; and such position has been accepted by the assessing authority in the

respective years. No doubt, the principles of res judicata are not strictly

applicable to the income-tax proceedings, so however, if a qualitatively

comparable situation exists in more than one assessment year, then the rules of

consistency cannot be given a go by.

· In the instant case, it is found that the impugned international transaction of sale

to the associated enterprise, ATL Mauritius is effected in terms of Memorandum

of Understanding dated 01-10-2005, which clearly shows that qualitatively

similar transactions have been undertaken by the assessee in the past year,

wherein benchmarking done by selecting the TNMM method as the most

appropriate method stands accepted. In the course of hearing, the assessee had

asserted that similar situation prevails in the subsequent assessment years also,

and such assertion has not been controverted by the revenue. Even otherwise,

the Transfer Pricing Officer has not brought out any justifiable reasons to depart

from adopting the TNMM method, which has otherwise been found to be

applicable in the assessments of past as well as subsequent assessment year's

upto to the assessment year 2012-13 by the assessee.

· Therefore, on the principle of consistency also, the selection of RPM method as

the most appropriate method by the Transfer Pricing Officer in preference to the

TNMM method selected by the assessee cannot be upheld.

“Manyoflife'sfailuresarepeoplewhodidnotrealizehowclosetheyweretosuccesswhentheygaveup."

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CA FOUNDATION DAY CELEBRATION

Seminar on “Begin Your Fitness Journey”From L to R- CA Aambarish Vaidya,CA Prashant Tidke, Amateur cyclist-runner,

CA Jugal Rathi, Amateur Marathoner,Cyclist & Former Vice-

Chairman-WIRC, Ms.Aparna Prabhudesai , 2017 Everest Climber and

amateur Ultra Marathoner

FLAG HOISTING

Exhibition of Painting & Photography

BLOOD DONATION CAMP

“Successseemstobeconnectedwithaction.Successfulpeoplekeepmoving.Theymakemistakes,buttheydon'tquit."

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SEMINAR ON PRACTICAL ASPECTS OF HOUSING SOCIETY AUDITS & GST IMPACT ON COOPERATIVES

CA Shilpa Shinagare -Speaker CA Jugal Doshi -Speaker CA Nikhil Malaiya-Speaker

TELECAST/WEBCAST OF THE PROGRAM ORGANISED AT I.G. INDOOR STADIUM IN NEW DELHI

SWACHH BHARAT ABHIYAAN,CLEANLINESS & TREE PLANTATION DRIVE-LOCAL GOVT. SCHOOL/ HOSPITAL

"Ifyouworkjustformoney,you'llnevermakeit,butifyoulovewhatyou'redoingandyoualwaysputthecustomer�irst,successwillbeyours."

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WICASA ACTIVITIES

Ms. Padmini Panse-Speaker- Management workshop on leadership & Team Motivation for CA students

SEMINAR ON FILING OF INCOME TAX RETURN FOR CA STUDENTS

CA Karishma Bora-Speaker CA Mayuri Kulkarni-Speaker

REFRESHER COURSE ON GST FOR CA STUDENTS

CA Rajesh Agarwal-Speaker CA Amit Agarwal-Speaker Par�cipants

FRUIT SEED PLANTATION CAMPAIGN

“Successfulpeopledowhatunsuccessfulpeoplearenotwillingtodo.Don'twishitwereeasier;wishyouwerebetter."

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Plot No.8, Parshwanath

Nagar, CST No. 333,

Sr.No.573, Munjeri,

Opp. Kale hospital,

Near Mahavir Electronics,

Bibwewadi, Pune 411037

Tel: (020) 24212251 / 52

Web: www.puneicai.org

Email: admin@puneicai.org

Pune Branch of WIRC of ICAI

"Successfulandunsuccessfulpeopledonotvarygreatlyintheirabilities.Theyvaryintheirdesirestoreachtheirpotential."

*Adissional GST - 18%