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Thursday, September 24, 2009

PCC june 2009 papers with suggested answers

Hello friends as requested to me i m hereby uploading some of the PCC june papers with there suggested answers (other papers would also be uploaded by 1st week of october)

1.Audit paper (click below to download)
option 1. http://groups.google.co.in/group/ca_taxmannindia/web/audit%20jun2009%20pcc.pdf?hl=en
option 2. http://rapidshare.com/files/284520143/audit_jun2009_pcc.pdf

2.law paper (click below to download)
option 1 http://groups.google.co.in/group/ca_taxmannindia/web/law%202009%20PCC.pdf?hl=en
option 2 http://rapidshare.com/files/284520284/law_2009_PCC.pdf

3.tax paper (click below to download)
option 1. http://groups.google.co.in/group/ca_taxmannindia/web/tax%20jun09%20pcc.pdf?hl=en
option 2. http://rapidshare.com/files/284520451/tax_jun09_pcc.pdf

posted at www.taxmannindia.blogspot.com

Announcement for panel for outsourcing of work of Technical Scrutiny of Balance Sheets - (23-09-2009)

The Institute has received an Office Memorandum (OM) from the Ministry of Corporate Affairs. As per the OM, the Registrar of Companies will prepare a panel of professionals for Technical Scrutiny of Balance Sheets filled by the Companies for the State concerned.


 The Scheme of outsourcing the work will be for the financial year 2009-10.  The details of the Scheme specifying the eligibility criteria, mode of application, Procedure to be followed by the ROC for outsourcing of work, is provided in the Office Memorandum issued by the Ministry. 


 


            The Institute of Chartered Accountants of India while appreciating the initiative taken by the Ministry for ensuring good corporate governance and transparency for safeguarding the interest of the shareholders, creditors and the economy as a whole wishes to provide professional expertise of its members to the Registrar of Companies.  For the purpose, it has been decided to prepare a panel of the members of the Institute and send the same to the Ministry.


                       


Procedure for Registration for the empanelment:


  Members holding Certificate of Practice and intending to empanel themselves in their individual capacity may submit their Empanelment Form by e-mail and also in physical copy at the address mentioned below. After verification, the same will be included in the panel and forwarded to the Ministry of Corporate Affairs.


 


                                 


For any further clarification, the members can contact:


Secretary, Corporate Laws Committee


The Institute of Chartered Accountants of India


ICAI Bhawan, Indraprastha Marg


New Delhi-110002


Tel. No. 011-30110471


E-mail: corpoartelaws@icai.in / skgarg@icai.in



posted at www.taxmannindia.blogspot.com

REPRESENTATION MADE FOR EXTENSION OF DUE DATE FOR FILING THE RETURN OF INCOME - (23-09-2009)

Due to the fact that most of the establishments are virtually closed on account of festivals of Durga Pooja, Navratra’s and Dussehra, representations were received from members all over the country posing the difficulties faced by them in preparing and filing the return of income by due date. Hence, ICAI has made a representation to the Chairman, CBDT requesting him to extend the due date for filing the return of income u/s 139 (1) of the Income Tax Act, 1961 suitably.

 Further, ICAI has also suggested CBDT to request the Assessing Officers not to fix the cases near to the last date of filing return of income and where the cases are already fixed up the same may be adjourned to some later date. This request has been made since it has been noticed that a large number of cases have been fixed up by the Assessing Officers near to the last date of filing return of income which becomes burdensome for the assessees.

 
posted at www.taxmannindia.blogspot.com

Notification No. 68, dated 15-9-2009 Section 35(1)(ii) of the Income-tax Act, 1961 - Scientific Research Expenditure - Approved Scientific Research As

Section 35(1)(ii) of the Income-tax Act, 1961 - Scientific Research Expenditure - Approved Scientific Research Associations/Institutions

 

Notification No. 68, dated 15-9-2009

 

It is hereby notified for general information that the organization Sri Aurobindo Society, Kolkata has been approved by the Central Government for the purpose of clause (ii) of sub-section (1) of section 35 of the Income-tax Act, 1961 (said Act), read with Rules 5C and 5E of the Income-tax Rules, 1962 (said Rules), from Assessment year 2009-2010 onwards in the category of 'other Institution', partly engaged in research activities subject to the following conditions, namely:-

(i) The sums paid to the approved organization shall be utilized for scientific research;

(ii) The approved organization shall carry out scientific research through its faculty members or its enrolled students,

(iii) The approved organization shall maintain separate books of accounts in respect of the sums received by it for scientific research, reflect therein the amounts used for carrying out research, get such books audited by an accountant as defined in the explanation to sub-section (2) of section 288 of the said Act and furnish the report of such audit duly signed and verified by such accountant to the Commissioner of Income-tax or the Director of Income-tax having jurisdiction over the case, by the due date of furnishing the return of income under sub-section (1) of section 139 of the said Act;

(iv) The approved organization shall maintain a separate statement of donations received and amounts applied for scientific research and a copy of such statement duly certified by the auditor shall accompany the report of audit referred to above.

 

2. The Central Government shall withdraw the approval if the approved organization:-

(a) fails to maintain separate books of accounts referred to in sub-paragraph (iii) of paragraph 1; or

(b) fails to furnish its audit report referred to in sub-paragraph (iii) of paragraph 1; or

(c) fails to furnish its statement of the donations received and sums applied for scientific research referred to in sub-paragraph (iv) of paragraph 1; or

(d) ceases to carry on its research activities or its research activities are not found to be genuine; or

(e) ceases to conform to and comply with the provisions of clause (ii) of sub-section (1) of section 35 of the said Act read with rules 5C and 5E of the said Rules.

[F.No. 203/6/2009/ITA-II]

 
posted at www.taxmannindia.blogspot.com

Notification No. 69, dated 15-9-2009 Section 35(1)(ii) of the Income-tax Act, 1961 - Scientific Research Expenditure - Approved Scientific Research Associations/Institutions

Section 35(1)(ii) of the Income-tax Act, 1961 - Scientific Research Expenditure - Approved Scientific Research Associations/Institutions



Notification No. 69, dated 15-9-2009



It is hereby notified for general information that the organization Sastra University, Chennai has been approved by the Central Government for the purpose of clause (ii) of sub-section (1) of section 35 of the Income-tax Act, 1961 (said Act), read with Rules 5C and 5E of the Income-tax Rules, 1962 (said Rules), from Assessment year 2009-2010 onwards in the category of 'other Institution', partly engaged in research activities subject to the following conditions, namely:-

(i) The sums paid to the approved organization shall be utilized for scientific research,

(ii) The approved organization shall carry out scientific research through its faculty members or its enrolled students:

(iii) The approved organization shall maintain separate books of accounts in respect of the sums received by it for scientific research, reflect therein the amounts used for carrying out researcl get such books audited by an accountant as defined in the explanation to sub-section (2) of section 288 of the said Act and furnish the report of such audit duly signed and verified by such accountant to the Commissioner of Income-tax or the Director of Income-tax having jurisdiction over the case, by the due date of furnishing the return of income under sub-section (1) of section of the said Act;

(iv) The approved organization shall maintain a separate statement of donations received and amounts applied for scientific research and a copy of such statement duly certified by the auditor shall accompany the report of audit referred to above

2. The Central Government shall withdraw the approval if the approved organization:-

(a) fails to maintain separate books of accounts referred to in sub-paragraph (iii) of paragraph 1: or

(b) fails to furnish its audit report referred to in sub-paragraph (iii) of paragraph 1; or

(c) fails to furnish its statement of the donations received and sums applied for scientific research referred to in sub-paragraph (iv) of paragraph 1; or

(d) ceases to carry on its research activities or its research activities are not found to be genuine; or

(e) ceases to conform to and comply with the provisions of clause (ii) of sub-section (1) of section 35 of the said Act read with rules 5C and 5E of the said Rules.

[F.No. 203/58/2009/ITA-II]

posted at www.taxmannindia.blogspot.com

HIGH COURT OF PUNJAB AND HARYANA Charge of Wealth-tax and assets subject to such charge

Charge of Wealth-tax and assets subject to such charge



The land which falls within the exception of ‘urban land’ would have to be excluded from the ambit and scope of expression ‘urban land’ and, such land would not be covered by the expression ‘assets’ as defined in section 2(ea) of the Wealth-tax Act, 1957; consequently, such land would not be treated as net wealth of an assessee for the purposes of provisions of the Act.



HIGH COURT OF PUNJAB AND HARYANA

Amrit Lal Jindal & Sons (HUF)

v.

ITO

WTA No. 12 of 2009 (O&M)

September 15, 2009

RELEVANT EXTRACTS:

** ** ** ** ** ** ** ** ** ** ** **

9. In the backdrop of the aforementioned factual matrix, the assessee-appellant has filed the instant appeals raising the following substantial questions of law for determination of this Court:-

“(i)Whether on the facts and circumstances of the case, the Ld. ITAT has erred in law in modifying its earlier order Annexure A-5 by passing orders Annexure A-11 and A- 12,when the matter relating to date of acquisition of property measuring 78 Kanal 1 Marla and the date on which the Right to receive compensation accrued to the assessee, was a debatable issue? (ii)Whether on the facts and circumstances of the case, the acquisition proceedings in the present case were initiated on 15.7.1992 when the Resolution was passed by Improvement Trust and alternatively on 22.7.1994, 29.7.1994 or 5.8.1994,when the Notifications as such were published in the Official Gazette of Punjab Govt.? Therefore, the Ld. ITAT has erred in law to hold that the proceedings of acquisition were initiated in 1997.

(iii)Whether on the facts and circumstances of the case, the right to receive compensation is vested in the owner of the property on the date of passing of the Resolution by Improvement Trust or its vests on the date of notification in the Official Gazette or on the date when the property is actually acquired?

(iv) Whether on the facts and circumstances of the case, the Ld. ITAT has erred in law in upholding the order of the lower authorities, whereby the entire chunk of land measuring 106 Kanal 15 Marla was included in the urban land as defined in Section 2(ea)of the Act ibid, when no construction activity was possible on the land under the provisions of local Acts of Punjab as in force during those assessment years and also after the passing of the Resolution by the Improvement Trust before 31.3.1993?

(v)Whether the Ld. ITAT has erred in law in accepting the application for rectification filed by the Department that land measuring 78 Kanal 1 Marla was includible in the net wealth of the assessee, when the Department has not challenged the finding of the 1 st Appellate Authority to the extent that it was only a right to receive compensation as no construction activity was possible on that land during the impugned assessment year.

13. It would first be appropriate to answer question Nos.(ii),(iii) and (iv)first because all the questions are inter-connected. Accordingly, we proceed to answer these questions jointly. One of significant issue which permeate all the questions is the date on which the assessee became disentitled to raise construction on the acquired land by virtue of acquisition of land by Improvement Trust, Sangrur .Would it be the date when the Trust has passed the resolution for framing the scheme or the date when declaration is made under Section 36 of the 1922 Act (which is equivalent to Section 4 of the Land Acquisition Act,1894).The answer to the aforesaid question would depend upon the possibility of the assessee to raise construction by erecting or re-erecting the building. In that regard it would be necessary to read the provisions of the 1922 Act. Chapter IV of the 1922 Act, from Sections 22 to 24 deals with various types of Schemes and the matter which are required to be provided for, mode and manner of framing of the scheme leading to the sanctioning of the same by the Government under Section 42. If any of the schemes as contemplated by Sections 23,24,25,26,27 and 28 is framed then the owner of the land is covered by the Scheme and could be refused permission to raise construction by virtue of the provisions made in Section 31 of the 1922 Act,which reads thus:

“31.Prohibiting of building beyond a street alignment.-

(1) In the locality comprised in a scheme under this Act, no person, shall, except with the written permission of the Trust, erect , reerect, add to or alter any building so as to make the same project beyond a street alignment or building line duly prescribed by the Trust.

(2)In the locality comprised in a development scheme or an expansion scheme, if any person desires to erect, re-erect, add to or alter any building on his land so as to make the same project beyond a street alignment or a building line duly prescribed by the Trust, he shall apply to the Trust for permission to do so, and if the Trust refuses to grant permission to such person according to his application, and does not proceed to acquire such land within one year from the date of such refusal, it shall pay reasonable compensation to such person for any damage or loss sustained by him in consequence of such refusal.”

14 .A perusal of the aforesaid section shows that there is express prohibition of building. According to sub-section (1)of Section 31 of the 1922 Act in the locality comprised in a scheme framed under this Act no person is permitted to erect and re-erect, add to or alter any building so as to make the same project beyond a street alignment or building line duly prescribed by the trust. According to sub-section (2)of Section 31 of the 1922 Act in the locality comprised in a development scheme or an expansion scheme, if any person keen to erect, re-erect, add to or alter any building on his land so as to make the same project beyond a street alignment or a building line duly prescribed by the Trust then he has to obtain specific permission from the Trust. The definitions of ‘street ’,‘alignment ’ and ‘building alignment ’ are available in Section 2(3)&(4)of the 1922 Act. It is matter of common knowledge that when an Improvement Trust frames a scheme as contemplated by various sections to which reference has been made in the preceding paras then intimation in that regard is sent to the other local bodies including the Municipal Committee, Municipal Corporation and Notified Area Committee. Such local bodies are debarred from sanctioning a site plan in respect of the area covered by the scheme . Accordingly it follows that erection, re-erection addition or alteration of any building on the land by the owner is prohibited as no person is entitled to erect or re-erect, add to or alter any building so as to allow the same project beyond a street alignment or building line prescribed by the Trust. It is Improvement Trust alone which could exercise power in respect of area covered by the Scheme. If the owner is permitted to raise construction beyond building line prescribed by the Trust then it would simply interfere with the scheme prepared by the Trust. Therefore it has to be concluded that the provisions come into force when the resolution by the Trust is passed. It is also well known that no site plan is ever sanctioned by the Trust if the land is under a Scheme. The declaration made under Section 36 of the 1922 Act may come much later. What calls for our specific notice in this regard is the peculiar provision which is distinct from the provisions of the Land Acquisition Act,1894. Sections 22 to 24 of the 1922 Act deals with the framing, processing and sanctioning of various schemes such as improvement, land building, development, extension and housing accommodation scheme etc. The provisions made in Sections 22 to 35 of the 1922 Act have nothing to do with the acquisition of the land till the notification is issued under Section 36 of the 1922 Act. After the scheme is framed by the Trust the same is forwarded to the Government for according sanction by following the procedure as per the provisions of Sections 36,38 and 42 of the 1922 Act. It is well settled that no agency of State including the Trust has power to acquire the land. The power of acquisition vests with the Government although the land is acquired for the purposes of scheme framed by the Trust. In that regard reliance may be placed on the judgment of Hon’ble the Supreme Court rendered in the case of Nagpur Improvement Trust v.Vithal Rao,AIR 1973 SC 689 .Therefore it is evident from the peculiar provisions of Sections 22 to 35 of the 1922 Act that the right of the owner to erect or re-erect add to or alter any building is clogged by prohibition.

16 .In view of the aforesaid discussion it is established that the date of resolution for framing the scheme would be the relevant date which in the present case is 15.7.1992.

Re:Question Nos.(i)and (v)

17.The question then is whether the property under the scheme since 15.7.1992 would be exigible to wealth-tax. The answer lies in Sections 2 and 3.Chapter II of the Act is titled as ‘Charge of Wealth-tax and assets subject to such charge ’ .In the present case, we are concerned with assessment years 1993-94,1994-95 and 1995-96.Section 3(2)of the Act is the charging section which provides that subject to other provisions of the Act, wealth-tax has to be charged for every assessment year commencing on and from April 1,1993 in respect of the net wealth on the corresponding valuation date of every individual HUF and company at the rate of one per cent of the amount by which the net wealth exceeds 15 lacs rupees. Section 2(e)of the Act defines the expression ‘assets ’ ,which includes property of every description, movable or immovable but does not include what is specifically excluded in that definition. Section 2(ea)of the Act defines ‘assets’ in relation to the assessment year commencing from April 1,1993 and/or subsequent assessment years. The ‘urban land ’ is included in the definition of ‘assets’ .However, clause (b)of the explanation to Section 2 (ea)of the Act elaborates what is ‘urban land ’ and which landed property is not to be included and covered by that expression. It would be necessary to read the aforesaid provisions, which reads thus:

“2(ea)“assets ” ,in relation to the assessment year commencing on the 1 st day of April,1993,or any subsequent assessment year, means-

(i)to (iv)xxx xxx xxx

(v)urban land;

(vi)xxx xxx xxx

Explanation 1.-For the purposes of this clause,-

(a)xxx xxx xxx

(b)“urban land ” means land situate-

(i)in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name)or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the valuation date; or (ii)in any area within such distance, not being more than eight kilometers from the local limits of any municipality or cantonment board referred to in sub-clause (i),as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette, but does not include land on which construction of a building is not permissible under any law for the time being in force in the area in which such land is situated or the land occupied by any building which has been constructed with the approval of the appropriate authority or any unused land held by the asses see for industrial purposes for a period of two years from the date of its acquisition by him or any land held by the assessee as stock-in-trade for a period of three years from the date of its acquisition by him;” (emphasis added)

18.The aforesaid provision in italics were added by the Finance Act,1993 and was made applicable from April 1,1993.As already noticed, the relevant assessment years in the present case are 1993-94,1994-95 and 1995-96.On a bare reading of the aforesaid provisions it becomes evident that the definition of ‘urban land ’ does not envelop that land on which construction of a building is not permissible under any law for the time being in force in the area where the land is situated or the land occupied by any building which has been constructed with the approval of the appropriate authority or to any unused land held by an assessee for an industrial purpose for a period of two years from the date of application. The assessee in the present proceedings has claimed the benefit of the provisions to the extent that the land cannot be regarded as ‘urban land ’ because no construction was permissible on the land in question at the relevant time relating to the assessment years 1993-94 and onward .Accordingly, the land which falls within the exception would have to be excluded from the ambit and scope of expression ‘urban land ’ and, therefore, such land would not be covered by the expression ‘assets ’ as defined in Section 2(ea)of the Act .As a result of the aforesaid bare provision that such land would not be treated as net-wealth of an assessee for the purposes of provisions of the Act. In some- what similar circumstances a Division Bench of Delhi High Court in the case of Commissioner of Wealth-tax v. D.C.M. Ltd.,[2007 ]290 ITR 615 (Delhi),has taken the view that once no construction is permissible in law then such land would not be ‘urban land ’ .Therefore, it would not be included in the expression ‘assets’. Accordingly, it has been held that such land would not be exigible to wealth-tax.

19 .The aforesaid discussion makes it clear that once the land could not be covered by definition of expression ‘assets ’ then it would not be exigible under the Act. The question then is whether the Tribunal has validly exercised the power of rectification under Section 35(e)of the Act. The opening words in Section 35(1)of the Act are ‘With a view to rectifying any mistake apparent from the record ’.Similar expression has been used in Section 154 of the Income-tax Act,1961.The aforesaid provision came up for consideration before Hon’ble the Supreme Court in the well known case of T.S.Balaram v. M/s Volkart Brothers,AIR 1971 SC 2204 .In the concluding para 8 of the judgment their Lordships ’ have observed as under:-

“8.From what has been said above,it is clear that the question whether S.17 (i)of the Indian Income-tax Act,1922 was applicable to the case of the first respondent is not free from doubt. Therefore the Income-tax Officer was not justified in thinking that on that question there can be no two opinions. It was not open to the Income-tax Officer to go into the true scope of the relevant provisions of the Act in a proceeding under section 154 of the Income-tax Act,1961.A mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions. As seen earlier, the High Court of Bombay opined that the original assessments were in accordance with law though in our opinion the High Court was not justified in going into that question. In Satyanarayan Laxminarayan Hegde v. Mallikarjun Bhavanappa Tirumale,(1960)1 S.C.R.890=(AIR 1960 S.C.137)this Court while spelling out the scope of the power of a High Court under Art.226 of the Constitution ruled that an error which has to be established by a long drawn process of reasoning on points where there may conceivably be two opinions cannot be said to be an error apparent on the face of the record. A decision on a debatable point of law is not a mistake apparent from the record-see Sidhramappa v. Commr. of Income-tax, Bombay, (1952)21 ITR 333 =(AIR 1952 Bom 287).The power of the officers mentioned in S.154 of the Income-tax Act,1961 to correct "any mistake apparent from the record "is undoubtedly not more than that of the High Court to entertain a writ petition on the basis of an "error apparent on the face of the record". In this case it is not necessary for us to spell out the distinction between the expressions "error apparent on the face of the record" and "mistake apparent from the record". But suffice it to say that the Income-tax Officer was wholly wrong in holding that there was a mistake apparent from the record of the assessments of the first respondent.”

** ** ** ** ** ** ** ** ** ** ** **
posted at www.taxmannindia.blogspot.com

ITAT, AGRA BENCH Sustainability of addition merely made on basis of presumption

Sustainability of addition merely made on basis of presumption



Mere possession of currency notes with the assessee cannot prove that payments were actually made by him particularly in the circumstances when he is claiming otherwise and to substantiate such claim the evidence is produced.



ITAT, AGRA BENCH (THIRD MEMBER) AGRA

Prakash Motwani

v.

ITO

ITA NO. 48/Agr./2005

June 11, 2009

RELEVANT EXTRACTS:

** ** ** ** ** ** ** ** ** ** ** **

1. There being difference of opinion between the Members, the following questions were referred for the opinion of the Third Member:-

1. Whether, in the given facts and circumstances of the case, addition of Rs. 2,95,000/- on account of alleged undisclosed advance is justified or not ?

2. Whether, in the given facts and circumstances of the case, addition of Rs. 1,00,000/- for alleged unexplained stock found during the survey is justified or not?

3. Whether, since learned JM has admitted the quantum addition, the corresponding penalty levied u/s 271(1)(c) is to be cancelled/ deleted, or in view of the finding of the Ld. AM, the same has to be kept in abeyance?”

17. I have carefully considered the rival submissions in the light fothe material placed before us. No doubt that the possession of three currency notes with the assessee has raised a presumption that the amount stated on those currency notes was paid by the assessee to the said Shri Shankar Lai. However, the same was a rebuttable presumption. The assessee has explained that these payments were made by the assessee subsequent to the date of survey i.e.., on 17th September, 2002, 28th September, 2002 and 30th September, 2002. The source of the said payments have been explained by the availability of cash in the books of account upon realization of sale value of closing stock. To corroborate such explanation the assessee has submitted the books of account. If there was any doubt regarding production of books of account before the Assessing Officer during the course of assessment proceedings, the said doubt has been removed by the assessee as during the course of remand proceedings the books were produced before the A.O. To corroborate the explanation the assessee has further produced Shri Shankar Lai twice who has confirmed to have received those payments as per version of the assessee. No concrete material has been brought on record by the revenue to suggest that the explanation of the assessee and the statement of Shri Shankar Lai was incorrect. It has not been brought on record that what was claimed to be paid by the assessee on subsequent dates were actually not paid on those dates. Mere possession of currency notes with the assessee cannot prove that payments were actually made by the assessee particularly in the circumstances when the assessee is claiming otherwise and to substantiate such claim the evidence is produced.

18. In these circumstances, I am of the opinion that the Assessing Officer had made the addition of Rs.2,95,000/- to the income of the assessee simply on the basis of presumptions by discarding the evidence produced by the assessee in the shape of books of account and also by producing Shri Shankar Lai before the A.O. for his examination. Similarly, the CIT (A) has upheld the addition simply on the basis of presumptions. I am in agreement with the findings of Ld. Judicial Member that the addition has been upheld by simply on the basis of presumption and assessee has been able to establish that payments were made subsequently from the date of survey. Therefore, Ld. Judicial Member is right in holding that such addition could not be made to the income of the assessee.

19. Now, coming to the second addition, i.e., the addition of Rs.1 lac, I have carefully gone through the relevant portion of remand report of the A.O. which has been reproduced in the order of the CIT (A) in para 6.2. It is observed by the A.O. that the assessee has filed the quantitative chart of stock which contained the name of the item, its quantity, MRP rate, value in rupees, purchase rates and sale price, the page number of the cash book on which it is entered, purchase voucher no. and date and sale memo No. and date. The A.O. has reconciled such stock which, according to him, tallied with the vouchers found except few items which are for a consolidated sum of Rs.21,334/-. It is further reiterated by the A.O. that MRP and the cost value varies in between 18 to 33%. If it is a verified fact by the A.O. that the MRP and the cost value is generally varying between 18 to 33%, then 25% as variable cannot be considered to be incorrect. Therefore, after hearing both the parties and after considering both the orders of Ld. Judicial Member and Ld. Accountant Member, I am of the opinion that 25% variable should be adopted. Therefore, Ld. Judicial Member was right in holding that the Assessing Authority should compute the closing stock of the assessee on the basis of 25% variable.

20. On the third question, which relates to levy of penalty u/s 271(1)(c), I observe that the said issue cannot be decided unless the decision on addition is taken. Now, the fate of additions has to be decided in accordance with my above order and it will be in the interest of justice if the parties are given opportunity to argue this issue after the finalization of the quantum. Therefore, I am of the opinion that the issue of levy of penalty can be decided by the Division Bench after giving effect to this order with regard to quantum proceedings. The Division Bench, if it thinks proper can dispose of penalty appeal by giving hearing to the parties on the date when the effect is, given to this order with regard to quantum proceedings. With these observations I answer to the third question in the manner aforesaid.

** ** ** ** ** ** ** ** ** ** ** **


posted at www.taxmannindia.blogspot.com

MP govt says no to GST

The BJP-ruled Madhya Pradesh government has alleged that the Centre has planned to impose goods and services tax (GST) to ‘indirectly benefit’ the multinational companies. The government today reiterated that it would not adopt GST. Madhya Pradesh is the first state to refuse GST on grounds of losses of Rs 2000 crore annually to the state. State Finance Minister Raghavji, while speaking to Business Standard, cautioned not only against haste in introducing GST, but alleged that states would have reduced fiscal autonomy and multi-tax system. “The new tax system will escalate prices of commoner items and will reduce prices of luxury items. It is not in the interest of the poor,” he said. He added that the central government never wanted the states to stay autonomous in terms of financial independence. “After GST, the state will have to lose a maximum of Rs 2,000 crore annually. The rate of tax will vary from 1 per cent to 12 per cent and will be more on petroleum products. But we will lose Rs 700 crore at one go as we will have to remove central sales tax,” the minister said. “In addition to service tax, there will be five slabs — 1 per cent, 5 per cent, 8 per cent, 12 per cent and another slab for petroleum products. This will create an ambiguity and traders will have to face authorities at the central and state levels. They will also have to file separate returns for state and central level taxes,” he added. The new tax system would replace excise duty and service tax at the Centre and value-added tax (VAT) and local taxes at the state level. Besides Madhya Pradesh, Chhattisgarh, Haryana and Tamil Nadu also have reservations on GST. “We are not strictly opposing the GST but we want the Centre should not impose it in haste,” Raghav ji said. He said even foodgrain would attract tax and as a result, not only traders but farmers will also be affected with the new system. – www.business-standard.com

posted at www.taxmannindia.blogspot.com

Insurance claims may be taxable under new code

Insurance claims may be taxable under new code



The insurance claims paid to policy holders in the event of death or disability will be subject to payment of income tax if the new Direct Taxes Code proposals are implemented. The Code proposes that contributions by the insured are subject to the EET method of taxation of savings. This means that the sum received under a life insurance policy, including any bonus, is taxed. Only a pure life insurance policy is exempted from tax. In a pure life insurance policy, the policy holder receives money only when death occurs. Life insurance companies are perturbed that the tax proposal could hit their business. Life insurers are taking up the issue with the government through the Life Insurance Council. According to an insurance company official, the council is sending its suggestions to the government and the regulator. “Even if you are in the lower tax bracket, when you get the sum assured, it will be a lumpsum amount. This would catapult you to a higher tax bracket and you will pay higher taxes,” said Mr Kamalji Sahay, CEO, Star Union Dai-ichi Life Insurance. Only term insurance policies would be exempted. Both ULIPs and traditional products would be taxed. The return would be taxed even in case of disability or death, said Mr Mr V. Srinivasan, Chief Financial Officer, Bharti AXA Life Insurance. The Direct Taxes Code has a section which says that maturity proceeds of an insurance policy shall be exempt only if the premium does not exceed 5 per cent of the capital sum assured. This means that for a premium of Rs 10,000, the sum assured will be exempted only if it is greater than Rs 2 lakh. However, most of the products sold by companies do not match this criteria, Mr Srinivasan said. There is also ambiguity on whether only the returns will be taxed and not the principal. It is not clear whether the tax would be applied on the basis of the real value of money invested or on the nominal value, Mr S.B. Mathur, Secretary-General, Life Insurance Council, said. For example, a person buying a traditional endowment plan could get a sum assured of Rs 5 lakh by paying a premium of Rs 4 lakh. It is not clear whether the policy holder would be taxed on the difference (Rs 1 lakh) or on the total sum assured of Rs 5 lakh that he receives at the end of the policy tenure. – www.thehindubusinessline.com


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ITAT, AGRA BENCH Requirement of section 68 of IT Act, 1961 to prove identity, creditworthiness and genuineness of cash credits

Requirement of section 68 of IT Act, 1961 to prove identity, creditworthiness and genuineness of cash credits



When the particulars regarding income-tax assessments and bank account of creditors have been filed then initial burden has to be held to be discharged by the assessee and then the burden shifts on the Revenue to show that what is stated or explained by the assessee is not satisfactory.



ITAT, AGRA BENCH (THIRD MEMBER) AGRA

Kalyan Memorial & Charitable Trust

v.

ACIT

ITA NO. 233/Agr./2006

May 20, 2009




RELEVANT EXTRACTS:

** ** ** ** ** ** ** ** ** ** ** **



17. I have carefully considered the rival submissions. I have also carefully gone through the orders of learned Judicial Member and Accountant Member and also the impugned assessment order & order of CIT (A). So far as it relates to the evidences submitted by the assessee to prove the cash credits, there is no dispute that the same were placed on record. The evidences, as discussed above, are in the shape of confirmations, copies of bank accounts, and acknowledgements of Income-tax returns filed for the preceding 4 to 5 years in the case of each creditor. In all the confirmations, the P.A. Number has been mentioned alongwith the address of the creditor. It is not the case of the AO that the P.A. Number given on the confirmations does not found place in the Income-tax records of the respective creditors. It is also not the case of the AO that the copies of bank account which have been given to substantiate the cash credit are not the copy of bank account of the creditors. If it is so, the AO could have verified either from the Income-tax record or from the record of bank to establish that such creditor was unidentifiable and the addresses given by the assessee were not correct addresses. From the entire assessment order, it cannot be made out that at any moment, ^ie AO had asked the assessee to produce the creditors. It is only stated that the summons issued to the creditors could not be served and therefore, the assessee was required to submit evidences to substantiate the cash credits found in its books of accounts in respect of these creditors. Each of the creditors was having substantial opening credit balance in the books of the assessee which has also been confirmed in the confirmations filed before the AO. Unless it is established that the creditor is not found at the P.A. Number given by him and the bank account of the creditor does not reveal the correct position, it cannot be presumed that the credit in the books of assessee is non-genuine.

18. According to section 68 where any sum is found credited in the books of assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to Income-tax as the income of the assessee for that previous year. Therefore, according to the requirement of section 68, the sum credited in the books of accounts can be considered to be the income of the assessee in a case where the assessee does not offer any explanation or the explanation offered by him, in the opinion of AO, is not satisfactory.

19. Now the explanation of the assessee in the present case is that all these creditors are Income-tax assessees and their P.A. Numbers have been given alongwith their copy of bank account as well as proof of filing returns of income for the year under consideration as well as preceding years. Whether by filing these evidences, it can be said that the assessee had discharged the initial burden laid upon him u/s. 68. Certainly, when the particulars regarding Income-tax assessments and bank account have been filed then initial burden has to be held be discharged and then the burden shifts on the Revenue to show that what is stated or explained by the assessee is not satisfactory. No material, whatsoever, has been brought on record by the department to show that what was explained by the assessee, was not a correct state of affairs. If any sum is found credited in the accounts of the creditors, then the creditors may be examined so as to explain the credit. So far as the source of deposit in the account of the assessee is concerned, the assessee can be considered to have explained by bringing the material on record in the shape of confirmations, bank account and Income-tax Numbers of that person. This proposition is supported by the decision of Hon'ble Supreme Curt in the case of CIT vs. Orissa Corporation (supra). It has also been so held by Gujrat High Court in the case of DOT vs. Rohini Builders (supra) that where the assessee had given the proof regarding identity of the creditors and the amounts were received by account payee cheques. P.A. / GIR numbers were also given and it was held that initial burden of proving the credit was discharged. It was also held that the sources of credit need not to be proved.

20. The reliance by the Id. CIT(A) on the decision in the case of CIT vs. Precision Finance Ltd. (supra) is misplaced, as in the said case enquiry was made by the department through Inspector which revealed that the creditors were not round at the Income-tax files which were mentioned by the assessee and also the creditors were not found at the addresses given. It was found that the identity of the creditors was not established. I lowever, in the present case, it is not the case of the AO that the creditors are not found in the record of revenue at the P.A. Numbers given by the assessee.

21. Similarly, in the case of CIT vs. United Commercial Co. Ltd. (supra) relied upon by the Id. CIT(A), the creditors have confessed before the AO and confirmatory letters filed by them were found to be collusive, fictitious and false. Thus, it was held that mere confirmation and the fact that the transaction was made through bank account, do not establish their genuineness. In the present case, there is no confession of the creditors and the confirmatory letters are also not found to be collusive, fictitious and false.

22. As against this, the judgment of Hon'ble M.P. High Court in the case of CIT vs. Barjatiya Children Trust (supra) relied upon by the Id. AR clearly supports the case of the assessee. In that case, it was held by the Tribunal that where the amount was mentioned in the balance sheet of the creditor, the AO should have taken pain to examine the Income-tax file of the creditor, but instead he chose the easier way of ordering the production of the creditor, which was not found appreciable by the Tribunal. The production of cash creditor was observed to be insisted upon only when the genuineness of the transaction could not be established with the help of documents and the records of Income-tax Department itself. Such observations of the Tribunal were upheld. '

23. In view of the above discussion, I concur with the finding of the learned Judicial Member that ample evidences were produced by the assessee to discharge the initial burden. The AO has not brought any material on record to show that the explanation filed by the assessee was, in any manner, unsatisfactory. The evidences filed by the assessee remain un-rebutted. Therefore, the addition could not be made u/s. 68 of the Act and the learned Judicial Member was right in holding that the addition was liable to be deleted.

** ** ** ** ** ** ** ** ** ** ** **


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Audit watchdogs may get more service sway

NEW DELHI: The government is considering a proposal to authorise the country’s

three statutorily recognised institutes in the fields of
accounting, company
secretaryship and cost accounting to expand their ambit of functioning by providing services in all three areas. The proposal, however, is being opposed by the regulators themselves as many feel that it would lead to the end of specialisation and loss of functional and regulatory autonomy, a government official, who did not want to be identified, said.

The proposal, mooted by the ministry of corporate affairs, is now being deliberated upon by professional bodies including the Institute of Chartered Accountants of India (ICAI), Institute of Company Secretaries of India (ICSI) and Institute of Cost and Works Accountants of India (ICWAI).

The government, which is mulling key amendments relating to the work of all the three institutes, felt the need to club their regulatory functions so as to give them greater powers as well as make them more accountable in cases of any default in service by them, the official pointed out. This assumes relevance in the light of the fraudulent activities carried out in Satyam (now Mahindra Satyam) where professional lapses took place at various levels.

ICAI, ICSI and ICWAI are institutes that serve as parent organs for the chartered accountants, company secretaries and cost accountants, respectively, and prepare functional as well as regulatory guidelines pertaining to their own field of work. All three institutes have been formed under separate Acts of Parliament, with their registered members entrusted to do specific work that is exclusive to them.

To give the proposal a final shape and get it implemented, the government will have to go through a process of amendment of the Acts under which the institutes have been established. Even as the proposal is at a stage of discussion, the ICAI and the ICSI have voiced their opposition to the said move. They have said the qualification and regulatory function presently exercised by a single institute should not be separated.

Source:ET
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Thursday, September 17, 2009

Taxpayers breathe easy after clarifications

Taxpayers breathe easy after clarifications
Some serious concerns on various issues relating to TDS, capital gains, taxing of insurance proceeds, NRIs and sunset provisions, which were raised by TOI’s Taxing Times columnist Mukesh Patel in the series under ‘Cracking the Code’ were deliberated at an interactive session on Saturday. Taxpayers heaved a sigh of relief after clarifications came from Joint secretary, Tax Policy and Legislation, Union Ministry of Finance, Arbind Modi. Here is how ambiguities were sorted out...
Concern: Current area and sector based tax incentives under Section 80 of the I-T Act will be continued under DTC only if the unit is operational by 31-3-2010.
Clarification: The benefit under the new Code will be allowed to all units operational by 31-3-2011.
Concern: Profit-linked incentives may not be available to current units to the same extent under the new Code for the unexpired period under the I-T Act.
Clarification: Deduction of profits, if available at 100% or the appropriate percentage, will be granted as such, under the principle of grandfathering for such unexpired period.
Concern: DTC drafting suggests that the benefit of Double Tax Avoidance Agreement (DTAA) would not be available at the time of TDS.
Clarification: There should be no apprehension in this regard. Such benefit will be duly allowed.
Concern: Under the scheme for presumptive taxation, there is no provision to allow deduction for partner’s interest or remuneration.
Clarification: This deduction will be duly provided for.
Concern: Valuation of assets under Wealth-tax may lead to litigation.
Clarification: Wealth-tax will be levied on assets, valuation of which will be done only at cost and not at market value.
Concern: The provision to tax ‘any sum received under a life insurance policy’ would mean that even the principal amount of premiums paid will become liable to Income-tax.
Clarification: DTC draft will be suitably amended, since the intent is to tax only the bonus received on maturity. Concern: No provision under DTC for filing declaration for no TDS in case of interest income, if the taxpayer does not have taxable income.
Clarification: Point well taken. Necessary provision will be made for such declarations as currently prevailing in form 15G and 15H.
Concern: No threshold limit (currently Rs.20,000) provided in regard to TDS from payment of professional fees.
Clarification: Suitable threshold limit will be duly provided under DTC.
Concern: Harsh consequences to arise on account of the new provision prescribing 10% TDS in respect of payments of ‘any other income.’ Clarification: This provision will be dropped.
Concern: Gains Tax on capital market gains will have a dampening effect. Clarification: If the sale consideration of any capital asset is rolled over by way of deposit in the new ‘Capital Gains Savings Scheme’ (CGSS) within 60 days, there will be no tax liability. Such deposit balance in CGSS can be invested in any fresh investment in debt or equity instruments as will be announced under the Scheme. Thus, as long as the gains are continued to be rolled over, there will be no effective tax liability. On the basis of the EET model, tax will get attracted only on withdrawal of any amount from the CGSS.
Concern: Drafting of the Code suggests that NRIs will not enjoy the benefit of even the minimum exemption limit of Rs.1,60,000 in respect of interest income and capital gains proposed to be taxed at the flat rate of 20% and 30%.
Clarification: this is not our intent. Hence, suitable amendment will be made to provide that NRIs will be taxed in the same tax slabs and as applicable to resident Indians.

This is a forwarded message received from deepak shah.
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Govt to come out with roadmap to help cos adopt IFRS norms

The government today said it would come up with a roadmap in November to help companies to adopt International Financial Reporting Standards (IFRS) which will become operational from 2011.

The government will take the concerned regulatory agencies like SEBI and others on board before finalising the roadmap, Corporate Affairs Minister Salman Khurshid told reporters on the sideline of a conference organised by Indian Chambers of Commerce here.

Replying a question on New Company Bill 2009, he said the government had tabled the best possible bill in Parliament under the present circumstances.

He said the bill has now been referred to the Standing Committee of Parliament and a final shape to it would be given after recommendations from the panel.

Khurshid said that the new bill was needed since the existing Companies Act called for a complete overhaul.

Commenting upon the Satyam fiasco, he said that it was an aberration which had been caused by human affairs and there was nothing supernatural.

The minister said there was need to strengthen the Serious Fraud Investigation Office (SFIO) to prevent recurrence of such cases.

Khurshid said the government was contemplating to set up an Equal Opportunity Commission to bring about diversity in workplace and educational institutions.
-Business standards

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States Agree on Dual GST Rates

States have finally reached a consensus on having two basic rates under the Goods and Services Tax (GST), slated to be rolled out on April 1, 2010. There will be one standard rate of taxation and another low rate of taxation for essential commodities.

“A consensus has been reached between state finance ministers regarding the two basic rates of taxation. Some items will also be exempted from the tax and there will be another rate of tax for precious metals like gold and silver,” said Asim Dasgupta, chairman of the empowered committee of state finance ministers.

He also added that some small and medium enterprises would stay outside the ambit of GST. The exact rates have not been decided yet. Dasgupta also said the Centre was expected to have a good deal of conformity to the GST structure.

Decisions have also been taken to set up a joint working group to decide on a framework on constitutional amendment for implementing GST and a model legislation for the proposed tax.

“The working group will be set up immediately and the report regarding constitutional amendment will be submitted in a month. It is a small amendment to empower states to levy taxes,” Dasgupta added.

The draft legislation was expected to be ready in two months. Dasgupta said this would give the government time to take feedback from stakeholders and amend the legislative structure accordingly.

The joint working group will include representatives from the state and Centre, as well as the law ministry and the Central Board of Direct Taxes.At a separate meeting, finance ministers of BJP-ruled states discussed the introduction of GST. Former Union finance minister Yashwant Sinha, who attended the meeting, told Business Standard that the states had some concerns whether the introduction of GST would lead to revenue loss and rising prices of essential commodities.

Besides, there were apprehensions about the new regime impacting the taxation powers of the state. “These concerns are state-wise,” Sinha said, adding that even Congress-ruled Haryana and UPA-ruled Tamil Nadu have expressed concerns over the proposed tax.

On whether the April 2010 deadline was achievable, Sinha said: “Consensus among states was more important than the date of implementation.” He said the BJP-ruled states decided to take up their concerns with the empowered committee and the Union government. Sinha said GST was more complicated than the value added tax (VAT), since the latter involved taxation by only the state governments.

Dasgupta has called for a meeting with finance ministry officials on September 22 to discuss the rate of GST.

On being asked whether the GST rollout was possible by the end of the current financial year, Dasgupta said: “It is very possible to roll out the tax structure in 3-4 months, but we don’t have a day to lose.”

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Setting up of new National Institutes of Technology (NITs)

13:51 IST
Cabinet Decision


The Union Cabinet today approved setting up of new National Institutes of Technology (NITs). These new NITs will be established in Manipur; Meghalaya; Mizoram; Nagaland; Goa (which will also cater to UTs of Daman & Diu, Dadra & Nagar Haveli and Lakshdweep); Pudducherry (which will also cater to Andaman & Nicobar Islands); Sikkim; Delhi (which will also cater to Chandigarh) and Uttrakhand.

The process for setting up of these new NITs will start in 2009-10 with formation of their respective societies, constitution of their Board of Governors, appointment of Directors, etc. The admissions in these new NITs will be made from the academic session 2010-11 and NITs will start classes either in campuses taken on lease or temporarily in mentor NITs. Work for construction of campuses for these new NITs will also be initiated subject to the land being provided free of cost by the concerned States/UTs. The process of setting up will be completed over a period of five year.

The new NITs are being setup so as to cater to the needs of States/UTs which do not have NITs as of now. This will meet a long standing demand of these States/UTs. These Institutes will be covered under the National Institutes of Technology Act, 2007 making them institutions of national importance, which will ultimately help in addressing the aspirations of people especially of the North East region where 6 new NITs are to be established. The new NITs will be able to provide high quality education to many of the bright students from these States/UTs, as 50% of the seats are to be filled from the eligible students from these States/UTs. Many of the States/UTs where these new NITs are being opened, especially those in North East are lacking in national level technical institutions. This will bring such States of North East in the main stream of the technical education.

The new NITs will increase in output of high quality:

(i) By producing engineering and science graduates in the short run and postgraduates and Ph.Ds in the long run;

(ii) By providing teachers for Engineering and Science subjects at College/University level; and

(iii) By developing Research & Development and Intellectual Property generation in Engineering and Science, in the long run.

The new approved NITs are categprized under two Schemes, as follows:

(a) Scheme “A” consisting of proposed NITs at Manipur, Meghalaya, Mizoram, Nagaland, Goa, which will also cater to UTs of Daman & Diu, Dadra & Nagar Haveli and Lakshadweep, Pudducherry, which will cater to Andaman & Nicobar Islands also and Sikkim; and

(b) Scheme “B” consisting of approved NITs at Delhi (which will also cater to Chandigarh) and Uttrakahand.

Each of the NIT under scheme A will be established at a cost of Rs.250 crore while each of the NIT in scheme B will be set up at a cost of Rs.300 crore. Total project cost is Rs.2600 crore. During 11th Plan the expenditure will be of the order of Rs.540 crore and for the year 2009-2010 expenditure will be of the order of Rs.50 crore.

Main beneficiaries will be the students from the States/UTs which at present do not have NITs as seats will be earmarked for such students in these NITs along with seats earmarked to be filled on all India merit basis.

Presently there are 20 National Institutes of Technology (NITs), located at Agartala, Allahabad, Bhopal, Calicut, Durgapur, Hamirpur, Jaipur, Jalandhar, Jamshedpur, Kurukshetra, Nagpur, Patna, Raipur, Rourkela, Silchar, Srinagar, Surat, Surathkal, Tiruchirapalli and Warangal. Seventeen of these NITs were earlier known as regional Engineering Colleges (RECs). These RECs were set up as joint and co-operative ventures of the Central and State Governments with an aim to meet the increased demand for technically qualified manpower. In 2003, the Seventeen erstwhile Regional Engineering Colleges (RECs) were rechristened as National Institution of Technology (NITs) and taken over as fully funded institutes of the Central Government and granted deemed university status. Subsequently, Bihar College of Engineering, Patna; Government Engineering College, Raipur; and Tripura Engineering College, Agartala, were also converted into NITs in 2004, 2005 and 2006 respectively. NITs are governed by National Institutes of Technology Act, 2007 which came into force w.e.f. 15th August 2007. The NIT Act 2007 declares these NITs as institutions of national importance.

50% of the seats in NITs at Under Graduate level are filled from the eligible students of the State where the NIT is located. Remaining seats are filled on all India merit basis. However, Students of States/UTs which are not having NITs have complained being at a disadvantage, though this Ministry if compensating such States/UTs by way of allocating supernumerary seats in NITs. To address this problem, MHRD has proposed to set up new NITs, provision for which is available in the 11th Five Year Plan, so as to cater to the needs of non-NIT States/UTs.

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ICWAI council approved CAS 7 & CAS 8

Central Council of the ICWAI has approved on 12th September 2009 the Cost Accounting Standards on Employee Cost (CAS-7) and Cost of Utilities (CAS-8).

The same have been hosted on the website of the ICWAI.

Final Cost Accounting Standard on Employee Cost (CAS-7).
http://www.icwai.org/icwai/docs/CASB/CAS7.pdf

Final Cost Accounting Standard on Cost of Utilities (CAS-8).
http://www.icwai.org/icwai/docs/CASB/CAS8.pdf

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Resigned Members & Members who retired before 3.6.2009 can practice before the ITAT

M/s Concept Creations vs. ACIT (ITAT Delhi Special Bench)



Resigned Members & Members who retired before 3.6.2009 can practice before the ITAT



Vide Notification dated 3rd June 2009, Rule 13E was inserted in the Income Tax Appellate Tribunal Members (Recruitment and Conditions of Service) Rules, 1963 to provide that “The President, the Senior Vice-President, the Vice-President and the Members of the Tribunal shall not practice before the Tribunal after retirement from the service of the Tribunal”. The Special Bench had to consider whether the said Notification applied to Members who resigned / retired before the date of issue of the said Notification and allied issues. HELD:



(1) The argument of the Ministry of Law & Justice that the ITAT could not go into interpretation of Rule 13E is not acceptable because in accordance with the duty of the Tribunal to give a proper hearing to the parties, the Tribunal has inherent jurisdiction to consider whether the parties who are appearing before it are properly entitled under the law to make appearance;



(2) On the question whether Rule 13E can apply to Members who have “resigned” from service, Rule 13E is confined to “retirement”. There is a well known difference between “retirement” and “resignation”. While ‘resignation’ is a deliberate act of relinquishment of service, ‘retirement’ is an event that takes place on attaining superannuation;



(3) The Resigned Members were appointed on a “temporary” basis and were subject to a “probation” period. The said Members had resigned during the probation period, much before their confirmation. Such Members who had resigned and terminated their contract of employment with the Government before confirmation cannot be said to hold any post and there is no question of any conditions of services being applicable to them after resignation. They cannot be treated as having been “retired” from service for purposes of Rule 13E and were not disqualified from appearing before the ITAT;



(4) As regards Members who retired on superannuation, while in respect of CESTAT, a legislative amendment was made in the Customs Act, in relation to the ITAT, a “risky route” of amending the “conditions of service” was adopted. Though the object with which the Notification is issued i.e. to bring in reformatory steps to uphold the dignity of the Institution and to free it from charges of bias in discharge of its judicial function is laudable, it should be seen whether the means by which it is sought to be achieved stands the test of law. Rule 13E goes beyond the conditions of service. Earlier s. 288 (3) (omitted w.e.f 1.10.1984) had imposed a similar bar and its’ validity had been upheld by Court. The larger public interest which the legislature envisaged while dropping the provision that already existed cannot merit ignorance merely because the executive authority felt otherwise, perhaps wiser than the higher wisdom of the Parliament. Thereafter, the same object was sought to be enforced by an amendment to the pension rules which prohibited CG employees from appearing before the same income tax authorities to which they belonged while they were in service. This provision was struck down by the apex court in R. Kapoor A 1987 SC 415 as being unconstitutional and invalid. As a result of this legislative exercise, now it is difficult to say that identical provision under conditions of service can still pass the test of validity in the eyes of law. The interpretation of the Supreme Court in connection with the Pension Rules cannot merit ignorance or be slighted merely because the executive’s attempt in bringing Rule 13E is in the direction of bringing some reformative provisions to free the judiciary from the charges of bias in their judicial functions. The executive if permitted in this manner will only set naught the judicial interpretation rendered by the highest court of the land and also bypass the higher wisdom of Parliament. One must be conscious of the fact that limited ban of two years on retired income tax employees was not approved by the Supreme Court. It is difficult to imagine or accept that the present Notification which under the garb of conditions of service seeks to enforce a life ban of ex-members will receive judicial sanction in the background of R. Kapoor’s case; (Clarified that nothing was held about the legislative competence of the President to make the Rules in the manner it is done);



(5) On a plain reading of Rule 13E, it is prospective and applies only to Members who were in service as of 3.6.2009 or who join service thereafter. It has no application to Members who retired prior to that date.

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Companies Bill, 2009-Place your suggestions here

Dear Member,

Sub: Companies Bill, 2009

As you are aware, the Companies Bill, 2009 has been introduced in Lok Sabha on 3rd August, 2009.

The new Bill proposes to open up new avenues for the professionals especially Chartered Accountants and at the same time casts a lot of responsibility on them for conduct of affairs of the companies.

Appreciating the need of the hour and in view of the importance of the Bill, the Corporate Laws Committee has formed study groups at National level, Regional level and Branch level to consider the provisions of Companies Bill in depth. The suggestions emanating there from shall be forwarded to the Ministry of Corporate Affairs by making a suitable representation.

You are requested to kindly give your valuable suggestions/views/comments on the Bill and send the same to the Corporate Laws Committee at corporatelaws@icai.in latest by 25th September, 2009. A copy of the Bill is placed on the website of the Institute at http://www.icai.org/resource_file/17166companies_bill_2009.pdf

With kind regards,

Yours faithfully,


Secretary,
Corporate Laws Committee

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ITAT, DELHI C BENCH:: Assumption of jurisdiction under section 263 of IT Act, 1961 on ground of inadmissible allowance of depreciation on goodwill

Assumption of jurisdiction under section 263 of IT Act, 1961 on ground of inadmissible allowance of depreciation on goodwill



Even if an asset is described as goodwill but it fits in the description of section 32(1)(ii), depreciation is to be granted on the same; the true basis of depreciation allowance is the character of the asset and not it’s description.



ITAT, DELHI C BENCH, NEW DELHI

Hindustan Coca Cola Beverages Pvt. Ltd.

v.

DCIT

ITA No. 1884.Del/06

August 25, 2009

RELEVANT EXTRACTS:

** ** ** ** ** ** ** ** ** ** ** **

5. We find that, as noted by the learned Commissioner in page 7 in the impugned order, the audit report has made following disclosure below the computation of depreciation on goodwill:

“Goodwill of the company comprises of (a) payment for the marketing and trading reputation, trading style and name, marketing and distribution territorial know how, including information of consumption patterns and habits of consumers in the territory, and (b) the difference between the consideration paid for business and value of tangible assets.

The management is of the view that the amounts referred to in (a) above assists in planning production schedules and difference referred to in (b) above represents the value of various contracts and agreements acquired by the company. This being a valuable commercial asset similar to other intangibles mentioned in the definition of the block of assets, is eligible to depreciation. Accordingly, depreciation on goodwill payments after 1.4.98 has been calculated as per Section 32 of the Income Tax Act, 1961"

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6. The matter did not rest at filing of this justification itself. Vide letter dated 15th September 2003, the Assessing Officer did raise a query on the admissibility of the above claim. His specific question was as follows:

You have claimed that the goodwill acquired by you was eligible for depreciation being in the nature of knowhow and depreciation was allowable on the same. Please justify your claim.

7. In response to the aforesaid question, the assessee, vide letter
dated 8th January 2004, had submitted as follows:



Goodwill is the consideration paid to various bottlers for marketing and trading reputation, trading style and name, marketing and distribution territorial knowhow and information of territory. It includes knowhow related to acquired business, customer database, distribution network, contracts and other commercial rights.

Intangible assets like knowhow, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, acquired after 1.4.1998, are eligible for depreciation.

Your assessee has, accordingly, claimed depreciation on goodwill acquired after 1.4.98

8. In the backdrop of the above facts, the first thing that we need to examine is whether or not a claim of depreciation on, what is termed as goodwill in the books of accounts but is stated to be in the nature of covered by the scope of 'any other business or commercial rights of similar nature (i.e. 'know how, patent, copyrights, trade marks, licences, franchises)' referred to in the definition of block of assets, is admissible at all. It is after all the very foundation of learned Commissioner's case that such a claim is a patently inadmissible claim. We find help and guidance from Tribunal's decision in the case of Skyline Caterers Pvt Ltd Vs ITO (116 ITD 348). In this case, the assessee had shown goodwill of Rs 25 lakhs but claimed depreciation on the ground that "the payment under the head goodwill in the books of accounts represented the rights acquired by the assessee under the contract acquired by the assessee which amounted to commercial rights and, therefore, the depreciation was allowable under section 32". This claim did not find favour with the Assessing Officer or with the Commissioner (Appeals) but when the matter travelled to the Tribunal, Tribunal, inter alia, observed that "There is no dispute to the legal proposition that nomenclature given to the entries in the books of accounts is not relevant for ascertaining the real nature of the transaction, as held by the Hon'ble Supreme Court in the case of Kedarnath Jute Mfg Co Ltd Vs CIT (82 ITR 363)" and proceeded to ascertain the true nature of the asset by reference to the agreement between the parties. As a result of the exercise thus conducted by the Tribunal, the grievance of the assessee against disallowance of depreciation was partly upheld but that is not really relevant for our purposes; what is relevant for our purposes at present is the Tribunal's finding that depreciation on what is termed as goodwill is not a patently inadmissible claim. We also share this perception. One cannot proceed on the basis, as the learned Commissioner has chosen to proceed, that once an amount is described as goodwill in the books of accounts, depreciation thereon as an intangible asset can not be admissible on the same. It is also important to bear in mind that it not plainly on perusal of an assessment order that the Commissioner exercise his powers under section 263; he must examine the entire records of proceedings. Learned Commissioner must therefore take into account all the material facts on record which are of relevance. As for learned Departmental Representative's reliance on the decision of Ahmedabad C bench of this Tribunal in the case of Bharatbahi J Vyas Vs ITO (97 ITD 248), that is a case in which Tribunal gave a categorical finding that the goodwill was paid only for retirement of a partner and "without acquisition of any intangible asset as contemplated under section 32(1) (ii)". The facts of the present case, in which the payment is made towards business acquired on slump price and a part of the price so paid is allocated to the intangible assets covered under the head 'goodwill', are materially different and have no resemblance to the case before the Ahmedabad bench. The allocation of amount paid as a slump price is not in dispute and the fact that a part of consideration represents consideration for rights, as detailed in the audit report notes extracted above, is also not in disputed. The case of the Commissioner mainly is that depreciation is not admissible on goodwill but the fact the accounting treatment of a payment per se cannot govern its treatment in the income tax proceedings. Even if an amount is termed as 'Goodwill' in the books of accounts but it is a business or commercial rights in the nature of know how, patent, copyrights, trade marks, licences, franchises, the claim of depreciation is indeed admissible thereon. It is not that 'goodwill' is specifically excluded from the intangible assets eligible for depreciation, and, therefore, even if an asset is described as goodwill but it fits in the description of Section 32(l)(ii), depreciation is to be granted on the same; the true basis of depreciation allowance is the character of the asset not it’s description. Learned Departmental Representative has also justified the action of the learned Commission by arguing that necessary enquiries were not made, but then, as is held by Hon’ble Punjab and Haryana High Court in the case of CIT v. Jagadhari Electric Supply & Industrial Co (140 ITR 490), while examining the validity of a revision order under section 263, Tribunal cannot substitute the ground on which the Commissioner has based his order. The very foundation of learned Commissioner’s order is thus devoid of leally sustainable merits.

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ITAT, DELHI C BENCH: Assumption of jurisdiction under section 263 of IT Act, 1961 on ground of inadmissible allowance of depreciation on goodwill

Assumption of jurisdiction under section 263 of IT Act, 1961 on ground of inadmissible allowance of depreciation on goodwill



Even if an asset is described as goodwill but it fits in the description of section 32(1)(ii), depreciation is to be granted on the same; the true basis of depreciation allowance is the character of the asset and not it’s description.



ITAT, DELHI C BENCH, NEW DELHI

Hindustan Coca Cola Beverages Pvt. Ltd.

v.

DCIT

ITA No. 1884.Del/06

August 25, 2009

RELEVANT EXTRACTS:

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5. We find that, as noted by the learned Commissioner in page 7 in the impugned order, the audit report has made following disclosure below the computation of depreciation on goodwill:

“Goodwill of the company comprises of (a) payment for the marketing and trading reputation, trading style and name, marketing and distribution territorial know how, including information of consumption patterns and habits of consumers in the territory, and (b) the difference between the consideration paid for business and value of tangible assets.

The management is of the view that the amounts referred to in (a) above assists in planning production schedules and difference referred to in (b) above represents the value of various contracts and agreements acquired by the company. This being a valuable commercial asset similar to other intangibles mentioned in the definition of the block of assets, is eligible to depreciation. Accordingly, depreciation on goodwill payments after 1.4.98 has been calculated as per Section 32 of the Income Tax Act, 1961"

<

6. The matter did not rest at filing of this justification itself. Vide letter dated 15th September 2003, the Assessing Officer did raise a query on the admissibility of the above claim. His specific question was as follows:

You have claimed that the goodwill acquired by you was eligible for depreciation being in the nature of knowhow and depreciation was allowable on the same. Please justify your claim.

7. In response to the aforesaid question, the assessee, vide letter
dated 8th January 2004, had submitted as follows:



Goodwill is the consideration paid to various bottlers for marketing and trading reputation, trading style and name, marketing and distribution territorial knowhow and information of territory. It includes knowhow related to acquired business, customer database, distribution network, contracts and other commercial rights.

Intangible assets like knowhow, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, acquired after 1.4.1998, are eligible for depreciation.

Your assessee has, accordingly, claimed depreciation on goodwill acquired after 1.4.98

8. In the backdrop of the above facts, the first thing that we need to examine is whether or not a claim of depreciation on, what is termed as goodwill in the books of accounts but is stated to be in the nature of covered by the scope of 'any other business or commercial rights of similar nature (i.e. 'know how, patent, copyrights, trade marks, licences, franchises)' referred to in the definition of block of assets, is admissible at all. It is after all the very foundation of learned Commissioner's case that such a claim is a patently inadmissible claim. We find help and guidance from Tribunal's decision in the case of Skyline Caterers Pvt Ltd Vs ITO (116 ITD 348). In this case, the assessee had shown goodwill of Rs 25 lakhs but claimed depreciation on the ground that "the payment under the head goodwill in the books of accounts represented the rights acquired by the assessee under the contract acquired by the assessee which amounted to commercial rights and, therefore, the depreciation was allowable under section 32". This claim did not find favour with the Assessing Officer or with the Commissioner (Appeals) but when the matter travelled to the Tribunal, Tribunal, inter alia, observed that "There is no dispute to the legal proposition that nomenclature given to the entries in the books of accounts is not relevant for ascertaining the real nature of the transaction, as held by the Hon'ble Supreme Court in the case of Kedarnath Jute Mfg Co Ltd Vs CIT (82 ITR 363)" and proceeded to ascertain the true nature of the asset by reference to the agreement between the parties. As a result of the exercise thus conducted by the Tribunal, the grievance of the assessee against disallowance of depreciation was partly upheld but that is not really relevant for our purposes; what is relevant for our purposes at present is the Tribunal's finding that depreciation on what is termed as goodwill is not a patently inadmissible claim. We also share this perception. One cannot proceed on the basis, as the learned Commissioner has chosen to proceed, that once an amount is described as goodwill in the books of accounts, depreciation thereon as an intangible asset can not be admissible on the same. It is also important to bear in mind that it not plainly on perusal of an assessment order that the Commissioner exercise his powers under section 263; he must examine the entire records of proceedings. Learned Commissioner must therefore take into account all the material facts on record which are of relevance. As for learned Departmental Representative's reliance on the decision of Ahmedabad C bench of this Tribunal in the case of Bharatbahi J Vyas Vs ITO (97 ITD 248), that is a case in which Tribunal gave a categorical finding that the goodwill was paid only for retirement of a partner and "without acquisition of any intangible asset as contemplated under section 32(1) (ii)". The facts of the present case, in which the payment is made towards business acquired on slump price and a part of the price so paid is allocated to the intangible assets covered under the head 'goodwill', are materially different and have no resemblance to the case before the Ahmedabad bench. The allocation of amount paid as a slump price is not in dispute and the fact that a part of consideration represents consideration for rights, as detailed in the audit report notes extracted above, is also not in disputed. The case of the Commissioner mainly is that depreciation is not admissible on goodwill but the fact the accounting treatment of a payment per se cannot govern its treatment in the income tax proceedings. Even if an amount is termed as 'Goodwill' in the books of accounts but it is a business or commercial rights in the nature of know how, patent, copyrights, trade marks, licences, franchises, the claim of depreciation is indeed admissible thereon. It is not that 'goodwill' is specifically excluded from the intangible assets eligible for depreciation, and, therefore, even if an asset is described as goodwill but it fits in the description of Section 32(l)(ii), depreciation is to be granted on the same; the true basis of depreciation allowance is the character of the asset not it’s description. Learned Departmental Representative has also justified the action of the learned Commission by arguing that necessary enquiries were not made, but then, as is held by Hon’ble Punjab and Haryana High Court in the case of CIT v. Jagadhari Electric Supply & Industrial Co (140 ITR 490), while examining the validity of a revision order under section 263, Tribunal cannot substitute the ground on which the Commissioner has based his order. The very foundation of learned Commissioner’s order is thus devoid of leally sustainable merits.

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ITAT, DELHI BENCH ‘H’ : Allowability of exemption under section 54F of IT Act, 1961 qua purchase of second plot of land appurtenant to first plot

Allowability of exemption under section 54F of IT Act, 1961 qua purchase of second plot of land appurtenant to first plot



There is no rider under section 54F that no deduction would be allowed in respect of investment of capital gains made on acquisition of land appurtenant to the building or on the investment on land on which building is being constructed.



ITAT, DELHI BENCH ‘H’ : NEW DELHI

Addl. CIT

v.

Narendra Mohan Uniyal

ITA No. 1624 /Del/2009

August 31, 2009

RELEVANT EXTRACTS:

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9. Provisions of Section 54F which deal with provisions of Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house, read as under:-

54f. (1) [Subject to the provisions of sub-section (4). where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to is the original asset), and the assessee has, within a period of one year before or (two years] after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,.......................................................... "

10. It is crystal clear from the plain reading of Section 54 & 54F that exemption is allowable in respect of amount invested in the construction of a residential house. There is no rider u/s 54F that no deduction would be allowed in respect of investment of capital gains made on acquisition of land appurtenant to the building or on the investment on land on which building is being constructed. When the land is purchased and building is constructed thereon, it is not necessary that such construction should be on the entire plot of land, meaning thereby a part of the land which is appurtenant to the building and on which no construction is made, there is no denial of exemption on such investment. Therefore, the contention of the learned DR that there is a distinction with respect to investment in appurtenant land as per Section 54 and 54F is not tenable at all. In the instant case, there is no dispute to the fact that investment of capital gains was made within the statutory period and moreover within the same financial year. Another plot of land which was purchased by the assessee was adjacent to the plot already purchased during the relevant year itself out of capital gains. Only because construction was made on the first plot of land, he exemption claimed in respect of investment made in adjacent plot of land cannot land the exemption claimed in respect of investment made in adjacent plot of land cannot be declined when all the other conditions as stipulated u/s 54F are being satisfied. While dealing with the objection of the AO, the CIT (A) has categorically given a finding that the land so purchased was one piece of plot having area of 2000 sq.mtr. Both these plots were having 1000 sq.mtr. of land. Both the plots formed part of one residential unit and are contiguous and adjoining to each other. The comments of the AO to the effect that exemption u/s 54F is eligible only for construction of house is not tenable insofar as even cost of land forming part of the residential unit on which no construction is done is also, eligible for exemption u/s 54F. Thus, the cost of vacant land appurtenant to and forming part of the residential unit is to be considered for claim of exemption u/s 54F even if no construction has been done on the appurtenant land. The provisions of Section 54 clearly provide for exemption if the net consideration received as a. result of transfer of any capital asset, other than a residential house, is invested in the purchase or construction of a residential house. The new residential house is not debarred from having a land appurtenant to any size and it is also not the case of the AO that the land appurtenant to the building is not entitled to exemption u/s 54F. Had it been a case of land not appurtenant to the building so constructed, then the contention of the AO to the effect that investment of capital gains made in the second plot which is not appurtenant to the building so constructed is not eligible for exemption, can be favourably accepted. The case law cited by the learned DR in the case of Zaibunnisa Begun (supra) is entirely on different facts insofar as the appurtenant land was not used by the assessee for any other purposes. On the contrary, the expression “land appurtenant” in section 54 of the Act was held to be construed in a broad and non-technical sense and it was held that the meaning given to that expression in other Acts should be irrelevant. The Hon’ble Jurisdictional High Court in the case of Sunita Aggarwal (supra) has observed that while claiming exemption under section 54, the property though purchased from two different persons by virtue of four different sale instances in the shape of four different parcels, constitutes one single residential unit of the assessee.

11. In view of the above discussion and keeping in view the detailed observation made by the CIT (AP at paragraphs 4,5 and 6, we can safely conclude on proper appreciation of material available on record that the property purchased by the assessee was a single unit and was being used for residential purposes, therefore investment made in respect of both the plots was eligible for claim of exemption u/s 54F. We, therefore, uphold the order of CIT (A) and dismiss the appeal filed by the Revenue. As the cross-objection are basically in support of the CIT (A)’s action, we allow the cross-objection in terms indicated hereinabove.

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ITAT, DELHI BENCH ‘B’ : Allowability of change of method of valuation of closing stock

Allowability of change of method of valuation of closing stock



The change of method of valuation of the closing stock is allowed if such change is bona fide and the assessee has proper reasons for such change.



ITAT, DELHI BENCH ‘B’ : NEW DELHI

Charchit Agarwal

v.

ACIT

ITA Nos. 3132 to 3137/Del/2008

August 28, 2009

RELEVANT EXTRACTS:

** ** ** ** ** ** ** ** ** ** ** **

9. Section 153A(1) contains non-obstante clause and hence provisions of this section will over-ride the provisions of section 139, section 147, section 148, section 149, section 151 and section 153 of the Act. Under section 153A(1) the assessing officer is empowered is empowered to issue notices to the assessee searched for a period of six year sin order to assess the income on the basis of material found during the course of search. The second proviso to section 153A(1) provides that the assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in section 153A(1) pending on the date of initiation of search u/s 132 or making of requisition u/s 132A as the case may be shall abte. Therefore after initiation of search no assessment in respect of pending assessment shall be made and Assessing Officer is empowered to issue notice u/s 153A to assess or re-assess the total income of six assessment years immediately preceding assessment year relevant to the previous year in which such search was conducted or requisition was made. The assessee had valued the closing stock for assessment year 2000-01 to 2005-06 on average cost method which has resulted in reduction of taxable income in all the years ranging from Rs. 9875 in assessment year 2001-02 to Rs. 9,00,797 in assessment 2005-06. The contention of the assessee that in the case of jewelers, it is impossible to value the closing stock on the basis of market cost as the items of closing stock cannot be identified with reference to various purchases made during the year. However, the fact remains that the assessee had been valuing the closing stock at “cost” as certified by tax auditors. It is a fact that all the assessee are required to maintain the stock registers during the course of normal business activities. It is not difficult to identify the items purchased, the date of purchase and their costs. Hence we do not find any substance in the argument of the assessee that it is impossible to value the closing stock at “actual cost” particularly in view of the fact that the assessee had been valuing the closing stock at cost price from very beginning of the business.

10. Moreover, the change of method of valuation of the closing stock is allowed in such change is bonafide and the assessee has proper reasons for such change. The conclude proceedings cannot be reopened on the ground that the assessee had incorrectly valued the closing stock in those years. The assessee had filed returns of income for all the six assessment years u/s 139 (1). The assessments or reassessments cannot be made in these years by invoking the provisions of section 147 after initiation of search proceedings in view of second proviso to section 153A(1) of the Act. From the facts given above it is clear that the assessee had changed the method of valuation of the closing stocks for all assessment years to reduce the profits and hence the change in the method of valuation is not bona fide. As regards the contention of the assessee that it is impossible to value the closing stock at cost price in the case of jewelers, this is a sweeping generalization without having any material on records to prove. The assessee had not filed any evidence to support its contention and hence deserves to be rejected.



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