VOLUME 65

CHARTERED
VOLUME 65 NO. 12 PAGES-148 JUNE 2017 R100

JOURNAL
THE
No. 12 PAGES-148

ACCOUNTANT
JUNE 2017

TH E I N STITUTE OF CHARTE R E D ACCOU NTANTS OF I N D IA SET UP BY AN ACT OF PARLIAMENT

Ind AS Converged with IFRS:

ICAI Leads Accounting Transformation
The Chartered Accountant Journal

39 Ind AS notified so far

Ind AS Transition Facilitation Group
Support-desk for Implementation of Ind AS
R100

Nation-wide Training Programmes

A series of publications

International
Accounting Standards
Board

An Update on Implementing Ind AS The New
Benchmark of Accounting Excellence
O
ver the recent years, accounting has metamorphosed
into a universal language of business. India is
no exception to this phenomenon. In fact, India
being one of the fastest growing economies and a favourite
destination of FDIs, is speaking this language so loud and
clear that the entire world is taking note of. Thanks to the
ICAI as enabler and the Government as facilitator that
a reformatory accounting revolution is brewing in the
country with the implementation of Ind AS Converged with
IFRS. The Ind ASs converged with IFRS have put India at
the centre stage of high quality and transparent financial
reporting whose benefits far outweigh the challenges.
These standards, which facilitate better comparability and
unambiguous understanding of financial statements across
all companies and jurisdictions, are the new benchmark of
Indian accounting excellence, and are redefining the core of
Indian accounting expertise.
High quality comprehensive set of accounting standards
is sine-qua-non of a fast growing economy intending to be
an economic super power in the coming decades. As such,
the ICAI, with active support of the Government, has been
making sustained and successful efforts in the adoption and
implementation of accounting standards at par with global
benchmarks through its Accounting Standards Board (ASB),
which was formed on 21st April 1977 to lay the foundation for a
robust accounting standard-setting framework in the country.
Since the beginning of the 21st century, the ICAI has donned
the mantle of accounting reforms in India. The major push
came in the year 2006-2007 when the ICAI prepared a concept
paper wherein it advocated convergence with IFRSs. The
concept paper rightly recognised the need of growing Indian
economy to embrace high quality and transparent financial
reporting. ICAI strongly believes that Indian economy and
businesses have a larger role to play in the globalised economy
and, therefore, there was a compelling need that they spoke
in a universally common accounting language the IFRS.
Subsequently, India has diligently kept pace with this global
accounting revolution encompassing more than 140 countries,
and is meticulously enabling the implementation of Ind AS
largely converged with IFRS with only a few carve-outs.
There is an urgent need to converge current Indian
Standards with International Accounting Standards,
announced Finance Minister Arun Jaitley in the 2014 Budget
speech acknowledging the immense underlying benefits, and
ushering India into a new era of path-breaking accounting
reform. Since then the process of convergence in India has
come a long way. ICAI quickly rose to the occasion and played
the main anchor role in formulating a full set of IFRS converged
Indian Accounting Standards (Ind AS) within a very short
span of time. As many as 39 Ind ASs were originally notified
www.icai.org
The only way to do great work is to love what you do. - Steve Jobs
Editorial
1631
in February 2015. It is noteworthy to mention here that
India has decided to early converge with IFRS 9 Financial
Instruments, a highly complex standard. Further, ICAI has
clear plan to maintain Ind ASs at par with IFRSs all the time.
Accordingly, it has put in motion the process for formulation
and issuance of three new Ind ASs equivalent to IFRS 15
Revenue from Contracts with Customers, IFRS 16 Leases and
IFRS 17 Insurance Contracts, in line with global mandatory
effective dates of 2018, 2019 & 2020.
It is a proud moment for India that companies (around
600) covered in the first phase of the roadmap of Ind AS
implementation have published their first quarterly financials
and annual financial statements for the year 2016-2017 based
on Ind AS. In the second phase, there are approximately 10,000
companies that will be required to prepare financial statements
based on Ind ASs. Another noteworthy aspect is that a series
of announcements by RBI and IRDAI have set the ball rolling
for the adoption of Ind AS as reporting language for Banks,
NBFCs and Insurance Companies from the next financial year
i.e. 2018-19.
In the era of globalised economies, Ind AS is a business
imperative for Indian companies today. It will not only act as a
gateway to global capital markets, but will also strengthen the
economic co-operation among BRICS nations and other global
and regional forums. The adoption of Ind AS is expected to
result in accounting which more closely reflects the underlying
business rationale and true economics of transactions.
Therefore, benefits of high quality, relevant and transparent
financial reporting system will accrue to various stakeholders
and result into robust capital markets. Ind AS implementation
is also going to benefit the accountancy profession as a
whole, offering it new professional avenues to serve global
stakeholders and adding a new dimension to the Governments
Skill India initiative.
Transition to Ind AS involves huge efforts. Hence, any
transition of this size and nature comes with its own set of
challenges. The ICAI has recognised challenges at an early
stage and is making every possible effort to take these in stride,
such as constitution of Ind AS Implementation Committee and
continuous dialogue with key regulators, such as, Reserve Bank
of India, Insurance Regulatory and Development Authority
of India MCA, Taxation Authorities etc., to address issues
involved in Ind AS implementation.
All in all, the ICAI is leading the way in embracing
accounting standards of excellence and is committed to play
the role of a Sheet Anchor to ensure effective and smooth
implementation of IFRS converged Ind ASs in India. n
-Editorial Board ICAI Partner in Nation Building
THE CHARTERED ACCOUNTANT JUNE 2017 3
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1632

EDITOR CA. NILESH SHIVJI VIKAMSEY

President

VOLUME 65
THE CHARTERED
VOLUME 65 NO. 12 PAGES-148 JUNE 2017 R100

JOINT EDITOR CA. NAVEEN N. D. GUPTA

JOURNAL
No. 12 PAGES-148
Vice-President
MEMBERS

CA. JAY CHHAIRA
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JUNE 2017
TH E I N STITUTE OF CHARTE R E D ACCOU NTANTS OF I N D IA SET UP BY AN ACT OF PARLIAMENT

CA. NIHAR NIRANJAN JAMBUSARIA

CA. DHINAL ASHVINBHAI SHAH
CA. SHIWAJI BHIKAJI ZAWARE
Ind AS Converged with IFRS:
ICAI Leads Accounting Transformation
CA. BABU ABRAHAM KALLIVAYALIL
CA. M. DEVARAJA REDDY
CA. MADHUKAR NARAYAN HIREGANGE

The Chartered Accountant Journal

CA. SUSHIL KUMAR GOYAL
CA. DEBASHIS MITRA
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CA. SANJIV KUMAR CHAUDHARY
CA. ATUL KUMAR GUPTA VOICE
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SHRI CHANDRA WADHWA
1631 Editorial
SHRI VIJAY JHALANI - An Update on Implementing
CA. RAJENDRA KUMAR P. Ind AS The New Benchmark of
CA. VIPUL CHOKSI 39 Ind AS notified so far

CA. S. SUNDARRAMAN
Accounting Excellence

Ind AS Transition Facilitation Group
Support-desk for Implementation of Ind AS
1634 From the President

R100
Nation-wide Training Programmes
CA. VENKATRAMAN SRINIVASAN A series of publications
CA. SUBROTO ROY
SECRETARY NADEEM AHMED
MEMBERS
International
Accounting Standards
Board

ICAI EDITORIAL TEAM DR. N. K. RANJAN

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 Contents
1633

VOLUME 65 NO. 12 PAGES-148 JUNE 2017 R100

GST update
1641 GST (Goods & Services Tax) An Update
Indirect Taxes Committee of the ICAI
INFORMATION TECHNOLOGY
SPECIAL WRITE-UP 1730 Robotics and Cognitive Computing Toolkits for the Future
Finance Professionals
CA. Soumen Mukerji and CA. Pankaj Arjunwadkar

1702 Professional Conduct in Limelight: European Survey

Reveals as to How Accountants Respond to Pressures
to Act Unethically
Anna Karmanska, Marie Lang and Robin Jarvis

Ind AS
1705 Complexities in Accounting for
Unwinding of Discount under Ind AS 16 TAXATION
and AS 10 1734 Goods and Services Tax Opportunities Galore for Indian
CA. Nelatur Syamasundaran Accounting Profession
1710 Accounting for Agriculture under Ind CA. Rajkumar Pugalia
AS 41 1737 GST Regime: Impact on Agreements
CA. Pankaj Sharma CA. Garima Garg
1713 Accounting for Assets Held for Sale 1741 Presumptive Taxation
under Ind AS An Overview of CA. Piyush Indrajit Shah
Pertinent Issues
CA. Puneet Arya
1717 Understanding of Accounting for
Production Stripping Cost under Ind AS
CA. Pravin Sethia

INTERNATIONAL TAXATION
1747 Limiting the Benefit of Interest Deduction
CORPORATE & ALLIED LAWS Committee on International Taxation of ICAI
1722 Opportunities for Chartered Accountants under Companies 1752 Associated Enterprises U/S 92A A Revisit
Act, 2013 and other Allied Corporate Laws CA. Parthasarathy R.
Corporate Laws and Corporate Governance Committee of
ICAI BACKPAGE
1726 Prohibition of Benami Property Transactions Act: Your 1772 Cross Word 132
Questions And Answers Smile Please
CA. Satheesh TG

www.icai.org THE CHARTERED ACCOUNTANT JUNE 2017 5

 From the President
1634
CA. Nilesh Shivji Vikamsey
President, ICAI
My esteemed professional colleagues,
I
t is true that freedom to know, to express and to
argue freely according to conscience is divine. The
law of our nation, our Constitution, ensures this to
the people of India. Our law in that sense is liberating
and, at the same time, it binds us in a system that brings
an order, cohesion and harmony in our life. But when
this liberty, created by law, starts to destruct the system
(i.e. order), the situation becomes alarming, since what
will follow next is the destruction of freedom itself.
Indian Chartered Accountants today enjoy
professional autonomy to a great extent, as provided
by its constitution, and understand the significance of
this privilege. Considering that freedom comes with
responsibility and responsibilities begin at home, they
are responsibly serving the nation the economic
interests of both the State and its people. Being
partners-in-nation-building, the Indian Chartered
Accountants have committed themselves to the
expected responsibilities of our country in the past and
will continue to do that with complete dedication. In
the recent past, we have contributed to the initiatives
and measures of our Government in various matters
of concerns including anti-black money drive, Income
Declaration Scheme, administration and collection
6 THE CHARTERED ACCOUNTANT JUNE 2017
of direct and indirect taxes, Union
Budget, benami transactions, ADR
mechanism (arbitration, mediation and
conciliation), IFRS-converged Indian
Accounting Standards, insolvency law
and GST. Tax collections achieved till
date and tax and other compliances
achieved in the country owes a lot to the
members of accountancy profession, be
it in industry or in practice. And the
Indian accountancy profession would
proactively keep on enhancing it to
ensure that there is a better awareness
and tax compliance in our country.
Let me bring before you some of
the significant developments that have
taken place in the last one month:
Initiatives for Government
& Meetings with Ministers/
Government Dignitaries
Meetings with Union Ministers of State
Recently, I along with my Central
Council colleague CA. Rajesh Sharma
had meetings with Honble Minister
of State for Finance Shri Santosh Kumar Gangwar
and Honble Minister of State for Finance and
Corporate Affairs Shri Arjun Ram Meghwal, where
among various issues of concerns, we discussed
the penalty under Section 271J of Income-tax
Act, 1961 (including draft Guidelines to prevent
the misuse of Section), managerial autonomy given
to the public-sector banks regarding appointment of
auditors and strengthening disciplinary mechanism,
and/or Quality Review Board instead of constituting
NFRA. We have submitted that ICAI, with its 163
Branches and 29 Chapters spread across the country
and the world, could be made an important knowledge-
partner in the GST knowledge dissemination
programme, as it had been made in the past with
regard to the IDS drive.
I along with my Central Council colleague CA.
Sushil Kumar Goyal had a meeting with the Honble
Union Minister of State (Independent Charge)
for Power, Coal, New & Renewable Energy and
Mines CA. Piyush Goyal, and discussed some of the
aforementioned issues.
Meeting with MCA Secretary
I along with ICAI Vice-President CA. Naveen N. D.
Gupta and ICAI Secretary Shri V. Sagar had a meeting
with MCA (Ministry of Corporate Affairs) Secretary
www.icai.org

Shri Tapan Ray and Joint Secretaries Shri Amardeep
Singh Bhatia and Shri K. V. R. Murty. Amongst various
matters discussed, we requested for an early approval
of our new Scheme of Education and Training in view
of its proposed launch on 1st July 2017, and asked for
their help in the expeditious approvals of pending
MRAs/ MoUs to be entered into by ICAI with
international accounting bodies. They have assured us
of their cooperation and support.
ICAI Committed to Smooth Implementation of GST
In a short span of time, more than 12 States have
passed the SGST Law from their respective
assemblies and this shows the commitment for timely
implementation of GST by the State Governments
after passing of CGST, IGST Act by the Parliament of
India. While checking the IT preparedness by GSTN,
Revenue Secretary Dr. Hasmukh Adhia reconfirmed
the date of implementation of the GST as 1st July 2017
and that this would not be extended further. Migration
of the existing taxpayers will again start from 1st June
2017. GST Council in its meeting held on 18th-19th May
2017 finalised the rules and formats of Composition,
Valuation, ITC, Invoice, Debit & Credit Notes,
Payment, Refund and Registration. It also discussed
the GST Compensation Cess rates and Chapter-wise
rate-wise GST Schedule in its meeting. As a partner-
in-nation-building, ICAI has always been at the service
of our nation by carrying out the responsibilities.
ICAI has decided to open GST Sahayata Desk at 200
locations including at its Regional Councils/Branches/
CPE Chapters to facilitate small businessmen,
representatives of trade and industry, and public at large
vis-a-vis the upcoming GST. Let us play our partnering
role at this conclusive stage of the implementation of
the biggest tax reform of the country.
ICAI-ARF and Rollout of Accrual Accounting across Indian
Railways
On the project of Rollout of Accrual Accounting across
Indian Railways, ICAI-ARF (Accounting Research
Foundation) team has submitted within the deadline
a draft Comprehensive Scope Evaluation Report of
the project after studying 11 different offices of Indian
Railways apart from the Zonal Railways and Production
Units covered in the pilot study.
We Support Govt Initiative to Resolve NPA Problem
It is highly commendable that our Government is
tirelessly pursuing a reform agenda and sustained
drive to resolve various issues plaguing the nation for
long. On behalf of the Indian accounting fraternity, I
fully support this trend. Latest in the series has been
www.icai.org
From the President
1635
the crucial steps to resolve the NPA (non-performing
assets) issue, which include an ordinance to empower
the RBI to effectively deal with bad assets in the
banking sectora move that will kick off a long-awaited
initiative. I am sure that those among us involved with
the banking sector in various capacities will diligently
take note of this development.
Audit Advisory Board
8th Audit Advisory Board (AAB) of the Comptroller
& Auditor General of India, whose purpose is to
provide suggestions regarding audit, within the
framework of the Constitution and statutory mandate
of the C&AG of India is chaired by C&AG of India
Shri Shashi Kant Sharma. As ICAI President, I, as an
ex-officio member of the Board, attended its fourth
meeting held on 27th April 2017, in which, among
other issues, we discussed Auditing Goods and Service
Tax: Challenges and Response from the government
auditors perspective.
MCAs High Level Committee and Disciplinary Mechanism
The Ministry of Corporate Affairs has set up a High
Level Committee to examine the existing provisions in
the Acts, Rules and Regulations of the three professional
Institutes (i.e. ICAI, ICSI and ICoAI) pertaining to
disciplinary mechanism. ICAI had already formed a
Group earlier in this regard, to examine the intricacies
involved in areas wherein changes need to be made
pertinent to the disciplinary mechanism, which
submitted its report at the ICAI Council meeting held
recently. The Council discussed the report, and has
asked the Group to include the inputs of the Council
members.
International Initiatives
Renewal of MoU between ICAI and HCT (UAE) Approved
I am happy to inform that the Union Cabinet has
given its ex-post facto approval for the renewal of
Memorandum of Understanding (MoU) between the
ICAI and Higher Colleges of Technology (HCT), United
Arab Emirates, originally signed in 2011. This MoU
will facilitate the ICAI in offering short professional
courses in the domain of accounting, finance and audit
in UAE via the HCT's Centre of Excellence for applied
Research and Training.
ICAI Council has also approved the MoU with
SOCPA (Saudi Organisation for Certified Public
Accountants), ICPAK (Institute of Certified Public
Accountants of Kenya), CPA Afghanistan (DG
Treasury, Ministry of Finance, Afghanistan) and
NBAA (National Board of Accountants and Auditors),
Tanzania, at its 365th meeting held recently.
THE CHARTERED ACCOUNTANT JUNE 2017 7
 From the President
1636
ICAIs International Conference to be Held in Mumbai in
December
I am happy to inform you that the dates for the next
International Conference of ICAI have been finalised
as 8th-9th December 2017, which would be held in
Mumbai, the commercial capital of India. IFAC
President Ms. Rachel Grimes has already given her in-
principle consent to attend. We would also be hosting
SAFA Board and Committee meetings on the sidelines
of the Conference. I request you to block your dates,
participate actively in the Conference and make this
mega event a grand success.
IASBs EEG Meeting Held in Mumbai
Recently the ICAI hosted the 13th meeting of IASBs
Emerging Economies Group (EEG) for the second time
on 8th-9th May 2017 in Mumbai, which was attended by
the representatives of IASB and emerging economies,
viz. Brazil, China, Indonesia, Malaysia, Russia, South
Africa, Turkey and India. On the sidelines, a half-day
ICAIEEG Joint Stakeholders Seminar was organised
on Emerging IFRS (Ind AS) Challenges dealing with
Service Concession Arrangements and Expected
Credit Loss Model under Ind AS 109.
SAFA Board and Committee Meetings
I along with ICAI Vice-President CA. Naveen N. D.
Gupta and ICAI Secretary Shri V. Sagar attended via
videoconference the SAFA Board meeting held in
Islamabad at The Institute of Cost and Management
Accountants of Pakistan on 30th April 2017. My Central
Council colleague and Chairman of SAFA Committee
on Education, Training and CPD CA. Atul Kumar
Gupta chaired a meeting of the Committee held on 28th
April 2017 via videoconference.
Initiatives for Members
ICAI Ready on Ind-AS Compliant Schedule III to Companies
Act, 2013, for Non-Banking Finance Companies (NBFCs)
ICAI continues with its goal to enable effective
implementation of IFRS-converged Indian Accounting
Standards (Ind AS) across various industry sectors.
In this regard, Accounting Standards Board (ASB)
of the ICAI had identified a need for separate format
for financial statements for Non-Banking Finance
Companies (NBFCs) considering their nature of
business operations. Accordingly, the ASB had
developed formats that reflect both financing and
non-financing operations of NBFCs. These financial
statement formats facilitate presentation of balance
sheet items based on liquidity and the statement of
profit and loss includes line items relevant for both
financing and manufacturing/trading activities.
This will require addition of another division in
8 THE CHARTERED ACCOUNTANT JUNE 2017
Schedule III to the Companies Act, 2013. ASB had
also recommended amendments to Ind AS 12 Income
Taxes to clarify deferred tax accounting treatment
for debt instruments measured at fair value. This is
an important clarification in the accounting era of
increased use of fair value. ICAI Council in its recent
meeting has approved the above recommendations.
Representation to C&AG of India
Some PSUs have imposed a condition of not allowing
the statutory auditors for tax representation services
as they consider it a part of management consultancy
services. ICAI submitted its representation to C&AG
of India (i.e. to the Deputy C&AG cum-Chairman of
Audit Board) requesting them to consider and allow
statutory auditors of PSUs to appear and represent
before the tax authorities and not to consider it as part
of the management consultancy services.
Valuation: Emerging Area for CA Professionals
In view of the increasing importance of Valuation in
the Ind AS framework and the need to have Standards
around it, a separate Board, Valuation Standards Board
(VSB), has been constituted in the ICAI. Since the
Valuation Standards will be new to India, the VSB will
focus on the release of Valuation Standards, providing
interpretations, guidance and technical materials from
time to time and help in the implementation of these
Standards. VSB is interacting with the International
Valuation Standards Council (IVSC) for entering into
a license agreement to obtain the copyright so that
the Indian Valuation Standards and Indian Valuation
Professional Standards as formulated/converged with
the International Valuation Standards 2017 may be
issued.
Group to Analyse Impact of Digital Technology, Big Data and
Artificial Intelligence
Riding the wave of fast-paced changes sweeping
the global business arena, 'Digital', Big Data and
Artificial Intelligence have become the buzzwords
and discussion-points today for the global accounting
community. And so far as the big data is concerned,
it is high time that we realised the importance of
this fast-emerging knowledge domain as the next big
opportunity for the profession. Big data analytics
is here to stay and the Chartered Accountants with
an ability to analyse big data can play a crucial role
in organisational strategy and decision-making.
While big data is being referred as challenge-
cum-opportunity, artificial intelligence is being
dubbed both as threat as well as opportunity. We as
accounting professionals not only need to be aware of
these rapidly changing developments in technology
www.icai.org
 From the President
and its impact on the profession but also need to
harness it, else we would be outdated. As such, not
only the Auditing & Assurance Standards Board and
Internal Audit Standards Board are looking into the
usage and impact of big data, data analytics and
artificial intelligence on the auditing procedures, but
we have also proactively formed the Global Digital
Accounting and Assurance Board to be on top of these
developments.
Let us explore these new domains not only to
protect ourselves but also to leverage the changes for
the opportunities available across the world.
Lets Contribute to CABF
Let us contribute and make the noble CABF
(Chartered Accountants Benevolent Fund) which
helps the members of ICAI and their families in the
times of need, more robust. Just to inform, during the
financial year 2016-17, the CABF of ICAI received a
contribution of R1,54,11,571/- and it granted a sum of
R1,13,28,500/- as medical and financial assistance to
the members and families of the deceased members of
the Institute. Let us augment the noble Fund of ICAI
in these times of decreasing interest rates so that we
could not only maintain but enhance our assistance to
the needy members and their families.
Initiatives for Students
Commencement of Toll-free Helpline for CA Students
I am happy to inform that the Board of Studies of ICAI
has started a toll-free helpline service at 18001211330
(10 am to 5.30 pm, Monday to Friday) to answer the
queries of CA students across the country, with a view
to provide timely and generic and subject-specific
information to students. Faculty members of ICAI will
be available to answer the subject-specific queries of
the students from 3 pm to 4 pm.
Update on GMCS Dissemination
As you know, the completion of GMCS (General
Management Communication Skills) is mandatory
for taking part in the ICAIs campus placement
programmes meant for the newly-qualified Chartered
Accountants. Accordingly, to cater to the needs of
our students appearing at the CA Final Examination
in May 2017, who are yet to complete the GMCS
course, necessary and adequate arrangements have
been made by the Board of Studies of ICAI. Those
who aspire for the August-September 2017 campus
placements are advised to enroll themselves at
www.icaionlineregistration.org for GMCS course
at any Centre of their convenience and complete
before the interview process begins in the middle of
August 2017.
www.icai.org
In looking for people to hire, you look for three qualities: integrity, intelligence, and energy.
And if they don't have the first, the other two will kill you.- Warren Edward Buffett
1637
Initiatives for Institute
ICAIs Presence on Social Networking
I am really happy to inform that the ICAI is embracing
social media to reach out to its stakeholders, especially
its students and members. Considering todays business
environment, this initiative will enhance the brand
"ICAI both nationally and internationally. ICAI social-
media accounts have been configured on Facebook,
Twitter, LinkedIn, Google Plus and YouTube. ICAIs
presence in social media networking is continuously
increasing; the total number of its followers has crossed
3-lakh mark across all platforms.
Strengthening HR at ICAI
I am happy to inform that in our endeavours to reform
the HR mechanism and empower the ICAI personnel,
a special-purpose group, HR Transformation Group,
has been organising training programmes/workshops
constantly for employees on relevant issues to
enhance their performance for better delivery to
its stakeholders viz, members, students and others.
Its HRT Officers Group has grouped all HR matters
into three phases. Phase I includes job description,
KRAs and KPIs, communication strategy, manpower
rationalisation. Phase II includes organisation
restructuring, redesigning appraisal management
system, measuring training effectiveness, creating
event management department, and Phase III
includes implementing appraisal management
system, succession planning. It recently interacted
with Committee Secretaries/HOD for manpower
assessment with regard to their KRAs and KPIs
and communication strategy for the organisational
restructuring, which would be undertaken in phase II.
*******
The holy ninth month of Islamic calendar, popularly
known as Ramadan that is observed by praying and
fasting and doing charity for the underprivileged, will
begin in May end and conclude in June end this year
with the celebrations of Idul Fitr. I extend my warm
wishes to all of you for this auspicious festival.
Let us imbibe the spirit of such festivals and promise
to serve our nation more and better. Let us share our
happiness with the underprivileged. Let us commit
ourselves to the mutual welfare. Let us follow the path
of love and universal brotherhood.
Best wishes
CA. Nilesh S. Vikamsey
President, ICAI
Mumbai, 23rd May 2017
THE CHARTERED ACCOUNTANT JUNE 2017 9
 Photographs
1638

Meeting with Union Minister of State for Finance and

Corporate Affairs and Lok Sabha MP

Meeting with Union Coal, Power, New and Renewable

Energies, and Mines Minister of State (IC)
ICAI President CA. Nilesh S. Vikamsey and his Central Council colleague CA.
Sushil Kumar Goyal present the first two issues of ICAI-GST Newsletter to Union
Coal, Power, New and Renewable Energies, and Mines Minister of State (IC) CA. ICAI President CA. Nilesh Shivji Vikamsey welcomes and presents bouquet to Union
Piyush Goyal (16th May 2017) Minister of State for Finance and Corporate Affairs Shri Arjun Ram Meghwal in
presence of Lok Sabha MP CA (Dr.) Kirit Somaiya (26th April 2017)

Meeting with Union Minister of State for

Finance
ICAI President CA. Nilesh S. Vikamsey and his Central Council colleague CA. Rajesh Sharma discuss the
ICAI President CA. Nilesh Shivji Vikamsey welcomes and
matters of professional concerns with Union Minister of State for Finance and Corporate Affairs Shri Arjun
presents bouquet to Union Minister of State for Finance
Ram Meghwal (26th April 2017)
Shri Santosh Kumar Gangwar (26th April 2017)

Two-Day National
Conference on GST at
Gurugram Branch of NIRC
Central Council Member CA. Rajesh
Sharma along with Haryana Finance
Minister and Chief Guest Shri Captain
Abhimanyu Singh, Gurugram Branch
Chairman CA. Sandeep Garg and Guest
Speakers CA. Ashok Batra and CA.
Naveen Garg, among other members of
Branch Managing Committee (21st-22nd
April 2017)

National Conference on
GST at Vasai Branch of
WIRC
ICAI President CA. Nilesh Shivji
Vikamsey along with Union
Minister of State for Finance and
Corporate Affairs Shri Arjun Ram
Meghwal, while his Central Council
colleague CA. Prafulla Chhajed,
WIRC past Chairman CA. Sunil
Patodia, Vasai Branch Chairman
CA. Nitesh Kothari and immediate
past Chairman CA. Vimal Agarwal,
among others (13th May 2017)

10 THE CHARTERED ACCOUNTANT JUNE 2017 www.icai.org

 Photographs
1639

13th IASB & ICAI-EEG Meetings in Mumbai

ICAI Central Council members CA.

Shiwaji Bhikaji Zaware and CA. M. P.
Vijaykumar along with IASB Members
Mr. Darrel Scott and Mr. Amaro Gomes,
IASB Director (Implementation &
Adoption Activities) Mr. Henry Rees
and Associate Director Michelle
Sansom, and delegates from Brazil,
China, India, Indonesia, Malaysia,
Russia, South Africa and Turkey, among
other officials of IASB and ICAI at the
meeting (8th May 2017)

ICAI Central Council members CA.

Shiwaji Bhikaji Zaware, CA. M. P.
Vijaykumar and CA. Dhinal Ashvinbhai
Shah along with IASB Members Mr.
Darrel Scott and Mr. Amaro Gomes, IASB
Director (Implementation & Adoption
Activities) Mr. Henry Rees and Associate
Director Michelle Sansom, and delegates
from Brazil, China, India, Indonesia,
Malaysia, Russia, South Africa and Turkey,
among other officials of IASB and ICAI
(8th May 2017)

ICAI-EEG Joint Stakeholders Seminar on Emerging IFRS (Ind AS) Challenges in Mumbai

ICAI President CA. Nilesh Shivji

Vikamsey and Vice-President CA.
Naveen N. D. Gupta along with their
Central Council colleague CA. M. P.
Vijaykumar, IASB Member Mr. Amaro
Gomes, ICAI senior member CA.
Venkataramanan and ICICI Bank Ltd.
CFO CA. Rakesh Jha on the dais (9th
May 2017)

ICAI Central Council members CA.

Shiwaji Bhikaji Zaware and CA. Dhinal
Ashvinbhai Shah along with IASB
Director (Implementation & Adoption
Activities) Mr. Henry Rees, ICAI senior
members CA. P. R. Ramesh and GVK
Ltd. CFO CA. Vinod Hiran on the dais
(9th May 2017)

www.icai.org THE CHARTERED ACCOUNTANT JUNE 2017 11

 Photographs
1640

ITAT President Visits ICAI

ICAI President CA. Nilesh Shivji Vikamsey and Vice-President CA. Naveen N. D. Gupta and their Central Council Colleagues receive and welcome the ITAT (Income Tax
Appellate Tribunal) President CA. G. D. Agrawal at the recently-held ICAI Council meeting (17th May 2015)

Seminar on Real Estate Regulatory Authority Act

Half-Day Seminar on ICDS and RERA Act, 2016 in Jaipur
ICAI President CA. Nilesh Shivji Vikamsey addresses the delegates while his Central Council
colleagues CA. Shyam Lal Agarwal and CA. Prakash Sharma and Jaipur Branch Chairman CA.
Abhishek Sharma, among other members of the Branch Managing Committee, share the dais (13th
May 2017)
in Lucknow
Lucknow Branch past Chairman CA. Heman Kumar welcomes
and presents memento to ICAI Vice-President CA. Naveen N. D.
Gupta in presence of current Branch Chairman CA. Prem Shanker
Khandelwal, among others (11th May 2017)

Inauguration of GST Clinic at Jaipur Branch of CIRC
ICAI President CA. Nilesh Shivji Vikamsey inaugurates the Clinic, in presence
of his Central Council colleague CA. Shyam Lal Agarwal and Jaipur Branch
Chairman CA. Abhishek Sharma, among other members of Branch Managing
Committee (13th May 2017)
Two-Day Conference on GST in Kanpur
ICAI Vice-President CA. Naveen N. D. Gupta lights the lamp to inaugurate the Conference
in presence of his Central Council colleagues CA. Mangesh Pandurang Kinare and CA.
Manu Agrawal, and CIRC Chairman CA. Deep Kumar Mishra, among others (11th May
2017)

12 THE CHARTERED ACCOUNTANT JUNE 2017 www.icai.org

Boldness has genius, power and magic in it. - Johann Wolfgang von Goethe

GST (Goods and Services Tax) An Update
GST Council meeting held on 18th & 19th May 2017
TGST Council at its 14th meeting approved 7 GST Rules & formats
viz, Composition, Valuation, Input Tax Credit, Invoice Debit & Credit
Notes, Payment, Refund, Registration. The Council has broadly
approved the GST rates for goods and services at nil rate, 5%, 12%,
18% and 28%. Further approved were the rates of GST Compensation
Cess to be levied on certain goods.
It is pertinent to note that exemptions available under the
existing Negative list and the Mega Exemption Notification would
continue to be available under the GST regime as well. In addition
to above list of 12 services liable to tax under reverse charge which
is similar to existing list of services. However, the concept of partial
reverse charge has been done away with.
The next meeting of the Council is scheduled to be held on 3rd
June 2017.
SGST Act Passed by Twelve States
After receipt of presidential assent on the four GST Acts viz
CGST, UTGST, IGST Act and GST (Compensation to States) Act,
Telangana became the first State to pass the SGST Bill while other
States who have passed the Bill include Bihar, Rajasthan, Jharkhand,
Chhattisgarh, Uttarakhand, Madhya Pradesh, Haryana, Goa, Gujarat,
Maharashtra and Arunachal Pradesh. The remaining States are
expected to pass the SGST bill shortly.
Draft GST Rules
The Government recently released 14 draft GST Rules including 5
revised draft rules on Invoice, Payment, Refund, Registration and
Return in the public domain, for which suggestions/representations
were invited by the Government. The Indirect Taxes Committee has
submitted its suggestions to the Government on 5th May, 2017.
FAQs on GST in regional languages
Central Board of Excise and Customs (CBEC) has released
Frequently Asked Questions (FAQs) on GST in various regional
languages including Kannada, Malayalam, Punjabi, Telegu, Marathi
and Assamese to disseminate the knowledge in their local language
to various stakeholders.
GST Awareness Campaign by CBEC
CBEC started a GST awareness campaign (https://gstawareness.
cbec.gov.in) where various GST workshops are being organised. The
details of all the past as well as upcoming awareness events have been
uploaded on the website.
(Contributed by Indirect Taxes Committee of the ICAI. Comments can be
sent at idtc@icai.in.)
Registration for Campus Placement Programme for Newly Qualified Chartered Accountants, to be held in August-
September, 2017, Begins On 1st July, 2017.
Organisations may please visit- www.placement.icai.org
www.icai.org
You cant fall if you dont climb. But theres no joy in living your whole life on the ground. - Unknown
GST UPDATE
1641
GST Enrolment
The Government declared that Phase-1 of GST was closed on 30th
April, 2017 whereby 60.5 lakh taxpayers enrolled out of 84 lakh on
the GST Portal (gst.gov.in) between 8th November, 2016 and 30th
April 2017. The enrolment process has closed with effect from 1st
May, 2017. Data of all those who have signed the enrolment form will
be migrated to the new GST System.
The enrolment window will reopen for 15 days from 1st June,
2017 to provide another opportunity to the taxpayers who could not
enrol themselves as well as for those who enrolled but did not sign
the enrolment form.
IT-Preparedness for the roll-out of GST from 1st July,
2017
Dr. Hasmukh Adhia, Revenue Secretary held a meeting at
New Delhi where the detailed review of IT Preparedness
for GST System at the Goods and Services Tax Network (GSTN)
office took place. He reviewed GST System preparedness of GSTN
and CBEC. He was briefed about the software system being developed
for GST, training of tax officials and outreach program being
undertaken by Tax Departments across the nation. Out of 62,937 tax
officials, 24,668 tax officials have been given hands-on training on
the application software on live system while the remaining officials
will be trained by 15th June, 2017. The training is being conducted
on Registration, Returns and Payment Modules developed by GSTN.
GSTN has also conducted a pilot on GST System Software from
2nd May, 2017 to 16th May, 2017, where 3200 taxpayers drawn from
each State/UT and Centre participated. The pilot covers all the three
modules and is being run to give the taxpayers first hand opportunity
to work on the live system as the creation of return has become an
interactive process.
The feedback from the pilot will be used to further improve
the GST Software. The modules covered under the pilot
are:
Upload of invoice data using Offline Tool, developed by GSTN
Creation of Supply Return (GSTR-1)
Viewing auto-generated inward supply (Purchase) Return
(GSTR-2A)
Editing of GSTR-2A by purchaser to create final inward supply
return (GSTR-2)
Viewing and acceptance/rejection of added invoice data by
purchaser (GSTR-1A)
Viewing System generated GSTR-3, payment of taxes using net
banking and submission of GSTR-3.
Creation of bank scroll by Banks and RBI,
Reconciliation of payment by Accounting Authorities with data
received from Banks and RBI.
ICAI News
THE CHARTERED ACCOUNTANT JUNE 2017 13
 Know Your Ethics
1642
Ethical Issues in Question-Answer Form*
Q. Can a Chartered Accountant in practice allow
any person to practice in his name as a Chartered
Accountant?
A. No, Clause (1) of Part-I of the First Schedule to the
Chartered Accountants Act, 1949 prohibits a Chartered
Accountant in practice to allow any person to practice in
his name as a Chartered Accountant unless such person
is also a Chartered Accountant in practice and is in
partnership with or employed by him.
Q. Can a Chartered Accountant in practice pay to any
person any share, commission or brokerage in the
fees or profits of his professional business?
A. No, Clause (2) of Part-I of the First Schedule to
the Chartered Accountants Act, 1949 prohibits a
Chartered Accountant from paying or allowing any
share, commission or brokerage in the fees or profits
of his professional business, to any person other than
a member of the Institute or a partner or a retired
partner or the legal representative of the deceased
partner or a member of any other professional body or
with such other persons having such qualifications as
may be prescribed, for the purpose of rendering such
professional services from time to time in or outside
India.
Q. Can a Chartered Accountant in practice enter into
partnership with a practicing Chartered Accountant
of a recognised foreign professional body for sharing
fee of their partnership within India?
A. Yes, Clause (4) of Part-I of First Schedule to the
Chartered Accountants Act, 1949 permits partnership
between members of the Institute and the members of
the recognised foreign professional bodies either by the
Central Government or the Council of the Institute, by
virtue of Section 29(2) of the Act read with Regulation
53B (2) of the Chartered Accountants Regulations, 1988
wherein they share fees of the partnership business
within India or outside India.
Q. Can a practicing Chartered Accountant secure
any professional business through the services of a
person who is not his employee or partner?
A. No, Clause (5) of Part-I of First Schedule to the
Chartered Accountants Act, 1949 prohibits a practicing
Chartered Accountant from securing any professional
business, either through the services of a person who is
not an employee of such Chartered Accountants or who
is not his partner.
Q. Whether a client may use the name of CA firm
mentioning it as a knowledge partner / in the
thanking you message?
A. The use of the name of CA firm by a client, mentioning
it as a knowledge partner, would tantamount to indirect
advertisement and solicitation by the CA firm, therefore,
it is not permitted in view of Clause (6) and (7) of Part I
of the First Schedule to the Chartered Accountants Act,
1949. However, the mention of name of an individual
member with prefix/suffix CA as a knowledge partner
is permissible.
* Contributed by the Ethical Standards Board of the ICAI
14 THE CHARTERED ACCOUNTANT JUNE 2017
In order to succeed, your desire for success should be greater than your fear of failure. - Bill Cosby
Q. Whether member in practice is permitted to respond
to announcement for empanelment for allotment of
audit and other professional work and quote fees on
enquiries being received?
A. It has been clarified by the Council under proviso (ii)
to clause (6) of the part-I of the first schedule to the
Chartered Accountants Act, 1949 that if announcements
are made for empanelment by the Government,
Corporations, Courts, Cooperative Societies, Banks and
other similar institutions, the members may respond to
such announcements provided the existence of panel is
within their knowledge. The Council has further clarified
that the quotations of fees can be sent, if enquiries are
received by the members in this regard.
Q. Can a member in practice indicate in a book or an
article, authored /contributed/published by him, his
association with any firm of Chartered Accountants?
A. No, as per Para (e) under Clause (6) of Part I of First
Schedule to the Chartered Accountants Act, 1949 as
appearing in the Code of Ethics, 2009 a member is not
permitted to indicate in a book or an article, authored/
contributed/published by him, the association with any
firm of Chartered Accountants.
Q. Can a Chartered Accountant in practice solicit
professional work by making roving enquiries?
A. No, it is not permissible for a member to address letters
or circulars to persons who are likely to require services
of Chartered Accountants. It would tantamount to
advertisement (as per para (g) under clause (6) of Part-I
of the First Schedule to the Chartered Accountants Act,
1949 of Code of Ethics, 2009 ).
Q. Whether the information contained in the website
of the Chartered Accountants and/or Chartered
Accountants' firms can be circulated on their own or
through e-mail or by any other mode or technique?
A. Sub-paras (3) & (4) of Para (m) under Clause (6) of Part I
of the First Schedule to the Chartered Accountants Act,
1949 as appearing in the Code of Ethics, 2009 prescribe
that the Chartered Accountants and/or Chartered
Accountants' firms should ensure that none of the
information contained in the website be circulated on
their own or through e-mail or by any other mode or
technique except on a specific pull request. The
Chartered Accountants and/or Chartered Accountants'
Firms would ensure that their Websites are run on a
pull model and not a push model of the technology
to ensure that any person who wishes to locate the
Chartered Accountants or Chartered Accountants'
firms would only have access to the information and
the information should be provided only on the basis of
specific pull request.
Q. Whether a member in practice hold Customs Brokers
Licence under section 146 of the Customs Act,1962?
A. It is not permissible for member in practice to hold
Customs Brokers License under Section 146 of the
Customs Act, 1962 read with Customs Brokers Licensing
Regulations, 2013.
www.icai.org
 Opinion
1646
Accounting Treatment of Release of Funds by
Project Implementation Trust Fund
The following is the opinion given by the Expert Advisory Committee of the Institute in response to a
query sent by a member. This is being published for the information of readers.
A. Facts of the Case
1. The Government of India (GoI) is currently
developing a Dedicated Freight Corridor (DFC)
between Delhi and Mumbai, covering an overall
length of 1483 km. The DFC passes through
the states of Uttar Pradesh, Delhi, Haryana,
Rajasthan, Gujarat and Maharashtra, with the
end terminals located at Dadri near Delhi and
Jawaharlal Nehru Port in Mumbai. The Dedicated
Freight Corridor is envisaged to offer high-speed
connectivity for high axle load wagons (25 tonne)
of double stacked container trains supported by
high power locomotives.
2. In parallel, the Government of India is developing
an Industrial Corridor, as a global manufacturing
and investment destination utilising the high
capacity DFC between Delhi and Mumbai, as
the backbone. In essence, the Industrial Corridor
project is aimed at the development of futuristic
industrial cities in India which can compete
with the best manufacturing and investment
destinations in the world.
3. The Industrial Corridor project was conceived
as a symbol of Indo-Japan strategic partnership
during the visit of the Honble Prime Minister
of India to Tokyo in December, 2006. A
Memorandum of Understanding (MOU) was
signed between Ministry of Commerce &
Industry (MoC&I), Government of India and
the Ministry of Economy, Trade and Industry
(METI), Government of Japan on this occasion
to promote Japanese investments in India and
explore opportunities for mutual cooperation as
part of Special Economic Partnership Initiatives
(SEPI) under the Common Economic Partnership
Agreement (CEPA) to be reached between
India and Japan. The Government of India had
approved the development of Industrial Corridor
project on 16th August, 2007. Subsequently,
institutional and financial structure and financial
assistance for the Industrial Corridor project
was approved by the Government of India in
September 2011.
18 THE CHARTERED ACCOUNTANT JUNE 2017
4. Industrial Corridor region covers parts of Uttar
Pradesh, Haryana, Rajasthan, Gujarat, Madhya
Pradesh and Maharashtra besides the National
Capital Territory of Delhi. Initially, 7 nodes have
been taken up for development as industrial
cities in the first phase. These are a combination
of brownfield and greenfield areas identified by
the respective State Governments based on the
availability of land, water and other parameters
as listed below:
Ahmedabad-Dholera Investment Region,
Gujarat (903 sq. kms.);
Shendra-Bidkin Industrial Park,
Aurangabad, Maharashtra (84 sq. kms.);
Manesar-Bawal Investment Region,
Haryana (402 sq. kms.);
K h u s h k h e r a - B h i w a d i - N e e m r a n a
Investment Region, Rajasthan (160 sq.
kms.);
Jodhpur-Pali-Marwar Industrial Area,
Rajasthan (155 sq. kms.);
Pithampur-Dhar-Mhow Investment Region,
Madhya Pradesh (372 sq. kms.);
Dadri-Noida-Ghaziabad Investment
Region, Uttar Pradesh (218 sq. kms.); and
Dighi Port Industrial Area, Maharashtra
(253 sq. kms.)
5. A special purpose vehicle (SPV), XYZ Corporation
Limited was incorporated in January 2008 as
the project development agency for Industrial
Corridor project. XYZ Corporation Limiteds
mandate is to act as project development
agency and be the catalyst for development
and implementation of the Industrial Corridor
project in the respective States. Presently, the
total paid up capital of the company is R100.00
crore being Government of India (49%), Japan
Bank of International Corporation (26%),
Housing and Urban Development Corporation
(19.9%) as its major shareholders.
6. Financial and institutional structure: As per the
financial and institutional structure of Industrial
Corridor project approved by the Cabinet
www.icai.org
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 Opinion
1648
Committee on Economic Affairs (CCEA) on
15th September, 2011, a corpus in the name of
Industrial Corridor Project Implementation
Fund was created by the Government of India,
based on an average requirement of R2500 crore
per city, for the development of industrial cities.
As per the structure approved, the corpus of the
Fund/Trust will be R17,500 crore and the entire
corpus will be utilised based on the progress
made for each city, subject to a ceiling of R3,000
crore per city from the GoI grant. An additional
grant of R1,000 crore would be given to the
Fund/Trust for passing on to XYZ Corporation
Limited as grant-in-aid over the next five years
to carry out project development activities
and to form project specific SPVs and sectoral
holding companies consisting of project specific
SPVs in the range of infrastructure areas. The
Government of Indias contribution to the Fund/
Trust would be used as a Revolving Corpus. It has
also been approved that each Industrial Corridor
city is to be implemented by a special purpose
vehicle set up as a joint venture between the
Central Government represented through the
Fund/Trust and the respective State Government.
The equity in node/city level SPVs and in these
project specific SPVs and holding companies will
be held by the Fund/Trust. (Emphasis supplied
by the querist.)
7. The Fund/Trust will be administered by a Board
of Trustees chaired by Secretary, Department
of Economic Affairs and will comprise the
Secretary, Department of Industrial Policy
and Promotion (DIPP), Financial Advisor
(DIPP), representatives of the Department of
Expenditure, Planning Commission, and Chief
Executive Officer (CEO) & Managing Director
(MD), XYZ Corporation Limited, who will also
be the CEO of the Fund/ Trust. The Corpus of the
Trust would be used for:
(a) Providing equity and/or debt to the nodal/
city level SPVs for development of non-PPP
infrastructure and for investment in project
specific SPVs that may be set up by a node/
city level SPV;
(b) Providing equity and/or debt to other
project specific SPVs and sectoral holding
companies consisting of project specific
SPVs; and
(c) Providing grant to XYZ Corporation
Limited for project development.
20 THE CHARTERED ACCOUNTANT JUNE 2017
Further, as per the same approval, XYZ
Corporation Limited will get perspective plans
and master plans prepared and will identify and
develop projects and arrange for professional
inputs for risk management, project structuring,
project appraisal, preparation of Expression of
Interest/Request for Proposal/ bid documents
etc., evaluation of bids, bid process management
and project management. It will undertake due
diligence and analyse, examine and appraise
proposals and assist the Fund/Trust in monitoring
all projects. XYZ Corporation Limited will act as
the project development partner or knowledge
partner to all SPVs and state government
agencies for the implementation of these
industrial cities. It will bring in the vision of a
state-of-the-art, world-class city at each node
and assist each SPV in translating the vision
to reality through identification of projects,
undertaking project preparatory activities like
preliminary project reports, feasibility studies,
preparation of detailed project reports (DPRs),
development of projects, bidding out projects
for private participation and providing assistance
to SPVs for:
(a) putting in place suitable risk management
measures like tying up/ procurement of
land, linkages (water, power, transport,
gas, etc.) including land procurement from
State Governments for strategic projects
and projects cutting across the Industrial
Corridor states/ region like power plants,
water supply, transportation, logistics
parks, exhibition cum convention centres
etc. which are being directly driven by
XYZ Corporation Limited to achieve early
implementation to induce growth at the
Industrial Corridor cities;
(b) legal vetting of documents and obtaining
requisite approvals from competent
authorities;
(c) finalising commercial arrangements like
off-take agreements/Power Purchase
Agreements, etc.; and
(d) obtaining viability gap support from State
and Central Government.
The querist has supplied the relevant extracts
of the Cabinet Note on the Financial and
Institutional Structure of Industrial Corridor
project for the perusal of the Committee.
(Emphasis supplied by the querist.)
www.icai.org
 Opinion
1650
8. Industrial Corridor Project Implementation
Trust Fund was created through the execution
of the Trust Deed on 27th September, 2012
with the initial corpus of R312.40 crore and an
additional grant of R99 crore for passing on to
XYZ Corporation Limited as grant-in-aid to
carry out project development activities and to
form project specific SPVs and sectoral holding
companies consisting of project specific SPVs
in a range of infrastructure areas. The querist
has supplied a copy of the Trust Deed of
Industrial Corridor Trust for the perusal of the
Committee.
9. ABC Model Solar Power project was conceived
by the Government of India in partnership with
the Government of Japan. A Memorandum of
Understanding (MoU) was executed among New
Energy and Industrial Technology Development
Organisation (NEDO) Japan; Department
of Economic Affairs, Ministry of Finance,
Government of India; Ministry of New and
Renewable Energy, Government of India; and
XYZ Corporation Limited on 30th April, 2012.
Under the terms of the MoU, the Government
of Japan will provide various equipment to the
project in the form of grant. Besides, the project
was structured in a manner so as to ensure a
partnership between the Government of India (in
the form of funding and implementing agency)
and the Government of Japan (for supplying
the technology and equipment). The querist has
supplied a copy of the MoU for the perusal of the
Committee.
10. The investment proposal for the project was
placed before the Board of Trustees of Industrial
Corridor Trust for their consideration and
approval. The Board considered that since
the project was based on grant from NEDO,
Government of Japan and the entire project
development activities have been undertaken
by XYZ Corporation Limited, the same may
be implemented through a 100% SPV of XYZ
Corporation Limited so that the upsides, if any
may flow back to the Revolving Fund of Industrial
Corridor Trust. The proposal for the formation of
SPV for the implementation and operation of the
Model Solar Power Project to be incorporated as
a 100% subsidiary of XYZ Corporation Limited,
was approved by the Cabinet Committee on
Economic Affairs (CCEA) as an exception. It was
also approved that a sum of R13 crore required
22 THE CHARTERED ACCOUNTANT JUNE 2017
for subscription to the equity of a 100% subsidiary
of XYZ Corporation Limited as well as R22.34
crore as debt to the SPV will be released by the
Industrial Corridor Trust and the upsides from
such investment will flow back to the Industrial
Corridor Trust. (The querist has provided the
relevant extracts of the Cabinet Note for the
perusal of the Committee.)Accordingly, the
project SPV in the name of XYZ-ABC Project
Corporation Limited was incorporated on 18th
March, 2014. An amount of R13.00 crore was
transferred from Industrial Corridor Trust to
XYZ Corporation Limited out of the corpus of Rs.
17,500 crore and on the same day, the amount was
released by XYZ Corporation Limited towards
subscription amount to XYZ-ABC Project
Corporation Limited. Appropriate modification
was carried out in the Shareholders Agreement
of XYZ Corporation Ltd. and no objection
was obtained from all the shareholders of XYZ
Corporation Limited so that for any upsides
from XYZ-ABC Project Corporation Limited
to XYZ Corporation Limited, the shareholders
may not raise claim and the same can flow back
to the corpus of the Industrial Corridor Trust.
The querist has separately informed that such
upsides include dividend and surplus from
XYZ-ABC Project Corporation Limited as
well as recovery of investments on liquidation/
cessation of operations of the company. (The
querist has provided relevant extracts of
minutes of the meeting of Board of Directors
of XYZ Corporation Limited, approving the
amendments in the Shareholders Agreement as
well as in Articles of Association). The querist has
also informed that under normal circumstances,
the funds provided by Trust as per approval of
the Cabinet Committee in respect of investment
in XYZ-ABC Project Corporation Limited to
XYZ Corporation Limited and which have been
utilised accordingly for making investment in
XYZ-ABC Project Corporation Limited, are
not refundable except when XYZ-ABC Project
Corporation Limited goes into liquidation, the
proceeds therefrom together with the balance
of interest, dividend and any other income lying
with XYZ Corporation Limited on account
of XYZ-ABC Project Corporation Limited
will become refundable to the Trust and XYZ
Corporation Limited or its shareholders will not
have any claim.
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 Opinion
1652
11. Accounting Treatment
A. In the books of account of Industrial
Corridor Project Implementation Trust
Fund:
The amount of R13.00 crore was released
to XYZ Corporation Limited for onward
investment in the equity shares of XYZ-ABC
Project Corporation Limited. The amount
was released out of corpus of Industrial
Corridor Trust.
The same was shown as a deduction from
the corpus of the Industrial Corridor Trust
accompanied by a clarificatory note in the
financial statements of Industrial Corridor
Trust.
The querist has supplied a copy of the
audited financial statements of Industrial
Corridor Trust for the financial years
2013-14 and 2014-15 for the perusal of the
Committee.
B. In the books of account of XYZ Corporation
Limited:
The amount of R13.00 crore received out
of corpus of Industrial Corridor Trust was
recorded as Project Implementation Funds
under Capital Reserves as Reserves and
Surplus of the company as per Accounting
Standard (AS) 12, Accounting for
Government Grants.
The investment in shares of XYZ-ABC
Project Corporation Limited is shown
under investments under Non-Current
Assets in the financial statements of XYZ
Corporation Limited.
The querist has given a copy of the
audited financial statements of XYZ
Corporation Limited for the financial years
2013-14 and 2014-15 for the perusal of the
Committee.
C. In the books of account of XYZ-ABC Project
Corporation Limited:
1.3 crore equity shares were issued in the
name of XYZ Corporation Limited and
the same was reflected accordingly in the
financial statement of XYZ-ABC Project
Corporation Limited.
The querist has supplied a copy of the
audited financial statements of XYZ-ABC
Project Corporation Limited for the first
financial year starting from 18.03.2014 to
31.03.2015 for the perusal of the Committee.
24 THE CHARTERED ACCOUNTANT JUNE 2017
12. Audit
In accordance with the provisions of the Trust
Deed, the Comptroller and Auditor General of
India (C&AG) has been entrusted the audit of
annual accounts of Industrial Corridor Trust
for five years starting from the financial year
2012-13 to 2016-17.The audit team deployed
from the Office of C&AG during the conduct
of annual accounts audit of Industrial Corridor
Trust for the financial year 2013-14 observed the
following:
Cabinet Committee on Economic Affairs
approved constitution of a Special Purpose
Vehicle for implementation and operation of
ABC Model Solar Power Project, Rajasthan
as a 100 per cent subsidiary of XYZ
Corporation Limited on 20th January, 2014.
However, the approval does not contain any
direction on release of equity contribution of
R13 crore from Corpus/Capital Account of
Industrial Corridor Trust Fund. Further, as
the Industrial Corridor Trust has earmarked
funds specifically established for passing on
to XYZ Corporation Limited as grant-in-
aid, to enable XYZ Corporation Limited to
carry out the project development activities
for implementation of Industrial Corridor
projects, including forming project specific
SPVs and sectoral holding companies but
the equity contribution for subsidiary of
XYZ Corporation Limited was adjusted
from Corpus/Capital Account of Trust,
the clarification on this regard was not
provided to Audit. The clarification on this
regard may be obtained from appropriate
authority and necessary accounting entry or
disclosure may be made in the accounts for
the year 2014-15.
The querist has supplied a copy of the
management letter issued by the office of C&AG
and the reply of the management for the perusal
of the Committee. The same query was raised
again by the audit team during annual accounts
audit of Industrial Corporation Trust for the
financial year 2014-15 in the form of half-margin.
The same is reproduced as under:
Audit of accounts of Industrial Corridor
Trust Fund for the year 2014-15
The Cabinet Committee on Economic
Affairs approved constitution of a Special
Purpose Vehicle for implementation and
www.icai.org
 Opinion
1654
operation of ABC Model Solar Power
Project as a 100 per cent subsidiary of XYZ
Corporation Limited on 20th January, 2014.
However, the approval does not contain any
direction on release of equity contribution
of R13.00 crore from Corpus/Capital
account of Industrial Corridor Trust Fund.
As per para 6.1 and 7.1 of the Trust Deed
of Industrial Corridor Trust, the corpus
of Industrial Corridor Trust includes Rs.
1000 crore as additional corpus meant
for grants-in-aid to XYZ Corporation
Limited. The above funds were released to
XYZ Corporation Limited but instead of
adjusting the same from additional corpus,
the contribution was adjusted from main
corpus/capital account of Trust.
This issue was raised last year through
management letter and Industrial Corridor
Trust Fund was requested to obtain a
clarification in this regard from appropriate
authority and to pass necessary accounting
entry or disclosure to this effect in the
accounts for the year 2014-15.
However, the same has not been
complied with by Industrial Corridor Trust
Fund for the accounts for the year 2014-15.
The above facts and figures may please
be confirmed and reply may be furnished
within two days.
The copy of the reply submitted to the Office of
C&AG has been provided by the querist for the
perusal of the Committee.
13. The querist has also separately informed that
the equity investment released from the project
implementation funds, i.e., corpus funds, to
XYZ Corporation Limited for making onward
investment in XYZ-ABC Project Corporation
Limited is in accordance with the approval
of Financial and Institutional Structure of
the Industrial Corridor project approved by
the Union Cabinet on 15th September, 2011
and Cabinet Committee on Economic Affairs
approval dated 20.01.2014 for formation of
special purpose vehicle for implementation and
operation of ABC Model solar power project at
Rajasthan.
B. Query
14. On the basis of the above, the querist has sought
an opinion from the Expert Advisory Committee
26 THE CHARTERED ACCOUNTANT JUNE 2017
on the correctness of the accounting treatment
given in the books of account of Industrial
Corridor Trust by showing the funds amounting
to R13.00 crore released by Industrial Corridor
Trust from the Corpus to XYZ Corporation
Limited for making onward investment in XYZ-
ABC Project Corporation Limited.
C. Points considered by the Committee
15. The Committee notes that the basic issue raised
in the query relates to the treatment of release
of funds amounting to R13 crore by Industrial
Corridor Trust (hereinafter also referred to
as the Trust) from the Trust Corpus of R17,500
crore (which is also referred to as the main
corpus in the Facts of the Case) to XYZ
Corporation Limited for making onward
investment in XYZ-ABC Project Corporation
Limited in the books of account of Industrial
Corridor Trust (hereinafter referred to as
the Trust). The Committee has, therefore,
considered only this issue and has not examined
any other issue that may arise from the Facts
of the Case, such as, accounting in the books
of account of XYZ Corporation Ltd. or XYZ-
ABC Project Corporation Limited. Further, the
Committee wishes to point out that the opinion
expressed hereinafter is purely from accounting
perspective and not from the perspective of
legal interpretation of various orders/approvals
by Cabinet/Cabinet Committee on Economic
Affairs, trust deed, etc. At the outset, the
Committee presumes that the release of funds
from the corpus of R17,500 crore is appropriate
and in accordance with the Trust Deed and
approval of the Cabinet Committee on Economic
Affairs.
16. In the context of accounting for the release of
funds, the Committee notes from the Facts of
the Case and the relevant extracts from the
Cabinet Approval Note (copy of which has been
supplied by the querist for the perusal of the
Committee) that the funds have been released to
XYZ Corporation Ltd. for onward investment in
100% equity of XYZ-ABC Project Corporation
Ltd. and that any upsides from such investment
will flow back to the Trust. The Committee
further notes that such upsides include
dividend and surplus from XYZ-ABC Project
Corporation Limited as well as recovery of
investments on liquidation/cessation of the
www.icai.org
 Opinion
1656
operations of XYZ-ABC Project Corporation
Limited, however, no equity or debt instrument
is issued to the Trust in respect of such a release
of funds. In this regard, the Committee also
notes the definition of the terms, asset and
investment from the 'Framework for the
Preparation and Presentation of Financial
Statements and Accounting Standard (AS)
13, Accounting for Investments, issued by the
Institute of Chartered Accountants of India,
which provide as follows:
An asset is a resource controlled by
the enterprise as a result of past events
from which future economic benefits are
expected to flow to the enterprise.
Investments are assets held by an
enterprise for earning income by way
of dividends, interest, and rentals, for
capital appreciation, or for other benefits
to the investing enterprise. ...
17. The Committee notes from the Facts of the
Case that the release of funds gives a right to
the Trust to receive any upsides that may arise
from the investment in SPV (XYZ-ABC Project
Corporation Ltd.) formed for implementation
of solar power project. Thus, the Committee is
of the view that that such release of funds results
into a resource controlled in the form of the
right and from such resource, future economic
benefits are also expected to flow to the Trust
and therefore, it meets the definition of asset.
Further, with regard to the nature of such asset,
the Committee is of the view that in substance,
such asset is held by the Trust for earning
income and therefore, considering the principle
of Substance over form, it is of the nature of
investment for the Trust. Accordingly, the
Committee is of the view that the release of
funds should be recognised as investment in
the financial statements of the Trust rather
than as a reduction from the corpus. Moreover,
an appropriate disclosure of the fact that the
shares in XYZ-ABC Project Corporation Ltd.
are held through XYZ Corporation Ltd. should
be given in the notes to accounts. Further, since
apparently, such investment is intended to be
held for more than one year from the date on
which such investment is made, it is a long-term
investment and therefore should be recognised
at cost in accordance with paragraph 17 of AS
13, which provides as follows:
28 THE CHARTERED ACCOUNTANT JUNE 2017
The best preparation for tomorrow is doing your best today. - H. Jackson Brown, Jr.
17. Long-term investments are usually
carried at cost. However, when there is
decline, other than temporary, in the value
of a long term investment, the carrying
amount is reduced to recognise the decline.
Indicators of the value of an investment are
obtained by reference to its market value,
the investees assets and results and the
expected cash flows from the investment.
The type and extent of the investors stake
in the investee are also taken into account.
Restrictions on distributions by the investee
or on disposal by the investor may affect the
value attributed to the investment.
D. Opinion
18. From the above, the Committee is of the
opinion that the accounting treatment given
in the books of account of Industrial Corridor
Trust by showing the funds amounting to
R13.00 crore released by Industrial Corridor
Trust from the Corpus to XYZ Corporation
Limited is not correct. The same should be
recognised as investment in the financial
statements of the Trust, as discussed in paragraph
17 above.
1. The Opinion is only that of the Expert Advisory
Committee and does not necessarily represent the
Opinion of the Council of the Institute.
2. The Opinion is based on the facts supplied and in the
specific circumstances of the querist. The Committee
finalised the Opinion on January 16, 2017. The
Opinion must, therefore, be read in the light of any
amendments and/or other developments subsequent
to the issuance of Opinion by the Committee.
3. The Compendium of Opinions containing the
Opinions of Expert Advisory Committee has
been published in thirty five volumes. A CD of
Compendium of Opinions containing thirty five
volumes has also been released by the Committee.
These are available for sale at the Institute's office at
New Delhi and its regional council offices at Mumbai,
Chennai, Kolkata and Kanpur.
4. Recent opinions of the Committee are available on
the website of the Institute under the head Resources.
5. Opinions can be obtained from EAC as per its
Advisory Service Rules which are available on the
website of the ICAI, under the head Resources. For
further information, write to eac@icai.in
www.icai.org
CA April17
 Legal Update
1658
Legal Decisions1
Income Tax
DIRECT LD/65/148
TAXES Prin. Commissioner of Income Tax
vs.
Sunny Infraprojects Ltd.
24th April, 2017
Seized material must have some
nexus or relevance to the additions sought to be
made and must be relevant for the belief formed
regarding income having escaped assessment;
Documents like Balance Sheets, Audit Reports
etc. which were already available with the AO
cannot constitute incriminating material which
could justify the making of the additions.
A search operation was carried on one Minda
Group of Companies and one Mr. Santosh Kumar
Jain was stated to be an entry operator, who in his
statement purported to have accepted that he was
engaged in providing accommodation entries to the
group companies of Mr. Ashok Minda. During the
course of assessment proceedings in case of assessee,
to facilitate independent verification of the receipt of
the share capital and share premium, the AO sent
notices u/s. 133(6) to the Principal Officer of each
of the investor companies to furnish their response
along with bank accounts, minutes of meetings,
details of PAN cards, names and addresses of
Directors etc. The AO then came to the conclusion
that the replies submitted were not satisfactory as to
the identity, genuineness and creditworthiness of the
investment. The AO observed that it was gathered
during the post-search proceedings that Sunny
Infra Projects Limited was a paper company run by
Mr. Santosh Kumar Jain and that the share capital
and share premium inducted during the year was
nothing but unaccounted business income of Ashok
Minda Group of Companies which had been routed
by entry operator through various bogus companies.
Subsequently, statement of Mr. Santosh Kumar
Jain was again recorded on 27th February, 2014 in
which he retracted from his earlier statement given
on 10th January, 2012 during the course of search.
The AO rejected the said retraction and proceeded
to make the additions to the taxable income of the
Assessee.
1
Contributed by CA. Sahil Garud, CA. Mandar Telang, Indirect Taxes Committee, Committee on International Taxation, Insolvency and Bankruptcy Laws Group,
Disciplinary Directorate and ICAI's Editorial Board Secretariat.
Readers are invited to send their comments on the selection of cases and their utility at eboard@icai.in. For full judgment, write to eboard@icai.in
30 THE CHARTERED ACCOUNTANT JUNE 2017
The issue before the Delhi HC was whether
ITAT erred in law in holding that AO did not have
any lawful and valid jurisdiction for initiation of
proceedings and issuance of notice u/s. 153C of
Income Tax Act, 1961, and whether what was
recovered during the search could be considered to
be incriminating material qua each of the Assessees.
HC observed that w.r.t. assessment proceedings
on the assessee, satisfaction note prepared by the
AO of the Assessee referred to the 'incriminating'
documents/papers which were seized during the
search and seizure action in the case of the Minda
Group. These documents were copies of the balance
sheet abstracts and company's general profile,
balance sheet, profit and loss account, auditor's
account, copies of income tax returns and copy
of trial balances, and apart from this there was no
other material referred to, that could give rise to
the belief about income having escaped assessment.
Each of these above documents was already
available with the AO when the initial assessments
were finalised under Section 143(3) of the Act. HC
therefore concluded that these documents could not
constitute incriminating material which could justify
the making of the additions in exercise of the powers
u/s. 153C. As per HC, the seized material must have
some nexus or relevance to, the additions sought to
be made and must be relevant for the belief formed
regarding income having escaped assessment.
HC therefore held that ITAT was not in error in
deleting the additions made by the AO in the hands
of the assessee. HC thus ruled in favour of assessee.
LD/65/149
Nath Brothers Exim International Ltd.
vs.
Union of India & Anr
21st April, 2017
Constitutional validity of Sec. 80A(5) and fourth
proviso to Sec. 10B(1), which discuss about
mandatory filing of return in time for claiming tax
holiday, upheld by HC.
As per fourth proviso to Sec. 10B, no deduction
shall be allowed where return is not furnished within
prescribed time limit. Also, Sec. 80A(5) provides
that no claim u/s. 10B and other such sections shall
be allowed where assessee fails to make the same in
the return of income.
www.icai.org
 Legal Update
1660
The assessee is a company engaged in business
of manufacture and export of readymade garments,
garment made ups and silk fabric. During AY 2002-
03, assessee had set up Export Oriented Unit (EOU)
as an independent unit. The profits derived there
from were eligible for deduction u/s. 10B. During
AY 2007-08, assessee earned profit of R2.43 crore.
However, it failed to claim deduction in the belated
income tax return filed on 31.12.2008. The said
claim of deduction u/s. 10B was only made by the
assessee in the revised return filed subsequently on
26.03.2010. Revenue rejected the claim of deduction
u/s. 10B. CIT(A) upheld the order of AO and further
appeal was pending before Delhi ITAT. The assessee
filed a writ before Delhi HC challenging the validity
of Sec. 80A(5) as well as fourth proviso to Sec. 10B(1)
as being violative of Article 14 of the Constitution of
India.
Before HC, assessee argued that before insertion
of Section 80A (5) and fourth proviso to Section10B
(1), an eligible assessee was not mandatorily
required to claim deduction in the return of
income, and that the eligible assessee was only
required to intimate the Assessing Officer about its
claim for deduction at any time before completion
of Assessment Proceedings. The assessee cited
Circular No. 14(SL-35) of 1955, which required the
officers of the department to assist taxpayer in every
reasonable way, particularly in the matter of claiming
and securing reliefs. It was submitted that, therefore
it is incumbent for the revenue to draw the attention
of the assessee to any refunds and reliefs to which
they appear to be clearly entitled but which they
have omitted to claim for some reason. As per the
assessee, in case of any bona fide reason preventing
oneself from filing return of income within time,
no recourse is given under any provision of the
Act through which deduction could be claimed
subsequently, and that the CBDTs power u/s. 119(2)
is discretionary.
HC observed that the tax officers are required
not more than to assist the assessee and it does not
place any mandatory duty on the officer to allow a
deduction if the assessee does not wish to claim it.
HC noted that Sec. 10B(1) gives numerous benefits
to assessee and fourth proviso merely requires
compliance of the time line provided u/s. 139(1).
Further insertion of Sec. 80A(5) did not curtail any
vested rights of assessee, it only imposed upon it an
obligation to claim deductions in a timely manner
and in the return so filed.
32 THE CHARTERED ACCOUNTANT JUNE 2017
HC remarked that it was open to legislate
and prescribe different conditions in respect of
those who claim benefits, just as the substantive
provisions which stipulate the conditions. As per
HC, provisions of special limitation in cases like
this instant case, was justified and had a rational
nexus with the object, which Parliament intended
to achieve. Reliance was placed on decision in the
case of D.R. Industries vs. Union of India [(2008) 229
ELT 24] wherein it was held that different periods
of limitation can be prescribed by Parliament and
as such the question of arbitrariness does not arise.
Further, HC observed that a proviso is meant to limit
the scope of the general enactment and therefore any
proviso in respect thereof couldnt be held as invalid
as long as the objective of the general provision is not
frustrated. HC referred to SC ruling in Prem Singh
& Ors vs. Birbal [2006 (5) SCC 353)] wherein it was
held that these provisions are more like limitation
periods, which are statutes of repose.
HC thus concluded that with the addition of
the fourth proviso to Section 10B(1) of the Act, the
manner of claiming deduction is now time barred
under the provisions of the Section 139(1) and relief
cannot be granted after expiry of the time mentioned
in Section 139(1). The Parliament acted within its
power to differentiate between a return of income
filed under Section 139(1) and a belated return filed
under Section 139(4) for the purposes of deductions
claimed under Section 10B(1). HC thus dismissed
the writ and ruled in favour of Revenue.
LD/65/150
Commissioner of Income Tax
vs.
Equinox Solution P. Ltd.
18th April, 2017
Sec 50: Special provision for computation of
capital gains in case of depreciable assets
Sale of running business by assessee held to be a
Long-term capital gain and not short term, by SC;
Section 50 (2) would apply to a case where the
assessee transfers one or more block of assets,
which he was using in running of his business; In
present case, assessee sold the entire business
as a running concern.
The assessee was engaged in the business of
manufacturing sheet metal components out of
CRPA and OP sheds at Ahmedabad. The assessee
sold its entire running business in one-go to one
Amtrex Appliances Ltd. (AAL) for R58.53 lakh. The
www.icai.org
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 Legal Update
1662
assessee filed its return for AY 91-92 and claimed
deduction under Section 48 (2) of the Act as it
stood then by treating the sale to be in the nature of
"slump sale" of the going concern being in the nature
of long term capital gain. AO held that it was covered
under Section 50 (2) of the Act because it was in
the nature of short term capital gain as specified
in Section 50 (2) of the Act and hence did not
fall under Section 48 (2) of the Act as claimed by
the assessee. CIT(A) allowed assessees claim of
deduction. Both ITAT and HC ruled in favour of
assessee. Aggrieved, Revenue filed an appeal before
SC.
SC observed that Section 50 (2) applies to a case
where any block of assets are transferred by the
assessee but where the entire running business with
assets and liabilities is sold by the assessee in one
go, such sale, in our view, cannot be considered as
short-term capital assets. As per SC, provisions of
Section 50 (2) of the Act would apply to a case where
the assessee transfers one or more block of assets,
which he was using in running of his business.
Such was not the instant case because in this case,
the assessee sold the entire business as a running
concern.
SC placed its reliance upon rulings in Artex
Manufacturing Co. [1997(6) SCC 437 CIT] and
Bombay HC ruling in Premier Automobiles Ltd. [264
ITR 193 (Bombay].
SC thus ruled in favour of assessee.
LD/65/151
Commissioner of Income Tax
vs.
Alankar Business Corporation Ltd.
Chennai
12th April, 2017
For computation of capital gain, a further
reduction from WDV is not warranted if such
WDV has already been reduced by allowable
depreciation and no breakages have been
claimed in the computation of income; Payment
of compensation charges is to be allowed as per
Section 36(1)(iii) if it is payable to the supplier of
the equipment as an interest liability; Amount for
the goodwill is liable to be taxed, when it is clear
that the transfer of such goodwill is complete.
The assessee is engaged in the manufacture of
Soft drinks under a franchise from Coca Cola. The
assessee entered into an arrangement for transfer of
its entire soft drinks and beverage undertaking as
34 THE CHARTERED ACCOUNTANT JUNE 2017
a going concern to Hindustan Coca Cola Bottling
South West Pvt. Ltd (in short 'HCC').
Issue 1: Reduction of the value of breakages of bottles
and crates from the written down value ('WDV') in
the computation of short term capital gains u/s. 50:
Assessee had sold bottles and crates to HCC
offering short term capital gain of an amount of R8.28
Cr. to tax in terms of Section 50 of the Act, the WDV
being adopted at R12.02 Cr. The assessee accounted
for breakages of bottles and crates at the rate of 15%
as against 33% for earlier years. As per the AO, the
value of breakages should have been deducted from
the WDV adopted for bottles and crates, whereas,
according to assessee, the breakages had already
been taken into account in its statement of income by
way of suomoto disallowance and there was thus no
need to reduce the same once more from the WDV.
However, the AO noted that the sale to HCC as on
28.02.1999 could only be of the bottles existing as on
that date which could not have included the broken
bottles and crates. The AO estimated the breakages
at R1.88 Cr. reducing the same from WDV, and the
short term capital gain stood enhanced to R10.54 Cr.
The CIT(A) ruled against the assessee, whereas the
ITAT ruled in favour of assessee.
HC analysed provisions of Sec. 50 as per which,
where a capital asset forms part of a block of assets
and depreciation has been allowed in regard to the
same, then, in the computation of capital gain on the
transfer of such asset, the cost of acquisition shall
be the written down value of the block of assets at
the beginning of the previous year, as increased by
the actual cost of any asset falling within that block
acquired during the previous year. HC held that since
the breakages were not claimed in the computation
of income, there is no justification for any further
reduction from WDV. HC thus ruled in favour of
assessee.
Issue 2: Assessee had set up a new plant commencing
production from March 1997. In this regard, an
'Agreement to enter into Lease' dated 23.02.1995
was entered into between the assessee and M/s.
Sundaram Finance Limited ('SFL') for financing
of the plant and machinery, the terms of which
included payment of compensation at 21% in certain
situations. After a gap of nearly two years, a lease
agreement was entered into between the parties
on 25.03.1997 for lease of the factory for a period
of seven years. The assessee intended originally, to
www.icai.org
 Legal Update
1664
defer the claim of compensation charges/interest
payment over a period of seven years, i.e., during
the period of lease. However, since the plant and
machinery had been sold during the financial year
under consideration, the lease agreement was
terminated and the entire balance outstanding
interest was claimed in the present year. The claim,
in terms of Section 36(1)(iii), was rejected on the
ground that there was no borrowal by the assessee
per se. The alternate claim u/s. 37 was also rejected
on the ground that the expenditure was capital in
nature by the AO. The CIT(A) ruled against the
assessee, whereas ITAT ruled in favour of assessee.
HC observed that the agreement dated 23.02.1995,
while providing for the financial assistance extended
by SFL for the purchase of the plant and machinery,
also provided for the subsequent lease of the
machinery to the assessee. Thus, the arrangement
with SFL for financing the acquisition and leasing of
the equipment was only for the business purposes
of the assessee. HC observed that the provision
of compensation charges was in the nature of the
interest liability payable to the manufacturer or
supplier of the equipment by SFL that the assessee
made good and thus the assessee assumed the role
of the borrower in this situation. The compensation
charges paid were thus in the nature of interest
u/s. 36(1)(iii). Further HC also noted that while the
underlying new asset [plant and equipment] was
acquired, it was for the purpose of the expansion of
the existing business of the assessee and not for the
development of a new line of business. The charges
paid are consequently also allowable u/s. 37 of the
Act being wholly revenue in nature. HC thus ruled
in assessees favour.
Issue 3: The assessee submitted that the actual closure
of business was conditional on the completion of
various statutory formalities and produced a letter
from the purchaser HCC to the effect that the sum
of R3 crore constituted only an advance in respect
of which a Bank Guarantee had been given by the
Assessee. The AO brought to tax the amount of R3
crore in the present Assessment Year being of the
view that the transfer of goodwill of business had
been effected in the present year itself. The CIT(A)
ruled against the assessee, whereas the ITAT ruled
in favour of assessee.
HC perused the agreements entered into for
business transfer and for transfer of goodwill. HC
noted that the execution of a Bank Guarantee as well
36 THE CHARTERED ACCOUNTANT JUNE 2017
as the Letter dated 28.03.2002 by HCC where the
payment of R3 crore is shown as an advance has to
be seen in the context of the agreements between
the parties and the suspension of the business of
the assessee. There was nothing whatsoever to
indicate that the agreement was tentative or that
the transfer was incomplete or subject to other
stipulations. The finding of the Tribunal to the effect
that the consideration on account of goodwill was
not received is contrary to certain clauses of the
agreement wherein the vendors specifically confirm
the receipt thereof. HC thus held that ITAT erred
in deleting the addition on account of goodwill
when the same has, as a fact, been transferred as on
28.02.1999 and full consideration received then and
there. HC thus ruled in favour of Revenue.
LD/65/152
Berger Paints India Ltd.
vs.
Commissioner of Income Tax
Delhi
28th March, 2017
35D(3) (Explanation): Definition of Capital
employed in the business of the company
Share premium collected by assessee on its
subscribed share capital doesnt constitute
capital employed in the business for computing
deduction u/s. 35D.
The assessee is engaged in the business of
manufacture and sale of various kinds of paints. The
AO disallowed proportionate deduction claimed
u/s. 35D for preliminary expenses. While assessing
the calculation of preliminary being written off
at 2% of capital employed by the assessee, the AO
denied assessees contention that shares issued on
premium formed part of capital employed in the
business of the company. The CIT (A) ruled in favor
of assessee. The ITAT reversed CIT(A)s order and
ruled in favour of Revenue. Further, the Delhi HC
also ruled in favour of Revenue, aggrieved by which
the assessee filed an appeal before the SC.
SC observed that explanation to Sec. 35D(3)
clearly mentioned that capital employed in the
business of the Company included in it aggregation
of three distinct components i.e. share capital,
debentures and long term borrowings. As per SC,
since reserves and surplus did not form part of
the capital employed in business as per the given
explanation the same was restricted to share capital,
debentures and long term borrowings and premium
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 Legal Update
1666
was nowhere included in the same and therefore
assessee was not entitled to claim deduction towards
premium received.
SC remarked that if the intention of the Legislature
were to treat the amount of "premium" collected by
the Company from its shareholders while issuing
the shares to be the part of "capital employed in the
business of the company", then it would have been
specifically said so in the Explanation(b) of sub-
Section(3) of Section 35D of the Act.
SC observed that the Companies Act provides
in its Schedule V- Part II (Section 159) a Form of
Annual Return, which is required to be furnished by
the Company having share capital every year, and
column III of this Form, which deals with capital
structure of the company, provides the break-up
of "issued shares capital break up". This column
did not include premium amount collected from
shareholders on its issued share capital by the
Company. This was indicative of the fact that such
amount is not considered as a part of the capital
unless it is specifically provided in the relevant
section. Further, as per Sec. 78 of Companies
Act, premium collected from shareholders is to
be transferred in a separate account securities
premium account, which again clearly showed that
premium collected would not form part the capital
employed by the company.
SC thus held that share premium collected by
assessee on its subscribed share capital did not
constitute capital employed in the business for
computing deduction u/s. 35D, and ruled in favor of
Revenue.
LD/65/153
Hosanna Ministries
vs.
The Income Tax Officer (Exemptions)
07th March, 2017
HC condones 1902 days of appeal-filing delay
and remits matter back to ITAT for fresh decision;
Assessee did not give any lame excuses on
medical grounds, etc, but it was a case of
either non-advise by assessee's professional or
ignorance of law by assessee itself.
Assessee is a charitable trust registered under
Indian Trust Act. Assessee had applied for
registration u/s. 12AA which was rejected by the
CIT and no further action was taken by the assessee
for the same. After some years of rejection of the
application, the Revenue sent a recovery notice.
38 THE CHARTERED ACCOUNTANT JUNE 2017
Based on a professional advice, the assessee came
to know that the order of rejection by CIT was
appealable to the ITAT u/s. 253(1)(c). So the assessee
filed an appeal before the ITAT with the application
for condonation of delay of 1902 days. ITAT denied
condonation holding that assessee was not vigilant
in pursuing the appeal. Additionally, ITAT also
noted that the assessee was not engaged in the
activities in accordance with the objects specified in
the Trust deed. Aggrieved assessee filed an appeal
before Madras HC.
HC perused documents of registration of
assessee trust with Directorate of Social Defence,
State of Tamil Nadu, especially after the coming
into effect of Juvenile Justice (Care and Protection
of Children) Act 2015, and noted that the assessee
was running under the provisions of the Juvenile
Act and rejected ITATs finding that the assessee
was not engaging in activities in accordance with the
objects specified in the Trust Deed.
HC noted that no doubt, the delay of 1902 days
is a huge and enormous delay. But, when we look at
the reasons given by the assessee for such a delay, it
shows that it is not attributable to any lame excuses
on medical grounds or otherwise. HC remarked that
Assessee knew well that if a plea of ignorance of law
is taken, that would be, on the face of it, rejected by
the Court/Tribunal, nevertheless, such a plea alone
had been taken by the assessee and that itself would
show the inherent genuineness attached with the
reason cited by the assessee for such huge delay.
HC referred to SC ruling in the case of Collector,
Land Acquisition vs. M.S.T.Katiji and others [167
ITR 471(1987)] wherein it was held that there is no
presumption in this country that every person knows
the law: it would be contrary to common sense and
reason if it were so.
HC thus set aside ITATs order and ruled in
assessees favour.
LD/65/154
Noida Power Company Limited
vs.
Commissioner of Income Tax
6th March, 2017
Limitation of seven years as provided by amended
Section 201(3) of the Act would not apply
retrospectively even to returns filed in year 2009
The assessee filed its TDS return for Quarter 4
of FY 08-09 on 12.06.2009 w.r.t. TDS on salaries.
www.icai.org
 Legal Update
1668
Revenue issued a notice dated 05.01.2016 deeming
assessee as a person in default. The assessee filed
a writ petition against this notice alleging that
Revenue had no authority of law to pass any order
in connection with the above return considering the
limitation period given in Section 201(3).
As per Section 201, no order shall be made
deeming a person to be an assessee in default for
failure to deduct the whole or any part of TDS from
a person, at any time after the expiry of seven years
from the end of the financial year in which payment
is made or credit is given. HC observed that the
limitation for passing the order is 7 years from the
end of the relevant financial year; however, this was
not the position earlier or at the time when the TDS
return was filed. HC observed that unamended
provisions of Sec. 201(3) were applicable in this case
and as per Section 201(3) which stood then, the
limitation for passing an order in connection with
the TDS return was two years from the end of the
financial year in which the statement of return is
filed or four years from the end of the financial year
in which the payment is made or the credit is given,
in any other case.
HC observed that period had expired much
before the issuance of the impugned notice and thus
valuable rights have accrued in favour of the assessee
as during this period no order was passed. On the
issue of retrospective applicability of amended
provisions, HC referred to SC ruling in case of ITO
vs. S. K. Habibullah [(1962)44 ITR 809] wherein
the SC had remarked that an amendment cannot
be applied to affect the vested rights which have
accrued to the assessee prior amendment. In other
words, any right which had vested in the assessee
due to the conclusiveness of any proceedings cannot
be taken away by the subsequent amendment.
HC further referred to SC ruling in K.M. Sharma
vs. Income Tax Officer (2002) 254 ITR 772 (SC)]
wherein the SC had stated that taxing provision
imposing a liability is governed by normal rule of
presumption that it is not retrospective and the
settled principle of law is that the law to be applied
which is in force at the time of assessment order
unless contrary is provided expressly or by necessary
implication. Even a procedural provision cannot in
the absence of clear contrary intendment expressed
therein be given a greater retrospectivity then what
has been expressly mentioned so as to enable the
authority to affect the finality of the tax assessment
or to open up liability which has become barred by
40 THE CHARTERED ACCOUNTANT JUNE 2017
lapse of time. Further the Gujarat HC in the case
of Tata Teli Services vs. Union of India and others
on 05.02.2016 had specifically held that amended
provision of Sec. 201(3) was not retrospective in
nature and that a right which has accrued to the
assessee prior to the aforesaid amendment cannot
be affected by amendment.
HC thus held that the provision of Section 201 (3)
of the Act as amended by the Finance Act 2 of 2014 is
effective from 01.10.2014 only and would not apply
retrospectively to any returns or to the proceedings
which may have become conclusive with the passage
of time on the expiry of the limitation under the
unamended provision.
HC remarked that impugned notice dated
05.10.2016 is just a notice under Section 201 (3) of
the Act and it only requires the petitioner to furnish
certain information and nothing else. It is not even
a show cause notice which may be taken for the
purposes of passing an order as contemplated under
Section 201 (3) of the Act. HC thus directed the
assessee to appear before the AO and submit the
desired information to keep its record straight.
LD/65/155
Sigma Corporation India Ltd.
vs.
Dy. Commissioner of Income Tax
15th February, 2017
Disallowance u/s. 40A(2) with respect to
professional remuneration payment by assessee-
Company to its Vice President, deleted by HC;
The Vice President was responsible for multiple
tasks for more than one concern which led AO
to disallow his remuneration holding it to be
excessive for assessee company.
In FY 08-09, the assessee paid remuneration to its
Vice President [Marketing] [a related party] which
was disallowed by the AO to the extent of 50%.
The AO felt that the assessee had not adequately
addressed the concerns with respect to the time
spent for its work, having regard to the qualifications
and expertise of the said expert. The CIT(A)
overturned AOs order as he believed remuneration
was reasonable in consonance to his qualifications.
However, the ITAT affirmed AOs order. Aggrieved,
assessee filed an appeal before Delhi HC.
HC perused the provisions of Sec. 40A. HC
referred to decision in Hive Communications
[[2011] 26 taxmann.com 287 (Delhi)] which
considered CBDT Circular dated July 6, 1968, which
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 Legal Update
1670
clarified the meaning of reasonable expenditure
in the context of the AOs discretion u/s. 40A. HC
relied on Calcutta HC ruling in the case of Edward
Keventer Pvt. Ltd. [86 ITR 378 (1972)] wherein it
was held that reasonableness or otherwise of the
expenditure should take into account firstly the
legitimate business needs of the assessee or the
company, secondly, benefits derived by or accruing
to the company, and that while doing so, the view
point of the company or concern having regard to
prudent business practices, should prevail. The SC
while affirming this decision of Calcutta HC had said
that It is not for the Assessing Officer to dictate what
the business needs of the company should be and he
is only to judge the legitimacy of the business needs
of the company from the point of view of a prudent
businessman.
HC noted that AO nowhere benchmarked
the concerned related partys expertise with any
other consultant and AO proceeded on a wrong
assumption that the related party could not have
performed multiple tasks for more than one concern.
HC remarked that such a stereotyped notion can
hardly be justified in todays business world where
consultants perform different tasks, not only for one
concern but for several business entities..Likewise
in other fields i.e. journalism, the medical profession
etc. more than one entity may engage or retain a single
professional on the basis of his experience, learning
and expertise, unless there is a deeper scrutiny that
involves comparable analysis of like situations (a
highly difficult task), additions made under Section
40A(2) would be suspect.
Thus HC ruled in assessees favour and set-aside
ITATs order.
Transfer Pricing
LD/65/156
BNT Global P. Ltd.
vs.
Income Tax Officer
26th March, 2017
Penalty u/s. 271BA upheld for assessees failure
in filing Form 3ECB in respect of its transaction
of receipt of share capital/premium from its
NRI director-shareholder; Bombay HC ruling in
Vodafone India distinguished on facts.
During the course of assessment proceedings,
the AO observed that since the assessee had entered
into an international transaction of receiving foreign
inward remittance of R11,47,21,471/- from its
42 THE CHARTERED ACCOUNTANT JUNE 2017
Director as well as beneficial shareholder, on account
of share capital and share premium, the assessee was
required to file Audit Report in Form 3CEB. AO
levied penalty of R1lakh u/s. 271BA on account of
the assessees failure to file the Audit Report in Form
3CEB. CIT(A) upheld AOs order. Aggrieved, the
assessee filed an appeal before Mumbai ITAT.
Analysing the relevant provisions, ITAT noted
that for international transactions specified in Sec.
92B, it is mandatory for a person entering into
international transaction/transactions to furnish
a report [obtained u/s. 92E] from an Accountant
setting forth the particulars of such international
transaction(s). Further, u/s. 271BA of the Act, if any
person fails to furnish a report from an Accountant
as required by Sec. 92E, the AO may direct that such
person shall pay, by way of penalty, a sum of R1 lakh.
Admittedly, the assessee had not complied with
provisions of Sec. 92E.
Relying on coordinate bench ruling in the case
of IL&FS Maritime Infrastructure Company Ltd.
[Appeal no. 4177/Mum/2012] ITAT observed that
transaction of share investment falls within the
purview of Sec. 92E of the Act and the assessee
is required to file Audit Report in Form 3CEB for
such transactions, by the prescribed date, before
the authorities concerned and that failure to do so
would attract levy of penalty u/s. 271BA of the Act.
As per the ITAT, since the international transaction
of investment in share capital of the assessee by
the NRI Director of the assessee company fell
within the ambit of Sec. 92E, assessees contention
that it was not required to file Audit Report in Form
3CEB, since the provisions of Section 92E of the Act
were not applicable as it had only received payments
from aboard for share capital and share premium
from its NRI Director for allotment of shares and no
other international transaction, was rejected by the
ITAT.
ITAT rejected assessees reliance on Bombay HC
ruling in the case of Vodafone India Services Pvt. Ltd.
[(2014) 368 ITR 0001 (Bom)] provisions of Chapter
X are not applicable to international transactions of
issuance of equity shares by resident company since
the capital receipts cannot be considered as income.
ITAT remarked that the Vodafone decision was
distinguishable on facts as it did not deal with the
issue of penalty u/s. 271BA of the Act. ITAT noted
that in Vodafone case, Form 3CEB was filed by the
assessee and on reference by AO, TPO made an
adjustment to the ALP of issue of equity shares at a
www.icai.org
 Legal Update
1672
premium, which was dropped by HC. However, in
the instant case, AO had neither attempted to nor
made any adjustment to the ALP for issue of equity
shares at a premium to its NRI Director-shareholder.
Admittedly, the issue was simply whether penalty
u/s. 271BA was attracted, since assessee had not
filed the Audit Report in Form 3CEB within the
period warranted u/s. 92E.
As per the ITAT, there was no plausible reason
put forth by the assessee to establish how it was
prevented by reasonable and sufficient cause from
getting the Audit Report in Form 3CEB and filing
the same before the concerned authority within
the time specified u/s. 92E. ITAT held that failure
on the part of the assessee to furnish the Audit
Report in Form 3CEB from an Accountant in the
prescribed proforma within the prescribed period,
without reasonable cause, was a clear violation of
the provisions of Section 92E of the Act, for which
penalty u/s. 271BA was leviable.
LD/65/157
A.W. Faber Castell (India) P. Ltd.
vs.
Deputy Commissioner of Income Tax
Mum ITAT
Approval of payment of royalty received from
FIPB/RBI does not automatically prove that the
payment is at Arms Length.
Facts and Background
The assessee, A.W. Faber Castell (India) P. Ltd (Faber
Castell India), was engaged in the manufacturing
and trading of wide range of stationary products
during AY 2012-13. Faber Castell India sold its
products in India as well as abroad to its Associated
Enterprises (AEs). One of its AEs i.e. Faber Castell
A.G., Germany was owner of trademarks and the
corporate brand name which Faber Castell India
used in its product. Since Faber Castell India used
the trademark in relation to the sale of the products,
therefore in consideration of grant of license and right
to use the trademark, Faber Castell India paid to AE,
royalty of R1.91 crore @ 3% on net sales excluding
sales to AEs and sale of non-brand Fabers products.
In its TP study, Faber Castell India benchmarked the
royalty payment using Comparable Uncontrolled
Price (CUP) method. During assessment, Faber
Castell India relied on approval granted vide letter
dated March 9, 2005 issued by Foreign Investment
and Promotion Board (FIPB) Unit of Department
44 THE CHARTERED ACCOUNTANT JUNE 2017
of Economic Affairs of Ministry of Finance
(Government of India) read with Press Note No. 2
dated June 24, 2003 issued by SIA (FC Division) of
Department of Industrial Policy and Promotions,
Ministry of Commerce & Industry, Government of
India. Faber Castell India contended that though
approval was granted for making payment up to 8%
on exports and 5% on domestic sales, payment made
by the assessee to its AE merely at 3% was at ALP as
the payment was far below then the rate of approval
granted by the government under Foreign Exchange
Management Act (FEMA) rules and industrial
norms. Rejecting Faber Castell Indias contention,
AO held that no comparable royalty agreement was
produced by assessee to justify the CUP method
adopted by it. Accordingly, AO determined Arms
Length Price (ALP) at Nil and made addition of the
entire amount of royalty paid by assessee to its AE of
R1.91 crores. In this regard, AO followed earlier year
assessment orders passed in Faber Castell Indias
own case for AY 2010-11 and 2011-12. In appeal,
DRP confirmed AOs order.
Issue:
Whether the approval granted by the FIPB/RBI for
payment of royalty be considered as a valid CUP for
determining the ALP of the royalty paid?
Held:
Faber Castell India contended that the royalty paid
to its AE for use of its trade mark and brand name
at the rate of 3% was within the rates allowed by the
FIPB unit of Ministry of Finance and, therefore, it
was ALP price and no further study or substantiation
was needed. In this regard, Faber Castell India relied
on Tribunal order in assessees own case in AY
2011-12, wherein 3% royalty payment was accepted
considering Govt. approval, relying on SGS India
HC-ruling. On the other hand, AO/DRP were of
the opinion that the payment of royalty has to be
justified on the basis of ALP price to be determined
on the basis of independent study to be carried out
as per Transfer Pricing (TP)-regulations and since
no such proper study had been made by assessee, no
ALP could be determined and thus same was taken
at Nil. The ITAT observed that the main issue was
whether rate of payment of royalty approved by the
RBI under automatic route or the approval granted
by the FIPB Unit of Ministry of Finance relying upon
the rates prescribed under the automatic route,
would itself ipso-facto constitute ALP under TP-
www.icai.org
 Legal Update
1674
regulations provided in Chapter X. On review of
Press Note No. 8 (2009 series) dated December 16,
2009, ITAT observed that the Government of India
has now waived all the restrictions on payment of
royalty under foreign technology collaboration and
put the same under automatic route. Accordingly,
ITAT held that Under these circumstances it is
quite obvious now that Faber Castell India cannot be
permitted to take this stand that since there are no
restrictions on payment of royalty by the Government
of India, therefore any amount paid by Faber Castell
India on account of royalty would ipso-facto be its
ALP also. Further, ITAT opined that If this kind 16.12.2009 (supra) brought on record before us, since
of position is allowed to exist then it would amount
to simply rendering the transfer pricing regulations
as redundant. In our view that cannot be an ideal
situation in the eyes of law. Thus, in our considered
opinion, after taken into account this Press Note, the
aforesaid controversy comes to rest. Thereafter, ITAT
clarified that this notification was not brought to the
notice of Tribunal in AY 2011-12 and that was the
reason Tribunal accepted 3% royalty payment in that
case. Further, ITAT also noted that both parties had
unanimously agreed that this Press Note brought
out clarity in the legal position as compared to that
as existed earlier. Distinguishing reliance on Bombay
HC ruling in SGS India, ITAT highlighted that that
case was confined to the factual aspect as to whether
the payment made by assessee was covered in clause
(iii) or (iv) of Press Note No. 9 (2000 series) dated
8th September, 2000 and on the basis of concession
granted by Revenue, HC accepted assessees claim
that the payment of royalty made by assessee fell
within the provisions of clause (iv) of the said Press
Note. Accordingly, ITAT opined that no such ratio
was propounded by Honble High Court as has been
claimed by assessee that royalty payment rates as
approved by the FIPB/RBI would ipsofacto become
ALP under the Transfer Pricing Regulations also.
ITAT also considered Revenues reliance on various
other judicial precedents like Delhi HC rulings in
Nestle India, Oracle India, Sony Ericsson Mobile
Communication India and Mumbai ITAT ruling
in Sara Lee TTK Ltd. on the same issue. Further,
ITAT noted that FIPB approval dated March 9, 2005
relied upon by Faber Castell India was not a specific
approval but merely referred to rates prescribed
under the automatic route under Press Note No.2
(2003 series) i.e. up to 8% on exports and 5% on
domestic sale. ITAT also observed that the referred
rates pertained to payment under technology transfer
46 THE CHARTERED ACCOUNTANT JUNE 2017
whereas Faber Castell India had admittedly made the
payment on account of use of trademark/brand name
and not on account of transfer of technology. Thus,
ITAT opined that the rates of payment of royalty
approved by the RBI or by the FIPB (relying upon
the rates allowed by RBI under automatic route)
would not become per se or conclusively or ipsofacto
ALP rates. The ITAT further held that independent
exercise of ALP determination is needed to be done
to find out if payment of royalty is at ALP, ITAT
expressed that It has become all the more necessary
now in view of Press Note No. 8 (2009 series) dated
restriction on the rates of payment of royalty has
been waived by concerned authorities. However,
ITAT accepted Faber Castell Indias contention that
if an authority by way of any specific approval has
allowed a particular rate of payment, then it does
carry persuasive value and can of course act as one of
the supportive tools for carrying out bench marking
of transaction of payment of royalty. Accordingly,
ITAT remitted the issue back to AO as had been
done in Faber Castell Indias own case in AY 2010-
11. ITAT clarified that Faber Castell India would be
free to carry out fresh TP-study and independently
benchmark the international transaction with
independent comparables for establishing ALP.
AO/TPO shall also be free and duty bound to take
on record and consider all the evidences as may be
brought on record by Faber Castell India to justify
ALP or carry out independent TP-study, if required.
Further, Faber Castell India shall be free to file all the
evidences as may be needed to support its claim and
is also free to raise any legal and factual issue in this
regard.
LD/65/158
Avery Dennison (India) (P.) Ltd.
vs.
Deputy Commissioner of Income Tax
Delhi ITAT
Assessee has to demonstrate actual receipt of
intra group services with evidences.
Facts and Background
Avery Dennison, is a subsidiary of US company,
and is engaged in the manufacturing and trading
of pressure sensitive adhesive material, self-
adhesive paper, self-adhesive film, tape, sheets,
tags and lables. It is engaged in two business
segments, namely, Pressure Sensitive Material
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 Legal Update
1676
(PSM) and Retail Information Systems (RIS). to carry out but by others such as shareholders to
The assessee entered into international transaction
with Associated Enterprise (AE) for purchase of
material, reimbursement of expenses and sale of
material. Avery Dennison had also received intra
group services of R28,20,46,989/- during the year for
both the business segments. The services were in the
nature of marketing support services, operating and
logistic, technical assistant services, accounting and
administration services, management information
systems, labour law and employee relations, financial
services, and corporate supports centre services with
respect to its PSM segment. With respect to RIS
segment, it received services of ticketing HUB, GVP
services, VIPFS services and strategic support and
guidance. The Transfer Pricing Officer (TPO) held
that Avery Dennison could not show as to when and
how the various services were requisitioned from
AE and whether the services were actually needed
by it and whether the same were actually received
by it by producing contemporaneous documentary
evidence at the time of entering into agreement
and what benchmarking analysis was done against
huge payment made by the assessee to the AE. The
TPO held that determination of Arms Length Price
(ALP) was justified at NIL because the payments
had failed need test, benefit test, rendition test,
duplication test and shareholder's activity test. The
DRP also confirmed the order of the TPO.
Issues
Whether the TPOs act of determining the ALP of
the intragroup services as NIL was justified?
Held
The ITAT observed that, to determine ALP of intra
group services, it is necessary for TPO to assess need
test, benefit test, rendition test, duplication test and
shareholder activity test. The ITAT also observed
that need test and benefit test are required to be
examined from the perspective of a businessman and
not from the perspective of the Revenue. Services
may be required by a person for its business need
and at the time of availing it, the benefit accruing to
that person is perceived, such benefit may or may
not accrue but if services are rendered, the payment
is required to be made for those services subject to
the other conditions. The ITAT was of the opinion
that no independent person pays for the activities/
services which are duplicate in nature. Person may
also not pay for the services which he is not required
48 THE CHARTERED ACCOUNTANT JUNE 2017
protect their investments and control interest. It
may not be possible always that direct and tangible
benefit can be demonstrated by concrete evidence by
the assessee. Therefore, if it is found that the normal
business justifies the need of those services and it
has some perceivable benefit, then revenue cannot
question payment for those services provided those
services are rendered and are neither duplicative or
in the nature of shareholder services. This is for the
simple reason that unless the services are rendered
which are neither duplicate and are not shareholder
activity, then only any independent person would be
willing to pay for those services. This is a necessary
ingredient for determination of ALP of intra group
services. The earlier orders passed by the Tribunal
for Assessment Year 2007-08 to Assessment Year
2011-12 also was concerning the same agreement
which was also before TPO for determination of
ALP of intra group services. The ITAT following
the said order held that need test and benefit test
are already satisfied for determination of ALP
of those intra group services and, therefore, for
this year also such test questioned by the TPO is
incorrect. However, the rendering of such services
is subject to determination for each assessment year
independently based on the evidences for rendering
of the services. Therefore, the assessee is required
to demonstrate with credible evidence to satisfy that
such services have actually been rendered by the
foreign AE to the assessee for the year. Further, the
Tribunal analysed whether the evidences submitted
by the assessee are sufficient to conclude that
services have actually been rendered by the foreign
AE or not. It is found that it is a marketing brochure
for labelling solutions. It is not understandable that
how this marketing brochure can show that the
marketing support services have been rendered
by AE. With regards to the mails provided as an
evidence for receipt of services, the mails are with
respect to 'Beer in India' which is just the information
asked with respect to some connectivity as well as
communication from Executive Vice President.
Similarly, some of the mails are very general and
pertaining to team meetings and teleconference
between the two parties. Similarly, such evidence
with respect to other services were also perused by
the ITAT. The assessee himself had not submitted any
proof with respect to accounting and administrative
services and management information system
and with respect to financial services only, sector
revenue forecast and Q3 forecast revenue were
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 Legal Update
1678
mentioned. The ITAT analysed that there are no
proper evidences led before the TPO that services
had in fact been actually rendered by the AE. The
ITAT held that it is expected from the assessee for
proper benchmarking to lead evidence with respect
to each of the nature of services with respect to
each class of services with corresponding manner of
rendering of the services, the time lag of initiation of
services and closure of the services. The evidences
produced were apparently very general and do
not show the rendering of the services. In view
of this, TPO/Assessing Officer should verify the
evidence of rendering of the services by the AE with
respect to nature of each of the services listed in the
agreement.
INTERNATIONAL International Taxation
TAXATION LD/65/159
Formula One World Championship Ltd.
vs.
Commissioner of Income Tax
Supreme Court
Facts:
Formula One World Championship Ltd. (FOWC)
is a UK tax resident company. FOWC entered into
an agreement with the Federation Internationale
de IAutomobile (FIA) and Formula One Asset
Management Limited (FOAM). As per the terms
of this agreement, FOAM licensed all commercial
rights in the FIA Formula One World Championship
to FOWC for 100 year term effective from January 1,
2011. FOWC further entered into a Race Promotion
Contract (RPC) with Jaypee Sports International
Limited (Jaypee Sports) dated September 13, 2011.
Under this agreement, Jaypee Sports was awarded
the right to host, stage and promote the Formula
One Grand Prix of India event for a consideration
of USD 40 million. The taxability of the revenues
of USD 40 million earned by FOWC was a matter
of concern for both, the assessee as well as the
Revenue. The matter was carried out to AAR to
determine the taxability of the revenues earned by
FOWC. The AAR held that the amount paid/payable
by Jaypee Sports to FOWC would be treated as
Royalty as per India UK Double Taxation Avoidance
Agreement (DTAA); FOWC did not have Permanent
Establishment (PE) in India. However, Jaypee
Sports is bound to make appropriate deductions
from the amount payable to FOWC under Section
195 of the Income-tax Act, 1961 (Act).
When the matter reached Delhi High Court
(HC) 390 ITR 199, the Delhi HC, vide order dated
50 THE CHARTERED ACCOUNTANT JUNE 2017
November 30, 2016, reversed the ruling of the
Authority for Advance Ruling and held that the
amount paid/ payable by Jaypee Sports to FOWC
would not be treated as royalty; FOWC had a
fixed place PE at the circuit and therefore RPC fee
attributable to PE in India is taxable in India. Further,
the HC has not accepted the plea of the Department
on dependent agent PE (DAPE). Accordingly, Jaypee
Sports is bound to make appropriate deductions
from the amount payable to FOWC under Section
195 of the Income-tax Act, 1961.
Aggrieved, the taxpayer filed an appeal before
the Supreme Court (SC).
Issue:
The major issues which were lying before the SC
were as to whether FOWC had a PE in India
through the Racing Circuit? Whether it carried on
any business activity through the Circuit? Whether
the Circuit was under the control and disposal of
FOWC?
Held:
The SC held as under:
Whether FOWC had a PE in India through the
Racing Circuit and Whether it carried on any
business activity through the Circuit?
SC referred to the Organisation for Economic
Co-operation and Development (OECD) Model
Tax Convention commentaries by Philip Baker and
Klaus Vogel, and noted that as per Article 5 of the
DTAA, the PE has to be a fixed place of business
through which business of an enterprise is wholly
or partly carried on. SC observed and held that the
international circuit is a fixed place and since races
are conducted from this circuit, it is an economic/
business activity. The Buddh International
Circuit from where different races, including the
Grand Prix was conducted was undoubtedly an
economic/business activity. The SC completely
agreed with the HCs stern view that Formula
One monetised every commercial right that it
possessed in conducting the event in India (in
its capacity as the commercial rights holder). SC
referred to the arrangement between assessee and
its affilitaes on one hand and Jaypee Sports on other
hand. SC held that various agreements cannot be
looked into by isolating them from each other and
their wholesome reading was necessary to bring
out the real transaction between the parties. Such
an approach is essentially required to find out as to
who is having real and dominant control over the
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Event. SC observed that FOWC is the Commercial
Rights Holder (CRH). These rights can be exploited
with the conduct of the F1 Championship, which is
organised in various countries. It is FOWC and its
affiliates which have been responsible for all activities
required for conduct of a race (for example, racing
track, participating teams, spectators, revenue
from advertisement and media rights, etc). FOWC
acquired all commercial rights in championship by
way of an agreement with FIA which was entered
way back in 2001 according to which said rights could
not be transferred to any party outside Formula One
group. It was observed that on the same day when
assessee entered into RPC with Jaypee, another
agreement was signed between Jaypee and three
affiliates of FOWC whereby Jaypee gave back circuit
rights, mainly media and title sponsorship, to Beta
Prema 2 and paddock rights to Allsports. SC further
observed that FOAM is engaged to generate TV
Feed. All the revenues from the aforesaid activities
are to go to the said companies, namely, Beta Prema
2, Allsports and FOAM respectively. These three
companies are admittedly affiliates to FOWC.
Accordingly, SC held that the aforesaid arrangement
demonstrated that the entire event was taken over
and controlled by FOWC and its affiliates. SC
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Legal Update
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rejected assessees stand that it is Jaypee who was
responsible for conducting races and had complete
control over the Event in question. SC clarified
that mere construction of the track by Jaypee at
its expense will be of no consequence. Further, it
clarified that its ownership or organising other
events by Jaypee was also immaterial. SC observed
that There cannot be any race without participating/
competing teams, a circuit and a paddock. All these
are controlled by FOWC and its affiliates. Event has
taken place by conduct of race physically in India.
Entire income is generated from the conduct of this
event in India. Thus, SC held that the commercial
rights of this race were with FOWC which were
exploited with actual conduct of race in India. It is
also difficult to accept that FOWC had no role in the
conduct of the Championship and its role came to
an end with granting permission to host the event
as a round of the Championship. Entire income
generated in India from the conduct of the event
in India. Exploitation of the commercial rights of
FOWC became possible only with actual conduct of
the races and active participation of FOWC in the
said races, with access and control over the circuit.
Further, by virtue of the Concorde agreement 2009,
FOWC enabled participation of the teams and FIA
THE CHARTERED ACCOUNTANT JUNE 2017 51
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undertook to ensure that events were held and
FOWC, as CRH, undertook to enter into contracts
with event promoters and host such events. Thus,
omnipresence of FOWC and its stamp over the event
was loud, clear and firm. The SC relied upon Andhra
Pradesh HC Ruling in the case of Visakhapatnam
Port Trust [(1983) 144 ITR 146] to hold that there
was a virtual projection of the foreign enterprise,
namely, Formula-1 (i.e. FOWC) on the soil of this
country. Philip Baker wherein to constitute PE
three characteristics: stability, productivity and
dependence need to be satisfied. According to the
Court all such characteristics were satisfied in the
present case.
In light of the above, the Court held that the
aesthetics of law and taxation jurisprudence left no
doubt in their mind that taxable event has taken
place in India and the non-resident FOWC is liable
to pay tax in India on the income it has earned on
this soil. Most of the DTAAs provide a minimum
threshold in terms of the number of days for the
non-resident to form a PE in a country. Accordingly,
the assessee was of the view that FOWC conducted
business in India for a limited duration of three days
of the event. SC rejected assesseees stand that the
total duration for which limited access was granted
to it, was not sufficient duration to constitute the
degree of permanence necessary to establish a fixed
place PE. Assessee had submitted that duration of
the event was three days and, therefore, control, if at
all, would be for that period only. On this, Revenue
had pointed out that the duration of the agreement
was five years, which was extendable to another five
years. SC clarified that The question of the PE has
to be examined keeping in mind that the aforesaid
race was to be conducted only for three days in a
year and for the entire period of race the control was
with FOWC. SC affirmed HC finding that having
regard to the duration of the event, which was for
limited days, and for the entire duration FOWC had
full access through its personnel, number of days
for which the access was there would not make any
difference. While pondering over the duration tests,
reliance was placed on the rulings in the case of
Joseph Fowler v. M.N.R. (1990) 90 D.T.C. 1834; (1990)
2 C.T.C. 2351 (Tax Court of Canada), Antwerp
Court of Appeal, decision of February 6, 2001, noted
in 2001 WTD 106-11 and Universal Furniture Ind.
AB v. Government of Norway (Stavanger Court,
Case No. 99-00421, dated 19-12-1999 referred to
in Principles of International Taxation by Anghard
Miller and Lyn Oates, 2012)
52 THE CHARTERED ACCOUNTANT JUNE 2017
Whether the Circuit was under the control
and disposal of FOWC?
SC held that entire arrangement between FOWC
and its associates on the one hand and Jaypee on
the other hand, was to be kept in mind. Various
agreements cannot be looked into by isolating them
from each other. Their wholesome reading was
essentially required to find out as to who is having
real and dominant control over the Event, thereby
providing an answer to the question as to whether
Buddh International Circuit was at the disposal
of FOWC and whether it carried out any business
therefrom or not. SC observed that the fixed place of
business in the form of physical location, i.e. Buddh
International Circuit, was at the disposal of FOWC
through which it conducted business. SC ruled that,
based on the materials placed on record, the entire
event was taken over and controlled by Formula
One and its affiliates. According to the SC, this was
borne out from the facts that the event was held
physically in India and income was generated from
the event in India; Commercial rights vested with
Formula One, which were exploited by conducting
the event in India; the physical control of the circuit
was with Formula One and its affiliates from the
inception till the conclusion of the event; and the
participating teams and paddock were controlled by
Formula One and its affiliates.
Accordingly, SC rejected assessees argument
that international circuit was not at its disposal.
In light of the above, SC held that payments
made by Jaypee Sports to FOWC under the RPC
were business income of the FOWC through PE
at the Buddh International Circuit, and, therefore,
chargeable to tax. Jaypee Sports was bound to make
appropriate deductions from the amounts paid u/s.
195 of the Act. However, SC accepted assessees
submission that only that portion of the income of
FOWC, which is attributable to the said PE, would
be treated as business income of FOWC and the
Tax Deducted at Source obligation is limited to the
appropriate portion of income which is chargeable to
tax in India and in respect of other payments where
no tax is payable, recourse is to be made under Section
195(2). SC directed Assessing Officer to arrive at the
profits attributable to PE in India, which would be
chargeable to tax. SC further clarified that At that
stage, Jaypee Sports can also press its argument that
penalty etc. be not charged as the move on the part
of Jaypee Sports in not deducting tax at source was
bona fide. SC, thus, dismissed assessees appeal.
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LD/65/160
Marck Biosciences Ltd.
vs.
Income Tax Officer
Abad ITAT
Payment made towards rendering of services and
not for right to use any information concerning
industrial, commercial or scientific experience
cannot be considered as Royalty.
Facts and Background:
The assessee, Mark Biosciences Ltd, (MBL) made a
payment of US $ 1,20,000 to a US based entity by
the name of Mehta Partners LLC. This payment
was made on account of professional fee for global
biopharmaceutical strategic counselling and
advisory services rendered by this entity which
included the services of nature (a) business
promotion; (b) marketing; (c) publicity; and (d)
financial advisory. MBL did not deduct any tax at
source from the payment so made, on the ground
that the income embedded therein was not taxable
in India in view of the provisions of India-USA
Double Taxation Avoidance Agreement (DTAA).
The Assessing Officer (AO) was, however, of the
view that the services rendered by the US entity
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Legal Update
1681
are covered by the definition of royalty under
Explanation 2 to Section 9(1)(vi) as also under
Article 12 (3)(a) and, accordingly, tax should have
been deducted at source @ 10%. On this basis, tax
withholding liability under Section 201 r.w.s. 195,
amounting to R9,33,306/- was raised against MBL.
Further, the CIT(A) confirmed the addition levied
by the AO.
Issue:
Whether the payments made by MBL towards
the receipt of the services can be considered as
Royalty?
Held:
The ITAT observed that the provisions of the Income
Tax Act apply only to the extent such provisions are
more favourable to the assessee. In other words, in
a situation in which an entity fiscally domiciled in
the United States is not taxable in India, under the
provisions of the applicable DTAA, it is not taxable in
India at all. Further, the ITAT observed that the sum
and substance of the services received is business
promotion, marketing, publicity and financial
advisory. These services, under the agreement, are
THE CHARTERED ACCOUNTANT JUNE 2017 53
 Legal Update
1682
termed as "Strategic and Financial Counselling
Services". The payments made by the assessee are
thus for rendition of these services and not for use of
any information concerning industrial, commercial
or scientific information. The fact that in the
process of availing these services, the assessee
benefits from rich experience of the service provider
is wholly irrelevant in the present context. The
payment is for rendition of services and not for
right to use any information concerning industrial,
commercial or scientific experience, in possession
of the service provider. The ITAT held that the
authorities below were clearly in error in holding
that the impugned payment was covered by
the definition of royalty under Article 12(3)(a).
Accordingly, the assessees appeal was allowed by
the ITAT.
LD/65/161
Pearl Logistics & Ex-IM Corporation
vs.
Income Tax Officer
Rajkot ITAT
For determining the residential status, the forms
of meetings held, Place of Effective Management
and controlling status place a pivotal role.
Facts:
The assessee was an agent of a Denmark based
ship broker Faber. Faber was disponent owner and
CTI-Jordan was charterer of ship which carried
cement to ports in India. Freight was payable by
CTI-Jordan to Faber. The assessee filed return
of income under Section 172 and claimed that
it was not liable to pay tax because Faber was
beneficiary of freight and, hence, it was entitled to
benefit of Double Taxation Avoidance Agreement
(DTAA). The Assessing Officer (AO) observed
that assessee had not submitted complete
details called for by the AO except the copy of
vessels registration certificate and that with help
of incriminating and forged documents, the
assessee had claimed that no TDS was to be
deducted as per DTAA . Under the circumstances
demand under Section 172(4) was raised. The
Commissioner of Income Tax (Appeals) (CIT(A))
had dismissed the appeal of the assessee.
Issue:
Whether the profits arising from the operations of
ships in India are taxable in India?
54 THE CHARTERED ACCOUNTANT JUNE 2017
Held:
The ITAT observed that Faber is owner and CTI
Jordan is charterer. As per Charter Party Agreement,
CTI Jordan is charterer and Faber Shipbroker,
Denmark is the owner. According to Section 172,
income of owner or charter who receives freight is
chargeable to tax. In this case, freight is received
by Faber and has earned the freight, so, the income
of Faber is chargeable to tax in India. However,
Faber Shipbrokers is resident of Denmark and
tax residency certificate of which is available
on record. The benefit of DTAA between India
and Denmark shall be available to the Denmark
resident. Further, as per Article 9, profits derived
from the operation of ships in International Traffic
shall be taxable only in the State where place of
effective management (POEM) of the enterprise is
situated. In this case, the 'POEM' of Denmark entity
is situated in Denmark as registration certificate,
residence of shareholder and passport of owner,
all shows that Faber is resident of Denmark and its
'POEM' is in Denmark. Further, it is noteworthy that
in the case of same assessee and on identical facts,
the CIT(A) has allowed the benefit of DTAA to the
assessee. The ITAT observed that the assessee has
proved the POEM of the assessee by furnishing
several documents including declaration by director
of company that it is completely 100 per cent
owned by Faber Anderson, Copy of Passport of
Director to prove that the nationality of director
and company has been operating from Denmark.
It can be concluded that the Director is resident of
Denmark and has been operating business wholly
from Denmark, all the important decisions are
taken from Denmark in the form of meeting and
therefore, the place of effective management and
control is Denmark only. The principal company is
also engaged in international traffic and residence
is Denmark. Further, on the basis of Article 9 of
the DTAA between India and Denmark, the income
on account of operation of ship in International
Traffic shall be taxable in the State in which the
POEM is situated i.e. in this case Denmark. The
ITAT, in the view of the above discussion and
considering Article-9 of the Treaty between India
and Denmark and also the decision taken by the
Department in earlier cases of the assessee, the
ships operated in International Traffic and therefore,
the income from ship shall not be taxed in India
as per Article 9 of the Treaty and allowed the appeal
of the assessee.
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Service Tax
INDIRECT
LD/65/162
TAXES M/s Bhimas Hotels Pvt. Ltd.
vs.
The Union of India
Supply of food by employer to its
employees at concessional rates as
part of its industrial obligation cannot be construed
as service and has to be seen as part of the pay
package that the workers have negotiated with
the employer. Unless it is decided as to whether a
particular activity falls under definition of service,
mere non-inclusion of such activity in exemption
notification cannot be taken as basis for charging
service tax.
Facts:
The petitioner is a hotel engaged both in the business
of boarding and lodging and also has a restaurant.
The petitioner supplied food to workers employed
by him at concessional rates in an area outside the
registered premises. The Department confirmed
service tax demand on food supplied by the petitioner
to its workers on the ground that in the negative list
regime, as introduced from 01.07.2012, activity will
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Legal Update
1683
attract tax, unless it is exempted by way of inclusion
in any exemption notification. Accordingly, the moot
question before Honble HC in present case, was to
determine as to whether supply of food by petitioner
to its workers at subsidised rates, regardless of
whether the food is supplied within the premises or
outside premises, would come within the meaning
of expression service as defined u/s. 65B(44) of
Finance Act, 1994.
Held:
HC held that if the workers of the establishment
are provided food outside the air conditioned
dining hall of the establishment, at the place which
is meant exclusively for feeding such workers,
the conclusion that the establishment feeds its
workers, but the place where they are fed does not
constitute part of the establishment tantamount
to creating a dichotomy, which does not exist. As,
under the Factories Act, 1948 and even under the
Industrial Disputes Act, 1947 the expression wages
would include within its purview, anything that
is supplied at subsidised rate, and food supplied
by an employer to its employees at a subsidised
rate forms part of wages under Section 2(rr) of
THE CHARTERED ACCOUNTANT JUNE 2017 55
 Legal Update
1684
the Industrial Disputes Act, 1947. Therefore, any
supply of subsidised food to the workers by the
Management of a Company, has to be seen as part
of the pay package that the workers have negotiated
with the employer. HC further held that once the
activity of petitioners is understood to be a part
of their industrial obligation, the same cannot
be construed as service falling within ambit of
definition of service u/s. 65B(44).
As regards Departments contention regarding
non-inclusion of activity of petitioners in
exemption notification, High Court held that
unless an activity carried out by a person falls
within definition of service, the question of
analysing whether such activity falls under Mega
Exemption Notification dated 20.06.2012, does
not arise. High Court observed that, definition of
service u/s. 65B(44), positively excludes certain
activities including any transfer, delivery or
supply of any goods, which is deemed to be a sale
within the meaning of Clause (29A) of Article
366 of the Constitution. It further noted that, as a
matter of fact, the petitioner has paid the value
added tax on the value of the food supplied to its
workers.
High Court therefore held that, once the State
Authorities have treated the supply of food to the
workers of the petitioner as sale, it is not open
to the respondents to treat the same as service and
impose a liability. Accordingly, impugned order
demanding service tax from petitioners was set
aside.
LD/65/163
Commissioner of Service Tax
vs.
Awasti Traders
Tribunal held that undertaking activities of
cleaning of nullah, roadside garbage etc. in terms
of contracts awarded by Muncipal Corporation
are not liable to service tax under category of
business auxiliary services as the same are not
an activity of business but statutory responsibility
of Municipal Corporation.
Facts:
Respondents were undertaking the work of cleaning
of nullah, roadside garbage, soil etc. at designated
places for Nagpur Muncipal Corporation (NMC).
Revenue demanded service tax from respondents
on the payments received by them from NMC
on the ground that respondents were providing
56 THE CHARTERED ACCOUNTANT JUNE 2017
business auxiliary services to NMC. When
the Adjudicating Authority and First Appellate
Authority set aside service tax demand by holding
that activities undertaken by respondent are the
statutory responsibilities of NMC, aggrieved by the
same revenue filed present appeal before Tribunal.
Revenue contended that the respondents are not
any public or sovereign authority constituted under
any law but is proprietorship concern working as a
commercial organisation performing their functions/
activities with a profit motive and amounts collected
by them are not in the nature of any compulsory
levy and are not deposited in governments treasury.
Revenue further contended that under the category
of business auxiliary services, the provision of
service on behalf of client does not require that
the service should be in relation to any business.
Accordingly, revenue pleaded for setting aside order
of First Appellate Authority.
Held:
Tribunal noted that the respondents are
undertaking the activities in terms of contract
awarded by NMC. It also agreed with the conclusion
that, the cleaning of nullahs, removal of roadside
garbage and waste soil is a statutory activity of the
NMC and the said activity has been undertaken
by assessee on behalf of NMC for a fee received
from NMC. Therefore, upholding the reliance
placed by the First Appellate Authority on ratio
laid down in decision of CCE vs. Ankit Consultancy
Ltd. 2007 (6) STR 101 (Tri-Del), Tribunal held
that the assessee cannot be said to be providing
any service to the NMC as this activity is not
an activity of business to NMC and thus, these
services do not qualify as services on behalf of client.
Thus, revenues appeal was rejected being devoid of
merits.
LD/65/164
MSM Satellite (Singapore) Pte Ltd.
vs.
The Principal Commissioner, Service Tax,
Mumbai
CENVAT credit cannot be denied to assessee
holding service tax registration number and
regularly discharging service tax liability merely
on the contention that assessee is not a service
provider and liable to pay service tax. When
revenue contends that assessee cannot be
treated as service provider but accepts payment
of service tax, the payment made by debiting
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CENVAT credit account cannot be treated as
payment of service tax but would amount to
reversal of CENVAT credit availed by assessee.
Facts:
The appellant, an entity registered in Singapore
is engaged in providing broadcasting services to
various clients located all over the world including
India. Prior to introduction of negative list, appellant
had not obtained service tax registration in India.
Subsequently, the appellant obtained service tax
registration in India by giving a c/o address of its
sole agent in India and started discharging service
tax liability under broadcasting services. (The
department considered this as MSM India separate
entity from MSM-Singapore). The said MSM-
India does not have any physical establishment,
infrastructure or equipment in India for production
and uplinking of programs, i.e. IPL, T.V. Serials
& Films. Actual production and broadcasting
is done by MSM Singapore from Singapore by
uplinking the said programs. MSM Singapore does
not have any employees on its payroll in India. It
maintains books of accounts in Singapore. The
MSM Singapore entered into contract with an
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Legal Update
1685
Indian service provider for distribution of TV
channel and charged distribution fees to him. MSM
Singapore entered into contract with its various
advertisement and subscription customers in India
through its agent in India (MSMPL). MSMPL
were authorised to collect payment on behalf of
Singapore entity in INR and deposit the same
in MSM Singapores NRO A/c in India. Service
tax was paid on the service tax registration no. of
MSM India. MSM-Singapore also made payment
to service providers for the domestically procured
services in India from the funds received in the NRO
A/c of MSM Singapore in India. As the appellant
obtained service tax registration in India, all the
input service providers of appellant raised invoices
in the name of MSM-India instead of appellants
Singapore entity. MSM-India paid the service tax
and also availed CENVAT credit in respect of
various input services. Revenue sought to deny said
CENVAT credit on the ground that, MSM India and
MSM Singapore are two distinct entities. All services
are provided by Singapore entity and no services
are provided by Indian entity and consequently,
CENVAT credit utilised by MSM-India against
services not provided by them is illegal.
THE CHARTERED ACCOUNTANT JUNE 2017 57
 Legal Update
1686
Held:
Tribunal observed that, Revenue granted registration
to the appellant enabling them to pay service tax
on the service provided by the MSM Singapore,
after knowing the entire facts of the entire activity
of the appellant. There is no dispute that the entity
in India and Singapore is the same entity i.e. M/s.
MSM Satellite (Singapore) Pte. Ltd, therefore the
service provider is the same company even though
the service was provided from different location
i.e. Singapore. Tribunal held that, Adjudicating
Authority has proceeded on the wrong presumption
that, there are two different entities like MSM
Singapore has provided the services and MSM India
has not provided the service, whereas in the fact it
is the same M/s MSM Satellite (Singapore) Pte. Ltd
which is located in Singapore as well as in India
Tribunal also observed that, its undisputed
that, services were received in India therefore
service per se is taxable and the government is
legally required to collect the service tax on such
services and it had indeed collected. In such a
situation CENVAT credit is legally admissible to
the appellant. The revenue knowing the status of
the appellant granted registration to the appellant
without raising any objection that the service are
provided by the Singapore and regularly collected
the service tax. Therefore once registration was
granted by the department and the service tax was
collected consequent CENVAT credit cannot be
denied. Tribunal referred to various judgments to
hold that, even though service is not taxable and if
the assessee paid service tax, the CENVAT credit is
allowable. Tribunal further held that, in the present
case the service are very much taxable, therefore the
appellant's case is on better footing and therefore
also the appellant is legally entitled for the CENVAT
credit.
Tribunal also held that, as the activities of
Singapore entity in India are liable to service tax in
India, service tax registration obtained by it in India
is absolutely in order. Tribunal also concurred with
the contention of the Appellant that on one hand
Revenue sought to disallow the CENVAT credit on
the ground that appellant is not service provider and
on the other hand, service tax was collected from
the appellant even if it is accepted that appellant is
not service provider. In such a case the payment of
service tax made by appellant also does not remain as
payment of service tax. In such a situation, whatever
CENVAT credit was taken by the appellant, it stands
reversed in the form of debit towards payment of
58 THE CHARTERED ACCOUNTANT JUNE 2017
service tax. Hence, in such case payment made by
the appellant by debit to CENVAT credit account
should not be treated as payment of service tax
but would amount to reversal of CENVAT credit
availed by them, and for this reason also demand
of CENVAT credit does not exist. Based on these
findings Tribunal set aside the order demanding
CENVAT credit taken by appellant.
LD/65/165
Commissioner of Central Excise & Service Tax,
vs.
M/s Zensar Technologies Ltd.,
Pune
Turnover pertaining to onsite services provided at
locations of clients abroad would not form part of
export turnover, while calculating refund claim in
terms of Rule 5 of CCR, 2004.
Facts:
The respondents were providing services to foreign
customer in the nature of offshore services from
India as well as onsite services at the locations of
clients abroad and raised invoices for the entire value
of services and received payments in convertible
foreign exchange for entire contract value. As
regards respondents refund claim in terms of Rule 5
of CENVAT Credit Rule, 2004, revenue alleged that
turnover pertaining to onsite services shall also be
included in calculation of export turnover and total
turnover for formula prescribed for arriving at value
of eligible refund. The First Appellate Authority
not accepting contentions of Revenue sanctioned
the refund claim, aggrieved by which Revenue filed
present appeal.
Held:
Tribunal noted that from conjoint reading of
provisions of Rule 6A of Service Tax Value Rules,
2006 dealing with export of services, Section
65B(44) of Finance Act, 1994 read with Section
64(1), it emerges that services provided from outside
the taxable territory to a person located outside the
taxable territory are not services for the purpose
of Rule 6A and Rule 5 of CENVAT Credit Rules,
2004 and consequently, services provided onsite to
clients located abroad cannot be considered as part
of export turnover as well as part of total turnover.
Tribunal also referred to its own decision in case of
Nihilent Technologies2016-TIOL-2262-CESTAT-
MUM wherein it has been held that onsite services
www.icai.org

are to be excluded from both export turnover as
well as total turnover. Accordingly, Revenues appeal
challenging order of Commissioner (Appeals)
sanctioning refund claim to respondent was
dismissed.
Delhi Sales tax
LD/65/166
Sony India P. Ltd.
vs.
Government of NCT, Delhi and Ors
17th April, 2017
HC directs Delhi VAT authorities to issue F-Forms
giving bifurcated details in respect of stock
transfers, following the reconstitution of State
of Andhra Pradesh and formation of Telangana;
There was no tax effect insofar as Govt. of Delhi
was concerned.
Writ petition was filed before Delhi HC by the
assessee seeking to direct the Revenue to issue
F-Forms from Delhi with bifurcated details for
the States of Andhra Pradesh and Telangana or
allow petitioner to revise DVAT returns to correct
discrepancies in the stock transfer details for the
period June to September 2014 so that correct
F-Forms can be printed.
Download Power GST App
www.icai.org
Legal Update
1687
Assessee, Sony India Private Limited, had stock
transferred goods from State of Andhra Pradesh
to Delhi. HC observed that the necessity for the
Petitioner having to bifurcate the F-Forms arose
as a result of the creation of the separate State
of Telangana & Andhra Pradesh. Before the HC,
assessee stated that there was no tax effect as far as
the Govt. of Delhi was concerned.
HC observed that assessee had not set out the
quantity in value of the stock transfer from Telangana
and Andhra Pradesh on a consolidated basis which
though reported correctly to the authorities could
not be done with the TIN numbers as a result of
the above bifurcation of states. HC observed that
the facts and circumstances of assessees case were
similar to case of Ingram Micro India Pvt. Ltd. vs.
Commissioner, Department of Trade & Taxes [(2016)
89 VST 312 (Del]). Thus, following this decision,
the HC directed the DVAT Department to issue
requisite F-Forms to the assessee. HC further stated
that in the event the Department desired that an
indemnity bond be furnished, it shall communicate
such requirement to the assessee within two weeks
from this order and proceeds issue the F-Forms not
later than three weeks.
GET IT NOW
Call us on 1800-233-0445
THE CHARTERED ACCOUNTANT JUNE 2017 59
 Legal Update
1688
Excise
LD/65/167
Mangalam Organics Ltd.
vs.
Union of India
24th April, 2017
Section 11C: Power not to recover duty of
excise not levied or short levied as a result of
general practice.
SC rejects assessees request to issue Notification
u/s. 11C of Central Excise Act dispensing
with excise duty on manufacture of Rosin and
Turpentine using Bhatti process without the aid of
power; Equality clause enshrined in Article 14 of the
Constitution is a positive concept and cannot be
applied in the negative; Issuance of Notification u/s.
11C is in the nature of subordinate legislation and
directing the Government to issue such Notification
would amount to Court taking a policy decision in a
particular manner, which is impermissible.
The issue before SC was if it is found that the
goods which are excisable goods liable for levy of
duty under the Act, but there has been generally
prevalent practice not to demand duty or levy the
duty, or demand lesser duty on such goods, whether it
is mandatory on the part of the Central Government
to issue a notification under Section 11C of the Act
requiring that no such duty shall be payable or lesser
duty shall be payable on such goods; and whether the
Court could issue and impose a mandamus to the
Central Govt. to pass such a Notification in the event
Central Govt. choose not to exercise this power?
The assessee is in the business of manufacturing
Rosin and Turpentine. There are two methods of
such manufacture, viz. Vacuum chemical treatment
process which uses power in almost all the processes,
and second one the Bhatti process which is entirely
manual except for the use of power to operate the
pump for lifting up the water to the storage tank for
the purpose of condensing.
SC observed that there are around 300 units which
are using the Bhatti method. Referring to coordinate
bench ruling in Commissioner of Central Excise,
Nagpur vs. Gurukripa Resins Private Limited, SC
noted that even the Bhatti process would be treated
as manufacturing process with the aid of power
even when such power is used to a limited extent.
SC noted that in case of one assessee Gurukripa
Resins Pvt. Ltd.[ [(2011) 13 SCC 180]], similar issue
had arisen where the Revenues appeal was allowed
by SC holding that process would be treated as
manufacturing process with the aid of power even
when such power is used to a limited extent. After
60 THE CHARTERED ACCOUNTANT JUNE 2017
the judgment of this Court in Gurukripa Resins
Private Limited, several trade associations made
representations to the Government with a request
to grant benefit under Section 11C of the Act. The
Finance Ministry decided on 15.09.2014 not to
issue any such Notification u/s. 11C as it was going
to benefit only two companies, which included the
assessee. Challenging the aforesaid decision, the
assessee filed writ petition in the HC, however, the
writ was dismissed by the HC.
Assessee argued that once conditions of a
particular statutory provision were fulfilled, the
Government was obligated to exercise the power
with the issuance of a required Notification. As
per assessee, the solitary reason furnished by the
Revenue for not exercising its powers u/s. 11C was
that such a Notification, if issued, was going to
benefit only two assessees. Assessee argued that
it was never a tenable ground for the Government
to refuse such a Notification, more so, in a
situation where the demand notices were issued
to two assessees only and other similarly situated
persons were spared. Assessee thus contended
that the issuance of Notification became all the
more necessary and imperative in order to remove
discrimination.
SC observed that Revenue issued show cause
notice to two units which were registered but not
paying the duty. At the same point, some of the
units which were availing SSI exemption ceased to
be SSI units. SC observed that Revenue remained
unaware of this fact and it was for this reason that
notices could not be issued to the others. Therefore,
it is difficult to draw an inference that there was a
conscious practice not to demand duty.
SC further observed that insofar as the units
adopting Bhatti process were concerned, where
power was used to operate the pump for lifting
up the water to storage tank for the purpose of
condensing, whether this process would amount to
manufacturing or not, was unclear.
SC remarked that a clear distinction had to be
made between the duty to act in an administrative
capacity and the power to exercise statutory
function. If a public authority is foisted with any
duty to do an act and fails to discharge that function,
mandamus can be issued to the said authority
to perform its duty. However, that is done while
exercising the power of judicial review of an
administrative action. It is entirely different from
judicial review of a legislative action. Further,
SC observed that as per de Smith [Judicial
Review of Administrative Action], generally
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subordinate legislation cannot be held invalid for
unreasonableness, unless its unreasonableness is
evidence of mala fide or otherwise shows the abuse
of power. But in case of unreasonable administrative
order, the aggrieved party is entitled to a legal
remedy. Further, only in most exceptional
circumstances can legislative powers be sub-
delegated, but administrative powers can be sub-
delegated; and duty to give reasons applies to
administrative orders but not to legislate orders.
According to SC, issuance of a notification
under Section 11C of the Act is in the nature of
subordinate legislation. Directing the Government
to issue such a notification would amount to taking
a policy decision in a particular manner, which is
impermissible.
SC observed that when an executive authority
exercises a legislative power by way of subordinate
legislation pursuant to the delegated authority of a
legislature, such executive authority cannot be asked
to enact the law which it has been empowered to do
under the delegated legislative authority.
SC remarked that when power is given to the
Central Government to issue a notification to the
effect not to recover duty of excise or recover lesser
duty than what is normally payable under the Act,
for deciding whether to issue such a notification or
www.icai.org
Legal Update
1689
not, there may be various considerations in the mind
of the Government. Merely because conditions
laid in the provisions are satisfied, it would not be
a reason to necessarily issue such a notification.
Where the statute vested a discretionary power
in an administrative authority, the Court would
not interfere with the exercise of such discretion
unless it is made with oblique end or extraneous
purposes or upon extraneous considerations,
or arbitrarily, without applying its mind to the
relevant considerations, or where it is not guided
by any norms which are relevant to the object to be
achieved.
SC concluded that it would neither be a case of
discrimination nor could it be said that the assessee
had any right under Article 14 or Article 19(1)(g) of the
Constitution which had been violated by non-issuance
of Notification u/s. 11C of the Act. For similar facts,
if some other assessees had escaped payment of duty
for certain reasons, assessee cannot say that no duty
should be recovered from it by invoking Article 14 of
the Constitution. Equality clause enshrined in Article
14 is a positive concept and cannot be applied in the
negative.
SC thus dismissed assessees appeal and ruled in
favour of Revenue.
THE CHARTERED ACCOUNTANT JUNE 2017 61
 Legal Update
1690
Insolvency and Bankruptcy
NCLT-Mumbai Bench
Edelweiss Asset Reconstruction Co. Ltd.
(Financial Creditor)
vs.
Murli Industries Ltd. (Corporate Debtor)
5th April, 2017
Amount in Default - R1365.40 Cr.
Section 7 of the Insolvency and Bankruptcy
Code, 2016 read with Rule 4 of the
Insolvency and Bankruptcy (Application
to Adjudication Authority) Rules, 2016
Initiation of corporate insolvency resolution
process by Financial Creditor
The corporate debtor entered into a master
reconstructing agreement with Bank of Baroda
(Monitoring Institution) and other Lender Banks.
The agreement states that the corporate debtor
has requested the lenders for financial assistance
for setting up/implementation of a project and for
other requirements for its operations. The lenders
sanctioned the term loan and working capital
facilities to the corporate debtor and the corporate
debtor from time to time created security by way
of hypothecation of its moveable assets and/or
mortgage of its immovable properties. The corporate
debtor requested the lenders for debt restructuring
as the project under implementation has come under
strain due to various internal or external reasons.
Hence, the lenders and the corporate debtor agreed
to enter into the master restructuring agreement
to give effect to the corporate debt reconstruction
package.
Bank of Baroda which is the lead bank under
consortium arrangement issued a notice to the
corporate debtor u/s. 13(2) of the SARFAESI Act for
recovery of R1365.40 crore due to the consortium
banks. Bank of Baroda has also issued a possession
notice stating that it has taken symbolic possession
of the property owned by the corporate debtor
u/s. 13(4) of the SARFAESI Act read with Rule 9 of
Security Interest (Enforcement) Rules 2002. Further,
Auditor's Report has stated that the company
has defaulted in repayment of dues to financial
institutions and banks amounting to R1896.65 crore.
The Edelweiss Asset Reconstruction Company
Limited in its capacity as financial creditor filed
this petition for initiation of corporate insolvency
resolution process.
This petition clearly reveals that there is a debt
as defined in Section 3(11) of the Code and also
there is default in this case within the meaning of
62 THE CHARTERED ACCOUNTANT JUNE 2017
Section 3(12) of the Code. Further, Section 5(7)
clearly provides that an assignee of a financial debt
is also a financial creditor and hence the petition
is well within the ambit of Section 7 of the Code.
The Tribunal therefore admitted the petition and
appointed an Interim Resolution Professional.
NCLT-Chandigarh Bench
Sky Blue Papers Pvt. Ltd. (Applicant/Corporate Debtor)
7th April, 2017
Amount in Default - R18.29 Cr.
Section 10 of the Insolvency and Bankruptcy
Code, 2016 read with Rule 7 of the Insolvency
and Bankruptcy (Application to Adjudication
Authority) Rules, 2016Initiation of corporate
insolvency resolution process by corporate
applicant
This is an application filed by a Corporate Debtor
company itself in Form 6 as prescribed by Rule
7(1) of the application to Adjudicating Authority
Rules. The total amount of default in respect of
Financial and Operational Creditors is R18.29 crore.
Due to default in making the payment of dues the
Punjab National Bank has issued notices under
Section 13(2) and also under Section 13(4) of
SARFAESI Act, 2002.
The Financial Statements of the company
indicates the losses and fall in revenue. It seems
that the applicant has fallen into debt trap and is
competent to set in motion the insolvency resolution
process as contemplated under the Code. On the
basis of the Financial Statements of the company the
total debt raised by the Corporate Applicant with
regard to the financial and operational creditors is
R18.48 crore and it is further represented that the
total amount of default is R18.29 crore.
The Tribunal therefore held that the petition
deserves to be admitted and accordingly appointed
an interim resolution professional.
The Tribunal however observed that the Applicant
Company has, save some sketchy particulars, not
given any road map as to how it is going to keep
itself afloat as a going concern. However, keeping
in perspective the objects for which the Code has
been brought into force and to balance the interest
of all stakeholders, it is satisfied that the instant
application warrants to be admitted to prevent
further erosion of capital and to safeguard the assets
of the Applicant Company/Corporate Debtor.
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NCLT-Ahmedabad Bench
Hero FinCorp Ltd. (Financial Creditor)
vs.
Steel Konnect (India) Pvt. Ltd. (Corporate Debtor)
19th April, 2017
Amount in Default - R6.63 Cr.
Section 7 of the Insolvency and Bankruptcy
Code, 2016 read with Rule 4 of the
Insolvency and Bankruptcy (Application to
Adjudication Authority) Rules, 2016 Initiation
of corporate insolvency resolution process
by Financial Creditor
On the basis of Master Facility Agreement
entered between the Financial Creditor and the
Corporate Debtor, a loan amounting to R7 Cr. was
advanced. As per the agreed terms, instalments
were required to be paid through ECS by way of
Equated Monthly Instalments. The Corporate
Debtor defaulted in making instalments and
from November 2016 it had completely stopped
making payments. The Corporate Debtor
disputed that the claimed amount was not correct
but could not deny the default or the Loan
Agreement.
From the material placed on record, this
Adjudicating Authority is satisfied that a default
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Legal Update
1691
has been committed by the Corporate Debtor in
repayment of the loan amount.
The petition was therefore admitted and Interim
Resolution Professional was appointed.
NCLT-Mumbai Bench
Ashok Alco-Chem Ltd. (Operational Creditor)
vs.
Unimark Remedies Ltd. (Corporate Debtor)
4th April, 2017
Amount in Default - R61.36 lakh
Section 9 of the Insolvency and Bankruptcy
Code, 2016 read with Rule 6 of the Insolvency
and Bankruptcy (Application to Adjudication
Authority) Rules, 2016Application for
initiation of corporate insolvency resolution
process by operational creditor
Insolvency resolution process under Section 9 of the
Code was initiated on the ground of non-payment
of debt owed to Operational Creditor. The
petitioner had given statutory notice under Section
433 and 434 of the Companies Act, 1956 and filed
winding up petition before the High Court. The
debtor company raised an objection that notice under
Section 8 of the Code was not issued before filing the
petition.
THE CHARTERED ACCOUNTANT JUNE 2017 63
 Legal Update
1692
The NCLT vide its order dated 24th February, 2017
held that the debtor company could not raise such
objection as this petition happens to be transferred
from High Court by virtue of jurisdictional change.
The Tribunal further held that the petitioner has
complied all statutory compliances and thus no
dispute is in existence between the financial creditor
and the corporate debtor in relation to the debt
claim and admitted the petition and appointed the
Insolvency Resolution Professional.
The corporate debtor filed an application for
recalling/review the order dated 24th February, 2017
on the grounds that dispute between the parties has
been resolved and that the application has been filed
before the order has been communicated.
The Tribunal held that when orders are passed
in open court on the date of hearing after notice
has been issued to the corporate debtor, such order
cannot be called ex-parte order, that apart, it is
Disciplinary Case
Council of the Institute of Chartered Accountants of
India
vs.
CA. T
Chartered Accountant Reference No. 4 of 2014
decided on 10th November, 2014 by Honble
High Court of Delhi under Section 21(5) of the
Chartered Accountants Act, 1949.
Facts of the case
Information received from the Delhi Stock Exchange
(DSE) and Securities Exchange Board of India (SEBI)
containing allegations against CA. T (Respondent)
in incorporating two companies. The allegations
against the Respondent inter-alia includes (a)
incorporation of a company by forging the signature
64 THE CHARTERED ACCOUNTANT JUNE 2017
not that this bench should not pass orders unless
corporate debtor appears.
Further, this matter has been transferred
from the Honble High Court on the basis of the
notification dated 7th December 2016. On perusal
of this notification dated 7th December, 2016, it
is understood that all applications that have been
transferred under this notification have to be
treated as application under Sections 7, 9 or 10 of
the Code. Therefore, issuing another notice u/s. 8
of the Code in the transferred case is not necessary,
because the precondition of issuing notice u/s. 8 will
not apply.
Further there is neither a section of law which
envisages recalling its own orders, nor a Rule set out
to recall orders, and moreover the moratorium being
rem in nature, this application is hereby dismissed in
limine as not maintainable.
of parties and its subsequent conversion into Limited
Company with fraudulent means and by breach
of trust (b) passing of false and fake resolutions
in the name of incorporated company under the
forged signatures of a dead person (c) managing the
company and bank accounts with the signatures of a
person who is no more.
SEBI brought to the notice of the Institute that
the Respondent, who was the Lead Manager in
the public issue of Zed Investments Limited, made
a number of mis-statements and concealment of
material facts in the prospectus, besides a number
of irregularities committed in the issue process; that
Respondent was instrumental in acts of omission
and commission of the affairs of the said company
including its fraudulent incorporation, fraudulent
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public issue and fraudulent operations. Based on the
above set of allegations, two information cases were
registered against the Respondent.
The Council of the Institute prima facie opined
that the Respondent was guilty of professional
and/or other misconduct, and referred the case to
Disciplinary Committee for enquiry.
The Committee, on perusal of available record,
found that the act of the Respondent has tarnished
the reputation of the profession and brought the
profession to bad light in the eyes of general public.
The Respondent has maintained silence and there is
no communication, no reply or no representation
from his side. The Respondent has purported a
serious fraud and brought great disrepute to the
profession. In view of the serious irregularities
brought to light and the Respondent not cooperating
with the Committee nor submitting any document
to prove his innocence, the Committee held the
Respondent guilty of Other Misconduct under
Section 22 read with Section 21 of the Chartered
Accountants Act, 1949.
The Council on consideration of the Report of the
Disciplinary Committee accepted the Report of the
Disciplinary Committee and decided to recommend
to the High Court that the name of the Respondent
www.icai.org
Legal Update
1693
be removed from the Register of members for a
period of five (5) years each in the two cases. As
required under Section 21(5) of the Act, the matter
was referred to the Delhi High Court by way of filing
two Reference cases.
Decision of the Honble High Court
The Honble High Court, in a combined order dated
10th November, 2014 expressed its satisfaction as
to the compliance of principles of natural justice
while holding enquiry and the findings arrived at
by the Council. The Court observed that though
the jurisdiction of High Court under Section 21(6)
of the Act is wide, but the findings of the members
of the Disciplinary Committee and the views of
the Council cannot be set aside lightly as they are
experts with regard to the matters pertaining to
profession of Chartered Accountants, hence in such
matters court would be slow to interfere with the
impugned orders.
On overall consideration of the matter, the
Honble High Court accepted the findings and
recommendations of the Council and ordered
for removal of name of the Respondent for a
period of 5 years, in each case, from the Register of
Members.
THE CHARTERED ACCOUNTANT JUNE 2017 65
 Legal Update
1694
Circulars/Notifications
Given below are the important Circulars and Notifications issued by the CBDT, CBEC,
MCA, RBI during the last month for information and use of members. Readers are
requested to use the citation/website or weblink to access the full text of desired circular/
notification. You are requested to please submit your feedback and suggestions on the
column at eboard@icai.in
(Matter on Direct Taxes has been
DIRECT contributed by the Direct Taxes
TAXES Committee of the ICAI)
I. NOTIFICATIONS
1. Rule 17CB inserted in the Income-
tax Rules, 1962 prescribing method of
valuation of assets and liabilities for
the purposes of determining the accreted income
for levy of exit tax-Notification No. 32/2017, dated
21-04-2017
Chapter XII-EB of the Income-tax Act, 1961
containing the Sections 115TD to 115TF was
introduced vide the Finance Act, 2016. The said
Chapter contains provisions relating to tax on
accreted income of certain trusts and institutions.
As per Section 115TD(1), the accreted income of
a trust or institution registered under Section 12AA
shall be taxable at the maximum marginal rate on
(1) conversion of the trust or institution into a
form not eligible for grant of registration under
Section 12AA; or
(2) merger with an entity not having similar objects
and registered under Section 12AA; or
(3) non-distribution of assets on dissolution to any
charitable institution registered under Section
12AA or approved under Section 10(23C)
within a period of 12 months from the end of
the month in which the dissolution takes place.
This levy of exit tax shall be in addition to income
chargeable in the hands of the entity.
As per Section 115TD(2), Accreted Income
means the aggregate FMV of total assets as on
the specified date less total liability computed in
accordance with the prescribed method of valuation.
Accordingly, vide this notification, Rule 17CB
providing for method of valuation of assets and
liabilities has been inserted in the Income-tax Rules,
1962 from 01.06.2016.
Rule 17CB(1) provides that the aggregate fair market
value of the total assets of the trust or institution,
66 THE CHARTERED ACCOUNTANT JUNE 2017
shall be the aggregate of the fair market value of all
the assets in the Balance Sheet as reduced by
(i) any amount of income-tax paid as deduction or
collection at source or as advance tax payment
as reduced by the amount of income-tax
claimed as refund under the Act, and
(ii) any amount shown as asset including the
unamortised amount of deferred expenditure
which does not represent the value of any asset.
Clauses (I), (II), (III) and (IV) of Rule 17CB(2)
provide for the method of determination of fair
market value of shares and securities, immovable
property, business undertaking and any other asset,
respectively.
Further, Rule 17CB(3) provides that the total liability
of the trust or institution shall be the book value of
liabilities in the Balance Sheet on the specified date
but not including the following amounts, namely:
(i) capital fund or accumulated funds or corpus, by
whatever name called;
(ii) reserves or surplus or excess of income over
expenditure, by whatever name called;
(iii) any amount representing contingent liability;
(iv) any amount representing provisions made
for meeting liabilities, other than ascertained
liabilities;
(v) any amount representing provision for taxation,
other than amount of tax paid as deduction or
collection at source or as advance tax payment
as reduced by the amount of income-tax
claimed as refund under the Act, to the extent
of the excess over the income-tax payable with
reference to the income in accordance with the
law applicable thereto.
2. New Form No. 10-IB notified for the purposes
of exercise of option u/s. 115BA(4) by domestic
companies-Notification No. 36/2017, dated 02-05-2017
Section 115BA has been inserted by the Finance Act,
2016 to provide a concessional rate of tax@25% in
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case of a domestic company for any previous year
relevant to A.Y.2017-18 and thereafter, at the option
of the company, if :
(i) the company has been setup and registered on
or after 1st March, 2016;
(ii) the company is not engaged in any business
other than the business of manufacture or
production of any article or thing and research
in relation to, or distribution of, such article or
thing manufactured or produced by it; and
(iii) the company while computing its total income
has not claimed any benefit under Section
10AA, additional depreciation under Section
32(1)(iia), investment allowance under Section
32AC or Section 32AD, deduction under
Section 33AB and Section 33ABA, weighted
deduction for scientific research or social
science and statistical research under Section
35(1)(ii)/(iia)/(iii), 35(2AA), 35(2AB), deduction
under Section 35AC in respect of expenditure
on eligible projects and schemes, investment
linked tax deduction under Section 35AD,
weighted deduction under Section 35CCC
and 35CCD in respect of expenditure incurred
by a company on notified agricultural
extension project and notified skill
Invitation for Expression of Interest from POUs i.e. Branches & Regional Councils to
host the Career Counselling Programmes in the year 2017-18
The Career Counselling Sub-group under BoS of the
Institute of Chartered Accountants of India (ICAI)
is constituted under regulatory provisions of The
Chartered Accountants Act, 1949, with the prime
objective to promote the Commerce Education with
special focus on CA course amongst Secondary,
Senior/Higher Secondary, Graduate/Post Graduate
students as well as other stakeholders.
The Career Counselling Sub-group under BoS
has taken an initiative to hold career counseling
programmes in various parts of India in the year 2017-
18 to counsel the students for connecting them with
the Chartered Accountancy course/profession. The
Career Counselling Sub-group under BoS proposes to
hold these aforesaid Career Counselling programmes
wherein Resource Persons/Experts /Career Counselor
with the aforesaid purpose shall interact with the
students.
Deputy Convener
Career Counselling Sub-group under BoS, ICAI
www.icai.org
Legal Update
1695
development project; further, while computing
its total income, it has not claimed benefit of
deduction under Chapter VI-A under the
heading Deductions in respect of certain
incomes other than the provisions of Section
80JJAA.
However, for claiming benefit of this concessional
rate of tax, the company has to exercise the option
in the prescribed manner on or before the due date
specified under Section 139(1) for furnishing the
first of the returns of income which the person is
required to furnish under the provisions of the
Income-tax Act, 1961. Further, once the option has
been exercised for any previous year, it cannot be
subsequently withdrawn for the same or any other
previous year.
Also, if a domestic company exercises this
option, in its claim for normal depreciation as per
the provisions of the Income-tax Act, 1961, the
maximum rate of depreciation in respect of any
asset would be restricted to 40%.
Accordingly, vide this notification, Rule 21AD
has been inserted in the Income-tax Rules, 1962.
This Rule requires the option to be exercised
by the domestic company in Form No. 10-IB.
Accordingly, the application for exercise of option
ICAI News
POUs i.e. Branches/Regional Councils therefore
requested to host the programmes to be organised
by Career Counselling Sub-group under BoS within
jurisdiction of your branch/Regional Council. We have
also provided the facility to login in the Committees
exclusive website cccicai.in & fill the details in the
dashboard provided to them after logging into the
aforesaid website.
Please contact Secretary, Career Counselling
Sub-group under BoS, The Institute of Chartered
Accountants of India(ICAI), ICAI Bhawan, First
Floor, Administrative Block, A-29, Sector-62, Noida,
Distt.-Gautam Budh Nagar(U.P.), P.C.-201309, E-mail:
sambit.mishra@icai.in, Telephone: 0120-3876871,
Mobile: 09312085025 for hosting the aforesaid Career
Counselling programmes within jurisdiction of your
branch/Regional Council.
Convener
Career Counselling Sub-group under BoS, ICAI
THE CHARTERED ACCOUNTANT JUNE 2017 67
 Legal Update
1696
under Section 115BA(4) has to be in Form No.10-IB.
The option in Form No. 10-IB has to be furnished
electronically either under digital signature or
electronic verification code. The Principal Director
General of Income-tax (Systems) or DGIT(S) has to
specify the procedure for filing of Form 10-IB and
specify the data structure, standards and manner
of generation of electronic verification code for
purpose of verification of the person furnishing
the form. He would also be responsible for
formulating and implementing appropriate security,
archival and retrieval policies in relation to Form 10-
IB.
3. Central Government notifies the individuals who are
eligible for exemption from quoting Aadhaar/Enrolment
Id-Notification No. 37/2017, dated 11-05-2017
Section 139AA, inserted by the Finance Act, 2017,
requires every person who is eligible to obtain
Aadhaar number to mandatorily quote Aadhaar
number/Enrolment ID of Aadhaar application form
issued at the time of enrolment in the return of
income and in the application form for allotment
of Permanent Account Number with effect from 1st
July, 2017.
Section 139AA(3) empowers the Central
Government to notify such person or class or classes
of persons to whom, or any State or part of any State,
to which, the requirement of mandatory quoting
of Aadhaar Number/Enrolment ID of Aadhaar
application form shall not apply.
Accordingly, the Central Government has, vide this
notification, notified that the requirement of quoting
of Aadhaar Number/Enrolment ID of Aadhaar
application form shall not apply to the following
individuals if they do not possess the Aadhaar
Number or Enrolment ID:-
(i) An individual who is residing in the state of
Assam, Jammu and Kashmir and Meghalaya.
(ii) An individual who is a non-resident as per the
Income-tax Act, 1961.
(iii) An individual of the age of eighty years or more
at any time during the previous year.
(iv) An individual who is not a citizen of India.
This notification shall come into force with effect
from 1st July, 2017.
The complete text of the above Notifications can
be downloaded from the link below: http://www.
incometaxindia.gov.in/Pages/communications/
notifications.aspx
68 THE CHARTERED ACCOUNTANT JUNE 2017
II. CIRCULARS
1. Clarification on removal of Cyprus from the list of
notified jurisdictional area under Section 94A of the
Income-tax Act, 1961-Circular No. 15/2017, Dated 21-
04-2017
Cyprus was specified as a "notified jurisdictional
area" (NJA) under Section 94A of the lncome-
tax Act, 1961 vide Notification No. 86/2013 dated
01.11.2013. The said Notification No. 86/2013 was
subsequently rescinded vide Notification No. 114
dated 14.12.2016 and Notification No. 119 dated
16.12.2016 with effect from the date of issue of the
notification.
The CBDT has, vide this Circular, clarified that
Notification No. 86/2013 has been rescinded with
effect from the date of issue of the said notification,
thereby, removing Cyprus as a notified jurisdictional
area with retrospective effect from 01.11.2013.
2. Lease rent from letting out buildings/developed
space along with other amenities in an Industrial Park
/SEZ - to be treated as business income-Circular No.
16/2017, Dated 25-04-2017
The issue whether income arising from letting out
of premises/developed space along with other
amenities in an Industrial Park/SEZ is to be charged
under head 'Profits and Gains of Business' or under
the head 'Income from House Property' has been
subject matter of litigation in recent years. Assessee
claim the letting out as business activity, the income
arising from which to be charged to tax under the
head 'Profits and Gains of Business', whereas the
Assessing Officers hold it to be chargeable under the
head 'Income from House Property'.
The CBDT has considered the matter. Income
from the Industrial Parks/SEZ established under
various schemes framed and notified under Section
80-IA(4)(iii) is liable to be treated as income from
business provided the conditions prescribed under
the schemes are met.
In the case of Velankani Information Systems Pvt.
Ltd. (NJRS Citation [2013-LL-0402-44]), the Hon'ble
Karnataka High Court observed that any other
interpretation would defeat the object of Section
80-IA and government schemes for development
of Industrial Parks in the country. SLPs filed in this
case by the Department have been dismissed by the
Hon'ble Supreme Court.
In a subsequent judgment dated 30.04.2014
in ITA No. 76 & 78/2012 in the case of CIT v.
Information Technology Park Ltd. (NJRS Citation
www.icai.org
 Legal Update
1697

[2014-LL-0430-141], the Karnataka High Court has
reaffirmed its earlier views. It held that, since the
assessee-company was engaged in the business of
developing, operating and maintaining an Industrial
Park and providing infrastructure facilities to
different companies as its business, the lease rent
received by the assessee from letting out buildings
along with other amenities in a software technology
park would be chargeable to tax under the head
"Income from Business" and not under the head
"Income from House Property". The judgment has
been accepted by the CBDT.
In view of the above, it is now a settled position
that in the case of an undertaking which develops,
develops and operates or maintains and operates
an Industrial Park/SEZ notified in accordance with
the scheme framed and notified by the Government,
the income from letting out of premises/developed
space along with other facilities in an Industrial
Park/SEZ is to be charged to tax under the head
'Profits and Gains of Business'.
Accordingly, henceforth, appeals will not be filed
by the Department on the above settled issue and
those already filed would be withdrawn/not pressed
upon.
The detailed circulars can be downloaded from
the link below: http://www.incometaxindia.gov.in/
Pages/communications/circulars.aspx
III. PRESS RELEASES/INSTRUCTIONS/OFFICE MEMORAN-
DUM
1. Signing of two more Unilateral Advance Pricing
Agreements by CBDTPress Release, dated 28-04-2017
The CBDT entered into two Unilateral Advance
Pricing Agreements (APAs) on 27th April, 2017, with
Indian taxpayers. Both the agreements also have a
Rollback provision in them.
The APA Scheme was introduced in the Income-
tax Act in 2012 and the Rollback provisions were
introduced in 2014. The scheme endeavors to provide
certainty to taxpayers in the domain of transfer
pricing by specifying the methods of pricing and
determining the arms length price of international
transactions in advance for the maximum of five
future years. Further, the taxpayer has the option to
rollback the APA for four preceding years. Since its

Opt for e-Journal

and Go Green

In accordance with ICAIs GO-GREEN agenda, let us decide to

discontinue receiving hard copy of The Chartered Accountant journal,
since e-Journal is available in PDF and user-friendly e-Magazine
formats on http://www.icai.org/new_category.html?c_id=259.
Additionally, hyperlinked Journal Highlights are emailed regularly to
all members. As thoughtful citizens and members of a responsible noble
profession, let us support I GO GREEN WITH ICAI and preserve our environment.
Please visit http://www.icai.org/new_post.html?post_id=12763&c_id=240 and
say YES to discontinue receiving our individual hard copy.
Editor

www.icai.org THE CHARTERED ACCOUNTANT JUNE 2017 69

 Legal Update
1698
inception, the APA scheme has attracted tremendous
interest among Multi-National Enterprises (MNEs)
and that has resulted in more than 800 applications
(both unilateral and bilateral) having been filed in
just five years.
The two APAs signed on 27.04.2017 pertain
to Information Technology and Banking &
Finance Sectors of the Economy. The international
transactions covered in these agreements include
Software Development Services, IT enabled Services
and KPO Services.
With these, the total number of APAs entered
into by the CBDT has reached 154. This includes 11
bilateral APAs and 143 unilateral APAs. The CBDT
expects more APAs to be concluded and signed in
the near future. The progress of the APA Scheme
strengthens the Governments commitment to
foster a non-adversarial tax regime.
2. CBDT publishes first ever Annual Report of its
Advance Pricing Agreement (APA) ProgrammeAnnual
Report (2016-17), April 2017
This Annual Report is an initiative of the CBDT
to bring into the public domain various statistical
and qualitative aspects of Indias APA programme,
with a view to encouraging discussion and debate
amongst taxpayers, policy makers, media,
economists, etc. on the strengths and weaknesses
of the programme. This is the first such Annual
Report by CBDT on one of its programmes and that
lends uniqueness to the report. The first Annual
Report on the APA programme could not have been
published for a year better than 2016-17, a year in
which the CBDT managed to enter into 88 APAs.
This is a phenomenal achievement by the CBDT
and its officers working in the Foreign Tax & Tax
Research Division and in the APA teams at the field
level [comprising the Principal CCIT (IT & TP), APA
Commissioners, Additional/Joint Commissioners
and Deputy/Assistant Commissioners]. The CBDT
acknowledges the cooperation and efforts of the
applicants and their consultants in making the APA
programme a success. The said report is available
at the link: file:///C:/Users/user13/Desktop/d/E-
Newsletter%206th%20Edition%20May%202017.pdf
3. Income Tax Department simplifies linking PAN with
AadhaarPress Release, dated 11-05-2017
The Income Tax Department has made it easy
for taxpayers to link their PAN with Aadhaar.
Responding to grievances of taxpayers regarding
difficulties in linking PAN with Aadhaar as their
70 THE CHARTERED ACCOUNTANT JUNE 2017
names did not match in both systems (Eg. Names
with initials in one and expanded initials in another),
the Department has come out with a simple solution
now.
Taxpayers can go to www.incometaxindiaefiling.
gov.in and click on the link on the left pane-> Link
Aadhaar, provide PAN, Aadhaar No. and enter name
exactly as given in Aadhaar card (avoid spelling
mistakes) and submit. After verification from
UIDAI, the linking will be confirmed.
In case of any minor mismatch in Aadhaar name
provided by taxpayer when compared to the actual
data in Aadhaar, One Time Password (Aadhaar OTP)
will be sent to the mobile registered with Aadhaar.
Taxpayers should ensure that the date of birth and
gender in PAN and Aadhaar are exactly same. In
a rare case where Aadhaar name is completely
different from name in PAN, then the linking will fail
and taxpayer will be prompted to change the name
in either Aadhaar or in PAN database.
There is no need to login or be registered on
E-filing website. This facility can be used by anyone
to link their Aadhaar with PAN.
This facility is also available after login on the
e-filing website under Profile settings and choose
Aadhaar linking. The details as per PAN will be
pre-populated. Enter Aadhaar No. and enter name
exactly as given in Aadhaar card (avoid spelling
mistakes) and submit.
Taxpayers are requested to use the simplified
process to complete the linking of Aadhaar with PAN
immediately. This will be useful for E-Verification of
Income Tax returns using OTP sent to their mobile
registered with Aadhaar.
4. Income Tax Department launches Operation Clean
Money PortalPress Release, dated 16-05-2017
The Honourable Union Minister of Finance,
Shri Arun Jaitley officially launched the Portal of
Operation Clean Money (https://www.cleanmoney.
gov.in) at New Delhi on 16.05.2017 in the presence
of senior officers of the Ministry of Finance,
Department of Revenue and the Central Board of
Direct Taxes.
The Operation Clean Money was initiated by
the Income Tax Department (ITD) on the 31st
January, 2017 with the launch of e-verification of
large cash deposits made during 9th November to
30th December 2016. In the first batch, around 18
lakh persons were identified in whose case, cash
transactions did not appear in line with the tax
payers profile. There has been an encouraging
www.icai.org
 Legal Update
1699

response to the online verification process and
more than 9.72 lakh taxpayers submitted their
response without visiting Income tax office up
to 12th May, 2017. These taxpayers have provided
response for 13.33 lakh accounts involving
cash deposits of around R2.89 lakh crore. The
online responses have been assessed and no
further action will be taken in cases of satisfactory
explanation.
The salient features of the portal launched are:
Providing comprehensive information at
one place consisting of Step by Step Guides,
Frequently Asked Questions, User Guides,
Quick Reference Guides and Training Toolkits
related to verification process and other
issues.
Enabling Citizen Engagement for creating a
tax compliant society where every Indian takes
pride in paying taxes. Citizens would be able to
support the operation clean money by taking
pledge, contribute by engaging and educating
fellow citizens, and share their experiences and
provide feedback.
Enabling Transparent Tax Administration
by sharing status reports (including sanitised
cases and explanation of verification issues)
and thematic analysis reports (e.g. taxpayer
segment analysis of cash deposit data).
The Income Tax Department on-boarded
two specialised data analytics agencies and a
business process management agency to augment
departmental capability in analysing large volume
of cash deposit data, track the compliance status of
taxpayers and reporting entities.
In Phase II of Operation Clean Money, the high
risk cases will be handled by selecting appropriate
enforcement action (verification, search, survey,
scrutiny). A targeted campaign will be initiated in
cases with identified risk issues. The key components
of the targeted campaign are:
Communication of specific issue through
digital channels (Email, SMS etc.).

ICAI News
New Publication-Compendium of Opinions - Volume XXXV, (February 12, 2015 February 11, 2016)

The Expert Advisory Committee Determination of the average net profit for the purpose of
of the Institute of Chartered incurring Corporate Social Responsibility (CSR) expenses and
Accountants of India has disclosure of CSR expenses in the financial statements
published Compendium of
Opinions, Volume XXXV The salient features of the CD are as follows:
including a CD of Compendium The CD is equipped with user friendly features to locate the
of Opinions. This Volume of opinions on desired subjects.
Compendium of Opinions
The CD contains advanced search facilities like simultaneous
contains opinions finalised by
search of two words/phrases, search facility on the basis of
the Expert Advisory Committee
finalisation date of opinions, etc.
during the period February 12,
2015 February 11, 2016 and Contains around 1350 opinions on diverse subjects related
the CD contains all the opinions to accounting and/or auditing principles and allied matters,
finalised by the Expert Advisory issued by the Committee since its inception.
Committee upto February 11,
2016 as contained in Volume I to The opinions are based on the facts and circumstances of each
Volume XXXV. case as presented to the Committee, and the accounting/auditing
principles and practices and the relevant laws applicable on the dates the
The subjects of the opinions contained in this volume include: Committee finalised the respective opinions. The Committee answers
Amortisation of SAP license and accounting for annual the queries in accordance with the Advisory Service Rules which are
renewal fee available on the web-site of the ICAI, at its hyperlink, www.icai.org./
Accounting treatment of pre-operative and preliminary resource/eacrule.html For further information, write to Expert Advisory
expenses incurred on formation and incorporation of the Committee at eac@icai.in
company
Accounting treatment in respect of foreign currency loans Price: R250/-
hedged by a composite cross currency interest rate swap
contract and accounting therefor Ordering Information:
Accounting treatment of various kind of budgetary support This publication can be purchased online at link: https://
received from the Government and various types of icaionlinestore.org/. The publication is also available at the sales
expenditure incurred by the company counters of the Institute at New Delhi, Chennai, Mumbai, Kolkata
and Kanpur. To order by post, requisition may be sent to the Postal
Treatment of royalty paid in dispute pending the final decision
Sales Department of ICAI at postalsales@icai.in
of the Court

www.icai.org THE CHARTERED ACCOUNTANT JUNE 2017 71

 Legal Update
1700
Providing detailed explanation to create
environment of transparency.
Sharing investigation findings for specific
segments (e.g. jewellers, petrol pump, traders,
property purchasers etc.).
Centralised monitoring and gradual escalation
of inadequate response cases for enforcement
action.
With the continuous flow of information from
various sources including Statement of Financial
Transactions (SFT), the Income Tax Department is
conducting analysis in conjunction with previously
available/analysed data. Such incremental data
analysis has already led to identification of new
cases for e-verification. Furthermore, Income
Tax Department has also identified 3.71 lakh new
accounts relating to 1.58 lakh taxpayers who made
partial declaration of accounts/amounts in their
earlier responses. In addition to the earlier 18 lakh
cases, 5.68 lakh new cases have been identified for
e-verification process.
The Income Tax Department urges all taxpayers
and citizens to actively participate in Operation
Clean Money for a common cause of building a
proud nation, which runs on the strength of the
honest taxpayers.
(Matter on Indirect Taxes has been
INDIRECT contributed by the Indirect Taxes
TAXES Committee of the ICAI)
SERVICE TAX
1. Exemption of Life Insurance services
under 'Pradhan Mantri Vaya Vandana
Yojana'
The Central Government vide Notification No.
17/2017-ST dated 4th May, 2017 has amended the
Notification No. 25/2012 to provide exemption
to the services of life insurance business provided
under the scheme of Pradhan Mantri Vaya Vandana
Yojana.
[Notification No. 17/2017 -Service Tax dated: May
4, 2017]
CENTRAL EXCISE
2. Quantum of Mandatory Deposit required for filing
appeal before the CESTAT
The Central Government vide Circular No.
F.No.390/Misc./37/2017-JC, dated: May 9, 2017
directed attention to the CESTAT's Larger Bench
Order dated 20.04.2017 in respect of quantum of
mandatory deposit. The Larger Bench resolved the
issue as to whether an appellant has to pay 10%
72 THE CHARTERED ACCOUNTANT JUNE 2017
mandatory deposit for preferring an appeal before
the Tribunal over and above the mandatory deposit
of 7.5% of the duty liability/penalties already paid for
an appeal to the First Appellate Authority.
It clarified that in order to prefer an appeal
before the Tribunal, an assessee/ appellant need to
deposit 10% of the amount of duty confirmed or
the penalty imposed as the case may be irrespective
of the amounts equivalent to 7.5% deposited by
them for preferring an appeal to the First Appellate
Authority.
[Circular No. F.No. 390/Misc./37/2017- JC, Dated:
May 9, 2017]
CUSTOMS
3. Monitoring of export obligation fulfillment under
EPCG and Advance Authorisation Schemes
The Central Government vide Circular No. F. No.
16/2017 dated: May 2, 2017 provides to safeguard
revenue in case of non-submission of proof of
discharge of export obligation within the time period
stipulated by the custom notifications.
Earlier, the government vide Circular No.
5/2010-Cus dated 16.03.2010 mandates the issue
of notice to the exporters for furnishing the Bond/
Bank Guarantee but due to the reason that the
same been submitted to DGFT for issuance of
EODC, the adjudication process of their show cause
notice gets finalised and the demand confirmed. In
order to mitigate such issue, the government has
now decided that a simple notice after following
the principal of natural justice will suffice to the
licence/authorisation holder who does not submit
the EODC/Redemption letter within the prescribed
period.
In view of the above, the field formations may
issue simple notice to the licence/authorisation
holders for submission of proof of discharge of
export obligation. In case where the licence/
authorisation holder submits proof of their
application having been submitted to DGFT, the
matter may be kept in abeyance till the same is
decided by DGFT. However, in cases where the
licence/authorisation holder fails to submit proof of
their application for EODC/Redemption Certificate,
extension/clubbing etc., action for recovery may be
initiated by enforcement of Bond/Bank Guarantee.
In cases of fraud, outright evasion, etc., field
formations shall continue to take necessary action in
terms of the relevant provisions.
[Circular No. 16/2017-Cus, Dated: May 2, 2017]
www.icai.org
 Legal Update
1701

(Matter on Corporate Laws has Accounts to the Financial Statements- Divergence in

CORPORATE
been contributed by CA. Rahul
LAWS
Joglekar)
MCA (www.mca.gov.in)
MCA Notification GSR
(E) dated 11th May 2017-
Companies (Acceptance of Deposits)
(Amendment) Rules, 2017
MCA has notified the aforesaid rules to amend
the rules pertaining to acceptance of deposits
by companies. The requirement of having
mandatory deposit insurance has been relaxed
till 31st March 2018 or till the availability of
deposit insurance product, whichever is earlier.
For complete text of the notification, please refer
the link: http://www.mca.gov.in/Ministry/pdf/
CompaniesAcceptanceofDeposits_12052017.pdf
RBI (www.rbi.org.in)
RBI Circular No. DBS.CO.PPD.BC.No.9/11.01.005/
2016-17 dated 20th April 2017-Compliance with Ghosh
Committee Recommendations
RBI has relaxed the earlier requirement of
submission of the implementation status of
Ghosh Committee recommendations to the Audit
Committee of the Board of Banks. However, banks
are advised to ensure that Compliance to these
recommendations is complete and sustained and
these recommendations are appropriately factored
in the internal inspection/audit processes of banks
and duly documented in their manual/ instructions,
etc. For complete text of the circular, please refer
the link: https://rbi.org.in/Scripts/NotificationUser.
aspx?Id=10934&Mode=0
RBI Circular No. DBR.BP.BC.No.63/21.04.018/2016-
17 dated 18th April 2017-Disclosure in the Notes to
the Asset Classification and Provisioning
RBI has made it mandatory for all Commercial Banks
to disclose any divergence in Asset Classification
and Provisioning as recognised by the Bank and as
assessed by the RBI in its inspection. This disclosure
is required when (i) the additional provisioning
requirements assessed by RBI exceed 15% of the
published net profits after tax for the reference
period or (ii) the additional Gross NPAs identified
by RBI exceed 15% of the published incremental
Gross NPAs for the reference period, or both. The
first such disclosure with respect to the divergences
observed by RBI for the financial year 2015-16
shall be made in the Notes to Accounts of
Financial Statements for the year ended March 31,
2017. For complete text of the circular, please refer
the link: https://rbi.org.in/Scripts/NotificationUser.
aspx?Id=10932&Mode=0
RBI Circular No. DBR.No.BP.BC.64/21.04.048/2016-
17 dated 18th April 2017-Additional Provisions for
Standard Advances at higher than the prescribed rates
RBI has encouraged Banks to make provisions
for standard advances at higher rates in respect
of advances to stressed sectors of the economy.
Banks shall put in place a Boardapproved policy
for making provisions for standard assets at rates
higher than the regulatory minimum, based on
evaluation of risk and stress in various sectors.
Further, it has directed Banks to review the telecom
sector advances latest by June 30, 2017, and
consider making provisions for standard assets
in this sector at higher rates so that necessary
resilience is built in the balance sheets should the
stress reflect on the quality of exposure to the sector
at a future date.

A large manufacturing Co. having 100 plus warehouses spread across India,
require Chartered Accountants firm to conduct physical verification of stocks
including checking of legal compliances. There are about 30 SKUs. The
verification has to be conducted on 1st of the every month on random selections
of the warehouses so that each one is selected at least two times in a year. The
CA firms should have offices spread in all the metro & most of the semi metro
cities to avoid commuting.
Please submit your offer to madu1968@gmail.com. Mob. 8424008389

www.icai.org THE CHARTERED ACCOUNTANT JUNE 2017 73

Energy and persistence conquer all things. - Anonymous

 Special Write-Up
1702

Professional Conduct in Limelight: European Survey

Reveals as to How Accountants Respond to Pressures
to Act Unethically

Professional ethics has become a hot topic in recent years, fuelled by scandals such as Enron and
the realisation by professional bodies, including the Association of Chartered Certified Accountants
(ACCA), that the importance of acting ethically needed more emphasis in professional training. If
finance professionals dont act in line with laws, tax rules, and accounting standards, how can business
and society at large put their trust in financial statements or tax returns? Recognising the interest in
professional ethics, the European Federation of Accountants and Auditors for SMEs (EFAA) and the
Accountants Association in Poland (SKwP) conducted a survey among accountants in business and
practice (mainly small and medium-sized firms). They looked at how often accountants have come
under pressure to act unethically and how they responded. The online survey gained 662 responses
from 23 countries, with particularly strong participation from accountants in Spain, Germany, and
Poland. Read on to know more...

*Anna Karmanska, **Marie Lang, ***Robin Jarvis
(The authors are *Professor in Economic Sciences, SGH Warsaw School of
Economics, **Director, Professional Development, EFAA and ***Professor
of Accounting, Brunel University, London respectively. Comments can be
sent at eboard@icai.org)
Ethical Dilemma
Acting ethically is at the core of professional
conduct of accountants world-wide, which is the
key to not only retaining but also augmenting the
trust bestowed on them by economies, societies
and the governments. However, in view of a wide
range of their clientele and other stakeholders,
accountants often come under pressure to
circumvent the ethical values and due procedures,

74 THE CHARTERED ACCOUNTANT JUNE 2017 www.icai.org


processes and practices. As such, to look and study
deeper into this important aspect of professional
conduct of accountants, the European Federation
of Accountants and Auditors for SMEs (EFAA)
and the Accountants Association in Poland (SKwP)
recently conducted an online survey among
accountants in business and practice, mainly small
and medium-sized firms. The objective was to
study as to how often accountants have come under
pressure to act unethically and how they responded.
The survey results were based on 662 responses
from 23 countries, with particularly strong
participation from accountants in Spain, Germany,
and Poland.
The resulting report Accounting and
Ethics: Pressure Experienced by the Professional
Accountant written by the authors of this article
confirms that pressure is widespread. The
majority (64%) of respondents confirmed that they
had, during their professional career, been put
under pressure to act contrary to their professional
ethics or to tax and/or accounting legislation. Some
37% had been the subject of such pressure on five
or more occasions.
Accountants in all types of roles had come
under pressure: internal and external auditors, tax
advisors in practice and in business, accountants
in practice and in business, bookkeepers, and
external consultants. Those exerting the pressure
included clients and owners of the business
or practice, directors or board members, line
managers, and colleagues or people of similar
seniority.
The actions requested typically affected the
reporting of the entitys performance and often its
tax position. The most common request was for
www.icai.org
Special Write-Up
1703
The survey report Accounting and Ethics: Pressure
Experienced by the Professional Accountant written
by the authors of this article confirms that pressure is
widespread. The majority (64%) of respondents confirmed
that they had, during their professional career, been
put under pressure to act contrary to their professional
ethics or to tax and/or accounting legislation. Some 37%
had been the subject of such pressure on five or more
occasions.
the postponement of cost and expense recognition
(see list Pressure to do what?). This was closely
followed by pressure to manipulate the value of
inventories, and requests to categorise personal
expenses as company expenses.
When asked about potential rewards for
acting unethically or contrary to legislation,
the vast majority (88%) of those responding
said they were not offered or given any explicit
reward. However, many felt that there was a
perceived reward in the sense of a continuing
relationship. The researchers suggested that a lack
of explicit rewards being offered could indicate that
the pressure accountants come under is seen as
normal behaviour in business.
Some respondents said they had been threatened
by the person exerting pressure on them. These
threats typically involved some sort of financial
loss, such as loss of income to the practice, loss of
employment to the individual, or the termination of
an ongoing relationship.
Levels of Resistance
Based on the survey findings, most accountants do
not succumb to pressure: 68% (of 304 respondents)
THE CHARTERED ACCOUNTANT JUNE 2017 75
 Special Write-Up
1704
Based on the survey findings,
most accountants do not succumb to pressure:
68% (of 304 respondents) did not do as asked.
They refused to act for ethical reasons or provided
sufficiently strong arguments to persuade those
applying the pressure that the actions they wanted
were unnecessary.
did not do as asked. They refused to act for
ethical reasons or provided sufficiently strong
arguments to persuade those applying the pressure
that the actions they wanted were unnecessary.
The researchers identified a number of
themes in the arguments respondents put
forward, including:
their need to protect their professional
reputation;
the fact that accountants are bound by
professional ethics;
the requested action not being in line with
accounting rules and legislation; and
the idea that accounting professionals cannot
be associated with tax evasion.
Some respondents argued that the
pressure to act unethically was caused by short-
term problems that accountants could help
to resolve, enabling appropriate decisions to
be taken so that the business could be sustainable
in the long term.
A significant minority (32%) did succumb to
the pressure put on them to act contrary to their
professional ethics or legislation. Many did so
because they felt their employment and livelihood
were under threat. Some were bullied in the
workplace. The survey also revealed that, when
respondents came under pressure to act unethically
or contrary to legislation more than once, they
ultimately left their employment. The researchers,
therefore, concluded that these respondents
perceived some sort of moral line that could not
continually be crossed.
Those facing difficult situations in the workplace
described a sense of feeling alone and without
support. Accountants working in businesses
felt less supported and more distant from their
professional body than those working in
professional practices. The researchers also
highlighted the finding that respondents were more
likely to succumb to pressure when they were acting
76 THE CHARTERED ACCOUNTANT JUNE 2017
Put your heart, mind, and soul into even your smallest acts. This is the secret of success. - Swami Sivananda
as an employee within an entity rather than as an
external consultant. They, therefore, concluded that
an individuals ability to put some distance between
them and the person applying the pressure helped
them to withstand it.
Just over half (51%) of respondents said they
had consulted with someone at the time they
felt under pressure. They most often turned to a
colleague, followed by their professional body or
a manager not associated with the issue. Although
respondents generally found consultation to be
helpful, the researchers found no link between the
act of consultation and the respondents subsequent
actions.
Based on this extensive European survey, it is
clear that finance professionals in business and
in practice can expect to come under pressure to
act contrary to ethics or legislation during their
careers. The good news is that most are likely to
withstand such pressure, even though it can create
a difficult working environment or even the loss of
a job or client. A significant minority are likely to
succumb, however, at least the first time pressure
is exerted. The inclusion of ethics in professional
qualifications and subsequent development
activities, therefore, remains vitally important,
not only to help individual finance professionals
to withstand pressure, but also to defend the
reputation of the profession as a whole.
(Courtesy: IFAC Knowledge Gateway)
Based on this extensive European survey, it is clear that
finance professionals in business and in practice can
expect to come under pressure to act contrary to ethics
or legislation during their careers. The good news is that
most are likely to withstand such pressure, even though
it can create a difficult working environment or even the
loss of a job or client. A significant minority are likely
to succumb, however, at least the first time pressure is
exerted.
www.icai.org
 Ind AS
1705

Complexities in Accounting for Unwinding

of Discount under Ind AS 16 and AS 10

Appendix A of Ind AS 16 deals with the changes in the Existing De-commissioning, Restoration
and other liabilities. Appendix A is an integral part of Ind AS 16. Ind AS 16 issued under the
Companies Act, 2013 vide Companies (INDIAN Accounting Standards) Rules, 2015 duly amended
by the Companies (INDIAN Accounting Standards) (Amendment) Rules, 2016 are applicable to
a specified Class of Companies under the said Rules. AS-10 issued under the Companies Act, 1956
vide Companies (Accounting Standards) Rules, 2006 duly amended by the Companies (Accounting
Standards) (Amendment ) Rules, 2016 are applicable to rest of the Companies under the Companies
Act, 2013 vide Companies (Indian Accounting Standards) Rules, 2015 and AS-10 of ICAI applicable
to Non-Corporates deals with Property, Plant and Equipment , one of the most important items in
the Balance sheet of business enterprises. However, one should note that the Companies (Accounting
Standards) (Amendment) Rules, 2016 were issued u/s 642(1)(a), read with section 210A and Section
211(3C) of the Companies Act,1956 . However Section 642(1)(A) and Section 211(3C) were deleted
and hence the Rules suffer from lack of proper legal authority. In fact, the Companies (Accounting
Standards) Rules, 2006 should have been reissued under the Companies Act, 2013 and also all
the subsequent amendments. Of course, all the above three different Accounting Standards stand
harmonised as of today with practically no difference amongst them. Read on to know more

Changes in the Existing De-

CA. Nelatur. Syamasundaran
(The author is a member of the
Institute. He can be reached at
syam472001@yahoo.co.in)
commissioning, Restoration and other
liabilities
Changes in the Existing De-commissioning,
Restoration and other liabilities could happen
due to increase or decrease in estimated costs for
dismantling or due to changes in the estimated
timing of outflows, or in the discount rate applied to
convert those future cash out flows in to P.V.

www.icai.org THE CHARTERED ACCOUNTANT JUNE 2017 77

 Ind AS
1706
One of the central principles of the Accounting
Standards points out that no recognition of any
amount can be made in the accounts unless it can be
estimated reliably. When it is too difficult to estimate
dismantling costs that may sometimes be incurred
even after two decades or so, applying appropriate
discount rate only compounds the problem of
providing for the dismantling costs at P.V.
In other words, any increase or decrease in the
estimated dismantling costs, requires it to be adjusted
against the Provision at P.V in the relevant year.
The Standard also requires that the Unwinding of
discount as it occurs shall be debited as Finance Costs
and the same cannot be capitalised as Borrowing
Costs.
Unwinding of discount refers to adjustment to
the Provision every year due to passage of time.
For Example, if an entity expects its Dismantling
costs for a Plant at the end of 2 years is R100 and
applies to it a Discount rate of 10%, it would provide
R82.64 in the year 0. [i.e 100/( 1.10 *1.10) = R82.64].
At the end of year 1, it would unwind the discount
thereby providing an additional amount of Provision
of R8.26, thus bringing the provision to R90.90 and
at the end of 2nd year; it would further unwind the
discount by making a further provision of R9.10.
In other words at the end of year 2, when the
dismantling costs are to be incurred, the Provision
would stand at R100.
One of the central principles of the Accounting
Standards points out that no recognition of any
amount can be made in the accounts unless it can be
estimated reliably. When it is too difficult to estimate
dismantling costs that may sometimes be incurred
even after two decades or so, applying appropriate
discount rate only compounds the problem of
providing for the dismantling costs at P.V.
Discount Rate
The discount rate is a pre-tax rate as tax effect is
expected to generally offset in a broad sense both
income by way of earning on the invested amount
presently to meet future obligations and the
expenditure when it is actually incurred.
For example, if we take the above example
regarding unwinding of discount rate, we can see
income of R8.26 in the first year and R9.10 in the
second year by way of earnings on the invested
amount of R82.64 in the year 0, may be in the
78 THE CHARTERED ACCOUNTANT JUNE 2017
interest bearing investments or even in the business
itself and on the other hand we can see R100 charged
off as dismantling costs in the end of second year for
tax purposes which includes R8.26 and R9.10 as an
addition to Provision in the first and second year.
So, on a broad basis the tax effect, generally, may
not be material.
However, provision for Deferred Tax credit as
per Ind AS12 would offset the timing difference of
tax benefit in respect of Depreciation charge of the
capitalised amount of initial provision of R82.64 in
the Year 0 but also the Provision made for passage of
time (i.e. unwinding of discount) charged as finance
costs in the year 1 and 2 of R8.26 and R9.10.
The second question is whether the discount rate
is a risk free rate or to be adjusted for risk premium.
Since the Ind AS 37- Provisions, Contingent
Liabilities and Contingent Assets - refers to current
market rates, each entity has to take its own decision
on the discount rate based on its investment avenues.
If the entity proposes to deploy the funds in risk free
investments the discount rate would be Plain discount
rate and in other cases, it would include appropriate
risk premium based on the nature of investment.
For instance, if the entity proposes to invest
the amount provided for dismantling costs in
Government securities at an interest rate of 6%, the
discount rate would be 6%. On the other hand, if
it proposes to invest in its own business for which
its estimated risk premium is 5%, it would use the
discount rate of 11%. Of course the assessment of
risk premium is a complex affair and more often a
subjective and non-scientific decision.
Another issue is whether one should use discount
rate adjusted for inflation/deflation. The Ind AS 37 is
silent on this aspect. However, the future dismantling
costs can be assessed based on current business
conditions without adjusting for future inflation/
deflation or alternatively can be adjusted for future
inflation/deflation by using Index of consumer or
whole sale prices or any other best indicator.
It is important to understand that the higher the
discount rate used, the lower the current provision
for dismantling costs and vice versa.
If the dismantling costs are adjusted for annual
inflation, the annual discount rate is also to be
adjusted accordingly, if one assumes the inflation
will also push up correspondingly the rate of return.
www.icai.org
 Ind AS
1707

If the dismantling costs are adjusted for annual However, due to inflation, the Investment value
inflation, the annual discount rate is also to be (assuming it is in inflation linked instruments/
adjusted accordingly, if one assumes the inflation securities etc.) also gets adjusted upwards. Further,
will also push up correspondingly the rate of return. due to inflation, the return on the investment
For instance, let us take the above example amount would also rise by 10% in the 1st
regarding unwinding of discount rate and assume year from 10% to 11% and in the 2nd year from 11%
the dismantling cost of R100 after adjusting for to 12.1%.
average annual compounded inflation of 10 % would
move to R121 at the end of year 2. [R100 + ( R100* The above is explained as under:
10% + R110*10%)]. In this case the discount rate
A. YEAR 0
of 10% should also be adjusted for the inflation, so
that the Provision for Decommissioning charges 1. Amount Invested as per the R82.64.
in the year 0 reflects the right amount. Here, Provision for Decommissioning:
therefore the discount rate of 10% adjusted for the B. End of YEAR -1.
annual compounded inflation of 10% at the year I 1. Average Inflation Adjustment @ R8.26
would be 11% and at the year II, it would stand at 10% on A-1 above
12.1% [10%+ (10%*10% + 11%*10%)]. If we discount
R121/ with the said discount rates of 11% and 12.1%, 2. A 1 + B1 R90.90
we arrive at R97.29, the amount to be provided at 3. Average Inflation Adjusted R9.09
the year 0 [i.e. (R121/(1+.121)1= R108 and R108/ Return @ 11 % P.A on A1
(1+.11)1 = R97.29]. 4. Total = B2+ R99.99.
As we can observe the above Provision of R97/- Say R100
is higher by R14/- when compared to R83/- as
discussed earlier without inflation.
Due to inflation, the decommissioning charges at C. END OF YEAR -2
the Year 2 were pushed up to R121/- from R100/- 1. Average Inflation Adjustment @ R09.09
an increase of R21 and when we discount it to P.V 10% on B-2 above
at the period 0, we get R17/- (R21/ 1.11= R19 and
2. B4 + C1 R109.09
R19 /1.10= R17). However, this increase of R17 was
brought down to R14/- due to higher discount rate 3. Inflation Adjusted Return @ 12.1 R12.01
of 11% in the I year and 12.1% in the II year due % P.A on B4
to adjustment of inflation on the discount rate as 4. Total- C2 + C3 R121.10
discussed above. Say R121
Further, in the I yearend, Provision for unwinding
However, if an entity is of the view that the inflation in
of discount of R11 [i.e. R97 (R97* 1.11)] would be
the above case would not result in neither adjustment
made, thereby taking the Provision to R108 (R97
in the invested amount nor bring inflation adjusted
+ R11). Again at the end of Year II, an amount of
return, the only option is that it should discount the
R13 [i.e.; R108- (R108*1.121)] would be provided in
inflation adjusted Decommissioning costs of R121
respect of Unwinding the discount, thereby taking
above with the discount rate of 10 % unadjusted for
the Provision to R121.
inflation. In other words, it will provide for R100/-
Where dismantling costs are plain without
for decommissioning costs in the year 0. [i.e.: 121/
adjustment for inflation, the discount rate should
(1.10)2].
also be without adjusting for inflation.
For instance, let us again take the above
Risk specific to Liability
example regarding unwinding of discount rate and
Another important requirement under IND AS-37
assume the dismantling cost of R100 was without
as pointed out earlier is that the discount rate should
adjusting for inflation. In this case, there is no
also reflect risks specific to the liability.
need to adjust the annual discount rate of 10 % for
In other words, if an entity in the above example
inflation. This is because, if there is an inflation of
estimates dismantling costs at R100/- at the end of
10 % annually, the Dismantling costs would go up to
year II with an inflation of 0% and further expects
R110 at the end of first year and to R121 at the end
that it is unlikely that the liability would upswing due
of second year.

www.icai.org THE CHARTERED ACCOUNTANT JUNE 2017 79

 Ind AS
1708
As per Ind AS 37, if the entity made adjustments in the
future cash flows to reflect the future uncertainties,
no adjustment shall be made in the discount rate
towards risk specific to liability.
to lower competition amongst the Decommissioning
Service Providers, or due to technological upgrades
bringing in better quality in services related to
decommissioning or due to increase in tax rates and
so on. In such a scenario, the risk specific to liability
is almost zero.
The ticklish question is the determination of
discount rate after adjusting risk premium specific
to liability. The second point is if the risk premium
is added to the discount rate, naturally the Provision
amount gets reduced instead of increase.
For example, in the instant case that we discussed
above if the rate of 10 % is increased, say by 5 %, the
discount rate adjusted for risk specific to liability
would be 15 % and the P.V at the year 0 would be
R75.61, of the decommissioning charges of R100/- at
the end of II year, as against the P.V of R82.64 that
we saw by using 10% discount rate. In other words,
the amount of R75.61 invested @ 10% return would
increase to R91.48 at the end of II year, though the
Decommissioning charges to be incurred is R115/-
at the end of II year.
Hence, adding the risk premium as done
traditionally to rate is incorrect in the above situation
and it appears to be right to deduct the same. In other
words, the discount rate of 10 % duly adjusted for
risk specific to liability would be 5 % (i.e. 10%- 5%).
In the above situation, the P.V at the year 0 would be
R90.70. [i.e. R100/(1.05)2].
If the same is invested at a return of 10 %, the
amount would grow to R110 [R 90.70 * (1.10*1.10)].
But the required amount is R115/-. Hence we have to
increase the risk premium in such a way that it would
result in accumulating a sum of R115/- at the end of II
year. This can be done by trial and error method.
In the above case, if we increase the risk premium
to 7.5 % from 5 %, the discount rate would be 2.5 %,
(i.e. 10 % - 7.5 %).
In the above situation, the P.V at the year 0 would
be R95.18. [i.e. R100/(1.025)2].
If the same is invested at a return of 10 %,
the amount would grow to R115 [R95.18 *
(1.10*1.10)] which is the required amount towards
decommissioning charges at the end of II year.
80 THE CHARTERED ACCOUNTANT JUNE 2017
However, the computations of working backwards
by using discount rate adjusted for risk specific to
liability appears to be absurd.
As per Ind AS 37, if the entity made adjustments
in the future cash flows to reflect the future
uncertainties, no adjustment shall be made in the
discount rate towards risk specific to liability. Hence,
it is sensible to adjust the cash flows of future to
R115/- and use the discount rate of 10 % rather than
the roundabout method of using the discount rate
adjusted to risk specific to liability. If this is done,
R115 discounted with 10 % would result in a sum of
R95 [115/( 1.10*1.10)], at the year 0 which matches
with the P.V as arrived when we used the discount
rate of 2.5 % duly adjusted for risk specific to liability.
We can also consider the following cases of
adjusting the future cash flows to reflect the future
uncertainties, without adjusting the discount rate for
risk specific to liability.
Suppose there is 50 % probability that the liability
of the entity at the end of II year would rise by R10,
the entity should provide for the Decommissioning
charges of R105/- [i.e. R100 + (R10*50%)] and use
the discount rate without adjustment for risk specific
to liability.
In the above case, if any third party is prepared
to commit at the period 0 to undertake the above
decommissioning at R102/- at the end of year 2, the
liability would be capped at R102/-.
Another instance may be that the liability is
expected to go up anywhere between R101-119
at the end of year II. In this case, we use average
and estimate the liability at R110/- (i.e; R101 +
R119/2). In this case also, we should use the discount
rate without adjusting for risk premium specific to
liability.
Indeed, the Standard should have avoided
suggesting such an option of adjusting the discount
rate for risk specific to liability. Such an option left
confusion in the minds of people whether the above
risk comprises the credit risk of the entity itself.
The credit risk of entity would mean the
uncertainty associated with the entity itself in meeting
the decommissioning obligations at a future date.
However, such a thought appears to be completely
out of place. This is because if the entity is unable to
meet its decommissioning obligations, enhancement
of the Provision amount by considering the credit
risk of the entity itself would serve no purpose
unless such a Provision is specially encumbered
to meet only decommissioning obligations. In any
www.icai.org

case, securing decommissioning obligations to
safeguard against the default by the entity itself
is best achieved not by increasing the Provision
but by other means of obtaining security from the
entity like bank guarantee etc.
HELIX ENERGY SOLUTIONS Inc. Texas,
USA
(Rigless Well intervention, robotics and
Production facilities): The disclosures made by
the above entity in respect of its accounts 2007
is interesting. It inter alia says that it accounts for
Decommissioning liabilities in accordance with
SFAS-143 (USGAAP). It capitalises the asset
retirement costs as a part of the carrying cost of the
asset at the time of purchase or construction of an
asset. Such estimated costs include dismantling,
removal, site reclamation and associated costs
relating to the entitys oil and gas properties.
The company determines the asset retirement
costs and discounts it to P.V using a Credit Adjusted
Risk Free Discount Rate.
After the initial recording, the liability is
increased for the passage of time. Subsequent
adjustments in the cost estimate are reflected
in the liability and the amounts continue to
be amortised over the useful life of the related
long-lived asset.
The company states that SFAS No. 143 calls
for measurements of asset retirement obligations
to include, as a component of expected costs, an
estimate of the price that a third party would
demand, and could expect to receive, for bearing
the uncertainties and unforeseeable circumstances
inherent in the obligations, sometimes referred to
as a market-risk premium. To date, the oil and
gas industry has no examples of credit-worthy
third parties who are willing to assume this type
of risk, for a determinable price, on major oil and
gas production facilities and pipelines. Therefore,
because determining such a market-risk premium
would be an arbitrary process, we excluded it from
our SFAS No. 143 estimates. (source: www.wikinvest.
com)
SUPERIOR ENERGY SERVICES, INC. AND
SUBSIDIARIES (Oil Field services company,
Houston, Texas, USA)
Regarding Decommissioning liabilities the company
stated as under in its Annual accounts for the year
2011.
www.icai.org
Start by doing what's necessary; then do what's possible; and suddenly you are doing the impossible. - Francis of Assisi
Ind AS
1709
The Company records estimated future
decommissioning liabilities in accordance with the
authoritative guidance related to asset retirement
obligations (decommissioning liabilities), which
requires entities to record the fair value of a
liability for an asset retirement obligation in the
period in which it is incurred, with a corresponding
increase in the carrying amount of the related long-
lived asset. Subsequent to initial measurement,
the decommissioning liability is required to
be accreted each period to present value. The
Companys decommissioning liabilities associated
with the Bullwinkle platform and its related assets
consist of costs related to the plugging of wells, the
removal of the related facilities and equipment, and
site restoration.
Whenever practical, the Company utilizes its
own equipment and labour services to perform
well abandonment and decommissioning work.
When the Company performs these services, all
recorded intercompany revenues and related costs
of services are eliminated in the consolidated
financial statements. The recorded decommissioning
liability associated with a specific property is fully
extinguished when the property is abandoned. The
recorded liability is first reduced by all cash expenses
incurred to abandon and decommission the property.
If the recorded liability exceeds (or is less than) the
Companys total costs, then the difference is reported
as income (or loss) within revenue during the period
in which the work is performed. The Company reviews
the adequacy of its decommissioning liabilities
whenever indicators suggest that the estimated cash
flows needed to satisfy the liability have changed
materially. The Company reviews its estimates for
the timing of these expenditures on a quarterly basis.
In connection with the acquisition of Superior
Completion Services in 2010, the Company assumed
approximately $10.0 million of decommissioning
liabilities associated with restoring two chartered
vessels to the original condition in which they were
received.
(Source: United States Security and Exchange
Commission Web site)
Indeed, there is no mention of discount rate
adjustment specific to Liability for decommissioning.
Another point to note is that even in the cases where
such jobs are undertaken in-house, the provision for
such liabilities are to be made. Further, the current
Decommissioning liabilities should be reflected
under Current Liabilities.
THE CHARTERED ACCOUNTANT JUNE 2017 81
 Ind AS
1710

Accounting for Agriculture under Ind AS 41

India's economy is still principally based on its agriculture, as more than two thirds of its population
is either directly or indirectly dependent on agriculture. Agriculture being one of the largest
contributors to the national GDP, India deserves to have a standardised accounting approach for its
agriculture sector. Ind AS-41, as notified by the Ministry of Corporate Affairs in 2015, has prescribed
the accounting for agricultural activity, the management of transformation of biological assets
(living plants and animals) into agricultural produce (harvested product of the entity's biological
assets). The author in this article describes various aspects of the accounting for agriculture under
Ind AS 41 including its applicability, recognition, measurement, gains and losses, disclosures, etc.,
among others, for our readers. Read on to know more
While India is witnessing an impressive growth accounting standard generally requires the biological
in its industrial sector, India's economy is still assets to be measured at fair value less costs to sell.
principally based on agriculture and more than 2/3rd
of its population directly or indirectly depends on Key Definitions
agriculture as their principal means of livelihood. 1. Agricultural activity is the management
Agriculture is one of the largest contributors to the by an entity of the biological transformation
GDP (gross domestic product) of the country. In spite and harvest of biological assets for sale or
of these facts, no standardised accounting approach for conversion into agricultural produce or
has been developed for the agriculture sector of India. additional biological assets.
However, Ind AS-41, as notified by the Ministry Agricultural activities have three common
of Corporate Affairs (MCA) vide its notification features - capability to change, management of that
dated 16th February 2015, prescribes accounting change and measurement of that change. Among
for agricultural activity, management of the these, the most important is the entitys management
transformation of biological assets (living plants of the biological transformation. Harvesting from
and animals) into agricultural produce (harvested unmanaged sources (such as fishing from open
product of the entity's biological assets). The ocean) is not an agricultural activity, as it does not
involve management of the resources.
2. Biological transformation comprises the
processes of growth, degeneration, production,
and procreation that cause qualitative or
CA. Pankaj Sharma
quantitative changes in a biological asset.
(The author is a member of the 3. A biological asset is a living plant or animal.
Institute who may be contacted at 4. Agricultural produce is the harvested product
pankaj.dutt.sharma@icai.org.)
of the entitys biological assets.

82 THE CHARTERED ACCOUNTANT JUNE 2017 www.icai.org


5. Harvest is the detachment of produce from a
biological asset or the cessation of a biological
assets life processes.
Applicability
Ind AS 41 should be applied to the following when
they relate to the agricultural activity:
Biological assets;
Agricultural produce at the point of
harvest; and
Government grants when they relate to the
agriculture activity.
Ind AS 41 does not apply to:
Land related to agricultural activity (to be
accounted as per Ind AS 16 Property, Plant
and Equipment);
Bearer plants related to agricultural
activity (to be accounted as per Ind AS 16).
However, Ind AS 41 should be applied to
the produce on those bearer plants.
Government grants related to bearer
plants (to be accounted as per Ind AS 20
Accounting for Government Grants and
Disclosure of Government Assistance).
Intangible assets related to agricultural
activity (to be accounted as per Ind AS 38
Intangible Assets).
Ind AS 41 deals only with the treatment of
biological assets upto the point of harvest. After the
harvest, the assets are generally accounted for under
Ind AS 2 Inventories or another applicable standard.
For example, the processing of grapes into wine or
rubber product from harvested latex.
Agriculture Activity related to Bearer
Plants
Bearer plant may be defined as a living plant that:
(a) is used in the production or supply of agricultural
produce;
(b) is expected to bear produce for more than one
period; and
(c) has a remote likelihood of being sold as
agricultural produce, except for incidental scrap
sales.
For example, tea bushes, grape vines, oil palms and
rubber trees, usually meet the definition of a bearer
plant and are outside the scope of Ind AS 41 and
covered under Ind AS 16.
Ind AS 41 requires biological assets to be
measured at fair value less costs to sell. But to adopt
this treatment for bearer plants is not appropriate
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Ind AS
1711
since they are no longer undergoing significant
biological transformation. The use of mature bearer
plants such as these is seen as similar to that of
manufacturing. Consequently, bearer plants are
made outside the scope of Ind AS 41 and get covered
under Ind AS 16 which permits to follow the cost
model.
Produces growing on bearer plants are covered
by Ind AS 41. It is a consumable biological asset
growing on the bearer plant which will ultimately be
detached and is normally sold separately, meaning it
has a market value of its own.
Recognition
Entities are required to recognise a biological asset
or agricultural produce when and only when, all of
the following conditions are satisfied:
i. the entity controls the asset because of past
events;
ii. it is probable that future economic benefits
associated with the asset will flow to the entity;
and
iii. the fair value or cost of the asset can be measured
reliably.
Measurement
Biological Assets
This standard requires that biological asset should
be measured on initial recognition and at the end
of each reporting period at its fair value less costs to
sell unless the fair value cannot be measured reliably.
Fair value meaning is similar to as defined in Ind AS
113. The measurement of fair value of a biological
asset or agriculture produce may be facilitated by
grouping biological assets or agriculture produce
according to the significant attributes.
In limited circumstances, cost may be approximate
to fair value, particularly when little biological
transformation has taken place since the cost was
incurred or the impact of biological transformation
on price is not expected to be material.
In case an entity has entered into a sales contract
for the biological assets or agriculture produce at a
Ind AS 41 requires biological assets to be measured
at fair value less costs to sell. But to adopt this
treatment for bearer plants is not appropriate since
they are no longer undergoing significant biological
transformation. The use of mature bearer plant such
as these is seen as similar to that of manufacturing.
THE CHARTERED ACCOUNTANT JUNE 2017 83
 Ind AS
1712
When a biological asset is initially recognised at
fair value less cost to sell, any gain or loss arising
is reported in profit or loss of the period. A loss can
arise on initial recognition due to the requirement to
deduct cost to sell.
future date, those contract prices are not necessarily
relevant in measuring the fair value. Since fair value
is not entity specific but it reflects current market
condition in which market participants enter into a
transaction.
Inability to Measure Fair Value Reliably
This standard has a presumption that the fair value
of most biological assets can be measured reliably.
This presumption, however, can be rebutted only on
the initial recognition of a biological asset subject to
the following conditions:
i. Quoted market prices are not available for the
biological asset and
ii. Alternative fair value measurements are
determined to be clearly unreliable.
When these conditions are met, the biological
asset is required to measure at Cost less
Accumulated Depreciation and any Accumulated
Impairment Losses. If later the fair value becomes
reliably measureable, a switch to fair value less cost
to sell model is required.
Agricultural Produce
This standard requires agricultural produce also to be
measured at fair value less cost to sell at the point of
harvest from entitys biological asset. However, there
is no measurement reliability exception (as provided
for biological asset) for agricultural produce. This
is because agriculture produce is a marketable
commodity. Hence in all cases, harvested produce is
required to be measured at fair value less cost to sell.
The fair value measurement of agricultural
produce at the point of harvest is the cost of that
produce for subsequent accounting under Ind AS 2
Inventories or other applicable standard.
Leased Assets
Biological Assets acquired under a finance lease
and biological asset provided under operating lease
should be measured in accordance with measurement
requirement of Ind AS 41 i.e. at fair value less cost to
sell model. Biological assets are specifically excluded
from the scope of Ind AS 17 leases.
84 THE CHARTERED ACCOUNTANT JUNE 2017
Dream is not what you see in your sleep, but it is the thing which doesnt let you sleep. - Dr. A. P. J. Abdul Kalam
Gains and losses
When a biological asset is initially recognised at
fair value less cost to sell, any gain or loss arising
is reported in profit or loss of the period. A loss can
arise on initial recognition due to the requirement
to deduct cost to sell. A gain can arise, for example,
when a biological asset is initially recognised such as
when a calf is born.
Gains and losses will also arise over the life
of the biological asset to reflect the changes in
fair value less cost to sell. These gains and losses
are presented in profit or loss in the period in
which they arise. Thus as a calf grows, its fair
value will also change which will be recorded
in profit or loss.
The gain or loss arising on initial recognition of
agricultural produce at fair value less cost to sell is
included in profit or loss for the period in which
it arises. Agricultural produce is first recognised
at the point of harvest (up to that point it is recognised
as a biological asset).
Government Grants
The treatment prescribed by this standard may
give a different result than would arise if Ind
AS 20 Accounting for Government Grants and
Disclosures of Government Assistance
were applied.
This standard requires that unconditional
grants related to the biological assets measured
on fair value basis should be recognised in profit
or loss when, and only when, the grant becomes
receivable. If the grant is conditional, it should be in
profit or loss when, and only when, the conditions
attached to the grant are met. This includes grants
under the conditions of which entities are required
not to engage in specified agricultural activity.
Government grants relation to biological assets
measured on a cost basis (i.e. inability to measure
fair value reliably) or bearer plants are to be dealt in
accordance with principles laid down in Ind AS 20.
Disclosure
The standard requires extensive disclosure of:
i. Description of biological assets and activities.
ii. Gains and losses recognised during the period.
iii. Reconciliation of changes in biological assets.
iv. Restricted assets, commitments and risk
management strategies.
v. Additional disclosures when fair value cannot
be measured reliably.
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 Ind AS
1713

Accounting for Assets Held for Sale under

Ind AS An Overview of Pertinent Issues

Indian corporates are currently grappling with and devising accounting policies for effective
implementation of Ind AS. The exercise requires the complete overhaul of the accounting system to
shift from erstwhile Indian GAAP to the Ind AS, which is the converged version of globally accepted
IFRS. One such issue that needs special consideration is the accounting for Assets held for sale which
has a separate standard by the name of Ind AS (Ind AS 105). In this article, an attempt has been made
to highlight the pertinent issues regarding the standard for the readers. Read on to know more
Non-Current Assets held for Sale
An Overview
In the technology-driven era of industrial and
economic growth, any new technology will phase
out the old technology for efficient and effective
operations. As a consequence, entities sell off the
CA. Puneet Arya old assets to replace it with more advanced and
(The author is a member of the productive assets. As per Ind AS 105 an entity shall
Institute. He can be reached at classify a non-current asset (or disposable group) as
puneetarya@yahoo.co.in)
held for sale if its carrying amount will be recovered

www.icai.org THE CHARTERED ACCOUNTANT JUNE 2017 85

 Ind AS
1714
Ind AS 105 lays down the detailed conditions for
classification of asset held for sale which is not
present in the Indian GAAP. The most important
condition is defining the time limit of one year for
sale transaction to take place. This condition will
ensure that the entity does not classify the assets
in held for sale to understate the profits by charging
off the impairment losses while using the assets in
normal course of operations.
principally through a sale transaction rather than
through continuing use. Thus, assets which are
intended to be scrapped or abandoned will not meet
the above definition of assets held for sale.
Treatment under Indian GAAP
Although there is no separate standard in Indian
GAAP for classification and measurement of
assets held for sale, still Accounting Standard -10
(Accounting for Fixed Assets) provides the guidance
regarding its treatment. As per paragraph 14.2 of the
Standard: fixed assets that have been retired from
active use and are held for disposal are stated at
lower of net book value and net realizable value and
are shown separately in the financial statements. Any
expected loss is recognized immediately in the profit
and loss account.
However, the scope of information provided in this
Standard is narrow and it does not provide detailed
information regarding the classification, measurement
and disclosure of assets held for sale and this aspect has
been well taken care of in the Ind AS 105.
Classification Requirements under Ind AS
105
Under Ind AS 105, a non-current asset or disposable
group can be classified as held for sale if it satisfies all
of the below mentioned conditions:
a. The asset must be available for immediate sale
and not in the distant future.
b. Sale of an asset must be highly probable. To
fulfill this condition, the management must
chart out a precise plan to sell the asset and the
related activities such as to locate a buyer must
have been initiated at the date of classification.
c. The asset must be marketed at a price which is
reasonable to its fair value.
d. The sale transaction should be expected to
be completed within one year from the date
of classification unless the delay is caused by
activities which are beyond the control of entity.
86 THE CHARTERED ACCOUNTANT JUNE 2017
Ind AS 105 lays down the detailed conditions for
classification of asset held for sale which is not present
in the Indian GAAP. The most important condition is
defining the time limit of one year for sale transaction
to take place. This condition will ensure that the
entity does not classify the assets in held for sale to
understate the profits by charging off the impairment
losses while using the assets in normal course of
operations.
As per paragraph 8A of the Standard, if an entity
is committed to sale of controlling interest in the
subsidiary then it shall classify all the assets and
liabilities of the subsidiary as held for sale in the
consolidated financial statements even if it will retain
any non-controlling interest after the sale.
The transaction for sale also includes exchange of
non-current asset for another asset and not just the
outright sale.
The Standard also allows the classification of
the asset as held for sale even if the asset is acquired
by entity exclusively for the purpose of subsequent
sale. The classification can be done on the date
of its acquisition. However, all the conditions as
stated above shall be satisfied on the date
of classification.
The above classification requirement is also
deemed to be satisfied if it is classified as held for
distribution to owners acting in their capacity as
owners, provided the assets must be available for
immediate distribution and the distribution should be
highly probable. We have to consider the probability of
shareholders approval to conclude the high probability
of the transaction.
If the conditions for the classification are met after
the end of the reporting period, then the entity shall
not classify the asset as held for sale as it will be a
non-adjusting event. However, if it is satisfied before
the approval of financial statements, the information
as per the disclosure requirements of this
standard shall be provided in the notes to financial
statements.
If the asset is to be abandoned by the entity, then
it shall not be classified as held for sale as its value will
be recovered principally through continuing use i.e.
disposal proceeds.
Impairment loss shall be recognised in the
statement of profit and loss for initial or subsequent
write down of assets to fair value less costs to
sell. However, gain on account of subsequent
increase in fair value shall be recognised limited
to the cumulative impairment loss that has been
recognised either in accordance with this Standard
or as per Ind AS 36, Impairment of Assets.
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The entity is required to present separately non-
current assets held for sale from other assets in the
financial statement. The assets can be presented
as current assets if they meet the criteria to be
classified as Held for Sale as per this Standard. If
the entity classifies a disposable group of assets
as held for sale, then associated liabilities shall
also be classified as held for sale and to be shown
separately in the financial statements.
Measurement of Assets Held for Sale
As per paragraph An entity shall measure a non-
current asset (or disposal group) classified as held for
sale at the lower of its carrying amount and its fair
value less costs to sell...
As per the standard, costs to sale are defined as
incremental costs which are directly attributable
to the disposal of an asset (or disposable group)
excluding finance costs and income tax expense.
If the assets are classified as held for distribution
to owners then fair value less costs to sell shall be
replaced by fair value less costs to distribute.
According to Ind AS 113, fair value is the price
that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between
market participants at the measurement date.
If the sale is expected to incur beyond one year,
costs associated with selling the asset should be
measured at present value. Any increase in present
value due to passage of time shall be accounted as
financing cost in profit and loss account.
As per para 18 of the Standard, before the
classification of the asset as held for sale it has to be
measured as per the applicable accounting standard
such as Ind AS 16 for tangible assets and Ind AS 38
for Intangible Assets.
Recognition of Impairment Losses and
Reversals
Impairment loss shall be recognised in the statement
of profit and loss for initial or subsequent write down
of assets to fair value less costs to sell. However, gain
on account of subsequent increase in fair value shall
be recognised, limited to the cumulative impairment
loss that has been recognised either in accordance
with this Standard or as per Ind AS 36, Impairment
of Assets.
No depreciation or amortisation of non-current
asset shall be made after it has been classified
as held for sale. But interest and other expense
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Ind AS
1715
liabilities associated with the assets or disposable
group shall continue to be recognised in the
financial statements.
Reclassification of Held for Sale Assets
If subsequent to classification of asset under held for
sale, the conditions of classification of asset under
held for sale are not met, the entity shall cease to
classify such asset under held for sale. In such a case,
the entity shall measure such asset at the lower of:
a. its carrying amount before classification
under held for sale adjusted for depreciation,
amortisation that would have been recognised
had the asset not been classified as held for sale
and,
b. its recoverable amount at the date of its
reclassification.
Any adjustment in the carrying amount of asset
resulting from the classification is to be presented in
profit and loss statement.
As per the latest Companies (Indian Accounting
Standards) (Amendment) Rules, 2016, if an asset
is reclassified from Held for Sale to Held for
Distribution to Owners or vice versa, then it will
not require any adjustment for reclassification.
Thus the rule clarifies that merely change in the
method of disposal will not require any adjustment.
It also provides that change in classification manner
will be taken as continuation of original plan of
disposal.
Case Study Part I
XYZ Limited makes a plan to sell an asset for which
it charts out a plan and started actively marketing
the asset w.e.f January 1st 2016. The fair value of asset
on this date is R100,000 and cost to sell is estimated
at R5,000. The carrying amount was R97,000 on
1st January 2016. The rate of depreciation applicable
is 10%.
Since the entity has prepared a plan and also
engaged in actively marketing the asset, it is eligible
to classify such asset as held for sale provided the
sale is expected to complete within one year from
the date of its classification.
The value at which such asset will be classified
will be lower of carrying amount or fair value less
cost to sell.
Carrying Amount: R97,000
Fair Value: R1,00,000
Less: Costs to sell: (R5,000)
R95,000
Hence the asset should be recognised at R95,000.
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 Ind AS
1716

Case Study: Part II as current assets if they meet the criteria to be

XYZ Ltd. was unable to find a buyer and thereby
could not sell the asset within one year from the date
of classification. Hence the entity would be required
to reclassify the asset from held for sale to normal
asset. The asset recoverable value as on this date is
R95,000.
As per Paragraph 27 of Ind AS 105, the entity
shall classify at amount lower of carrying amount at
the date of classification adjusted for depreciation or
its recoverable amount on date of reclassification.
Carrying Amount as on 01st - R97,000
January 2016
Depreciation till 31st December R 9,700
2016 @ 10% - classification.
Carrying amount as on 31st - R87,300
December 2016
Since the recoverable amount is R95,000, the
asset will be reclassified at R87,300.
Presentation and Disclosure Requirements
The entity is required to present separately non-
current assets held for sale from other assets in the
financial statement. The assets can be presented
classified as Held for Sale as per this Standard. If
the entity classifies a disposable group of assets
as held for sale, then associated liabilities shall
also be classified as held for sale and to be shown
separately in the financial statements. The assets
and associated liabilities shall not be set off against
each other. However, it is not required to reclassify
the amounts of asset for held for sale shown in prior
periods which means the presentation requirement
is prospective only.
The disclosure requirements for the entity are as
follows:
- Description of asset classified as held for sale.
- Facts and circumstances which lead to such
- Amount of gain/loss on writing down the value
of the asset to fair value less costs to sell.
- If Ind AS 108 Operating Segments is applicable,
it should disclose the reportable segment under
which such assets are classified.
If there is any change in plan for sale of asset,
entity shall disclose all the facts and circumstances
which lead to such decision and shall also disclose
the effect of such decisions on the results of
operations.

88 THE CHARTERED ACCOUNTANT JUNE 2017 www.icai.org

Its fine to celebrate success but it is more important to heed the lessons of failure. - Bill Gates
 Ind AS
1717

Understanding of Accounting for Production

Stripping cost under Ind AS

Appendix B of Ind AS 16 Property Plant and Equipment deals with Stripping Costs in the
Production Phase of a Surface Mine. This Appendix B recognises that production mining activity will
help in the production/mining activity in the future period and provides conditions subject to which
such production costs could be capitalised. In Indian GAAP, no such guidance was available for
treatment of such production costs and hence there existed diversity in practice in accounting for such
production costs. Certain companies completely expense these costs while others were capitalizing
such costs on some basis. There could possibly be very handful of mining companies that would be
able to conclude that their current accounting policies in Indian GAAP were in line the guidance
prescribed in the above Appendix B. This article summarises the key requirements of Appendix B of
Ind AS 16 and how it will impact the financial statements of mining companies engaged in surface
mining activity. Read on to know more
Introduction: as a result of the stripping activity. The units of
Appendix B of Ind AS 16 Property Plant and production method shall be applied unless another
Equipment deals with Stripping Costs in the method is more appropriate. Implementation of
Production Phase of a Surface Mine. It does not the requirement of Appendix B of Ind AS 16 would
apply to stripping costs incurred during development require large mining companies to upgrade its IT
phase of the mine. Stripping costs incurred during systems, processes and controls.
production phase of Surface mine can be capitalised 1. What are Stripping costs? :
as Stripping Activity Assets provided certain In surface mining operations, entities may find
recognition conditions prescribed in Appendix B it necessary to remove mine waste materials
are satisfied. The stripping activity asset shall be (overburden) to gain access to mineral ore
depreciated or amortised on a systematic basis, over deposits. This waste removal activity is known as
the expected useful life of the identified component stripping and the costs incurred in performing
of the Ore body that becomes more accessible stripping activity is known as Stripping costs.
2. Accounting of Stripping costs during
Development phase of mine:
a) Company is required to incur certain
expenditures for developing a mine prior to
CA. Pravin Sethia commencement of production/extraction
The author is a member of the
Institute who may be contacted at
of mineral resources from the related mine.
sethiapravin@gmail.com Development expenditures are incurred to
obtain access to the proven and probable

www.icai.org THE CHARTERED ACCOUNTANT JUNE 2017 89

 Ind AS
1718
Stripping activities that relate to inventory produced
are accounted for in accordance with IAS 2,
Inventories. Stripping costs that generate a benefit
of improved access are required to be accounted as
an addition to (or enhancement of) an existing asset.
reserves of the mine. Examples of costs
incurred during development phase of
mine include expenditures associated with
drilling, removing over burden (waste
rock), sinking shaft, driving tunnel, etc.
b) Stripping expenditures incurred during the
development phase of the mine are usually
capitalised as part of the depreciable cost
of building, developing and constructing
the mine. Those capitalised costs are
depreciated or amortised on a systematic
basis, usually by using the units of
production method, once production
begins.
3. Accounting of Stripping costs during the
Production phase of mine:
a) A mining Company may continue to
remove overburden and to incur stripping
costs during the production phase of the
mine.
b) The material removed when stripping in
the production phase will not necessarily
be 100 per cent waste; often it will be a
combination of ore and waste. The ratio of
ore to waste can range from uneconomic
low grade to profitable high grade. Removal
of material with a low ratio of ore to waste
may produce some usable material, which
can be used to produce inventory. This
removal might also provide access to
deeper levels of material that have a higher
ratio of ore to waste.
There can, therefore, be two benefits accruing to
the entity from the stripping activity:
i) usable ore that can be used to produce
inventory and
ii) improved access to further quantities
of material that will be mined in future
periods.
Appendix B to Ind AS 16 Property Plant and
Equipment addresses accounting of above two
benefits from stripping activity as well as how to
measure these benefits initially and subsequently.
4. Initial recognition and measurement of
90 THE CHARTERED ACCOUNTANT JUNE 2017
Stripping costs:
a) As stated above, stripping activity results in
two benefits accruing to the mining entity
i) usable ore to produce inventory and
ii) improved access to further quantities
of material that will be mined in future
periods.
b) Stripping activities that relate to inventory
produced are accounted for in accordance
with IAS 2, Inventories. Stripping costs
that generate a benefit of improved
access are required to be accounted as
an addition to (or enhancement of ) an
existing asset. Some of the examples of
the existing asset to which the stripping
cost can be capitalised include the mine
property (land), the mineral deposit itself
and an intangible right to extract the ore.
Capitalised costs are classified as tangible
or intangible according to the nature of the
existing underlying asset.
c) The below diagram summarises the criteria
for recognition of Stripping Activity Assets :
An entity recognises a Stripping Activity Assets if
and only if all the following conditions are met:
It is probable that the future economic benefit
(improved access to the ore body) associated with
the stripping activity will flow to the entity.
The entity can identify the component of the ore
body for which access has been improved.
The costs relating to the stripping activity associated
with that component can be measured reliably.
If the cost for stripping activity and the inventory
produced are separately identifiable, then the
entity would measure the stripping cost and cost
of inventory at the respective separate identifiable
costs. However, generally the cost for stripping
activity and inventory produced are not separately
identifiable.
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After initial recognition, the stripping activity asset
shall be carried at either its cost or its revalued
amount less depreciation/amortisation and less
impairment losses, if any, in the same way as the
existing asset of which it is a part.
d) The stripping assets is initially measured at
costs which represents directly attributable
costs including allocation of directly allocable
overheads costs like salary costs of mining
supervisor overseeing the identifiable
component of the mine, equipment hire
charges for performing stripping activity, etc.
Costs which are not directly attributable to the
stripping activity are not included in measuring
stripping assets. An example of such type of
incidental operations would be building an
access road in the area in which the stripping
campaign is taking place.
e) If the cost for stripping activity and the
inventory produced are separately identifiable,
then the entity would measure the stripping
cost and cost of inventory at the respective
separate identifiable costs. However, generally
the cost for stripping activity and inventory
produced are not separately identifiable.
In such situation, the entity shall allocate
the production stripping costs between the
inventory produced and the stripping activity
asset by using an allocation basis that is based on
a relevant production measure. This production
measure shall be calculated for the identified
component of the ore body, and shall be used as
a benchmark to identify the extent to which the
additional activity of creating a future benefit
has taken place. Examples of such measures
include:
(a) Cost of inventory produced compared with
expected cost;
(b) Volume of waste extracted compared with
expected volume, for a given volume of ore
production; and
(c) Mineral content of the ore extracted
compared with expected mineral content
to be extracted, for a given quantity of ore
produced. with expected volume, for a given volume
f ) Following examples will illustrate each of the
above method:
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Ind AS
1719
1) Cost of inventory produced compared
with expected cost :
Assumptions:
a) Companys expected cost of producing
10,000 tons of ore is R18 per ton. This
costs includes cost of extraction of
normal quantity of waste along with ore.
b) During the given period, Company
extracted 10,000 tons of ore and
incurred a cost of R280,000. Based
on the production data, Management
estimated that about 80% of higher cost
of extraction was mainly due to blasting
and drilling activity for removal of thicker
layer of over burden.
c) Management has evaluated that after
removal of the above thicker layer of over
burden, it has obtained access to separate
component of ore body and management
will be able to satisfy all the conditions
stated at para 4(c) above.
Calculations:
Particulars Amounts (R)
Expected costs of extraction of R180,000
10,000 tons of Ore
Actual cost incurred for extraction R280,000
of 10,000 tons of Ore
Additional cost incurred towards R80,000
blasting and drilling activity
for removal of thicker layer of
overburden (80% of R100,000
total additional costs)
Additional costs to be recognised R80,000
as stripping cost assets
Balance amount of additional R20,000
costs to be recognised as cost of
producing inventory provided
it can be treated as cost of
producing inventory as per Ind
AS 2
Total cost of producing inventory R200,000
of 10,000 tons of Ore
2) Volume of waste extracted compared
of ore production :
Assumptions:
a) As per mining plan of the Company
THE CHARTERED ACCOUNTANT JUNE 2017 91
 Ind AS
1720
submitted for a particular ore body for
period of 5 years, Company would extract
20,000 tons of Ore and would generate
60,000 tons of waste. Accordingly the
expected Ore to waste ratio is expected
to be 1:3.
b) The direct and indirect overhead costs
is R15,000,000 during the year ended
March 31, 2016
c) Actual volume of Ore and waste
extracted during the year ended March
31, 2016 is 850 tons and 3800 tons of
waste respectively.
Calculations:
Particulars
Expected volume of waste extracted 2550 tons
for 850 tons of Ore 850 tons of Ore
actually produced * 3)
Actual volume of waste produced 3800 tons
Excess of actual waste produced over 1,250
estimated waste produced tons
(3,800 tons 2,550 tons)
Ratio of excess waste produced over 26.88%
total of Ore and waste extracted
[1,250/(3,800+850)]
Amount of Stripping cost assets to be R40. 32
recognised lacs
(R150 lacs *26.88%)
Balance Amount to be allocated to R109.68
cost of producing Inventory lacs
(R150 lacs 40.32 lacs)
3) Mineral content of the Ore extracted
compared to expected mineral content
to be extracted, for a given quantity of
Ore produced
Assumptions:
a) As per mining plan of the Company
submitted for a particular Ore body
for period of 5 years, Company would
extract 100,000 tons of Ore and the
expected mineral content of the Ore is
30,000 tons. Accordingly the expected
mineral content of the Ore is 30%.
b) The direct and indirect overhead costs
is R10,000,000 during the year ended
March 31, 2016.
c) Actual volume of Ore extracted during
92 THE CHARTERED ACCOUNTANT JUNE 2017
the year ended March 31, 2016 is 1500
tons which include 250 tons of mineral
content.
Calculations:
Particulars
Expected volume of mineral content for 450 tons
given quantity of Ore produced (30% of
1500 tons)
Expected volume of non-mineral 1050
content tons
Actual mineral content in 1500 tons of 250 tons
Ore
Actual non-mineral content in 1500 1250
tons of Ore tons
Excess of non-mineral content in 1500 200 tons
tons of Ore over expected volume of
non-mineral content
(1250 tons 1050 tons)
Ratio of excess of non-mineral content 13.33%
of Ore over total of Ore extracted [200
tons/1500 tons]
Amount of Stripping cost assets to be 13.33
recognised (R100 lacs *13.33%) lacs
Balance Amount to be allocated to cost 86.67
of producing Inventory lacs
(R100 lacs 13.33 lacs)
g) It is to be noted that Appendix B to Ind AS 16,
prohibits use of basis of production measure
that is based on sales values as the same is not
closely linked to the mining activity.
5. Subsequent measurement of the Stripping
Activity Asset:
a) After initial recognition, the stripping activity
asset shall be carried at either its cost or its
revalued amount less depreciation/amortisation
and less impairment losses, if any, in the same
way as the existing asset of which it is a part.
b) The stripping activity asset shall be depreciated
or amortised on a systematic basis, over the
expected useful life of the identified component
of the Ore body that becomes more accessible
as a result of the stripping activity. The units
of production method shall be applied unless
another method is more appropriate.
c) Appendix B to Ind AS 16 states that the expected
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useful life of the identified component of the
Ore body that is used to depreciate or amortise
the stripping activity asset will differ from the
expected useful life that is used to depreciate or
amortise the mine itself and the related life of-
mine assets. The standard provides that in very
limited circumstances, the stripping activity
would provide improved access to the whole of
the remaining Ore body. For example, this might
occur towards the end of a mines useful life when
the identified component represents the final
part of the Ore body to be extracted. However,
this situation is expected to be very rare.
6. Other important considerations for
Accounting of Stripping Costs :
a) Stripping assets for period prior to date
of transitioning to Ind AS : physical damage to the ore body, which
1) As per para D32 of Ind AS 101 First-
time Adoption of Indian Accounting
Standards, first time adopter entity has
an option to apply Appendix B of Ind
AS 16 relating to Stripping costs in the
production phase of a surface mine, from
the data of transition to Ind AS.
2) In situations, where the first time adopter
entity chooses to apply the Appendix
B retrospectively, it would need to
determine the stripping activity assets in
accordance with Appendix B of Ind AS
16 for the identifiable component of Ore
body for which the production phase is
still in progress at the date of transition
to Ind AS.
3) If the first time adopter chooses to apply
the option as provided under para D32
above, then at the date of transition
to Ind ASs, any previously recognised
asset balance that resulted from
stripping activity undertaken during the
production phase (predecessor stripping
asset) shall be reclassified as a part of
an existing asset to which the stripping
activity related, to the extent that there
remains an identifiable component of the
Ore body with which the predecessor
stripping asset can be associated.
Such balances shall be depreciated or
amortised over the remaining expected
useful life of the identified component of
the Ore body to which each predecessor
stripping asset balance relates. If there
is no identifiable component of the Ore
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The greatest discovery of my generation is that a human being can alter his life by altering his attitudes. - William James
Ind AS
1721
body to which that predecessor stripping
asset relates, it shall be recognised
in opening retained earnings at the
transition date to Ind ASs.
b) Impairment of Stripping Assets:
As stated above, the stripping assets
would be carried at cost/revalued amount
less depreciation/amortisation and less
impairment losses if any. While generally,
the stripping asset would be added to
the cost to primary mining assets and
accordingly, the underlying mining assets
(along with stripping asset) would be tested
for impairment stripping assets rather
the mining assets on standalone basis.
However, there could be situations like
indicates that Company may not be able
to derive future economic benefit from its
improved access to the component of Ore
body and in such a situation, company
would need to determine the amount of
impairment charge in respect of stripping
assets.
c) Accounting Policies:
Company would need to include suitable
accounting policy for recognition and
measurement of stripping costs in its
financial statements.
d) Information Technology (IT)
Infrastructure :
Large mining companies having multiple
mines and complex surface mining
operations may be required to upgrade
its IT systems, processes and controls to
capture the data points for recognition
and measurement of stripping costs in
its financial statements as the financial
impact arising on account of deferred
stripping costs could be significant in such
companies.
Conclusion:
Mining companies which are required to prepare
their financial statements according to Ind AS would
require to undertake detailed review of their mining
operations, their mining plan and the requirements
of Appendix B of Ind AS 16 to evaluate the accounting
impact arising on account of accounting for stripping
costs during the production phase of the mine. Such
assessment will depend upon the specific facts and
circumstances of each mine.
THE CHARTERED ACCOUNTANT JUNE 2017 93
 Corporate & Allied Laws
1722

Opportunities for Chartered Accountants under

Companies Act, 2013 and other Allied Corporate Laws

It is well known that a doctor treats the diseases but few people know that a CA looks after the
health of the society, so said our Prime Minister Shri Narendra Modi at a Convention in 2013
(as Gujarat Chief Minister), while emphasising the importance of the profession of a Chartered
Accountant. The statement amply and rightly stresses that the dynamism and outlook of chartered
accountants are not limited to the core areas like Auditing, Accounting, Corporate Governance,
Taxation, Corporate Laws, etc. but has now transcended and metamorphosed into various other
important roles like Independent Director, Key Managerial Personnel, Insolvency Professional
and Valuation Professional, etc. A number of professional avenues have opened up/are opening
for the Chartered Accountants along with manifold challenges therein. In this article we bring to
you the areas where a Chartered Accountant can step out of the nutshell and explore the available
areas and regimes to enhance his/her experience and career goals. Read on

The Accounting profession has witnessed
tremendous multifarious growth and success in
the 21st century. The expanded role of accountants
can be traced to a number of specific factors such
(Contributed by Corporate Laws and Corporate Governance Committee of
ICAI. Comments can be sent to clcgc@icai.in.)
as the emergence of large organisations and the
attendant separation of ownership and control,
the passage of various laws such as Companies
Act, Income Tax Act, etc., securities legislation
and the increasing complexity of business
transactions.
In the last almost 68 years, the Indian accountancy
profession has undergone a paradigm shift, and

94 THE CHARTERED ACCOUNTANT JUNE 2017 www.icai.org

 Corporate & Allied Laws
the phenomenon continues to this day. Todays
CA enjoys an exalted position in the professional
order of the country. Today, the Chartered
Accountants are regarded as an institution of
public trust besides being conscience keepers of
economy. It was in this backdrop that the visionary
former President of India Dr. A.P.J. Abdul Kalam
acknowledged them as Partners in National
Development.
From traditional bean counters, the Chartered
Accountants have now metamorphosed into a
multidimensional professional, offering complete
business solutions as information and decision
specialists. The role of CAs has shifted from
backroom to boardroom. He is no longer a statistician
but a strategist.
In this background, there is no denying the fact
that the dynamic role of chartered accountants is
no longer restricted only to Auditing, Accounting,
Corporate Governance, Taxation, Corporate Laws
etc., but the horizons of accounting professionals
have broadened to include even the roles as an
Independent Director, Key Managerial Personnel,
Insolvency Professional, Valuation Professional, etc.
A number of professional avenues have opened up/
are opening for the Chartered Accountants along
with manifold challenges therein.
Following are areas where a Chartered
Accountants can play specific role as mandated by
law:
Chartered Accountants as Internal
Auditors (Section 138)
As per Section 138 of the Companies Act, 2013,
the following class of companies shall be required
to appoint an internal auditor, who shall either be a
Chartered accountant or a cost accountant, or such
other professional as may be decided by the Board to
conduct internal audit of the functions and activities
of the company.
(a) every listed company;
(b) every unlisted public company having paid
up share capital of R50 crore or more or
turnover of R200 crore or more during the
preceding financial year; or outstanding loans
or borrowings from banks or public financial
institutions exceeding R100 crore or more at
any point of time during the preceding financial
year or outstanding deposits of R20 crore or
more at any point of time during the preceding
financial year; and
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1723
As per Section 138 of the Companies Act, 2013, the
following class of companies shall be required to
appoint an internal auditor, who shall either be a
Chartered accountant or a cost accountant, or such
other professional as may be decided by the Board to
conduct internal audit of the functions and activities
of the company.
(c) every private company having turnover
of R200 crore rupees or more during the
preceding financial year; or outstanding loans
or borrowings from banks or public financial
institutions exceeding R100 crore or more at
any point of time during the preceding financial
year:
Appointment of Chartered Accountants as
Auditors
Section 139 to 148 of the Companies Act, 2013 deals
with provisions related to Statutory Auditor.
This being the core area of practice of a
Chartered Accountant needs no introduction or
advertisement. Once an individual is qualified as a
Chartered Accountant, he is given the advantage of
being an Auditor and opportunity to deliver the best
of services.
Other Services by Auditors (Section 144)
This section seeks to provide that an auditor
can do such other services as approved by the
Board or audit committee. The section further
provides for the services which the auditor cannot
perform, directly or indirectly to the company or its
holding company, subsidiary company or associate
company.
Chartered Accountants as Independent
Directors
The idea of having Independent Directors on the
Board is to bring objectivity to Board decisions,
protect common interests of the company and
its stakeholders, observe high ethical standards,
and foster improvement in corporate governance
standards. Independent directors have to play
a crucial role in framing the CSR policy and its
implementation in the Board and company with
extended emphasis on global warming and climate
change. The Chartered Accountants have a crucial
role to play in corporate governance in general and
as independent directors in particular.
THE CHARTERED ACCOUNTANT JUNE 2017 95
 Corporate & Allied Laws
1724
Women Directors on the Board
Women Chartered Accountants are well equipped
and empowered to become Directors on the Boards
of company.
Chartered Accountant as Key Managerial
Personnel
The Act has for the first time defined Key Managerial
Personnel and it includes Chief Financial Officer.
As we all know Chief Financial Officers are mostly
Chartered Accountants. The legislative requirements
for statutory disclosures by professional accountants
relating to the financial affairs of a corporate are
spread across a large number of statutes and the
purpose of such statements have to be viewed from
the intention and requirement of such law and it is,
therefore, a very important task to consolidate such
statements/reports/opinion by accountants in one
place.
Appointment as Registered Valuer (Section
247)
This section provides that where valuation is required
to be made in respect of any property, stocks, shares,
debentures, securities or goodwill or any other
assets (herein referred to as the assets) or net worth
of a company or its liabilities under the provision of
this Act, it shall be valued by a person having such
qualifications and experience and registered as a
valuer. The draft Rules provided that a Chartered
Accountant may be appointed as Registered Valuer
under Section 247.
Section 275 of the Companies Act, 2013
The provisional liquidator or the Company
Liquidator, as the case may be, shall be appointed
from a panel maintained by the Central Government
consisting of the names of chartered accountants,
advocates, company secretaries, cost accountants
Section 247 provides that where valuation is required
to be made in respect of any property, stocks, shares,
debentures, securities or goodwill or any other
assets (herein referred to as the assets) or net worth
of a company or its liabilities under the provision of
this Act; it shall be valued by a person having such
qualifications and experience and registered as a
valuer. The draft Rules provided that a Chartered
Accountant may be appointed as Registered Valuer
under Section 247.
96 THE CHARTERED ACCOUNTANT JUNE 2017
Recently, the Real Estate (Regulation and
Development) Act, 2016 has been notified w.e.f
01.05.2017. The Act vide Section 56 authorises the
Chartered Accountant to appear and present the
case on behalf of the Client before the Appellate
Tribunal or Regulatory Authority or the Adjudicating
Officer under the Act. Further, the Chartered
Accountant may also provide Consultancy Services
under the Act and conduct audit of the developers
etc in complying with the requirements of the Act.
or firms or bodies corporate having such chartered
accountants, advocates, company secretaries, cost
accountants and such other professionals as may be
notified by the Central Government or from a firm or
a body corporate of persons having a combination of
such professionals as may be prescribed and having
at least ten years experience in company matters.
Professional Assistance to Company
Liquidator
As per Section 291 of the Companies Act, 2013,
the Company Liquidator may, with the sanction
of the Tribunal, appoint one or more Chartered
Accountant on such terms and conditions, as may
be necessary, to assist him in the performance of his
duties and functions under this Act.
Right to Legal Representation
As per Section 432, a party to any proceeding or
appeal before the Tribunal or the Appellate Tribunal,
as the case may be, may either appear in person or
authorise one or more chartered accountants or
company secretaries or cost accountants or legal
practitioners or any other person to present his case
before the Tribunal or the Appellate Tribunal, as the
case may be.
Under Real Estate (Regulation and
Development) Act, 2016
Recently, the Real Estate (Regulation and
Development) Act, 2016 has been notified w.e.f
01.05.2017. The Act vide Section 56 authorises the
Chartered Accountant to appear and present the case
on behalf of the Client before the Appellate Tribunal
or Regulatory Authority or the Adjudicating Officer
under the Act. Further, the Chartered Accountant
may also provide Consultancy Services under the
Act and conduct audit of the developers etc. in
complying with the requirements of the Act.
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 Corporate & Allied Laws
Appointment as Interim Resolution
Professional and Insolvency Professional
as per the Insolvency and Bankruptcy
Code, 2016
A Chartered Accountant who has passed the
Limited Insolvency Examination and has ten years
of experience and enrolled as a member of ICAI can
enroll himself as an Insolvency Professional with an
Insolvency Professionals Agency.
Insolvency professionals (IP) will play a vital
role in the insolvency and bankruptcy resolution
process. The role of the IP encompasses a wide range
of functions, which include adhering to procedure
of the law, as well as accounting and finance related
functions.
The insolvency professionals are to be appointed
as liquidators, trustees, etc. at various stages of the
insolvency proceedings.
Where any insolvency resolution, fresh-start,
liquidation or bankruptcy process has been initiated,
it shall be the function of an insolvency professional
to take such actions as may be necessary, in the
following matters, namely:
1. a fresh start order process
2. individual insolvency resolution process
3. corporate insolvency resolution process -
Insolvency Professional (IP) to take over the
management and operations of the borrower
during the CIRP
4. individual bankruptcy process and
5. liquidation of a corporate debtor firm
Valuation Report and Opinion on Scheme
of Arrangement by Listed Entities
Securities and Exchange Board of India has issued
guidelines vide circular date 10.03.2017 related
to Scheme of Arrangement by Listed Entities.
The guidelines mandatorily require listed entities
to submit valuation report from a Chartered
Accountant.
While considering the scheme of arrangement
of any listed entity SEBI may also seek clarifications
and opinion of a Chartered Accountant the merits
and viability of draft scheme of arrangement.
Conclusion
The opportunities for CAs are not limited to only
the spheres mentioned above. There are a number
of other professional avenues, which are emerging
and yet to be explored, where CAs are best suited.
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Leadership is practiced not so much in words as in attitude and in actions. - Harold S. Geneen
1725
No doubt Indian accountancy profession has come
a long way but still there are miles to go. There are
still many challenges to be met, many frontiers
to be conquered and histories to be made. Newer
and newer challenges are emerging, particularly
in the spheres of Goods and Services Tax, XBRL,
IFRS-converged Ind AS, Integrated Reporting,
e-Commerce, Environmental Accounting,
International Taxation, Technology Consulting,
ERP Implementation, Forensic Accounting, Fraud
Detection, Real Estate Regulation Act and Data
Analytics, etc.
Honble Finance Minister of India, Shri Arun
Jaitley too has acknowledged that accounting is the
backbone of business financial world and in the
growth of the country, Chartered Accountants play
an important role.
Earlier, the then Vice President of India Dr. S.
Radhakrishnan, while addressing the Chartered
Accountants Meet held on June 5, 1958 at Madras,
had said: The moment we won our freedom, we tried
and we are trying to consolidate our country. After
that, our greatest ambition is to establish socialistic
pattern of society for social and economic content into
the pattern of democracy. That is why we are building
these huge dams, hydro-electric projects, fertilizer
factories in public sector and they are steadily on
the increase. But all these will avail nothing unless
we are able to induce confidence in the public that
we are able to get adequate returns for the monies
we are spending on these huge enterprises. And,
therefore your profession (CA) has a very vital part
to play. You must do your work selflessly, in a spirit
of dedication, in an uncompromising way, not caring
for powers, but you must do your work for the sake of
the community as a whole. These words of wisdom
spoken decades ago hold true even today. The
Accountancy profession has always been responsive
to the ever-changing environment and expectations
of the society.
THE CHARTERED ACCOUNTANT JUNE 2017 97
 Corporate & Allied Laws
1726

Prohibition of Benami Property Transactions

Act: Your Questions And Answers

In August 1988, the DA Desai Law Commission had given its report on benami property
transactions to the Rajiv Gandhi Government, the beginning of Benami Transaction Prohibition
Law in India. The Benami Transactions (Prohibition) Amendment Act, 2016 is an amendment of
the older Benami Transactions (Prohibition) Act 1988. It was first introduced in the Lok Sabha
last year, on May 13 by Finance Minister Arun Jaitley, and was then referred to by a Standing
Committee on Finance. The Committee submitted its report on April 28 and following that, it was
passed in the Lok Sabha and Rajya Sabha on July 27 and August 2 respectively. The New Benami
Act came into effect from November 1, 2016. The Benami Transactions (Prohibition) Act, 1988 will
be renamed as the Prohibition of Benami Property Transactions Act, 1988 (PBPT Act). It prohibits
illegal benami transactions, under which up to seven years of imprisonment and penalty for those
indulging in such activities could be handed out. Read on to know more

Who is Benamidar?
Benami essentially means property without a name.
In this kind of transaction, the person who pays
for the property does not buy it under his/her own
name. The person on whose name the property has
been purchased is called the Benamidar.
Benamidar means a person or a fictitious person,
as the case may be, in whose name the benami
property is transferred or held and includes a person
who lends his name.

What is Benami Property and Benami

CA. Satheesh TG
The author is a member of the Institute
who may be contacted at sathee.tg@
gmail.com
Transaction?
Benami property means any property which is the
subject matter of a benami transaction and also

98 THE CHARTERED ACCOUNTANT JUNE 2017 www.icai.org

 Corporate & Allied Laws
includes the proceeds from such property.
Benami transaction means,
(A) a transaction or an arrangement
(a) where a property is transferred to, or is
held by, a person, and the consideration for
such property has been provided, or paid
by, another person; and
(b) the property is held for the immediate
or future benefit, direct or indirect,
of the person who has provided the
consideration. and stamp duty is paid on such transaction.
(B) a transaction or an arrangement in respect of
a property carried out or made in a fictitious
name;
(C) a transaction or an arrangement in respect of
a property where the owner of the property
is not aware of, or, denies knowledge of, such
ownership;
(D) a transaction or an arrangement in respect
of a property where the person providing the
consideration is not traceable or is fictitious.
What are specifically excluded from the
definition of Benami Transaction?
In the following situations benami transactions
are not penalised as they are specifically exempted
under the Act:
(i) Where a Karta or a member of a Hindu
Undivided Family, the property is held for his
benefit or benefit of other members in the
family and the consideration for such property
has been provided or paid out of the known
sources of the Hindu Undivided Family;
(ii) Where a person standing in a fiduciary capacity
for the benefit of another person towards
whom he stands in such capacity and includes
a trustee, executor, partner, director of a
company, a depository or a participant as an
agent of a depository under the Depositories
Act, 1996 and any other person as may be
notified by the Central Government for this
purpose;
(iii) Where an individual holds the property in the
name of his spouse or in the name of any child
of such individual and the consideration for
such property has been provided or paid out of
the known sources of the individual;
(iv) Where any person holds the property in the
name of his brother or sister or lineal ascendant
or descendant, where the names of brother or
sister or lineal ascendant or descendant and
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1727
the individual appear as joint-owners in any
document, and the consideration for such
property has been provided or paid out of the
known sources of the individual.
(v) Where a transaction involving the allowing
of possession of any property to be taken or
retained in part performance of a contract
referred to in Section 53A of the Transfer of
Property Act, 1882, if, under any law for the
time being in force, such contract is registered
What constitutes property for the purpose
of Benami Transactions?
Literally, all assets, even gold or financial securities
are covered under the Act. Property means assets
of any kind, whether movable or immovable,
tangible or intangible, corporeal or incorporeal and
includes any right or interest or legal documents
or instruments evidencing title to or interest in
the property and where the property is capable of
conversion into some other form, then the property
in the converted form and also includes the proceeds
from the property.
What are the consequences of a Benami
Transaction?
Any property, which is a subject matter of benami
transaction, shall be liable to be confiscated by the
Central Government. Earlier, any violation of the
provisions of the Act would lead to imprisonment
of up to three years, or a fine, or both. Now, under
the amended Act, any offender would stand to be
punished with imprisonment of up to seven years.
Anyone found guilty of entering into a Benami
Transaction would be liable for both financial penalty
and imprisonment:
Financial Penalty of up to 25% of the fair market
value of the property.
Rigorous imprisonment for minimum of 1 Year
to maximum of 7 year. If anyone gives incorrect
Property means assets of any kind, whether movable
or immovable, tangible or intangible, corporeal or
incorporeal and includes any right or interest or
legal documents or instruments evidencing title to
or interest in the property and where the property is
capable of conversion into some other form, then the
property in the converted form and also includes the
proceeds from the property.
THE CHARTERED ACCOUNTANT JUNE 2017 99
 Corporate & Allied Laws
1728
information or explanation in response to any
inquiry to any authority:
Financial Penalty of up to 10% of the fair market
value of the property and
Rigorous imprisonment of minimum 6 months
to maximum of 5 years.
How it affects the people?
As for the general public, it will not be much of
an issue if their transactions are legal. People with
unaccounted income will sure have a tough time. The
following situations are some of my understanding
about benami transactions and how it is going to
affect people.
Mr. A purchases gold worth R5 lakh and the
amount is paid by Mr. X who is not traceable is
a benami transaction.
Mr. E, an NRI from England purchased an
apartment for R1 crore and made payment of
R75,00,000 officially by cheque from his NRE
account and R25,00,000 unofficially in cash.
For the registration, stamp duty payment,
TDS as well as in all correspondence and
documentation, R75,00,000 was used as
official consideration of property, which was
purchased in his name. In such case, while,
cash was involved, this may not be a Benami
Transaction.
Mr. J, an NRI from UAE purchases a house
worth R50 lakh in the joint name of his father
and himself and payment has been done from
his NRE account is not a Benami Transaction.
Mr. F an NRI residing in US purchased a Flat
in the name of his son Mr. S is not a Benami
Transaction.
Mr. K gifts R15 lakh to his father, who invested
in Equity Shares in his own name with an
intention to return the gift to his son in future,
is a Benami Transaction.
Mr. L, an NRI and a resident of Germany,
invested in equity shares of various listed
companies of R100,00,000 in the name of his
Any property, which is subject matter of benami
transaction, shall be liable to be confiscated by the
Central Government. Earlier, any violation of the
provisions of the Act would lead to imprisonment
of up to three years, or a fine, or both. Now, under
the amended Act, any offender would stand to be
punished with imprisonment of up to seven years.
100 THE CHARTERED ACCOUNTANT JUNE 2017
wife Mrs. M and himself as joint holders from
an account not disclosed to tax authorities
(unknown source), is a Benami Transaction.
Mr. L, an NRI and a resident of Germany,
invested in equity shares of various listed
companies of R100,00,000 in name of his
wife Mrs. M and himself as joint holders
from his NRO account, is not a Benami
Transaction.
Mr. X sells a property worth R2 crore and
value disclosed for stamp duty purpose is R1.5
Crore. A cheque of R1.5 crore is received and
balance in cash. Amount disclosed to income
tax authorities is R1.5 crores. Mr. X invested
in Mutual Fund R50 lakh in the joint name of
Mrs. Y his wife and himself out of the Cash is a
Benami Transaction.
Mr. G, an NRI holds deposits worth R10 lakh in
the joint name of his brothers wife and himself
is a Benami Transaction.
Mr. R, resident Indian deposited R25 lakh in the
name of his married daughter who is residing
abroad. She denies the ownership and has no
knowledge about the transaction, is a Benami
Transaction.
Mr. P, an NRI from Switzerland sold a Benami
property for R5,00,00,000 by cheque and
deposited the sale proceeds in his NRO bank
account. The amount in the bank account is a
Benami Property.
Mr. Q has owned a Benami office property
since 2010. As he is still holding the property
on November 1, 2016, this would also be
considered as a Benami Transaction as per the
new Amended Act and will be subject to the
authority and penalty of the Amended Act.
Mr. R, an NRI from China sold a Benami
residential property for R1,50,00,000 by
cheque, deposited the sale proceeds in his
NRO bank account, paid taxes and filed
income tax return. He buys another property
from his after-tax paid proceeds in his own
name. Whether the transaction of buying and
holding 2nd property is a Benami Transaction,
is debatable.
Mr. Father takes a loan to construct a building
on his own land. Mr. Son makes the repayment
of loan and Mr. Son has all chance of inheritance
of that property in future. Whether it is a
Benami Transaction is also debatable.
Mr. A deposited Specified Bank Notes
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 Corporate & Allied Laws
An Initiating Officer can issue a notice to any
benamidar on suspicion. The officer may then hold
the property for 90 days from the day the notice was
issued, subject to permission from the Approving
Authority. Upon the end of the 90 day period, the
Initiating Officer may pass an order to continue
holding the property following which, he/she may
refer the case to the Adjudicating Authority. The
Adjudicating Authority will then examine all the
documents and evidence, and then pass an order on
whether the property will be held as benami.
(Demonetised Currency) and Mr. B is holding
the same with an intention to transfer it to Mr.
A in future is a Benami Transaction.
Who are the Authorities in Charge and
what are their roles?
As per the new act, there are four authorities who
will conduct inquiries or investigations:
i) Initiating Officer,
ii) Approving Authority,
iii) Administrator, and
iv) Adjudicating Authority.
An Initiating Officer can issue a notice to any
www.icai.org
A wise man will create more opportunities than he can find. - Anonymous
1729
benamidar on suspicion. The officer may then
hold the property for 90 days from the day the
notice was issued, subject to permission from the
Approving Authority. Upon the end of the 90 day
period, the Initiating Officer may pass an order to
continue holding the property following which,
he/she may refer the case to the Adjudicating
Authority. The Adjudicating Authority will then
examine all the documents and evidence, and then
pass an order on whether the property will be held
as benami.
Based on this order, the Administer will receive
and handle the property subject to conditions as
prescribed. A Joint /Additional Commissioner of
Income-tax, an Assistant / Deputy Commissioner
of Income-tax, and a Tax Recovery Officer would
be notified to perform the functions and exercise
the powers of the Approving Authority, Initiating
Officer and Administrator, respectively.
Conclusion
There will not be many issues to common man if
the transactions are legal. If by mistake, somebody
has entered into a Benami Transaction, seek
an experienced professional's help to remedy the
same.
THE CHARTERED ACCOUNTANT JUNE 2017 101
 Information Technology
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Robotics and Cognitive Computing Toolkits

for the Future Finance Professionals

The article showcases the exponential technologies that would influence the chartered accountancy
profession and the office of the Chief Financial Officer in the near future. It gives a perspective of how
the professionals will need to upskill and prepare themselves to embrace the new technologies that
will define the future of finance. Read on to know more
Finance organisations are finding it hard to To manage the influx of such large data
keep pace with the growing requirements of their organisations will need to develop a robust eco-
businesses. Technology has enabled organisations to system which will enable effective utilisation for this
receive significant amount of data which needs to be data for effective decision making. Organisations
optimally utilised for decision making. Information in India are significantly investing in futuristic
is flooding into business, pushing data volumes technologies such as Robotics, Cognitive, Block-
through the roof. Apart from internally generated chain, in-memory computing, visualisation etc.
business data there is a lot more data outside the which will potentially come together in some kind of
business which influences decision-making. Big an ecosystem to define the way finance is going to be
data, social media, the internet of things and many run in the future.
more sources which cannot be ignored. We are soon going to experience a situation
where we are going to invite many millennials,
many centennials into a work force in years to come.
They are coming into the system with their own
CA. Soumen Mukerji and ideals, expectations and aspirations. They are not
CA. Pankaj Arjunwadkar accustomed to work in a world of finance that is still
(The authors are members of the tied up to conventional software and ERPs. A lot of
Institute. They can be reached at
soumen_mukerji@yahoo.com and change will be driven by the ERP providers and the
pankaj71177@gmail.com) finance technology providers. We will see a future

102 THE CHARTERED ACCOUNTANT JUNE 2017 www.icai.org

 Information Technology
when finance will probably be run on apps. Finance
probably is going to run on a system just like an iOS
that Apple has put in place, where there will be many
independent apps say to close books, pass journal
entries etc.
If one has to look at the evolution of finance
and particularly the evolution of technology
interventions in finance which started with the set
of ERPs followed by workflow solutions, business
intelligence solutions, finance governance solutions
etc. All these technology solutions helped the
finance organisations to keep pace with the dynamic
business environment of those times and provided
relevant information for decision making.
There are eight exponential technologies that will
redefine the way finance of the future is going to be
conducted. These are: Robotic Process Automation
(RPA), Cognitive Computing, In-Memory
Computing, Visualisation, Block-chain, Internet of
Things, Advanced Analytics and Mobility.
This entire ecosystem coming together and all
working on a cloud platform are going to define the
future of finance, purely from a technology play. But
it is important to remember that these 8 are not
separate pieces. They are all a part of the same jigsaw
puzzle, they are all a part of the continuum, and it's
only when the continuum comes into play that the
finance will start realising the full benefits of these
technologies, as much as the external world and the
frontend and the business are going to leverage them
as well.
Eight Technologies for the future of
finance
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These technologies can sit on top of a Cloud
environment that uses scalable, elastic technology to
deliver services over the Internet. Instead of making
large investments up front, finance can get the full
stack of finance functionality as-a-service, delivered
through public, private, or hybrid clouds.
These technologies will bring in a wave of
disruption in core finance areas. While financial
planning and analytics is the area where maximum
disruption is seen, there are other transaction based
areas where we will see significant influence.
Two such exponential technologies that have a
wide ranging impact in shaping the future of finance
profession are being discussed.
Robotics Process Automation (RPA):
RPA is a computer-coded software, commonly referred
to as BOT, that emulates human actions and is able
to drive automation of rule-based processes. It is an
ideal automation technique for any process that has
heavy dependence on data entry, data manipulation,
triggering responses and communicating with other
digital systems. Organisations see this IT-light
technology (RPA operates only at a presentation
level, eliminating the need for any integration with
ERPs) as a blessing to dramatically bolster process
efficiency levels, accuracy levels and throughput for
transactional processes, without having to navigate
IT organisation complexities required for other
automation interventions.
Robot-led automation has the potential to change
todays workplace as dramatically as the machines of
the industrial Revolution changed the factory floor.
Core skills that are related to business- process
knowledge, technology integration and insightful
analytics could be delivered through a leveraged
model at a lower cost. The capability and demand
already exists for this technology and it is enabled by
abundant computing power and software solutions
that can be packaged and downloaded as apps.
Organisations using RPA solutions typically
experience benefits beyond cost reduction.
a) Decreased cycle times and improved throughput:
There are eight exponential technologies that will
redefine the way finance of the future is going to be
conducted. These are: Robotic Process Automation
(RPA), Cognitive Computing, In-Memory Computing,
Visualisation, Block-chain, Internet of Things,
Advanced Analytics and Mobility.
THE CHARTERED ACCOUNTANT JUNE 2017 103
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The tasks and processes most suitable for
automation are typically the most onerous and
least enjoyed and employees relieved of them can
be refocused on more rewarding and higher value
activities.
Software robots are designed to perform tasks
faster than a person can and do not require
sleep making 24x7 operations possible.
b) Flexibility and scalability: Once a process has
been defined as a series of instructions that a
software robot can execute, it can be scheduled
for a particular time, and as many robots as
required can be quickly deployed to perform it.
Equally, robots can be quickly reassigned when
other, more important processes ariseas each
robot is typically capable of performing many
types of processes.
c) Improved accuracy: Robots are programmed to
follow rules and robots do not make
typos.
d) Improved employee morale: The
tasks and processes most suitable
for automation are typically the
most routine and least enjoyed and
employees relieved of them can be
refocused on more rewarding and
higher value activities.
e) Detailed data capture: The tasks
performed by a software robot can
be monitored and recorded at every
step, producing valuable data and
an audit trail that can support further process
improvement and also help with regulatory
compliance.
When applied to a typical finance environment,
the results help understand why there is a surge of
interest in RPA in the finance organisation. Size of
opportunity ranges from 40 to 60%, with highest
amenability experienced in the usual suspects:
Accounts Payable, Fixed Assets and T&E - processes
characterised as being typically low-risk, self-
contained and rule-based. In addition, there are
pockets of opportunity in Accounts Receivable
(sales order processing, debtors reporting etc.),
and General Accounting (journal entry processing,
reporting), which are also being actively considered
in the RPA portfolio as a testament to the strength of
the RPA solution.
104 THE CHARTERED ACCOUNTANT JUNE 2017
Cognitive computing:
Perhaps the most disruptive set of technologies
upending the world of finance lie in Artificial
Intelligence (AI) Applications. A subset of AI is
Cognitive Computing which by definition is a
self-learning system that uses data mining, pattern
recognition and natural language processing to
mimic the way the human brain works. The goal
of cognitive computing is to create automated IT
systems that are capable of solving problems without
requiring human assistance. These advanced tools
simulate human cognitive skills, grinding through
mountains of data to automate insights and reporting
in real time. Cognitive solutions may be deployed
from the cloud and offered as a hosted service or
may be deployed on in-house servers depending on
the organisational IT landscape and requirements.
Areas in Finance where Cognitive
computing is being used
Used in finance, cognitive technologies working
alongside the existing ERP systems and robotics
can upend operational finance and bring about
unprecedented speed, agility and transparency to the
processes. These processes have a deterministic way
for exception handling (Employee T&E processing,
Management Reporting, Internal audits etc.) and
are ideally fit for cognitive automation, thus creating
bandwidth at all levels in finance.
Machine learning in Internal Audit:
In audit, because of recent advances in machine
learning, standard audit techniques like sampling are
on the verge of becoming obsolete. This directly affects
the audit industrys employment model, which has
been dependent on hiring scores of graduates to carry
out mundane administrative work. This is because
developments in data mining have given auditors the
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 Information Technology
ability to collect, analyse and test entire data sets. In
the past they relied on restricted samples of data.
With a cognitive BOT in the audit team, the
auditors can analyse an entire set of accounting
journals, rather than just taking a sample of journals
that provided a snapshot. This wider view can
highlight anomalies like entries posted by unexpected
people or at odd times, such as weekends. Other
examples include analysis of the entire set of expenses
and potentially expose claims for personal travel, etc.
Machine Learning in Financial Planning
and Analysis (FP&A):
For the FP&A function, the key aspect of planning is
to obtain higher level of accuracy in understanding
and prediction of sales volumes. Many a time
though plans are made for sales profiles, the sales
forecasts turn out to be wrong. Inaccurate revenue
forecast remains one of the biggest risks for CFOs.
In a recent study, more than 50% of companies feel
their pipeline forecast is only about 50% accurate.
Machine learning has the potential to improve this
process by:
1. Powerful Trend Analysis - Humans do not have
the capacity to scan vast amounts of data and
come up with scenarios and identify patterns.
This is where algorithms are powerful. They can
examine structure as well as unstructured data
and come up with meaningful and impactful
analysis. These scenarios may prove invaluable
in a planning cycle in providing perspectives
beyond what is available merely from the ledgers
and past performance data sets.
2. Forecast Accuracy - Forecasts are generally
driven at product level sales values. Machine
learning algorithms can detect patterns at lower
level feeder drivers such as brand categories,
product categories, purchase orders and even
invoices to discover interesting relationships and
dependencies, which can then be used as inputs
into the planning cycle and thus enable more
accurate forecasts.
With a cognitive BOT in the audit team, the auditors
can analyse an entire set of accounting journals,
rather than just taking a sample of journals that
provided a snapshot. This wider view can highlight
anomalies like entries posted by unexpected people
or at odd times, such as weekends. Other examples
include analysis of the entire set of expenses and
potentially expose claims for personal travel, etc.
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Every great achievement was once considered impossible. - Anonymous
1733
3. Dynamic Forecasting - Machines are capable
of dynamically updating scenarios based on
changing input parameters. They can simulate
and re-simulate scenarios while tweaking data
and thus act as informative decision tools. This
makes the planning cycle more elastic.
4. Interactive self-service - Machine learning is now
allowing companies to build self service solutions
on platforms that can mine swathes of data and
provide relevant and contextual responses to
any standard human query around financials.
A leading global FMCG company is investing
in cognitive computing to build forecasting
models for its key categories and markets where
executives can direct queries to the platform and
expect responses that offer powers of simulation
and deep learning insights, humanly impossible
to obtain otherwise.
Machine learning in other Finance areas: In other
areas tools have been developed which use machine
learning technology to scan electronic papers and
automatically identify and extract key accounting
information from a wide range of documents like
contracts, policies, agreements, purchase orders,
sales orders, commercial invoices, etc. These artificial
tools then improve with every human interaction,
which will over time increase their power as they
gather more information.
Natural Language Generation (NLG) in
Finance: NLG in finance can be used in generating
cumbersome financial and statutory and compliance
reports which can consume significant amount of
human effort.
The future of finance will have a very important
place for the Cognitive BOTs. While the humans
would still be around to develop the strategies,
setting goals, designing the future road map etc., the
BOTs would help eliminate the cumbersome manual
efforts of producing the reports. The time freed up
can be effectively used by the finance department
to provide powerful analytics which will help the
management to make quick, yet deeply insightful
decisions.
The age old profession of finance is getting
upended through exponential technology
innovations. It is now time for professionals to
take note of these changes and be prepared for this
inescapable future. The clarion call is here and now
those that do not choose to listen may be rendered
irrelevant in the future of finance in the intensely
digital world!
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Goods and Services Tax Opportunities

Galore for Indian Accounting Profession

Opportunities knock only once at your door, goes a famous saying. Indeed, GST is that one knock
in terms of opportunities for Indian accounting professionals. GST in India is being termed as the
countrys most comprehensive and biggest taxation-cum-economic reform since independence.
As rightly put by our Finance Minister Shri Arun Jaitley during a debate in Rajya Sabha, the
GST could indeed add up to 1-1.45 per cent to the GDP directly affecting employment. It is estimated
that India will gain $15 billion a year by implementing GST. Since the tax professionals Chartered
Accountants--, are at the heart of the tax compliance system, they are bound to be impacted in a
positive way by this big ticket taxation reform. The emerging GST scenario is full of special significance
and vast opportunities for the Indian accounting profession. Read on to know more...

Expansion of the Services Landscape

CA. Rajkumar Pugalia
(The author is a member of the
Institute. He can be reached at
rajkumar.n.pugalia@gmail.com)
Increase in Tax Payers It is estimated that there
are around 9.5 million registered tax payers in the
country today in the field of indirect taxes Central
Excise, Service Tax and VAT. Being a tax on supply

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account of minor mismatches, that will have the

potential of impacting the bottom lines by 18%
Statutory requirements like submission of audited
of the value of purchases involved, underlines the
accounts by taxpayers with turnover of +R1 crore
and an Annual Report reconciled with the audited work and opportunities that lie in store for tax
balance sheet and profit and loss account will bring professionals in the new regime. They will be
in significant amount of convergence between GST expected to hand-hold businesses almost on daily
and indirect compliances accentuating the role of CA basis.
professionals.
Synergy between Audit and Tax Practice
Automation, Reconciliation, Accounting
of goods and/or services with minimal number of
Mandatory requirement for timely/pre
exemptions and exempted sectors, the coverage
reconciliation, scenarios impacting availment
of GST will be extensive to virtually cover the
of Input Tax Credit (ITC), ASPs providing
entire business environment of the country. With
reconciliations in line with GSTN database by real
a threshold limit of R20 lakh, that goes down to
time accept/reject/modify all will lead to a need
R10 lakh in North Eastern States, coupled with the
for making, tracking and in turn matching with the
definition of Aggregate Turnover which, inter alia,
accounting records. There could be a need to create
includes taxable supply, exempt supply, exports etc.,
provisions or pass corresponding debit/credit
even small businesses, professionals, kiranas, other
notes to keep the two statutory records in sync.
brick and mortar retail will be impacted. Most of
This too will be best done with help, guidance and
the businesses in composition scheme (up to R50
supervision of a CA.
lakh turnover) will also have quarterly compliances,
Complementary Practice As an auditor,
while a large part may not go for composition as
the audit, analysis and reconciliation between two
their B2B customers will lose set off otherwise and
records will be mandatory. This is best done by
also due to the restrictive coverage of assessees
taking up the tax compliance work i.e. up front
in composition scheme. Further, the reverse
guidance, supervision or audit, thus reaping the
charge with its added complications of applicability
optimum synergies.
in case of purchases from unregistered persons
will further push maximum businesses to be GST
Advisory Services Opportunity
registered.
Transition related advice and hand-holding -
Increase in Compliance Needs - Statutory
This would entail activities like impact assessment,
requirements like submission of audited accounts
planning optimisations, taking a look at
by taxpayers with turnover of + R 1 crore and an
competition, renegotiation of contracts, analysing
Annual Report reconciled with the audited balance
business scenarios, finalising business processes
sheet and profit and loss account will bring in
etc. each of which involves an important role for a
significant amount of convergence between GST
tax advisor or a tax professional. Along with that,
and indirect compliances accentuating the role of
the professionals having knowledge about tax,
CA professionals. This statutory convergence will
further be integrated as the compliance systems
under both the Income Tax and GST go online and The Advisory Services Opportunity for the Indian
the databases get linked. The buzzword these days CAs in the GST Regime would entail activities like
is 360 degree profiling. Tax compliances and tax impact assessment, planning optimisations, taking
accounts can no longer remain in separate silos for a look at competition, renegotiation of contracts,
the two system of taxes. The responsibilities of tax analysing business scenarios, finalising business
professionals, particularly chartered accountants, processes etc. each of which involves an important
will thus inevitably expand. role for a tax advisor or a tax professional. Along
Further, the system of compliances being put with that, the professionals having knowledge about
in place, that involves minimum of three monthly tax, accounting, IT and costing will be best suited to
returns, uploading invoice-wise supply details assist the organisations in pricing revisions which
seems to be likely after GST is implemented.
both on sales and purchase side, matching of
invoices and denial of input tax credits even on

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With the GST reform, the government is taking a
big step forward towards full digitisation of the
indirect taxation process. With the voluminous
data, processes and compliances involved, a
young forward-looking professional will seize
this opportunity to hand-hold, advise, train and
support the client base, which will be much needed,
appreciated and valued.
accounting, IT and costing will be best suited to
assist the organisations in pricing revisions which
seems to be likely after GST is implemented.
Re-designing of Business Structure - Present
indirect taxes in India have driven businesses to
structure and model their supply chain and systems
owing to multiplicity of taxes and costs involved
therein. GST will be a big game changing reform
for Indian economy by developing a common
Indian market and reducing the cascading effect of
taxes on the cost of goods and services. The GST
will change how India will do business. With the
advent of such big reform, the businesses will be
required to be in line with GST. GST will have far
reaching consequences on almost all the realms
of the business operations and will impact the tax
structure, its incidence and computation, credit
availment and utilisation, compliance and other
reporting aspects, leading to a complete overhaul
of the current indirect tax system. Complete supply
chain will see a radical change. Now, with the final
law in place, the current supply chain has to be re-
looked and restructured. Tax professionals will be
needed in such restructuring and reengineering
exercises.
Other Similar Opportunities - Apart from
this, there are many areas in which indirect tax
professionals will have new opportunities under
the GST regime which include Tax structuring,
representation before revenue authorities in respect
to SCN/Appeal, legal opinions and procedural
guidance to clients, handling compliance
verification processes like audits and scrutiny,
handling legacy issues like past assessments/audits.
Litigation post GST will also have extended
arms with the subjective and inclusive definition
of term Supply, being the trigger point i.e. taxable
event in GST, alongside other loose ends of drafting
in GST Law.
108 THE CHARTERED ACCOUNTANT JUNE 2017
All glories come from daring to begin. - Anonymous
An Opportunity to Leapfrog to the Future
Professional Services Model
Digitisation Support With the GST reform, the
government is taking a big step forward towards
full digitisation of the indirect taxation process.
With the voluminous data, processes and
compliances involved, a young forward-looking
professional will seize this opportunity to hand-
hold, advise, train and support the client base,
which will be much needed, appreciated
and valued.
Assist in Simple, Secure GST Compliance
The way ASP service providers are getting
provisioned, it will be a best combination of
understanding of law, use of high penetration of data
connectivity, exploiting cloud based computing and
handling case specific nuances through the expert
advice of the tax practitioner. This makes an idea
set up for the young professionals. Their clients
can upload the transaction data using API based
integration of their accounting and/or billing
software or just taking them on a pen drive to
the CAs office, where the assistant can run the
program, validate the numbers and have them
submit their GST returns with ease and under
comfort of an expert supervision.
Overall, it is that once in a lifetime
opportunity for CAs who will be at the helm of
taxation affairs post GST regime and assimilate
GST and its implications, align with some
exceptional tools or applications, master its use and
take lead in the new digitised Indian business
landscape.
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1737

GST Regime: Impact on Agreements

GST will be the biggest reform in the Indian tax legislature. It can rightly be given nomenclature as
the Sanjeevni for the ailing Indian Economy. As the business and trade of the country gears up to
take in stride a vast array of resultant changes under the forthcoming GST regime, one important
aspect to be considered is the contracts and agreements entered into under the new regime. This
article prima facie focuses on review of contracts and agreements and the related cumbersome tasks
with which the in-house legal teams / corporate legal cells will be flooded with. GST will call upon
review of all contracts and agreements entered by the Companies. A number of key points will have
to be kept in mind while entering into future agreements since these agreements will spell the taxing
point under GST regime. Careful structuring of the agreements in GST scenario may prove out to
add savings to organisations and avoid litigations. Read on to know more...

GST is a comprehensive consumption tax on

CA. Garima Garg
(The author is a member of the
Institute. She can be reached at
garimagarg31@gmail.com)
goods and services. It will cover in its ambit all forms of
supply of goods and/or services such as sale, transfer,
barter, exchange, license, rental, lease or disposal
made or agreed to be made for a consideration by a
person in the course or furtherance of business.

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GST will be the biggest reform in the Indian tax
legislature. It can rightly be given nomenclature
as the Sanjeevni for the ailing Indian Economy.
A game-changer in itself, GST will significantly
restructure the power to tax between Union and
State Governments and substantially expand the tax-
coverage and revenue. It will reduce the cascading
effect of tax on the cost of goods and services and
will have significant impact on the point of taxation,
tax structure, tax computation, tax payment, tax
compliance, credit utilisation and reporting. It is
expected to bring about a sea change in almost all
fields, be it finance function, IT infrastructure or
supply chain, and would virtually touch base and
have impact on almost all functions of business.
GST is likely to be implemented from 1st July
2017 and in order to make it effective at the earliest,
Government has taken a series of speedy decisions
and steps. GST council has already been set up and
with the announcement of rates (5% being rate for
merit goods & Services, 12% for standard goods &
services, 18% again being standard rate and 28%
for the sin goods or the luxury goods including
luxury goods, tobacco products and aerated drinks),
initiation of registration process, GST is all set to
come to life soon.
Corporates also need to gear up for this radical
change and equip themselves with the processes to
take into account a number of change areas required
under the new tax regime. Many companies have
already taken cognisance of the multitude of changes
under GST.
Chartered Accountants will have a prominent
role under GST regime. They will be required to
understand the intricacies of GST in their respective
fields and provide professional services to the
Companies.
One important area that needs special
consideration involves review of contracts and
agreements and the related cumbersome tasks with
which the in-house legal teams / corporate legal cells
will be flooded with. The new regime would require
review of all contracts and agreements entered into
by the Companies and keep in mind several new
aspects while entering into future agreements since
these agreements will spell the taxing point under
GST regime. Careful structuring of the agreements
in GST scenario may prove out to add savings to
organisations and avoid litigations.
Alignment of all various clauses in the contract/
agreement with the GST will be a pre-requisite. Each
110 THE CHARTERED ACCOUNTANT JUNE 2017
agreement needs to be analysed individually. The
whole set of the agreements entered earlier needs to
be revisited, so as to derive the GST affected clauses.
One needs to classify the agreements as reviewable
(those which can be amended) and non reviewable
(the terms of which cannot be varied). Following
points may be considered in amending the reviewable
contracts entered earlier and before entering into
new arrangements in the GST environment:
(A) Changes in Purchase Agreements
Representation and Warranties Clause:
- Representation to be taken from the Vendors that
they are registered under GST and compliant of
GST provisions so that our taking of input tax
credit becomes hassle free.
Indemnity Clause:
- An indemnity clause to safeguard that in case of
non compliance by the Vendor of the GST
provisions and blockage of any input tax credit,
he shall be liable to indemnify the organisation,
should be well provided in the contracts.
Provision for raising Debit Notes:
- A clause to the effect that in case in future GST
liability is to be borne by the recipient, and the
same can be claimed from the Vendors by way of
raising debit notes, may be provided to safeguard
from uncertain events.
Review / Audit Right:
- A right to review the Vendor/ supplier documents
to ensure that they are tax-compliant may be
provided in the agreement.
(B) Changes in Sales Agreements
Sales Agreement:
- Agreements need to set out a clause that the
consideration payable by the Party under
the agreement represents the taxable supply
for which payment is to be made. It needs to
specifically provide that the GST will be levied
over and above the consideration so as to avoid
any ambiguity in receivables.
Sales Agreement with Government:
- Agreements for Government tenders and other
Alignment of all various clauses in the contract/
agreement with the GST will be a pre-requisite. Each
agreement needs to be analysed individually. The
whole set of the agreements entered earlier needs to
be revisited, so as to derive the GST affected clauses.
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Sales Agreements need to set out a clause that
the consideration payable by the Party under the
agreement represents the taxable supply for which
payment is to be made. It needs to specifically
provide that the GST will be levied over and above
the consideration so as to avoid any ambiguity in
receivables.
supplies are generally all-inclusive contracts.
There might be some long term contracts which
were in mid of supplies of goods/services by
the Company and bearing the taxes under
GST could increase the burden. Such contracts
hence call for proactively revisiting and making
amendments thereof.
Stock Transfers to Branch and Consignment
Sales:
- Agreements with consignment agents need to
be redrafted. The very concept of Form F will
lose its relevance. The stock transfers to branch
or consignment agent from one state to another
state will now be regarded as taxable supply.
The branch/ Consignment agent will, however,
be able to claim the input tax credit under the
GST scenario. Thus, the agreement needs to be
accordingly amended to bring in this aspect.
Dealer Sales Agreements:
- Dealership agreements are very common in
automobiles, apparels, fast-moving consumer
goods, pharmaceutical and chemicals sector.
Trade discounts or incentives to wholesalers and
agents to push sales targets may not be deducted
from turnover to be taxed under the goods
and services tax (GST) Act. Such agreements
need to be relooked from the angle of bulk
discounts/ rebates being provided to the dealers.
Hence, review of the existing dealer schemes
for GST compatibility and properly wording
the agreements to remove scope of doubt or
ambiguity will remain crucial.
(C) Changes in Service Agreements for
Service Providers:
All Exclusive GST Clause:
- Over half the nation's GDP comprises the services
sector. GST will drastically impact the services
sector. In GST Regime, most of the services
which were exempted are expected to be phased
out. Further, services which were taxed mostly at
15% are expected to be increased under the GST
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Taxation
1739
regime as most services will be taxed at Standard
GST rate expected to be around 18% except a
few at 12%. It must be clearly mentioned in the
contract that the tax imposed under GST would
be charged and recovered separately. Hence, a
clause to the effect that in future GST liability is
to be borne by the recipient of the services must
be provided to safeguard the service providers
from bearing the tax burdens.
Service Agreements with Government:
- Agreements entered with Government are
generally long-run. Existing contracts of long-
run nature with Government Parties which are
mostly all tax inclusive contracts, may face the
very question of viability. In such cases, it will be
needed to properly evaluate the agreements and
discuss with the counterpart and come up with
proper amendments in the running agreements.
Changes in export service agreements:
- All existing contracts need to be relooked in the
backdrop of changes in GST. Though exports will
be exempted under GST, there will be change
in timing difference. Some of the transactions
may cease to be export of services under GST
legislature. The importer of service outside India
will not be interested to bear the additional
expense on account of tax until the agreements
are beforehand amended.
(D) Changes in Other Contracts
Job Work Contract
- The job work process is the backbone of most
of the industry operations. The proposed GST
law treats job work as a service and seeks to
maintain the existing excise procedures for
job work transactions, i.e. non-taxability of job
work transaction and providing credits to the
principal for supplies to job worker, prescribed
period for bringing back goods after job work,
etc. Further, the works contract currently are
the most complicated of all as they have an
Over half the nation's GDP comprises the services
sector. GST will drastically impact the services
sector. In GST Regime, most of the services which
were exempted are expected to be phased out.
Further, services which were taxed mostly at 15%
are expected to be increased under the GST regime
as most services will be taxed at Standard GST rate
expected to be around 18% except a few at 12%.
THE CHARTERED ACCOUNTANT JUNE 2017 111
 Taxation
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element of goods as well as services and thereby
bring into net elements of excise, VAT/CST and
service tax, whereas in the GST regime all these
will be merged to have one single GST rate.
These agreements need revision on the pricing
and taxation front.
Business Transfer Asset (BTA) Contract:
- Definition of supply under GST includes transfer
of business assets where goods forming part of the
assets of a business are transferred or disposed of
by or under the directions of the person carrying
on the business so as to no longer form part of
these assets, whether or not for a consideration.
Business assets transferred for private/non
business or without consideration or transfer
of assets for recovery of debts constitute supply
and will thus attract GST. The BTAs entered
under the GST regime need a closer look on the
relevant clauses in this regard.
No consideration / In Kind contribution
Agreements:
- In GST Regime, transactions where in-kind
contributions are being made or received, also
form part of the Consideration for a supply and
may also be subject to GST. Where no value is
attached to these contributions, a commercial
valuation must be used to account for GST.
Hence, such agreements may now not necessarily
remain FREE and will have an add-on cost of
tax liability associated with them. Hence, the
agreements relating to such transactions need
to specifically spell the liability in the agreement
and the Party expected to bear the same.
Hire Purchase Contract:
- Hire Purchase arrangements are essential for
business houses for acquiring assets with lower
pumping of cash. Hire Purchase Agreement is
same as a Conditional Sale Agreement wherein
the ownership of the goods does not pass until
payment of last instalment. Hire Purchase
transactions are currently taxable under Section
66 of Finance Act, 1994. Such agreements need
to be relooked and suitably amended to suit the
GST provisions.
High Sea Sales Agreement:
- Most of the high sea sales agreements will lose
their relevance in the post GST scenario. The
very concept of tax advantage which gives rise
to the high sea sales agreements in import of
goods will no more be the case in GST regime,
where tax credit will be available to the traders/
112 THE CHARTERED ACCOUNTANT JUNE 2017
It always seems impossible, until it is done. - Nelson Mandela
The works contract currently are the most
complicated of all as they have an element of
goods as well as services and thereby bringing into
net elements of excise, VAT/CST and service tax,
whereas in the GST regime all these will be merged
to have one single GST rate. These agreements need
revision on the pricing and taxation front.
non-manufacturers as well. Thus, there will be
a need to revisit all the existing high sea sales
agreements and to do away with the unnecessary
ones.
To sum up, GST will provide ample opportunities
to professionals, both working with corporates
and having their own practice. For professional
colleagues in practice, this new tax regime will offer
lot many new areas to act upon. After the One India,
One Tax rule is applicable, Indian accountants
professional horizons will broaden to a great extent.
Since the Act is not related to any particular state
but the rules and regulation are all similar across
the nation, it will surely provide a wider platform for
accounting professionals to perform. There will be
opportunities ranging right from consulting clients
on analysing impact of GST to helping them seek
registration, filing returns or conducting special
audits referred to in Model GST Laws.
For professionals linked with corporates, there
exist multiple opportunities in the form of adding
value to the entire value chain, partnering in taking
critical decisions of single or multiple registration
requirement, filing of the returns and dealing with
transitional issues.
Last but not the least, reviewing the existing
agreements will surely be a pre-requisite as we soon
step into the GST environment. At the same time,
due diligence also needs to be exercised at the time
of entering into the new agreements in the GST
regime.
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 Taxation
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Presumptive Taxation

Presumptive taxation is a blessing to a lot of professionals, retailers and small businessmen. In

Finance Act 2016, Section 44AD of the Income-tax Act has been amended and accordingly certain
eligible persons engaged in certain eligible business have an option to compute their income on
presumptive basis @ 8% of cash turnover and 6% of digital / banking turnover, if the total turnover is
less than R2 crore during the previous year. To be in line with the existing Section 44AD as applicable
to business, new Section 44ADA, a special provision for computing profits and gains from profession
on presumptive basis has also been inserted and accordingly certain eligible persons engaged in
certain eligible profession will now have an option to compute their income @ 50% of the total gross
receipts, if the gross receipts do not exceed R50 lakh in the previous year. All these amendments have
taken effect from 1st April, 2017 and accordingly apply in relation to the assessment year 2017- 2018
and subsequent years. Read on to know more

CA. Piyush Indrajit Shah
(The author is a member of the
Institute. He can be reached at
capiyushshah@outlook.com)
Introduction
On browsing the statistics (as shown below) on
Income tax website, one can know about the
number of e-filers / taxpayers who have opted for the
presumptive Income scheme as per Section 44AD

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 Taxation
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and Section 44AE of the Income-tax Act and filing
Income tax Return Form ITR - 4S.
ITR Wise receipt of e-Returns- March, 2017
Sr. No. Form FY 2014-15 FY 2015-16 FY 2016-17
(From (From (From
01/04/2014 01/04/2015 01/04/2016
to to to
31/03/2015) 31/03/2016) 31/03/2017)
5 ITR-4S 54,50,081 81,35,210 1,18,57,709
Grand Total 3,41,73,994 4,33,43,737 5,28,68,037
% of
ITR-4S
to Total 15.95% 18.77% 22.43%
Number
of
Returns
filed
The widespread choosing of the option
for presumptive taxation by the small tax
payers is mainly on account of a) relief from
tedious work of maintenance of the books
of accounts and getting them audited b)
reduction in compliance burden and c) ease of doing
business.
Section 44AD: A special provision for
computing profits and gains of business on
presumptive basis: Changes made and its
consequences
Change 1 : Limit of 2 Crore
Explanation.For the purposes of this section,
(b) "eligible business" means, (ii) whose total
turnover or gross receipts in the previous year does
not exceed an amount of one crore rupees (two crore
substituted).
Consequences
Limit for applicability of the Section has been
increased to R2 crore from the present limit of
R1 crore. However, the corresponding amendment
is not made in Section 44 AB (where turnover
limit still exists at R1 crore only), which may
create some kind of anomaly in case of tax payers,
not opting for Section 44AD having turnover more
than R1 crore but less than R2 crore and showing
profit more than 8% / 6%. In such circumstances,
it is advisable to undergo tax audit u/s 44AB of the
Act.
The other possible situations and rational resolution
can be:
Turnover Modus Operandi Option
Less than 2 Show deemed No Books
crore profit / Income @ Section 44AD
8% / 6% or higher
Less than 2 Profit shown less Maintain books
crore than deemed of accounts and
Profit U/s 44AD undergo tax audit
U/s 44AB of the Act
More than 2 Show Book Profit Compulsory
crore (Disregarding @ Maintain books
8% / 6%) of accounts and
undergo tax audit
U/s 44AB of the Act
Change 2 : Exercising the option u/s 44AD :
Following sub-Sections (4) and (5) shall be substituted
for the existing sub-Sections (4) and (5) of Section
44AD by the Finance Act, 2016, w.e.f. 1-4-2017:
Section 44AD (4): Where an eligible assessee
declares profits for any previous year in accordance
with the provisions of this section and he declares
profit for any of the five assessment years relevant
to the previous year succeeding such previous
year not in accordance with the provisions of
sub-Section (1), he shall not be eligible to claim
benefit of the provisions of this section for five
assessment years subsequent to the assessment
year relevant to the previous year in which the
profit has not been declared in accordance with the
provisions of sub-Section (1).
Section 44AD (5): Notwithstanding anything
contained in the foregoing provisions of this
section, an eligible assessee to whom the provisions
of sub-Section (4) are applicable and whose total
income exceeds the maximum amount which is
not chargeable to income-tax, shall be required to
keep and maintain such books of account and other
documents as required under subSection (2) of
Section 44AA and get them audited and furnish a
report of such audit as required under Section 44AB.
Consequences
If a person opts for presumptive taxation scheme
then he is also required to follow the same scheme
for the next 5 years.
For example, an eligible assessee declares his
income under Section 44AD(1) for A.Y. 2017-18.
Then as per new Section 44AD(4), he has to file
returns for next 5 assessment years i.e. from A.Y.

114 THE CHARTERED ACCOUNTANT JUNE 2017 www.icai.org


2018-19 to A.Y. 2022-23 by declaring his total
income by applying Section 44AD(1).
If he failed to do so, then presumptive taxation
scheme will not be available to him for next 5
years. filing personal return of income as Nil (presuming
Now, if the link breaks in-between and say in A.Y.
2020-21 assessee (having turnover below 2 crore)
does not opt for Section 44AD(1) regime, then he
shall not be eligible to take benefit of Section 44AD
for next 5 assessment years i.e. from A.Y. 2021-22 to
2025-26.
Further, he is required to keep and maintain
books of account and he is also liable for tax audit as
per Section 44AB from the AY in which he opts out
from the presumptive taxation scheme.
It appears that if the link breaks in-between due
to compulsory application of Section 44AB (i.e. gross
receipts exceeds above 2 crore), then the provisions
of Section 44AD(4) shall not apply.
Change 3: No deduction u/s 40(b) in respect of
interest and remuneration to working partners:-
Section 44AD(2): Any deduction allowable under the
provisions of Sections 30 to 38 shall, for the purposes
of sub-Section (1), be deemed to have been already
given full effect to and no further deduction under
those sections shall be allowed:
Provided that where the eligible assessee is a
firm, the salary and interest paid to its partners
shall be deducted from the income computed under
sub-Section (1) subject to the conditions and limits
specified in clause (b) of Section 40. (Proviso omitted)
Consequences
This will increase the tax burden in case of Partnership
firms running small business. The burden of
additional tax amount to be paid is illustrated with
the following example.
Computation of Taxable Profit u/s 44AD in case
of Partnership Firm:
Particulars Earlier Up to Now from A.Y.
A.Y. 2016-17 2017-18 Onwards
Turn over (Cash) 40,00,000 40,00,000
Profit @ 8% 3,20,000 3,20,000
Less :
Allowable interest u/s 1,00,000 * N.A.
40(b) @ 12% p.a.
Allowable 1,98,000 N.A.
remuneration u/s 40(b)
Total Income of Firm 22,000 3,20,000
Tax @ 30.9% 6,800 98,880
*Assumed
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Taxation
1743
Since separate allowance is now not available,
partners having no other income will be
receiving only the share of profit from the firm,
which is tax free in their hands u/s 10 (2A) and
that there is no other Income). This will be a
hurdle for the partners who are taking borrowings
on personal count showing amount of interest
and remuneration received from the firm u/s
40(b) of the Act as Income from Business &
Profession.
As such it appears that the remedy under the
circumstances, until the restoration of such relief
under the statute can be that the tax payer has to
maintain books of accounts and undergo tax audit
u/s 44AB of the Act and claim interest on partners
capital and remuneration to working partner as
allowable expenses u/s 40(b).
Change 4: Payment of advance tax in respect of
income from business covered under Section
44AD :-
Section 44AD(4): The provisions of Chapter
XVII-C shall not apply to an eligible assessee in so
far as they relate to the eligible business. (Proviso
omitted)
Consequences
Omission of existing sub-Section (4) means that,
provisions of Chapter XVII-C, relating to advance
payment of tax shall apply to an eligible assessee
declaring income under Section 44AD.
Consequential amendment is also made
under Section 211 of the Income-tax Act relating
to installments of advance tax and due dates.
According to which, an eligible assessee in respect of
eligible business referred to in Section 44AD opting
for computation of profits or gains of business
on presumptive basis, shall be required to pay
advance tax of the whole amount in one
installment on or before the 15th March of the
financial year (Applicable w.e.f. 01.06.2016). As
such, if the assessee is having other income in
addition to deemed income u/s 44AD of the
Act, advance income tax has to be paid in four
installments.
Necessary implications of interest on short/
non-payment of advance tax as above have been
taken care of by way of an amendment under
Section 234C of the Act (Applicable w.e.f.
01.06.2016).
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 Taxation
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Lower tax on digital transactions
To fight the battle against black money, terrorism
etc., the government declared demonetisation of
500 and 1,000 denomination notes. In order to
curb the shortages of cash due to demonetisation,
the government is now taking initiatives to move
people towards cash less economy and to make
transactions more and more through digital means.
One of such recent initiatives announced by
the government is to incentivise small business
to proactively accept payments through normal
banking channels like cheque deposit, RTGS, NEFT
etc. or by other digital means such as mobile wallets,
credit cards, debit cards, online payments etc.
and for them, the government has announced to
reduce the existing rate of deemed profit of 8%
under Section 44AD of the Income-tax Act to 6%
in respect of the amount of total turnover or gross
receipts received through banking channel / digital
means for the financial year 2016-17. However,
the existing rate of deemed profit of 8% referred
to in Section 44AD of the Act, shall continue to
apply in respect of total turnover or gross receipts
received in cash. Position will be clearer with the
following example depicting the position of tax in
case of partnership firm: In a Nutshell
Particulars 100% 100% 50% Cash and
Cash digital 50% digital
Turnover turnover turnover
Sales 40,00,000
Rate for Deemed 8% 6% 50% @ 8% and
Profit /Income 50% @ 6%
Deemed Profit 3,20,000 2,40,000 2,80,000
Tax @ 30.9% 98,880 74,160 86,520
Press release dated 19/12/2016 and subsequent
amendment in this regard inserted through the
Finance Bill, 2017, in proviso under Section 44AD
(1) shall apply in relation to A.Y. 2017-18 and
subsequent years.
The taxpayer will need to segregate the digital
/ banking turnover and cash turnover. Further, the
section states that the outstanding debtors as at
31st March, the money should be received through
banking / digital modes before the due date of filing
of return. If debtors remain unpaid up to due date
of filing of return, the deemed profit would be 8%,
even if subsequently amount is received by banking
or digital mode.
116 THE CHARTERED ACCOUNTANT JUNE 2017
Section 44ADA: New Provision for
computing Profit and Gains of Profession
on Presumptive basis
The presumptive tax regime in India for
professionals is the outcome of the recommen-
dations of Justice Easwar Committee, which
recommended the introduction of presumptive tax
for professionals with a higher threshold limit of 1
crore and a lower tax rate of 33.3% of the total receipt
into the previous year.
However, the Honorable Finance Minister
announced the scheme with modified rates and
threshold limit. The announcement was:
I also propose to extend the presumptive
taxation scheme to professionals with gross receipts
up to R50 lakh with the presumption of profit being
50% of the gross receipts.
It added a new chapter of presumptive taxation
for professionals in India.
In order to understand the new provision
of Section 44ADA (vis-a-vis the provisions U/s
44AD) in a simpler way, the provisions have been put
in a tabular form under Exhibit 1, covering therein
the comparison with 44AD.
Considering the basic exemption limit of
R2.50 lakh, Individual/HUF choosing Section
44AD will not have to pay any tax up
to the cash turnover of R31.25 lakh and
digital turnover of R41.67 lakh. And if R1.50
lakh invested under Chapter VIA, R50 lakh and
R66.67 lakh respectively. And it will be a great
relief to small businesses.
For partnership firm, there will be an
additional burden since separate deduction of
interest on capital and partners remuneration
will not be available.
Assessee availing Section 44AD, must comply
with the provisions of Section 269ST (violation
will attract penalty u/s 271DA) as also the
provisions of Section 206C (TCS) while
accepting cash payments/advance from
customers.
For professionals, it is hoped that service
tax should not be forming part to arrive at
figure of gross receipts. No express provisions
allowing or disallowing deduction u/s 40(b)
for interest and remuneration to partners u/s
44ADA.
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 Taxation
1745

Exhibit 1
Provisions of Section 44AD and Section 44ADA of the Income tax at a glance
Section 44AD 44ADA
To whom Business Profession
Applicable
Eligible Resident assessee who is Resident assessee who is
Assessee Individual, Individual (or)
Hindu undivided family or Hindu undivided family or
Partnership firm, and Partnership firm
who has not claimed deduction under any of the sections 10A,
10AA, 10B, 10BA
or
deduction under any provisions of Chapter VIA under the heading
"C. - Deductions in respect of certain incomes in the relevant
assessment year;
Individual who is not resident Individual who is not resident
Who is not HUF who is not Resident HUF who is not Resident
covered? Firm having non-resident Status Firm having non-resident Status.
Limited Liability Partnership (Indian /foreign) Limited Liability Partnership
Companies (Indian/foreign) ( Indian /foreign)
Association of Person Companies (Indian/foreign)
A local Authority Association of Person
A co-operative Society A local Authority
Every Artificial Juridical Person A co-operative Society
As per sub section (6) of Section 44AD, the provisions of this Every Artificial Juridical Person
section, notwithstanding anything contained in the foregoing
provisions,
shall not apply to
(i) a person carrying on profession as referred to in sub-section
(1) of section 44AA;
(ii) a person earning income in the nature of commission or
brokerage; or
(iii) a person carrying on any agency business
Eligible Eligible Business Covers any business except Transport Business Assessees engaged in a profession as
Business / (The reason for excluding transport business is because it is referred to in sub-section (1) of section
Profession governed by specific provision of Section 44AE) 44AA. Section 44AA(1) applies to every
It covers every business irrespective of its nature, whether it is: person carrying on
Manufacturing legal,
Trading medical,
Wholesale engineering or
Retail architectural profession or
Job Work the profession of accountancy or
Service business Technical consultancy or interior
Speculative / Non speculative. decoration or any other profession as
is notified by the Board in the Official
Gazette.

Notified professions :
The profession of authorised
representative; and the profession of film
artist (actor, cameraman, director, music
director, art director, dance director,
editor, singer, lyricist, story writer,
screen play writer, dialogue writer and
dress designer)Notification: No. SO
17(E), dated 12-1-1977 /
Profession of Company Secretary
Notification: No. SO 2675, dated 25-
9-1992 / Profession of Information
TechnologyNotification: No. SO
385(E), dated 4-5-2001

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 Taxation
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Section 44AD 44ADA

To whom Business Profession
Applicable
Turnover Total Turnover from business does not exceed R2 crore in a Total Gross Receipts from profession do
/ gross financial year. not exceed R50 lakh in a financial year.
receipts
Turnover Total Turnover / Gross Receipts are amount received / receivable Total Turnover / Gross Receipts are
includes from clients in respect of Previous Year. amount received / receivable from
Turnover includes clients in respect of Previous Year.
1) Sales Tax, excise duty, cess, and other Levy Out of pocket expenses recovered as
2) Sales of unusables empties and Packages. part of consolidated professional fees.
3) Service Charges charged for delivery
Turnover Advance or deposits Received Advance or deposits Received
does not Consideration received on sale of fixed Assets. Consideration received on sale of fixed
include Any Security or other deposit obtained from employees. Assets.
Interest or other similar receipts Expenses collected separately from
Cash or other discount should not form part of turnover. clients and credited to a separate
Value of stock in Trade. account and utilised for making
payments on clients behalf.
Cash or other discount should not form
part of Gross Receipts.
Share of profit of a partner from a firm
U/s 10(2A)
Who will The Assessee has burden of proof to establish that total turnover The Assessee has burden of proof to
establish during the previous year does not exceed specified establish that Gross Receipts during the
turnover? amount from proper documentary evidences. previous year do not exceed specified
amount from proper documentary
evidences.
Records or copies of invoices/bills issued copies of invoices/bills issued
documents - copies of cash memo - copies of Receipts
relevant for - copies of Purchase bill - Bank statement
evidence for - Bank statement - Returns filed under service tax / GST
establishing - quantity details, maintained, if any Tax laws.
turnover - Average G.P rate applicable to Particular Trade
- Returns filed under sales tax / vat/ excise/ service Tax / GST Tax
laws.
Method of Section 145 relating to Method of Accounting applicable to Section Section 145 relating to Method of
Accounting 44AD Assessees. They have option to choose either Mercantile or Accounting applicable to Section 44AD
cash method. Assessees. They have option to choose
either Mercantile or cash method.
How much Higher of: Higher of:
is the 8% / 6% of the total turnover of Business (OR) 50% of the gross receipts from
presumptive Income from business offered by the assessee profession (OR)
income to be Income from profession offered by the
offered? assessee
Deductions Any Deduction allowable under the provisions of Section 30 to 38 Any Deduction allowable under the
and shall be deemed to have been allowed. provisions of Section 30 to 38 shall be
Depreciation deemed to have been allowed.
Separate deduction on account of depreciation is not available,
however WDV of any asset used in such business shall be
calculated as if depreciation per Section 32 is claimed and has Separate deduction on account of
been actually allowed. depreciation is not available, however
WDV of any asset used in such business
shall be calculated as if depreciation
per Section 32 is claimed and has been
actually allowed.

118 THE CHARTERED ACCOUNTANT JUNE 2017 www.icai.org

Failure will never overtake me if my determination to succeed is strong enough. - Og Mandino

 International Taxation
1747

Limiting the Benefit of Interest Deduction

Thin capitalisation has a significant impact on the profitability and the consequent taxability of a
company. In recent times, a consequential fallout of thin capitalisation is the reduced taxability
of interest income in the hands of a lender. In order to stimulate the economic growth of India, the
Government has allowed concessional tax rate1 on certain borrowings in foreign currency from a
source outside India. Also, various tax treaties entered into by India with other countries grant
concessional tax rate on the interest earned. Due to such lucrative tax benefits, some Multi-National
Companies (MNCs) have highly geared the capital of their group company in India, and such gearing
is generally more than reasonable or the average standards of the relevant industry. In such cases, it
may become evident that the main purpose of having a high proportion of interest-bearing funds is to
reduce the tax liability of the Indian company. In order to counter such tax avoidance, recently, the
Finance Act, 2017 has introduced the provisions of Section 94B in the Income-tax Act, 1961 (the Act)
to limit the interest deduction under certain circumstances. Read on to know more

Background have interest liability, whereas borrowed capital,

Typically, capital employed by a company to run
its business consists of own and borrowed capital.
Own capital i.e. share capital and reserves, do not
(Contributed by Committee on International Taxation of ICAI. Comments
can be sent to citax@icai.in.)
For e.g. under Section 194LC of the Act
1
whether long term or short term, requires interest
to be paid to external parties. Such interest cost,
unless capitalised, is debited to the profit and loss
account, and generally, allowed as a deduction under
the domestic tax laws applicable to a company. If
a company is highly geared i.e. having very high
borrowed capital as compared to own capital, it shall

www.icai.org THE CHARTERED ACCOUNTANT JUNE 2017 119

 International Taxation
1748
incur high interest cost, and such capitalisation-mix
is generally referred to as thin capitalisation.
Thin capitalisation has a significant impact on
the profitability and the consequent taxability of the
company. On the other hand, if capital is financed by
shareholders funds, the return on share capital is in
the form of the dividend, and constitutes a below the
line item in the books, and is not deductible from
the taxable income of the company. Many MNCs
have operations in India through their subsidiaries
or Associated Enterprises (AE), wherein the debt
funding may be more favoured since it reduces the
tax liability of the Indian entity.
In recent times, a consequential fallout of
thin capitalisation is the reduced taxability of
interest income in the hands of a lender. As per the
provisions2 of the Act, the total income of a non-
resident includes the interest income, which accrues
or arises or is deemed to accrue or arise in India. If
the interest is payable by an Indian entity, except
where it is payable in respect of money borrowed
and used, for a business carried on by such person
outside India or for making or earning any income
from any source outside India, such interest is
included in the total income of the lender.
In order to stimulate the economic growth of
India, the Government has allowed concessional
tax rate3 on certain borrowings in foreign currency
from a source outside India. Also, various tax
treaties entered into by India with other countries
grant concessional tax rate on the interest earned.
Consequently, the interest income in the hands of
a non-resident is taxed at a lower rate. This results
in a double-edged sword, wherein the interest
expenditure reduces the taxable income in the
hands of an Indian entity, and the interest income is
sparingly taxed in the hands of a non-resident, which
substantially dents the exchequer.
Due to such lucrative tax benefits, some MNCs
have highly geared the capital of their group
company in India, and such gearing is generally
more than reasonable or the average standards of
the relevant industry. In such cases, it may become
evident that the main purpose of having a high
proportion of interest-bearing funds is to reduce
the tax liability of the Indian company. In order to
counter such tax avoidance, recently, the Finance
Act, 2017 has introduced the provisions of Section
2
Section 5 and 9 of the Act
3
For e.g. under Section 194LC of the Act
4
Besix Kier Dabhol SA vs. DIT [2010] 8 taxmann.com 37 (Mum)
120 THE CHARTERED ACCOUNTANT JUNE 2017
Prior to the amendment by the Finance Act, 2017,
various courts/tribunal have allowed the interest
expenditure in thin capitalisation cases. The Mumbai
Tribunal held that under the General Anti-Avoidance
Rule (GAAR) that is proposed as a part of the Direct
Taxes Code Bill, 2010, 'any arrangement entered into
by a person may be declared as an impermissible
avoidance arrangement, and the consequences,
under this Code, of the arrangement may be
determined by recharacterising any equity into debt
or vice versa'. That is the first step taken by the India's
tax administration in the direction of having formal
thin capitalisation rules in India.
94B in the Act to limit the interest deduction under
certain circumstances.
Position Prior to the Finance Act, 2017
Prior to the amendment by the Finance Act, 2017,
various courts/tribunal have allowed the interest
expenditure in thin capitalisation cases.
For instance, in the case of Besix Kier Dabhol
SA4, the taxpayer, a non-resident company carried
out certain construction project in India, and thus
formed a Permanent Establishment (PE) in India.
This PE raised debt directly from shareholders,
and same was not routed through its head office,
and this resulted in an abnormal debt-equity ratio
of 248:1. The tax department re-characterised
debt as equity, and the interest payment was
disallowed.
The Mumbai Tribunal held that under the
General Anti-Avoidance Rule (GAAR) that is
proposed as a part of the Direct Taxes Code Bill,
2010, 'any arrangement entered into by a person
may be declared as an impermissible avoidance
arrangement, and the consequences, under this
Code, of the arrangement may be determined
by recharacterising any equity into debt or vice
versa'. That is the first step taken by India's tax
administration in the direction of having formal thin
capitalisation rules in India. However, at the time of
this transaction and even at the time of pronouncing
this order, there are no thin capitalisation rules in
force. Consequently, the interest payment on debt
capital cannot be disallowed.
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 International Taxation
Subsequently, the Bombay High Court5 upheld
the Tribunals order in the above case. Various
benches of the Tribunal6, especially in transfer
pricing related cases, have followed this order of the
Bombay High Court.
However, the transfer pricing provisions are
applicable in the case of interest payment to
AEs so as to allow arm's length interest payouts,
based on LIBOR/SBI rates plus a certain percentage
markup.
Base Erosion and Profit Shifting - OECD
Under the initiative of the G-20 countries, the
Organization for Economic Co-operation and
Development (OECD) in its Base Erosion and Profit
Shifting (BEPS) project had taken up the issue of
excess interest deductions by the MNCs in Action
Plan 4 (AP4). In October 2015, OECD issued a
report on Action Plan 4 (AP 4) Limiting base
erosion involving interest deductions and other
financial payments, and it seeks to develop
recommendations in designing of the rules to limit
the deductibility of interest and other economically
equivalent payments made to third parties and
related parties.
This common approach directly links an entitys
net interest deduction to its economic activity,
which is based on taxable Earnings before Interest,
Tax, Depreciation and Amortisation (EBITDA).
This approach includes three elements, i.e. (a) a
fixed ratio rule, which is based on a benchmark
net interest/EBITDA ratio, (b) a group ratio rule,
which allows an entity to more interest deductions
based on the position of its worldwide group, and
(c) targeted rules to address specific risks. The fixed
ratio rule restricts an entitys net interest deductions
to a fixed percentage of its EBITDA calculated using
tax principles.
Section 94B provides that if an Indian company, or a
PE of a foreign company in India, being the borrower,
incurs any expenditure by way of interest or of
similar nature, which is deductible in computing
income chargeable under the head Profits and gains
of business or profession in respect of any debt
issued by a non-resident AE, the interest shall not be
deductible under the said head to the extent that it
arises from the excess interest'.
DIT vs. Besix Kier Dabhol SA [2012] 26 taxmann.com 169 (Bom)
5
Aditya Birla Minacs Worldwide Ltd. vs. DCIT (2015) 56 taxmann.com 317 (Mum), ACIT vs. Patel Engineering Ltd. [2017] 78 taxmann.com 45 (Mum),
6
Topsgrup Electronic Systems Ltd. vs. ITO [2016] 67 taxmann.com 310 (Mum),
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1749
In 2016, further work was completed on two
aspects of the common approach. The first covered
the key elements of the design and operation of
the group ratio rule, focusing on the calculation
of net third party interest expense, the calculation
of group-EBITDA, and approaches to address the
impact of entities with negative EBITDA. The second
work identifies features of the banking and insurance
sectors.
Introduction of Limitation of Interest
Deduction by the Finance Act, 2017
In line with the recommendations of OECD BEPS
Action Plan 4, the Finance Act, 2017 introduced a new
Section 94B in the Act, to address the issue of excess
interest deductions by the MNCs. Though Section
94B is not a case of classical thin capitalisation, it has
some insignia of the same, inasmuch as the section
limits interest deductions involving creditors, who
are non-resident AEs.
Section 94B provides that if an Indian company,
or a PE of a foreign company in India, being the
borrower, incurs any expenditure by way of interest
or of similar nature, which is deductible in computing
income chargeable under the head Profits and gains
of business or profession in respect of any debt
issued by a non-resident AE, the interest shall not be
deductible under the said head to the extent that it
arises from the excess interest'. The excess interest'
shall mean an amount of total interest paid or
payable more than 30 % of EBITDA in the previous
year, or interest paid/payable to AE for that previous
year, whichever is less.
Further, the debt shall be deemed to be treated
as issued by an AE, where it provides an implicit
or explicit guarantee to the lender or deposits a
corresponding and matching amount of funds with
the lender. Such disallowed interest expenditure shall
be carried forward till following eight assessment
years, and it shall be allowed as a deduction against
the profits and gains of any business or profession
carried on by the company, to the extent of maximum
allowable interest expenditure.
In order to target only large interest payments,
a threshold of interest expenditure of one crore
rupees is provided. Further, banks and insurance
businesses are excluded from the ambit of the said
provisions keeping in view the special nature of
these businesses. These provisions are applicable for
FY 2017-18 and subsequent years.
THE CHARTERED ACCOUNTANT JUNE 2017 121
 International Taxation
1750

Working of these provisions is illustrated as follows:

Sr. Particulars FY 2017-18 FY 2018-19 FY 2019-20
No. (millions) (millions) (millions)
1 EBITDA 100 100 200
2 Interest paid/payable to a non-resident AE 15 35 50
3 Interest paid/payable to unrelated parties 35 15 0
4 Total interest expenditure (2+3) 50 50 50
5 30 per cent of EBITDA (allowable limit) 30 30 60
6 Interest paid/payable during FY over the 20 20 0
allowable limit
7 Excess interest is least of (2) and (6) 15 20 0
8 Interest of the current year allowed [Total 35 30 50
interest - Excess interest (i.e. (4) - (7)]
9 Disallowed interest is carried forward to 15 35 (10)
succeeding 8 years [(4) - (8)] and set-off to (20-current [10 (set-
the extent of allowable limit year add 15 off of b/f
-earlier years) disallowed
interest),
25 (c/f to
succeeding
years)
10 Total interest deduction allowed under the 35 30 60
head Profit and gains from business and
profession during the FY [(8) add set-off
under (9)]

In the above illustration, the interest payments
to a non-resident AE in FY 2017-18 is less as
compared to interest payments to unrelated
parties i.e. 30 % of total interest expenditure, which
indicates that eroding tax base of India may not
be the main purpose of the taxpayer. However, the
interest paid to such AE shall be disallowed u/s 94B,
which seems to be an unintended burden on an
Indian entity.
In light of this amendment, a reliance on the
Bombay High Court ruling in the case of Besix Kier
Dabhol SA may be impaired.
Key Analysis and Insight on These
Developments
Intra-group financial transactions, especially
with non-resident AE, in relation to interest and
similar payments, have been a subject matter of
debate before courts/tribunal. Accordingly, the
Companies should maintain robust documentation,
as the commercial expediency arguments
of the taxpayer are often rejected by the tax
authorities.
This amendment brings forth certain issues
which may create uncertainty in the minds of
the taxpayers and the revenue authorities on
its implementation. For instance, whether the
disallowance made under the transfer pricing
provisions is mutually exclusive or in addition
to the disallowance of the excess interest. Also,
which payments made by the taxpayer need to be
included in the term interest or of similar nature.
A proper explanation should be provided with
respect to the term implicit or explicit guarantee

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 International Taxation
1751

since it may be difficult for a taxpayer to convincingly

prove to the tax department that an implicit
On the positive side, as compared to certain other
guarantee does not exist. options suggested in Action Plan 4, provisions of
This amendment may have a significant impact Section 94B provides a straight forward approach
on the Indian companies having high level of and ensures that an entitys net interest deductions
interest expense and high interest/EBITDA ratio, are directly linked to the earnings generated by its
even if the interest payments to a non-resident economic activities. Action Plan 4 of the BEPS, in
AE are less as compared to unrelated parties. In relation to prevention of base erosion through the use
the above illustration, the interest payments have of interest expense, recommended the approach of
shifted from unrelated parties to non-resident fixed ratio rule, and considered it as a minimum of the
AEs, over the years; still, there is no disallowance best practices, which should be applied to entities of
u/s 94B in FY 2019-20, when total interest payments MNCs.
are made only to non-resident AEs. In such
a scenario, a question may arise whether the
provisions of GAAR can be applied. Under Section
98 of the Act, if an arrangement is declared to be
an impermissible avoidance arrangement, then,
such arrangement or any part of it may be
disregarded or recharacterised, and any debt may
be treated as equity. Consequently, the tax
department may want to treat the debt from non-
resident AE as equity, and disallow the interest
deduction thereon. Such a possibility has already
been enunciated by the Tribunal in the case of
Besix Kier Dabhol SA, which has been discussed
above. On the other hand, a taxpayer may argue
that since Specific Anti-Avoidance Rules (SAAR)
in the form of Section 94B of the Act, are existent,
the provisions of GAAR should not be applied.
One may be mindful of the fact that CBDT vide its
Circular dated 27-1-2017 has clarified that the
provisions of GAAR and SAAR can co-exist and
shall be applicable on the basis of facts and
circumstances of the case. However, as the issue the basis of 30 % of EBITDA, and hence, gives the
may not be free from doubt, the Government may highest allowable limit based on the international
consider to provide clarification on the same. tax practice, therefore, it may be considered as a
On the positive side, as compared to certain taxpayer-friendly anti-avoidance measure.
other options suggested in Action Plan 4, provisions The amount of interest and payments
of Section 94B provides a straight forward economically equivalent to interest paid to a
approach and ensures that an entitys net interest non-resident AE, is also affected by the transfer
deductions are directly linked to the earnings pricing rules. BEPS Action Plans 8 to 10 limit the
generated by its economic activities. amount of interest payable to group companies
Action Plan 4 of the BEPS, in relation to lacking appropriate substance to no more than
prevention of base erosion through the use of a risk-free return on the funding provided, and
interest expense, recommended the approach of the tax department may take a similar view
fixed ratio rule, and considered it as a minimum under the domestic transfer pricing rules. A
of the best practices, which should be applied to coordinated implementation of the provisions of
entities of MNCs. Further, it prescribes a corridor thin capitalisation under the Act and the transfer
of possible ratios between 10 % and 30 % of E pricing rules, may succeed to counter the cross-
BITDA, for disallowing such interest. Section border shifting of profit through excessive interest
94B prescribes disallowance of such interest on payments and protect the country's tax base.

www.icai.org THE CHARTERED ACCOUNTANT JUNE 2017 123

Set your goals high, and don't stop till you get there. - Bo Jackson
 International Taxation
1752

Associated Enterprises U/S 92A A Revisit

Understanding the definition of Associated Enterprise is a pre-requisite for the understanding

of Transfer Pricing. 'Transfer Pricing is the setting of the price for goods and services sold between
controlled (or related) legal entities within an enterprise. Legal entities considered under the
control of a single corporation include branches and companies that are wholly or majority owned
ultimately by the parent corporation. Transfer price should match with either what the seller would
charge an independent, arm's length customer, or what the buyer would pay an independent, arm's
length supplier. While unrealistic transfer prices do not affect the overall enterprise directly, they
become a concern for the taxing authorities when transfer pricing is used to lower profits in a
division of an enterprise located in a country that levies high income taxes and raise profits in a
country that is a tax haven that levies no (or low) income taxes. Transfer pricing is the major tool for
corporate tax avoidance also referred to as base erosion and profit shifting (BEPS),' 1 Section 2(12)
of the Central Goods and Services Tax Act, 2017 states the term associated enterprises shall have
the same meaning as assigned to it in Section 92A of the Income Tax Act, 1961.
The article attempts to revisit the topic and give a better understanding of the term Associated
Enterprise. Read on to know more...
Meaning of the term Enterprise
As per Section 92F(iii) the term Enterprise means:
a person (including a permanent establishment
CA. Parthasarathy R.
of such person)
(The author is a member of the
who is, or has been, or is proposed to be,
Institute. He can be reached at engaged in any activity, relating to the production,
rpsarathy3568@gmail.com )
storage, supply, distribution, acquisition or
1
Wikipedia- Definition of Transfer Pricing

124 THE CHARTERED ACCOUNTANT JUNE 2017 www.icai.org

 International Taxation
control of articles or goods, or know-how,
patents, copyrights, trade-marks, licences,
franchises or any other business or commercial
rights of similar nature, or any data,
documentation, drawing or specification
relating to any patent, invention, model, design,
secret formula or process, of which the other
enterprise is the owner
or in respect of which the other enterprise has
exclusive rights,
or the provision of services of any kind,
[or in carrying out any work in pursuance of a
contract,]
or in investment, or providing loan
or in the business of acquiring, holding,
underwriting
or dealing with shares, debentures or other
securities of any other body corporate, whether
such activity
or business is carried on, directly
or through one or more of its units
or divisions or subsidiaries, or whether such unit
or division or subsidiary is located at the same
place where the enterprise is located or at a
different place or places.
Thus, the definition is exhaustive covering a wide
extensive coverage.
Meaning of Associated Enterprise:
Section 92A(1)
Sub-clause (a) ownership of voting securities by contracts or
For the purposes of this Section and Sections
92, 92B, 92C, 92D, 92E and 92F, "associated
enterprise", in relation to another enterprise,
means an enterprise
which participates, directly or indirectly,
or through one or more intermediaries, in the
management or control or capital of the other
enterprise; or
Interpretation of the terms used in Sub-clause (a)
above:
Participates: The word used is participates.
This word is not defined in the Act. Hence,
we have to construe the general dictionary
meaning viz., contributes, partakes, joins,
shares etc. Participation can either be
direct or indirect or through one or more
intermediaries.
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1753
Example There are 3 enterprises A, B and C and
a person Mr. D. The following situations arise:
A participates directly - Direct participation
in B;
A participates in - Indirect participation
C, which in turn
participates in B;
A nominates Mr. D who - participation through
participates in C; intermediaries.
As we see, that the difference between
indirect participation and participation through
intermediaries is very thin and debatable. The two
terms are often used interchangeably.
Management: Management is the
administration of an organisation, whether it
be a business, a not-for-profit organisation, or
government body. Management includes the
activities of setting the strategy of an organisation
and coordinating the efforts of its employees or
volunteers to accomplish its objectives through
the application of available resources, such as
financial, natural, technological, and human
resources.
Control: Dictionary meaning The direct or
indirect power to direct the management and
policies of a person or entity whether through
otherwise; the power or authority to manage,
direct or oversee;
Definition as defined in Accounting Standard
Rules 2012.
Paragraph 5.1 of Accounting Standard 21 defines
control as under:
(a) the ownership, directly or indirectly through
subsidiary(ies), of more than one-half of the
voting power of an enterprise; or
(b) control of the composition of the board of
directors in the case of a company or of the
composition of the corresponding governing
body in case of any other enterprise so as to
obtain economic benefits from its activities.
Notwithstanding the fact that the above definition
was framed for the purpose of Accounting
Standard21 dealing with Consolidation of
Accounts, the crux of the definition can be
adopted for the purpose of Section 92A.
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 International Taxation
1754
A still more comprehensive definition of Control
is available in Ind Accounting Standards 110.
Paragraph 7 of the above standard defines as under:
Investor controls an investee if and only if the
investor has all the following:
(i) power over the investee
(ii) exposure, or rights, to variable returns from its
involvement with the investee
(iii) the ability to use its power over the investee to
affect the amount of investors returns
Again, as explained in the earlier paragraphs,
though the definition as above is specifically defined
for the purpose of consolidation of accounts, the
ratio of the definition is equally applicable for the
determination of control u/s 92A.
Capital: Guidance note on terms used in
financial statements issued by Institute of
Chartered Accountants of India defines Capital
as the amount invested in the enterprise by its
owners. In the context of corporates, it is the
paid-up equity capital.
Definition of Capital assumes importance
inasmuch, in case of Limited Liability
Partnerships, the participation in capital shall
be the deciding factor for declaring an
enterprise as associated.
While Section 92A(1)(a) uses the word
participates, it does not specify any threshold
limit. Thus, a plain reading of Section 92A(1)(a)
indicates that even a small percentage of holding
of capital (i.e.; 1% or even less) may indicate that
the two enterprises are associated.
However, Section 92A(1)(a) shall not be read
in isolation. It shall be read together with
92A(2)(a) which states the minimum threshold
limit of 26% holding. Now the question arises
whether Section 92A(1)(a) overrides Section
92(A)(2)(a) or vice versa.
Section 92A(1)(a) is a general provision
inasmuch it indicates the participation not only
in capital but also in control and management. In
contrast, Section 92A(2)(a) is a special provision
dealing with the holding of shares. Thus applying
the principle of generalia specialibus non-
derogant i.e., special provisions override the
general provisions, it can be inferred that Section
92A(2)(a) overrides Section 92A(1)(a).
Also, invoking 92A(1)(a) will make Section
92A(2)(a) redundant and vice versa. Thus as
per the interpretation of statutes, if invoking a
126 THE CHARTERED ACCOUNTANT JUNE 2017
provision makes other provision(s) redundant,
the same shall not be invoked. (ut res magis
valeat quam pereat)
Thus, it can be inferred that Section 92A(2)(a)
overrides the provisions of Section 92A(1)(a).
Section 92A(1)(a) is redundant as far as the
reference to the capital is concerned.
Section 92A(1)
Sub-clause (b)
in respect of which one or more persons who
participate, directly or indirectly, or through
one or more intermediaries, in its management
or control or capital, are the same persons who
participate, directly or indirectly, or through one
or more intermediaries, in the management or
control or capital of the other enterprise.
The basic difference between clauses (a) and (b)
is that, clause (a) is dealing with persons having
participation in management, control or capital
in other enterprise. But clause (b) deals with
situations where two enterprises become associated
if common persons participate in more than
one enterprise.
For example, if two enterprises become
associated by virtue of holding and subsidiary
relationships, the subsidiaries become associated
by virtue of this sub-Section.
Thus, Section 92A(1)(a) deals with linear or
vertical relationships and Section 92A(1)(b) deals
with lateral or horizontal relationships.
Before we go further into Section 92A(2), let us
see the observations of the Tribunal in the case of
Diaego India P Ltd. vs. Dy. CIT [2011] 13 Taxmann.
com 62 (Mumbai), which are as under:
1) Associated enterprises are primarily defined
under Section 92A(1)(a).
2) Scope of this definition is further expanded by
Section 92A(1)(b) by including group concerns.
3) True test of associated enterprise is the existence
of control of one over the other or control of
two or more enterprises by a common interest.
4) Such de-control shall exist in decision making
process.
5) Provisions of Section 92A(2) are the practical
illustrations of the situations mentioned in
Section 92A(1)(a) but equally applicable to
Section 92A(1)(b) also.
6) Section 92A(2) illustrates the manner in which
such de-facto control exists.
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 International Taxation
Section 92A(2) Whether accumulated losses, preliminary
For the purposes of sub-Section (1), two enterprises
shall be deemed to be associated enterprises if, at
any time during the previous year,
Sub-clause (a) (reduction in taxes due to set off of losses) flow to
one enterprise holds, directly or indirectly,
shares carrying not less than twenty-six
per cent of the voting power in the other enterprise;
or
This is an obvious inference to Section 92A(1)(a)
specifying the threshold limit of the holding
shares for the purpose of treating it as an associated
enterprise.
Sub-clause (b) period of time.
any person or enterprise holds, directly or
indirectly, shares carrying not less than twenty-
six per cent of the voting power in each of such
enterprises; or
This is similar to the earlier provision barring the
fact that it pertains to the holding of 26% of more
shares in more than one enterprise.
Sub-clause (c)
a loan advanced by one enterprise to the other
enterprise constitutes not less than fifty-one per
cent of the book value of the total assets of the
other enterprise; or
Loan includes all forms of loans. This clause
stipulates that the total loan advanced by one
enterprise to other enterprise, if it equals to or
exceeds 51% of the book value of the total assets,
such enterprises become associated. It is the
book value of the assets that shall be taken into
consideration. In other words, the book value
of the assets as per the latest audited balance
sheet shall be the criterion. Market fluctuations or
market value of the assets shall not be taken unless
the assets are revalued.
This clause stipulates that (Loans obtained/Book
value of assets)*100, if 51% or more, such enterprises
shall become associated.
Loans obtained means and include all loans
obtained includes secured, unsecured and also
debentures.
Assets are defined as resource, arising of past
activities or events, owned by the enterprise and
future economic benefits flow to the organisation.
Both tangible and intangible assets qualify under
this definition.
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1755
expenses qualify as assets?
Accumulated losses are resource (though
negative), arising out of past activities, owned
by the enterprise and future economic benefits
the organisation. Thus, it qualifies to be an asset.
However, the reduction in taxes due to set-off is
not a flow of economic benefits. Losses to an
organisation are erosion of capital and set-off of
losses is another form of replenishment by
the government, of the eroded capital of the
organisation.
Similarly, preliminary expenses are in the form of
deferred revenue expenditure to be amortised over a
Sub-clause (d)
one enterprise guarantees not less than ten per
cent of the total borrowings of the other enterprise;
or
This clause is direct. When an enterprise
guarantees 10% or more of the total borrowings of
the other enterprise, such enterprises are said to be
associated.
Sub-clause (e)
more than half of the board of directors or
members of the governing board, or one or more
executive directors or executive members of the
governing board of one enterprise, are appointed
by the other enterprise; or
The distinction is made between directors
and executive directors, in case of corporates
and members of the governing board and
executive members, in case of other enterprise, of
the governing board. In case of corporates, non-
executive directors and executive directors are
distinguished.
For non-executive directors, it is more than half
of the total number in the board is the criterion. For
executive directors, even the appointment of one
person shall become the criterion.
Possible reasons for the distinction between
executive directors and non-executive directors
are that whereas non-executive directors are
generally based on the total shareholding
capacity and more than half of the directors being
appointed by an enterprise means a de-facto
control over the other enterprise. On the other
hand, appointment of non-executive directors
THE CHARTERED ACCOUNTANT JUNE 2017 127
 International Taxation
1756
means the enterprise holding a say in the
management of the day-to-day affairs of the other
enterprise. Here, directors means with reference to
the companies and members means with reference
to other than companies.
Sub-clause (f ) 1) At least 90% of the raw materials and consumables
more than half of the directors or members of the
governing board, or one or more of the executive
directors or members of the governing board, of
each of the two enterprises are appointed by the
same person or persons; or
It is the same as that sub-clause (e) except that
this clause pertains to more than two enterprises.
Sub-clause (g) Again, conditions (1) and (2) are alternative.
the manufacture or processing of goods or articles
or business carried out by one enterprise is wholly
dependent on the use of know-how, patents,
copyrights, trade-marks, licenses, franchises or
any other business or commercial rights of similar
nature, or any data, documentation, drawing or
specification relating to any patent, invention,
model, design, secret formula or process, of
which the other enterprise is the owner or in
respect of which the other enterprise has exclusive
rights; or
This provision would be applicable even in
case, it holds good at any time during the previous
year. In other words, the existence of conditions
throughout the year or at the Balance Sheet date
is not a pre-requisite. Even if it exists on a single
day in the relevant previous year, the enterprises
would become associated enterprises. Again the
provision would be applicable if and only if
the enterprise is wholly dependent on the
intangible assets of the other enterprise.
Thus, five conditions exist:
1) One enterprise should be dependent on the
assets of the other enterprise.
2) Dependence should be whole i.e., 100%.
3) Assets here refers to intangible assets.
4) One enterprise shall be the owner of such assets.
5) Other enterprise has exclusive rights.
This sub-Section does not talk about tangible
fixed assets.
Sub-clause (h) cannot make the enterprises associated. Thus, sale
ninety per cent or more of the raw materials and
consumables required for the manufacture or
processing of goods or articles carried out by one
128 THE CHARTERED ACCOUNTANT JUNE 2017
enterprise, are supplied by the other enterprise, or
by persons specified by the other enterprise, and
the prices and other conditions relating to the
supply are influenced by such other enterprise; or
Following conditions exist here:
are supplied by the other enterprise; or
2) At least 90% of the raw materials and consumables
are supplied by the person specified by the other
enterprise; and
3) Prices and other conditions relating to the supply
are influenced by such other enterprise.
The conditions (1) and (2) are applicable only
with respect to raw materials and consumables.
Condition (1) and Condition(3) as well as Condition
(2) and Condition (3) are cumulative. In other
words, if condition (1) or condition (2) are fulfilled
but condition (3) is not fulfilled, it seems that the
enterprises are not associated enterprises.
In other words, mere supply of 90% of raw
materials and consumables will not make the
enterprises associated. Similarly, mere control of
prices and other conditions relating to the supply
cannot make the enterprises associated. Thus, supply
of raw materials and consumables at the prevailing
market rates shall not attract this sub-clause.
Sub-clause (i)
the goods or articles manufactured or processed
by one enterprise, are sold to the other enterprise
or to persons specified by the other enterprise, and
the prices and other conditions relating thereto
are influenced by such other enterprise; or
The above clause consists of following:
1) There should be a sale.
2) Sale shall be to other enterprise or a person
specified by the other enterprise.
3) The goods sold shall be manufactured or
processed by the first enterprise.
4) Prices and other conditions are influenced by the
other enterprise.
In other words, mere sale of goods or articles
manufactured or traded will not make the
enterprises associated. Similarly, mere control of
prices and other conditions relating to the supply
of goods or articles manufactured or traded at the
prevailing market rates shall not attract this sub-
clause.
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 International Taxation
1757

Sub-clause (j) Sub-clause (l)

where one enterprise is controlled by an
individual, the other enterprise is also controlled
by such individual or his relative or jointly
by such individual and relative of such individual;
or
where one enterprise is a firm, association of
persons or body of individuals, the other enterprise
holds not less than ten per cent interest in such
firm, association of persons or body of individuals;
or

Conditions are: Conditions are:

First Second Inference 1) One enterprise shall be a firm or Association of
enterprise enterprise Persons (AOP) or Body of Individuals (BOI);
2) Other enterprise shall be of any type; and
Controlled by Controlled by Associated 3) Other enterprise shall hold not less than 10% or
individual individual enterprise more in such firm/AOP/BOI
Controlled by Controlled by the Associated If the above conditions are fulfilled, then
individual relative of that enterprise the two enterprises are deemed to be associate
individual enterprises.
Controlled by Controlled by Associated All the conditions enlisted above are cumulative.
individual individual and enterprise
his relative Sub-clause (m)
there exists between the two enterprises, any
Controlled by Controlled by the Associated relationship of mutual interest, as may be
individual individual and enterprise prescribed.
his relatives This is a residuary clause. CBDT is empowered to
Controlled by Controlled by the Not an notify any other relationships or mutual interest not
Relatives of an same relatives of associated specified so far, to be the criteria for the declaration
individual the individual enterprise of two or more associate enterprises.
Controlled by Controlled by Not an
individual and individual and associated Applicability in CGST Act, 2017
his relative(s) his relative(s) enterprise This is also a pre-requisite for the understanding
same set of the application of provisions of the CGST
Act, 2017.
Relative means the husband, wife, brother, sister, The definition of associated enterprises is
any linear ascendant or descendant of an individual important in view of the fact that, the Central
as defined under Section 2(41) of the Income Tax Goods and Services Act, 2017 takes the meaning of
Act, 1961. Associated Enterprises from Section 92A of the
Income Tax Act, 1961.
Sub-clause (k) Second Proviso to Section 13(3)(b) of the
where one enterprise is controlled by a Hindu Central Goods and Services Tax Act, 2017 provides
undivided family, the other enterprise is controlled that in case of supply by associated enterprises,
by a member of such Hindu undivided family or where the supplier of service is located outside
by a relative of a member of such Hindu undivided India, the time of supply shall be the date of
family or jointly by such member and his relative; or entry in the books of account of the
recipient of supply or the date of payment, whichever
First Second enterprise Inference
is earlier.
enterprise
Controlled Controlled by member Associated Concluding remarks:
by HUF of HUF or relative enterprise An in-depth study of the definition of "associated
of such member of enterprises" is the pre-requisite for understanding
HUF or jointly by the the application of the various provisions relating
member of HUF and to the transfer pricing, both international as well as
his relative domestic.

www.icai.org THE CHARTERED ACCOUNTANT JUNE 2017 129

Arriving at one goal is the starting point to another. - John Dewey

 Reference
1758
ACCOUNTANTS BROWSER
PROFESSIONAL NEWS & VIEWS PUBLISHED ELSEWHERE
Index of some useful articles taken from Periodicals received during April-May, 2017 for the reference of
Faculty/Students & Members of the Institute.
1 Accountancy
Accounting Post-Brexit: Considers the Impact of
Brexit on the Use of IFRS and GAAP Accounting
Standards for UK-Based Companies by Mathew
Stallabrass. Accountancy, April 2017, pp.56.
Accounting Standards GAPS in GAAP:
Accounting for MAT by Dolphy DSouza. The
Bombay Chartered Accountant Journal, Vol.49-A/1,
April 2017, pp.91-94.
Lease Accounting Revamp by Sabine Vollmer.
Journal of Accountancy, April 2017, pp.16.
What Large Firms Expect from New Accounting
Grads by Sarah Ovaska-Few. Journal of Accountancy,
March 2017, pp.29-30.
2 Auditing
Data Museum: Internal Audit Can Provide
Greater Insight by Compiling Organizational Data in
Structured Exhibits by Kevin Leung and Jasbir Singh.
Internal Auditor, Vol.74/2, April 2017, pp.17-19.
How to Enable Audit Innovation : Ideas, Strategic
Alliances and User-Friendly Tools help Deloitte
make Technological Improvements by Ken Tysiac.
Journal of Accountancy, April 2017, pp.33-35.
Rethinking the Audit: Innovation is Transforming
How Audits are Conducted and Even What it
Means to be an Auditor by John Raphael. Journal of
Accountancy, April 2017, pp.29-32.
Signature Audits: Daimlers Audit Function Adds
Significant Value to Engagements by Incorporating
a Unique Methodology Focused on Innovation by
Hans Buehler and Arnaud Ruiz. Internal Auditor,
Vol.74/2, April 2017, pp.56-61.
3 Economics
Consequences of the Offence under Prevention
of Money Laundering Act, 2002: The Draconian
Mandate by Pranshu Goel. The Chambers Journal,
Vol.7/7, April 2017, pp.39-45.
Full Texts of the above articles are available with the Central Council Library, ICAI, which can be referred
on all working days. For further inquiries please contact on 011-30110419 and 011-30110420 or
by e-mail at library@icai.in; kmray@icai.in.
130 THE CHARTERED ACCOUNTANT JUNE 2017
The future belongs to the competent. Get good. Get better. Be the best. - Brian Tracy
Introduction and Overview of Money Laundering:
The Clampdown on Money Laundering and
Corruption is the Common Responsibility of All
the Countries in the World by Supratim
Chakraborty. The Chambers Journal, Vol.7/7, April
2017, pp.11-17.
4 Law
Arbitration under Private International Law:
Redefining the Doctrines of Separability and
Kompetenz-Kompetenz by Saptarshi Das. Company
Law Journal, Vol.2/1, April 2017, pp.1-30.
Right to Information (r2i) by Jinal Sanghvi and
Shraddha Bathija. The Bombay Chartered Accountant
Journal, Vol.49-A/1, April 2017, pp.105-107.
5 Management
Corporate Governance Implementation
Rating in Indonesia and its Effects on Financial
Performance by Agus Wahyudin and Badingatus
Solikhah. Corporate Governance, Vol. 17/2, 2017,
pp.250-265.
How a CFO can Become Great by Sabine Vollmer.
Journal of Accountancy, April 2017, pp.36-38.
Momentum Investment Strategies, Corporate
Governance and Firm Performance: An Analysis
of Islamic Banks by Tasawar Nawaz. Corporate
Governance, Vol. 17/2, 2017, pp. 192-211.
Relationship Between Corporate Governance,
Corruption and Forward-Looking Information
Disclosure: A Comparative Study by Ben Kwame
Agyei-Mensah. Corporate Governance, Vol. 17/2,
2017, pp.284-304.
6 Taxation and Finance
Welcome GST- Input Tax Credit Provisions
Under the Model GST Act (Revised Nov-2016) by
Mandar Telang. The Bombay Chartered Accountant
Journal, Vol.49-A/1, April 2017, pp.18-25. n
www.icai.org

All set for Buy Indian Policy
Buy Indian and Make in India the government will
bring out a full-fledged price preference policy
favouring Indian-owned companies. The policy, likely
to be finalised soon, is being driven by the PMO and
is aimed at boosting Indian enterprises across sectors.
Preferential pricing is expected to allow additional time
to Indian-owned bidding companies so that they can
match the lowest bid in case the latter was made by an
entity that is partly Indian-owned or mostly foreign-
owned.
(Source: www.economictimes.com)
e-Filing Facility for All ITRs
The Income Tax department has activated the e-filing
facility for all categories of income tax returns (ITRs)
for the assessment year 2017-18. The new ITRs have
been made available for filing on the e-portal of the
department. The e-verification of ITRs can be done
through the Aadhaar number which will allow them to
complete all the formalities with a click on the computer
and the ITR-V (acknowledgment) will not have to be
sent by post to the central processing centre (CPC) in
Bengaluru. Already 2,59,831 ITRs have been e-verified
in this fiscal using the Aadhaar.
(Source: www.hindustantimes.com)
CBDT Issues Draft ICDS on Real Estate
The Central Board of Direct Taxes (CBDT) has released
the draft Income Computation and Disclosure Standard
(ICDS) on real estate transactions for public consultation.
The proposed ICDS will be applicable for determination
of income from all forms of transactions in real estate,
including land and buildings. The draft ICDS doesnt
mandate obtaining all critical approvals for revenue
recognition after the Real Estate (Regulation and
Development) Act, 2016, (RERA), came into effect. It
also proposes recognition of transferable development
rights (TDR) at the fair value against fair market value
or net book value.
(Source: http://www.incometaxindia.gov.in)
CBDT Breaks Record in Signing of APAs
The Central Board of Direct Taxes (CBDT) appears to
have broken a record in transfer pricing by signing 88
advance pricing agreements (APAs) during financial year
2016-17. According to a CBDT report, this is probably
the highest number of APAs entered into by any country
in the same period. In 2013-14, which was the first
www.icai.org
Every success is built on the ability to do better than good enough. - Anonymous
National Update
1759
complete financial year (APAs became operational in
August 2012),
(Source: http://www.incometaxindia.gov.in)
RBI Releases State Finances: A Study of Budgets of
2016-17
The Reserve Bank of India (RBI) has recently released
a report entitled State Finances: A Study of Budgets of
2016-17, an annual publication that provides information,
analysis and an assessment of the finances of state
governments. It is the primary source for disaggregated
state-wise fiscal data and delineates the changing dynamics
of fiscal federalism over the years. The theme of this years
report is the Goods and Services Tax (GST).
(Source: www.rbi.org.in)
Income Tax Dept Launches Online Facility for
Linking Aadhaar and PAN
The Income Tax Department is offering a new way of
linking Aadhaar numbers with PAN on its e-filing website,
in a move aimed at increasing compliance. Linking
Aadhaar with PAN would help the government ensure
that subsidies reach only intended beneficiaries as the tax
department can confirm with other arms of the government
whether a beneficiary of a scheme, for example, LPG
subsidy, belongs to the eligible income group.
(Source: http://www.incometaxindia.gov.in)
Govt to Give Customs, Excise Duty Benefits to
Boost Solar Rooftop Sector
In a boost to Indias lagging solar rooftop sector, the
Union ministry of new and renewable energy (MNRE)
has decided to give custom and excise duty benefits to
it for ensuring high growth. The move will not only
bring down the costs of setting up projects but also that
of generation. Solar power developers setting up grid-
connected solar PV (photovoltaic) projects have been
seeking grant of duty benefits (custom and excise duty)
from the MNRE for installation of rooftop systems.
(Source: Press Trust of India)
Only Genuine Farm Income Must Be Exempt from
Tax: Niti Aayog Vice-Chairman
Finding ways to stop the camouflaging of the income
earned from sources other than agriculture as agricultural
income is what NITI Aayog recommends in its Three-Year
Action Agenda 2017-18 to 2019-20 and not levying
personal income tax on farmers. Talking to Business
Line, Panagariya said, We are not recommending taxing
agricultural income in any form. We are only looking
to find ways to stop the camouflaging of the income
earned from sources other than agriculture as agricultural
income.
(Source: www.thehindubusinessline.com)
THE CHARTERED ACCOUNTANT JUNE 2017 131
 International Update
1760
IESBA Enhances International Code of Ethics,
Proposes New Guidance for Professional
Skepticism and Professional Judgment
The International Ethics Standards Board for Accountants
(IESBA) has released the Exposure Draft, Proposed
Application Material Relating to Professional Skepticism
and Professional Judgment, for public comment. The
proposed guidance for the first time links key concepts in
the IESBA Code of Ethics for Professional Accountants
(the Code) and clarifies their application, namely:
How compliance with the fundamental principles
in the Code supports professional skepticism by
auditors and assurance practitioners for audit, review,
and other assurance engagements; and
The importance of professional accountants
obtaining a sufficient understanding of the facts
and circumstances known to them when exercising
professional judgement in applying the conceptual
framework underpinning the Code.
Once finalised, this material will be included in the
clarified and restructured Code that the IESBA plans to
complete by the end of 2017. The stakeholders can submit
their comments on the Exposure Draft by visiting the
Ethics Boards website by July 25, 2017.
IAASB Proposes Modernisation of Financial
Estimate Audits in Support of Audit Quality
The International Auditing and Assurance Standards Board
(IAASB) has proposed significant changes in how auditors
evaluate accounting estimates and related disclosures. The
changes will require auditors to sharpen their focus on
risks of material misstatements arising from accounting
estimates, and to address those risks with more granular
audit requirements.
The proposed standard:
enhances requirements for risk assessment procedures
to include specific factors related to accounting
estimates, namely complexity, judgement, and
estimation uncertainty;
sets a more detailed expectation for the auditors
response to identified risks, including augmenting the
auditors application of professional skepticism; and
is scalable regardless of the size or sector of the
business or audit firm.
International Standard on Auditing 540 (Revised),
Auditing Accounting Estimates and Related Disclosures,
is open for public comment until August 1, 2017.
The International Public Sector Accounting Standards
IPSASB Launches Consultation on Heritage
Reporting
Board (IPSASB) has released a Consultation Paper (CP),
Financial Reporting for Heritage in the Public Sector,
for comment. The paper describes heritage items as
132 THE CHARTERED ACCOUNTANT JUNE 2017
Overnight success comes from a lifetime of hard work. - Anonymous
items that are intended to be held indefinitely and
preserved for the benefit of present and future generations
because of their rarity and/or significance. It proposes
that:
heritage items special characteristics do not prevent
them from being assets for the purposes of financial
reporting;
heritage items should be recognised in the statement
of financial position if they meet the recognition
criteria in the Conceptual Framework; and
in many cases, it will be possible to assign a monetary
value to heritage assets.
The members can visit the IPSASB website to access
the Consultation or to submit a comment by September
30, 2017.
IAESB Strategy Focuses on Accounting Education
Standards Development, Support
The International Accounting Education Standards
Board (IAESB) has released its Strategy for 2017-2021
and Work Plan 2017-2018. The Strategy and Work
Plan reflects extensive consultation and valued feedback
from a wide range of stakeholders. Accounting
education standards development is the centrepiece of
a five-year strategy that also includes implementation
support, a post-implementation review of existing
standards, and strategic engagement and communication
with the boards stakeholders. The primary goal is to
ensure that the accounting profession has the necessary
skills to meet the ever-changing demands of business
and the public sector, and thereby increase public
confidence.
In-Depth Study of Tax and Trust Across G-20 Countries
A new study, namely, G-20 Public Trust in Tax, surveyed
citizens across the G-20 on issues of trust and international
taxation. The study, prepared by the Association of
Chartered Certified Accountants, Chartered Accountants
Australia and New Zealand, and IFAC, draws on the views
of more than 7,600 people across G-20 countries.
Some of the key findings of the study include:
people want governments to put tax cooperation
ahead of tax competition73% of people in G-20
countries think it is important or very important
for governments to cooperate with each other on
tax policy to create a more coherent international
tax system;
57% of people in G-20 countries trust or highly
trust professional tax accountants as a source of
information about the tax system; and
in contrast, people in G-20 countries have become
deeply distrustful of politicians when it comes to
information about the tax system, with 67% either
distrusting or highly distrusting politicians.
www.icai.org
 Committee for Capacity Building of Members in Practice (CCBMP)
The Institute of Chartered Accountants of India
Commencement of Certificate Course on Wealth
AnnounCemenT
Management and Financial Planning Kolkata Batch I
The Committee for Capacity Building of Members in Practice, ICAI is arranging Certificate Course on Wealth Management and Financial Planning for the Members of
Kolkata/Eastern Region. Registration for the course is open. The batch is scheduled to commence from 8th July, 2017. The course is provided only for Members of ICAI.
The batch has limited seats and registration is on first come first serve basis. Classes will be held at ICAI Bhawan, 7, Russell Street, Kolkata - 700071.
The course is designed to equip the members with advance knowledge in Financial Planning and Wealth Management for rendering services in the Financial
Sector. The course elaborates practical & procedural aspects of the Wealth Management to design effective Investment Strategy & financial growth of the clients.
The course consists of classroom deliberations and practical sessions on case studies. Classes are lectured by renowned faculty from Insurance sector, Academics
and Industry. There will be 20 classes of 5 hours duration each to be held on Saturday/Sunday followed by a test. Required number of attendance will be
compulsory to sit in the test. Successful participants will be awarded Certificate of the course. Applicable CPE hours will also be given to successful participants
as per CPE guidelines.
The desirous member may register for the Course by applying online or submission of physical form to the Secretary, CCBMP, ICAI Bhawan, A-29, First Floor,
Administrative Block, Noida (U.P., P.C.-201309 along with DD of Rs.15,000/- for Members of ICAI or Rs 12,000/- for young members of ICAI (born after
1.1.1987) in favor of The Secretary ICAI, Payable at New Delhi towards the course fee.

Details of the course are available

http://www.icai.org/new_post.html?post_id=13506&c_id=240

Online payment for Members of ICAI: http://ccm.icai.org/?progid=1433

Online Payment for young Members of ICAI (i.e. born after 1.1.1987) : http://ccm.icai.org/?progid=1434

Chairman
Committee for Capacity Building of Members in Practice (CCBMP)

AnnounCemenT Commencement of Certificate Course on Wealth

Management and Financial Planning Chennai Batch I

The Committee for Capacity Building of Members in Practice, ICAI is arranging Certificate Course on Wealth Management and Financial Planning for the
Members of Chennai/Southern Region. Registration for the course is open. The batch is scheduled to commence from 3rd June, 2017. The course is provided
only for Members of ICAI.
The batch has limited seats and registration is on first come first serve basis. Classes will be held at ICAI Bhawan,122, Mahatma Gandhi Road,
Nungambakkam, Chennai - 600 034.
The course is designed to equip the members with advance knowledge in Financial Planning and Wealth Management for rendering services in
the Financial Sector. The course elaborates practical & procedural aspects of the Wealth Management to design effective Investment Strategy
& financial growth of the clients.
The course consists of classroom deliberations and practical sessions on case studies. Classes are lectured by renowned faculty from Insurance
sector, Academics and Industry. There will be 20 classes of 5 hours duration each to be held on Saturday/Sunday followed by a test. Required
number of attendance will be compulsory to sit in the test. Successful participants will be awarded Certificate of the course. Applicable CPE
hours will also be given to successful participants as per CPE guidelines.
The desirous member may register for the Course by applying online or submission of physical form to the Secretary, CCBMP, ICAI Bhawan,
A-29, First Floor, Administrative Block, Noida (U.P., P.C.-201309 along with DD of Rs.15,000/- for Members of ICAI or Rs 12,000/- for young
members of ICAI (born after 1.1.1987) in favor of The Secretary ICAI, Payable at New Delhi towards the course fee.

Details of the course are available

http://www.icai.org/new_post.html?post_id=13503&c_id=240

Online Payment for members of ICAI http://ccm.icai.org/?progid=1431

Online Payment for young members of ICAI ( For Members born after 1.1.1987): http://ccm.icai.org/?progid=1432

Chairman
Committee for Capacity Building of Members in Practice (CCBMP)

For Details, Secretary, CCBMP, ICAI

please contact to Telephone: 0120-3045994, Email: certificate.wmfp@icai.in
 ICAI News
1763

Information System Audit Assessment Test (ISA AT) New Syllabus, June 2017
12th May, 2017
Members are hereby informed that the next Information Systems Audit (ISA) Course Assessment Test-New
Syllabus which is open to the members of the Institute, will be held on 24th June, 2017 (Saturday) from 9.00
AM to 1.00 PM (IST) at the following cities provided that sufficient number of candidates offer themselves
to appear there from.
Sl. Name of the Cities Sl. Name of the Cities Sl. Name of the Cities
No. No. No.
1 AGRA 23 GURGAON 45 PIMPRI CHINCHWAD
2 AHMEDABAD 24 GUWAHATI 46 PUNE
3 AJMER 25 HISAR 47 RAIPUR
4 ALLAHABAD 26 HYDERABAD 48 RAJKOT
5 AMRITSAR 27 INDORE 49 RANCHI
6 AURANGABAD 28 JAIPUR 50 SIKAR
7 BELLARY 29 JALANDHAR 51 SILIGURI
8 BENGALURU 30 JALGAON 52 SIRSA
9 BHATINDA 31 JODHPUR 53 SURAT
10 BHAVNAGAR 32 KANPUR 54 THRISSUR
11 BHILWARA 33 KARNAL 55 THANE
12 BHOPAL 34 KOLKATA 56 TRIVANDRUM
13 BHUBANESWAR 35 KOTA 57 UDAIPUR
14 BILASPUR 36 LUCKNOW 58 VADODARA
15 CHANDIGARH 37 LUDHIANA 59 VARANASI
16 CHENNAI 38 MANGALORE 60 VASAI
17 COIMBATORE 39 MUMBAI 61 VIJAYAWADA
18 DEHRADUN 40 MUZAFFARNAGAR 62 VISAKHAPATNAM
19 DELHI / NEW DELHI 41 NAGPUR
20 ERNAKULAM 42 NASIK
21 GHAZIABAD 43 PANIPAT
22 GORAKHPUR 44 PATNA

The Council reserves the right to withdraw any
centre at any stage without assigning any reason.
The above Test is open only to the Members of the
Institute who are already registered with the Institute
for the ISA course and fulfill the eligibility criterion
laid down. The fee payable for the above Assessment
Test is R2,000/-.
An application for admission to the Assessment
Test is required to be submitted online by visiting
http://isaat.icaiexam.icai.org and the sum of
R2,100/- (R2,000/- as examination fees and R100/-
towards the examination form) has to be paid online
using Master/Visa/Maestro Credit or Debit Card on
or from 24th May, 2017. Alternatively, the format
of application form can be downloaded from the
website of the Institute viz. www.icai.org and the cost
of the application form of R100/- can be added to the
Assessment Test fee of R2,000/- and the Demand
Draft for R2,100/- of any Scheduled Bank drawn in
favour of The Secretary, The Institute of Chartered
Accountants of India, payable at New Delhi only
has to be sent to the Joint Secretary (Exams), The
Institute of Chartered Accountants of India, ICAI
Bhawan, Indraprastha Marg, New Delhi 110002
so as to reach him on or before 6th June, 2017. The
applications received after 6th June, 2017 will not be
entertained under any circumstances.
It may be noted that there would be no ISA-AT
(Old Syllabus) as the same has been discontinued.
Joint Secretary
(Examinations)

www.icai.org THE CHARTERED ACCOUNTANT JUNE 2017 135

 ICAI News
1764
Advertising by Members in Practice, Engaged in Coaching /Teaching Activities
Regulation 190A of the Chartered Accountants
Regulations, 1988 provides that a chartered accountant
in practice shall not engage in any business or
occupation other than the profession of accountancy,
except with the permission granted in accordance with
a resolution of the Council.
The Council has passed a Resolution under Regulation
190A granting general permission (for private tutorship,
and part-time tutorship under Coaching organisation
of the Institute) and specific permission (for part-time
or full time tutorship under any educational institution
other than Coaching organisation of the Institute). Such
general and specific permission granted is subject to the
condition that the direct teaching hours devoted to such
activities taken together should not exceed 25 hours a
week in order to be able to undertake attest functions .
Keeping in view the broad purview of Clause
(6) of Part I of the First Schedule to the Chartered
Accountants Act, 1949, an advertisement of Coaching/
teaching activities by a member in practice may amount
to indirect solicitation, as well as solicitation by any
Invitation for Empanelment as Resource Persons for the Certificate Course
on Wealth Management and Financial Planning
The Committee for Capacity Building of Members
in Practice (CCBMP) of the Institute of Chartered
Accountants of India proposes to organise a Certificate
Course on Wealth Management & Financial Planning
during the year 2017-18.
The aforesaid certificate course emphasises on
developing skill sets which would be required for
advising clients to make sound financial decisions
while practicing and serving clients in diverse practice
areas as compliance, taxation etc.
Learning Objectives of the aforesaid certificate
course:
To enable the candidate to have enhanced career
opportunities in Financial Services Investments
guidance and wealth management.
To enable the candidate to have Global league of
the best Financial Planning professionals.
The curriculum of the aforesaid Certificate Course
is as follows:
1. Introduction to financial planning
2. Risk Analysis & Insurance Planning
3. Retirement planning & employee benefits
4. Investment planning
5. Tax & estate planning
136 THE CHARTERED ACCOUNTANT JUNE 2017
18th May, 2017
other means, and may therefore be violative of the
provisions of Clause (6) of Part I of the First Schedule
to the Chartered Accountants Act, 1949.
In view of the above, such members are advised
to abstain from advertising their association with
Coaching /teaching activities through hoardings,
posters, banners and by any other means, failing which
they may be liable for disciplinary action, as per the
provisions of Chartered Accountants Act, 1949 and
Rules /Regulations framed thereunder .
Subject to the above prohibition, such members
may put, outside their Coaching /teaching premises,
sign board mentioning the name of Coaching/teaching
Institute, contact details and subjects taught therein
only. As regards the size and type of sign board, the
Council Guidelines as applicable to Firms of Chartered
Accountants would apply.
V. Sagar
Secretary
The Institute of Chartered Accountants of India
6. Advanced financial planning and HNI Wealth
Management
7. Technical Analysis
Experts who have more than five years of
experience in the relevant area and who have
delivered lectures at various forums of Chartered
Accountants are eligible for the enlistment in the Panel
of Experts.
Experts who are interested to be associated with
The Institute of Chartered Accountants of India as
Resource Persons are requested to send/e-mail their
resume to the following address:
Secretary, Committee for Capacity Building of
Members in Practice (CCBMP), The Institute
of Chartered Accountants of India (ICAI), ICAI
Bhawan, A-29, First Floor, Administrative Block,
Sector-62, Noida (U.P.), P.C.-201309; e-mail: sambit.
mishra@icai.in, Tel No. 0120-3045994
It would be appreciated if the resume including
all details regarding qualification, Membership no.
of ICAI (if any), Experience, areas of specialisation,
contact address, etc. is sent at the earliest, preferably
within 30.06.2017.
CCBMP, ICAI reserves the right to invite similar
proposal from any other Member/Members of ICAI
though they may not have offered their expression
of interest in this regard. No communications will be
www.icai.org

entertained from the applicant Member/Members in
this regard. Only selected applicant Member/Members
will be individually communicated. CCBMP, ICAI
reserves the right to reject the Expression of Interest
received from the applicant Member/Members of
ICAI without assigning any reason therefore. CCBMP,
Invitation for Expression of Interest (EOI) from Software Development Companies for
Providing Software Relevant to the Practitioners and CA Firms of ICAI by June 30, 2017
The Committee for Capacity Building of Members
in Practice (CCBMP) of the Institute of Chartered
Accountants of India (ICAI) is meant to encourage
and enhance close links between the Institute
and the Chartered Accountants, so as to provide
for them, a base of reference in terms of knowledge,
expertise, skills and assistance in their professional
growth, simultaneously pursuing the goal of providing
newer opportunities to the practitioners & CA Firms.
One of the major responsibilities of CCBCAF & SMP
is to arrange software relevant for the Members of the
Institute of Chartered Accountants of India (ICAI).
The CCBMP invites Expression of Interest from
the various software vendors who are interested to
provide the software relevant to the Practitioners &
CA Firms of ICAI by June 30, 2017. The intending
parties are expected to have appropriate level of
practical experience in the relevant area along with the
knowledge of various aspects of the CA profession.
Terms of Reference for the Vendors of the software:
THE SOFTWARE VENDOR shall be willing to rebrand
its existing software.
Further, THE SOFTWARE VENDOR shall
not use the logo of its Company on the software
provided to ICAI members and/or in any ancillary
document related to the software except with prior
approval of ICAI and for limited purposes only.
THE SOFTWARE VENDOR shall provide the
assistance to the Members for the software and shall
provide support through their help desk.
THE SOFTWARE VENDOR shall provide initial
license Free of cost/discounted/subsidised for first two
years activation from date of MoU to CA members and
thereafter, provide the software at nominal price. Any
registered member with ICAI would be eligible to get
single copy of initial license without paying any cost.
THE SOFTWARE VENDOR shall provide Free of
cost/discounted/subsidised licenses of the software
during the period of MoU to all present and future
Information Technology Training Centers of ICAI all
over India with two years activation. THE SOFTWARE
VENDOR shall also provide Free of cost/discounted/
subsidised live patches of the software as and when
released during the term of this MoU.
THE SOFTWARE VENDOR shall provide
Free of cost/discounted/subsidised single license
www.icai.org
ICAI News
1765
ICAI also reserves the right to cancel the aforesaid
announcement of EOI.
Chairman
Committee for Capacity Building of Members in
Practice, ICAI
of the software with two years activation from date of
MoU to all present and future offices of ICAI.
THE SOFTWARE VENDOR shall also provide free
of cost training to all staffs in the Head Office & other
offices of ICAI as well as to provide live patches of the
software as and when released during the period of
MoU.
Any other terms & conditions, as decided by the
Committee from time to time.
Delivery of software products
THE SOFTWARE VENDOR shall make available the
Software Setup in the ICAI/Committee website www.
icai.org.in and www.icai.org so that software setup may
be downloaded from website and installed by the ICAI
members.
i) THE SOFTWARE VENDOR shall upload the
extensive documentation in soft form (PDF &
HTML) through web links. These documents
shall include Installation Manual, Feature List,
FAQs, and User Manual etc.
ii) THE SOFTWARE VENDOR shall provide
latest software patches through website
www.icai.org.in
iii) THE SOFTWARE VENDOR shall provide access
to the updated documentation, whenever the
new update/release of the current version of the
products is published if the same is required.
b) UPLOADING THE SOFTWARE ON
COMMITTEES WEBSITE:
THE SOFTWARE VENDOR shall make available
the Software content through the website of Committee
for Capacity Building of CA Firms and Small & Medium
Practitioners, www.icai.org.in and www.icai.org so
that software setup can be downloaded and installed
easily by the members, Free of cost/discounted/
subisidised .
Training to End Users
The software vendor shall provide Free of cost Training
to all users of the software.
THE SOFTWARE VENDOR shall not use the
name of the ICAI or any of its associates in any
manner whatsoever for the promotion of its
products. THE SOFTWARE VENDOR shall not
publicise directly or indirectly in their advertisements in
THE CHARTERED ACCOUNTANT JUNE 2017 137
 ICAI News
1766
any manner about the MoU or arrangements with the
ICAI except with the prior written approval of ICAI.
THE SOFTWARE VENDOR shall not state in any
manner that any of its software products are endorsed,
vetted, approved or developed with the inputs of the ICAI.
THE SOFTWARE VENDOR shall use the data
coming to its possession for intended purpose only, in
case this data is otherwise used or intended to be so
used by THE SOFTWARE VENDOR, the Company
shall be liable for the same.
ICAI hereby retains the right to impose any
other or relax the existing terms & conditions for the
arrangement of the software.
The intending Software vendors are required to send
a formal request letter with the following details to
Secretary, Committee for Capacity Building of
Members in Practice (CCBMP), The Institute of
Chartered Accountants of India, ICAI Bhawan,
A-29, First Floor, Administrative Block, Sector-62,
Noida (U.P.), P.C.- 201409, Telephone: 01202045994.
Sending proposals by email at sambit.mishra@icai.in is
preferred:
1. Brief profile of the Company
2. Specific experience and expertise in the software
relevant to the Practitioners & CA Firms of ICAI
they offer.
Invitation for Empanelment as Resource Persons for the programmes to be organised
by the Career Counselling Sub-group under BoS, ICAI in the Year 2017-18
The Career Counselling Sub-group under BoS of
the Institute of Chartered Accountants of India
(ICAI) is constituted under regulatory provisions of
The Chartered Accountants Act, 1949, proposes to
organise a Career Counseling Programmes during
the year 2017-18. The Career Counselling Sub-group
Under BoS emphasise on holding the career counseling
programmes in various parts of India in the year
2017-18 to Counsel the students at Secondary school,
Higher/Senior Secondary School, Graduation/Post
Graduation level & others for connecting them with
the Chartered Accountant profession/course.
Career Counsellors/Experts/Resource persons
who have experience in the relevant area and/or
who have delivered lectures at various forums of
Chartered Accountants are eligible for the enlistment
in the Panel of Experts, who are interested to be
associated with the Career Counselling Sub-group
under BoS as Career Counsellors to conduct the
aforesaid programmes are requested to send their
resume at: Secretary, Career Counselling Sub-
group under BoS, The Institute of Chartered
Accountants of India (ICAI), ICAI Bhawan, A-29,
First Floor, Administrative Block, Sector-62, Noida
(U.P.), P.C.-201309, Tel No. 0120-3876871 or
e-mail the same at ccc.secretary@icai.in. It would
138 THE CHARTERED ACCOUNTANT JUNE 2017
3. Proposed coverage of the Software relevant for
Practitioners & CA Firms of ICAI
4. Details about the software relevant for
Practitioners & CA Firms of ICAI
5. Modalities about the software relevant for
Practitioners & CA Firms of ICAI
It may be noted that mere submission of the
Expression of Interest shall not entitle the applicant
Vendor Company to enter into an arrangement with
CCBMP, ICAI for its software. CCBMP, ICAI reserves
the right to invite similar proposal from any other
Vendor Company though they may not have offered their
expression of interest in this regard. CCBMP change/
alter/modify in terms & conditions of the aforesaid
EOI at any point of time. No communications will be
entertained from the applicant Vendor Companies in
this regard. Only selected vendors will be individually
communicated. CCBMP, ICAI reserves the right to
reject the Expression of Interest received from the
applicant Vendor Companies without assigning any
reason therefore. CCBMP, ICAI also reserves the right
to cancel the aforesaid announcement of EOI without
assigning any reason thereof.
Chairman
Committee for Capacity Building of Members in
Practice (CCBMP), ICAI
be appreciated if the resume including all details
regarding qualification, Membership no. of ICAI
(if any), Experience, areas of specialisation, contact
address, etc. is sent at the earliest, preferably within
30.06.2017.
Alternatively, Career Counsellors/Experts/
Resource persons who have experience in the
relevant area and/or who have delivered lectures
at various forums of Chartered Accountants are
eligible for the enlistment in the Panel of Experts,
who are interested to be associated with the Career
Counselling Sub-group under BoS as Career
Counsellors are requested fill the Counsellor
Registration form available in the home page at
exclusive website cccicai.in. Thereafter, Experts
are also requested to send/e-mail their resume at
ccc.secretary@icai.in.
The Career Counsellors/Experts/Resource
persons so empanelled with the Career Counselling
Sub-group under BoS may host the programmes
to be organised by CCC in the exclusive website
cccicai.in. We have also provided the facility for
them to login in the exclusive website cccicai.in & fill
the details in the dashboard provided to them after
logging into the aforesaid website for hosting the
aforesaid Career Counseling programme.
www.icai.org

Career Counselling Sub-group under BoS, ICAI
reserves the right to invite similar proposal from
any other Member/Members of ICAI though they
may not have offered their expression of interest in
this regard. No communications will be entertained
from the applicant Member/Members in this regard.
Deputy Convener
Career Counselling Sub-group under BOS, ICAI
ICAI Campus Placement Programme, (August-September, 2017) Aspirants
Completion of GMCS is mandatory for taking part in
ICAI Campus Placement Programme, meant for Newly
Qualified CAs. Accordingly, to cater to the needs of
the Students appearing for the Final Examination
in May, 2017 but are yet to complete GMCS Course,
adequate arrangement has been made by the Board
of Studies. Aspirants for August-September, 2017
Campus are hereby advised to enroll (through Link-
Certificate Course on Co-operatives
The Committee for Co-operatives and NPO Sectors
of the ICAI conducts Certificate Course on Co-
operatives for benefit of the members in the field of
Co-operatives. This Course is conducted at various
locations throughout the country. The Course aims at
providing:
About Co-operative Societies
Co-operatives Societies-World scenario
Laws Applicable to Co-operative Societies
Formation of Co-operative Societies
Management, Accounting and Audit aspects of
Co-operative Societies
Taxation aspects of Co-operative Societies
Accounting, Audit and Legal issues in Urban Co-
operative Societies
Appearing before the authorities
Eligibility for the Course: The course is open for the
members of the Institute of Chartered Accountants of
India as well as for the students who have cleared CA
final examination.
Duration of the Course: 6 days (Generally on Saturday
and Sunday) (9:30 AM to 5:30 PM)
Fees for the Course:
R8,000/- For young members (Meaning of Young
Member for this purpose is A Chartered Accountant
up to the age of 30 years on 1st January of every calendar
year)
www.icai.org
ICAI News
1767
Only selected applicant Member/Members will be
individually communicated. Career Counselling
Sub-group under BoS reserves the right to reject the
Expression of Interest received from the applicant
Member/Members of ICAI without assigning any
reason therefore.
Convener
Career Counselling Sub-group under BOS, ICAI
www.icaionlineregistration.org or may feel free to talk
to Dr. Mitali Pathak at 0120- 3045915) for GMCS at
any Centre convenient to them and get it completed
before the Interview Process begins in the middle of
August, 2017.
Committee for Professional Accountants in Business
& Industry (CPABI) of ICAI
Link for Online Payment: http://ccm.icai.org/?progid
=1292
R10,000/- For other members
Link for Online Payment: http://ccm.icai.org/?progid
=1293
The fees can be paid either by a Demand draft,
Cheque or through online mode. The demand draft/
cheque shall be drawn in favour of The Secretary,
The Institute of Chartered Accountants of India
Please refer link for further details of the Course: http://
www.icai.org/post.html?post_id=12625
The details of the forthcoming batches of the Certificate
Course on Co-operatives, to be organised by the
Committee for Co-operatives and NPO Sectors in July
and August, 2017 are as follows:
Location Scheduled Dates
Chennai July- 8 & 9, 15 & 16 and 22 & 23, 2017
Bathinda July- 15 & 16, 22 & 23 and 29 & 30,
2017
Delhi-NCR Aug- 12 & 13, 19 & 20 and 26 & 27,
2017
Chairman
Committee for Co-operatives and NPO Sectors, ICAI
E-mail: cconpo@icai.in
THE CHARTERED ACCOUNTANT JUNE 2017 139
 Classifieds
1768
5543 Faridabad based firm seeks professional work on
assignment/retainer ship/sub-contact/partnership
basis. Contact: CA. Ashok Mittal:+919560398539,
e-mail: mittalashok2003@yahoo.com
5544 We require Dealer Audit Associates for handling
PAN India assignments. Please contact at: akg@
akgandassociates.com
5545 Mumbai based FCA CoP age 64, exposure in
Industry, Entrepreneurial and Practice total
experience of 40 years seeks professional work
on assignment, retainership or partnership basis
at Mumbai. 9820422001; harshad53@gmail.com
5546 A twelve year old CA firm having offices
in Guwahati, Mumbai and Kolkata wants
new partner in Chennai, Bangalore, Kochi,
Ahmedabad, Chandigar, Jaipur, Lucknow, Patna
and any other suitable place. New CA willing to
practice independently will be preferred. Apply
at goswami255@gmail.com, 9435190811
5547 A Chennai based sole proprietorship firm
since 1999 invites merger proposals from
other firms in Madurai, Trichy, Pollachi,
Coimbatore, Salem, Erode, Vellore,
Cochin, Palakkad, and Trivandrum. Please
send proposals to mvgfca@gmail.com or
Contact no. 9381020638
5548
Finance professionals providing valuation
services: business valuation/DCF/ESOP/
Sweat Equity/Ind AS valuations, etc. Welcome
referrals from CAs. CA. Pratik Singhi, Mumbai.
+919892047829; pratiksinghi@gmail.com.
5549 Noida based partnership firm which is into
Search and Seizure, Transfer Pricing, GST/
Insolvency/Finance/Investment Advisory fields
- invites proposals for a tie-up with the firms
based in or out of India, e-mail: pravag3001@
gmail.com
5550 A CA firm having offices in four South Indian
cities requires a Chartered Accountant with
2-3 years of experience in Corporate Audit
and Direct tax for their Chennai office. The
incumbent should have working knowledge of
Companies Act and Indirect taxes. The right
candidate will have the opportunity for career
growth in the firm. Responses may be send to:
kadathethu@gmail.com
140 THE CHARTERED ACCOUNTANT JUNE 2017
Opportunities are always there for those awake enough to see it. - Anonymous
5551 Chennai based chartered accountant (pursuing
DISA) having 22 years Industry experience
and planning to hold CoP wish to undertake
professional work on assignment/retainership
basis. Contact Mobile 9962870235. e-mail-
satish7172@gamil.com
5552 Delhi-NCR FCA with 25 years experience
(assurance, taxation, foreign acquisition,
CFO)-Independent Practice and Industrial
with listed mfg/service holding CoP
invites partnership/employment proposals
from CA firms. GrowthPartner7@gmail.
com/09560245629
5553 Available, experienced senior FCA (surrendered
COP) with association of senior IT professional
(both CISAs), established in Pune and Mumbai,
for providing guidance to assist CA firms,
for carrying out System Audits and Security
assignments including scoping, participation,
hand-holding, reporting and imparting training
(for DISA and CISA courses). For contact let
me know how we can plan...or do you want
following. Contact: CA. Shirish Deshpande:-
e-mail: deshpande.06@gmail.com or cell:
9822304988
5554 CA firm requires old/sole proprietorship firm
(with old retired/lady members) for merger
in Bangalore. Interested firms may send their
profile/proposals in confidence to e-mail id:
pandiyan.pass@gmail.com; and cell number
09443368692.
5555
Kerala based CA firm requires young
Chartered Accountants to open branches at
Thrissur, Kozhikode and Palakkad. Contact:
cathomaskgeorge@gmail.com.
5556 Delhi based CA firm of 1989 is interested
in getting proposal for merger of CA firm
preferably in and around NCR area and in places
like Agra, Mathura, Gwalior, Jaipur, Dehradun,
Chandigarh. Contact info@uccglobal.in; call
9810044684
5557 Delhi based CA firm required Articles and
experience Chartered Accountants for its
Gurgaon office. Excellent stipend and salary for
deserving candidates. Apply at info@uccglobal.
in, call: 9810044684
www.icai.org
 Events
1769

Forthcoming Events1
Sl. No. Title of the Seminar/Conference Date Place CPE Hours
Continuing Professional Education
Programme Chairman: Chairman, CPE Committee, ICAI
1. CPE National Conference 9th 10th June, 2017 Saheed Bhawan, Cuttack 12
Topics Banking and Insolvency Code IND AS and Recent Amendments under Companies Act,
GST 2013
Panel Discussion on Role of CAs in Digital Recent Changes Under Income Tax
Economy Motivation on Unleash The Power Within to Perform
Fees R2,500/- (Per Member)
R3,500/- (Per Non-Member/Corporate Delegate including Service Tax)
R500/- (Per Student)
Contact Programme Coordinator - Chairman- Cuttack Branch of EIRC of ICAI
Person For Registration & Further Details:
Cuttack Branch of EIRC of ICAI, ICAI Bhawan, Plot No. 8-4-1/521(P), Sector 8, CDA, Cuttack 753014, Ph. No. : (0671)
2505348, 2506348 (Telefax), E-mail: cuttack@icai.org
2. CPE Residential Refresher Course 16th 18th June, 2017 Marari Beach Resort, 12
Alleppey, Kerala
Topics Standards on Auditing ICDS-Income Computation and Disclosure Standards
Company Audit & Companies Act-An update New Penalty Provisions and recent changes in Income Tax
Accounting Standards An update of first Act
time adoption of IND AS GST-An overview and Transitional Provisions
Fees For Members: Non Residential
Per Participant (on twin sharing basis) R11,000/- Members R4500/-
For Alleppey Non ARS Members (twin sharing basis) R10,500/- Members (ARS Alleppey) R4,000/-
For Alleppey ARS Members (twin sharing basis) R9,800/- (fee including lunch and dinner)
Per Participant (single occupancy) R20,000/-
Accompanying person:
- For Spouse (including child below age 5 years): R9,800/- -
- Per Child age 5-12 years With extra bed R6,000/-
- Per Child age 5-12 years Without extra bed R5,000/-
Contact Programme Coordinator- Chairman Alleppey Branch of SIRC of ICAI,
Person For Registration & Further Details:
Alleppey Branch of SIRC of ICAI, ICAI Bhawan, ICAI, Lane, Near Athithara Temple, Pazhaveedu P.O.,
Alleppey 688009, Phone: 9496321458, 0477-2261458, Email: alleppey@icai.org
Committee for Capacity Building of Members in Practice (CCBMP)
Programme/Committee Chairman: Chairman, CCBMP, ICAI
3. National Residential Refresher Course 9th-10th June, 2017 Hotel Sun-n-Sand, Shirdi 12
Topics Taxation of Charitable Trusts &Benami Properties, GST record keeping requirements & Data mining, Recent Case laws relevant for
small & medium CAs, GST rollout, migration & pre GST actions, all about section 269SS, 269ST & 269T, GST rates & Exemptions and
Taxation in respect of Real Estate Transactions
Fees For Member: R3,000/- (including Registration Kit, Course Material, Breakfast, Lunch & Dinner & VIP Darshan of ShriSai Baba),
R3,500/- (After 20th May)
For Non Member: R3,500/- + Service Tax Extra (including Registration Kit, Course Material, Breakfast, Lunch & Dinner & VIP
Darshan of ShriSai Baba), R4,000/- + Service Tax Extra (After 20th May)
For Accommodation: R2,400/- Per Day, Per Person on Triple Sharing basis
Hotel Sun-N- Sand & ST. Laurn (Five Star Properties), Check in 10.00 am & Check out 1.00 pm (allotment of rooms will be in the
hands of Committee only)
Contact Programme/Course Co-ordinator: Chairman, Ahmednagar Branch of WIRC of ICAI
Person For Registration & Further Details: Ahmednagar Branch of WIRC of ICAI,ICAI Bhawan, Opp.Nakshtra Lawn,Burudgaon
Road, Ahmednagar, Ph.0241 2324761 E-mail: ahmednagar@icai.org
Secretary, Committee for Capacity Building of Members in Practice (CCBMP), ICAI, Telephone: 0120-3045994,
E-mail: sambit.mishra@icai.in
4. All India Conference 5th & 6th August, 2017 Bhubaneswar 12
Topics Ind AS, Recent changes in Direct Taxes, ICDS, GST, Insolvency & Bankruptcy Code etc.
Fees R3,000/- for Members of ICAI up to 31st July, 2017
R3,500/- for Members of ICAI from 1st August, 2017 to 5th August, 2017
R3,500/- plus applicable taxes for Corporate delegates up to 31st July, 2017
R4,000/- plus applicable taxes for Corporate delegates from 1st August, 2017 to 5th August, 2017
Contact Programme/Course Co-ordinator: Chairman, Bhubaneswar Branch of EIRC of ICAI
Person For Registration & Further Details: Bhubaneswar Branch of EIRC of ICAI, Bira Maharana Lane, Nilakantha Nagar, Nayapalli,
Bhubaneshwar, Odisha, India, E-mail: bhubaneswar@icai.org; Telephone: 0674 2390773; Fax: 0674 2392391
Secretary, Committee for Capacity Building of Members in Practice (CCBMP), ICAI, Telephone: 0120-3045994,
E-mail: sambit.mishra@icai.in
5. Webcast on Trust & Taxation under IT Act 23rd June, 2017 New Delhi 2 (As per CPE
norms)
Topics Trust & Taxation under IT Act
Fees Nil
Contact For Further Details: Secretary, Committee for Capacity Building of Members in Practice (CCBMP), ICAI,
Person Telephone: 0120-3045994, E-mail: sambit.mishra@icai.in
1
For more details about the forthcoming events, please refer the detailed announcements hosted on the ICAI website www.icai.org

www.icai.org THE CHARTERED ACCOUNTANT JUNE 2017 141

 Events
1770

Sl. No. Title of the Seminar/Conference Date Place CPE Hours

6. Workshop on Capacity Building Measures 16th June, 2017 ICAI Bhawan, A-29, 6
of Practitioners Sector-62, Noida (U.P.)
Topics Royality,FTs & Provisions of Section195 under IT Act, Benami Transactions, Insolvency & Bankruptcy Code
Fees R600/- for Members of ICAI
Nil for Annual Members
Contact Programme/Course Co-ordinator: Chairman, Noida Branch of CIRC of ICAI
Person For Registration & Further Details: NOIDA BRANCH OF CIRC OF ICAI, P-19 (Basement), Sector-12, Noida, Telephone:
0120-4280419, 4202175, Email: infoicainoida@gmail.com
Secretary, Committee for Capacity Building of Members in Practice (CCBMP), ICAI, Telephone: 0120-3045994,
E-mail: sambit.mishra@icai.in
Committee on Information Technology
7. 3 Days Hands on Experience Training on 19th, 20th & 21st, June 2017 DA Lab, ICAI Bhawan 18
Forensic Analytics using CAAT Tools 21st, 22nd & 23rd, August 2017 Sector 62, Noida
25th, 26th & 27th, October 2017
Fees Registration Fees: R5,500/- (per participant)
Contact For Registration & further details, please contact:
Person Committee On Information Technology
The Institute of Chartered Accountants of India, Phone (+91) 120 3045 963/992/961, E-mail: fafp@icai.in;
For Further Details, please visit http://cit.icai.org
8. 3 Days Hands on Experience Training on 03rd, 04th & 05th, July 2017 DA Lab, ICAI Bhawan 18
Advanced Excel & Data Dashboard 27th, 28th & 29th, Sep. 2017 Sector 62, Noida
Fees Registration Fees: R5,500/- (per participant)
Contact For Registration & further details, please contact:
Person Committee On Information Technology
The Institute of Chartered Accountants of India, Phone (+91) 120 3045 963/992/961, E-mail: fafp@icai.in;
For Further Details, please visit http://cit.icai.org
9. Certificate Course on Forensic Accounting and Fraud Detection Batches to be organised in the month of June
Date Coordinator Details Place
03rd June, 2017 9839805733 / 9839805756, allahabad@icai.org Allahabad
03rd June, 2017 080-30563541, kulashekhar@icai.in Bangalore
24th June, 2017 9881922822, latur@icai.org Latur
24th June, 2017 033-30211117, ero@icai.in Kolkata
Fees R20,000/-
Contact Programme/Course Coordinator: Committee on Information Technology, For Registration & Further Details please visit
Person http://pqc.icai.org, Contact No. 0120-3045963
10. Post Qualification Course on Information Systems Audit Batches to be organised in the month of June
Date Coordinator Details Place
24th June, 2017 8390610136, pune@icai.org Pune
03rd June, 2017 9301106875, gwalior@icai.org Gwalior
03rd June, 2017 8734081240, ahmedabad@icai.org Ahmedabad
17th June, 2017 7208099778, vasaibranch@gmail.com Vasai
03rd, June 2017 022-33671578, navimumbaica@icai.org Navi Mumbai
24th, June 2017 9826147610, raipur@icai.org Raipur
Fees R20,000/-
Contact Programme/Course Coordinator: Committee on Information Technology, For Registration & Further Details please visit
Person http://pqc.icai.org, Contact No. 0120-3045963
11. Seminar on Use of Data Analytic Tools, Big 3rd June, 2017 Kolkata 6
Data Analytics and Artificial Intelligence in 10th June, 2017 Mumbai
Assurance Services by CAs 17th June, 2017 Indore
17th, June 2017 Chennai
Topics (1) Benfords Law
Concept of Benfords Law
Benefit in terms of saving time, increase efficiency level
Case Study
(2) Use of Advance Excel
Various techniques to increase efficiency level & quality of Assurance Services
Use of Excel in ERP/SAP Environment
(3) Artificial Intelligence & Big Data Analytics
Concept
How to introduce AI & BDA in Assurance Services
Fees R2,500/- for Members and R3000/- for Non- Members
Contact For Registration & Further Details: Please visit http://cit.icai.org, Contact No. 0120-3045963
Person
12. Two Days Workshop on GST 2nd and 3rd June,2017 Gandhidham 12
Contact For Information contact: Gandhidham Branch of WIRC of ICAI, Banke Bihari, Plot No.16, Ward 10B, Gandhidham-370201;
Person Ph- 02836-230305; gandhidham@icai.org
Visit website of the Committee: www.idtc.icai.org

142 THE CHARTERED ACCOUNTANT JUNE 2017 www.icai.org

 Events
1771

Sl. No. Title of the Seminar/Conference Date Place CPE Hours

13. National Conference on GST 2nd and 3rd June,2017 Ernakulam 12
Contact For Information contact: Ernakulam Branch of SIRC of ICAI, ICAI Bhawan,57/3146, Dewans Road, Ernakulam, Kochi 682 016,
Person Ph-484-2396238/2372953/ 2396258; ernakulam@icai.org
Visit website of the Committee: www.idtc.icai.org
14. Workshop on GST 3th, 4th, 17th and 18th June,2017 Agra 24
Contact For Information contact: Agra Branch of CIRC of ICAI, 77/8, M K Tower, Sanjay Place, Agra.
Person Ph- 0562-4040598; icaiagra@gmail.com
Visit website of the Committee: www.idtc.icai.org
15. Two Days Workshop on GST 9th and 10th June,2017 Hubli 12
Contact For Information contact: Hubli Branch of SIRC of ICAI, ICAI Bhawan, Madhura Chetna Colony, Keshwapur, Kusugal Road, Hubli
Person 580 023, Ph: 0836-2288337, 0836 2283081; icaihubli@gmail.com
Visit website of the Committee: www.idtc.icai.org
16. National Conference on GST 13th and 14th June,2017 Chennai 12
Contact For Information contact: SIRC of ICAI, 'ICAI Bhawan',122, Mahatma Gandhi Road, Post Box No. 3314, Nungambakkam, Chennai -
Person 600034, Ph-044-30210320/381; sirc@icai.in
Online Payment Link-http://sircoficai.org/CPEDetailsnew.aspx?id=429
Visit website of the Committee: www.idtc.icai.org
17. Programme on GST 16th and 17th June, 2017 Goa 12
Contact For Information contact: Goa Branch of WIRC of ICAI, Kamat Towers, 201/202, 2nd Floor, Patto Plaza, Panaji, Goa.
Person Ph-0832-2438516; goa@icai.org
Cheque in favour Goa Branch of WIRC of ICAI payable at Goa
Visit website of the Committee: www.idtc.icai.org
18. Certificate Course on GST 30th June, 2017 Allahabad 30
Contact For Information contact: 2nd Floor, Tulsiani Plaza, Civil Lines, Allahabad, Uttar Pradesh 211001, Ph- 0532 242 7614, 9935619226
Person Online Registration Link- http://idtc.icai.org/cc/student
Visit website of the Committee: www.idtc.icai.org

For Free www.cccicai.in

www.icai.org THE CHARTERED ACCOUNTANT JUNE 2017 143

Definiteness of purpose is the starting point of all achievement. - W. Clement Stone

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ACROSS
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1. GST July 1 roll out will attract the lowest tax rate of _______% on
sugar, tea, coffee, edible oil and sweets.
9. GST Council approves ______ of 90 per cent of exporters duty
claims on incentive schemes within ten days.
10. After the introduction of GST from July 1, daily use products like
milk, wheat and rice will be_____________ from taxation.
11. ____________ became the first State to pass the SGST Bill.
12. As per the GST rate schedule for the services, 5-star hotels, race
club betting, cinema will attract tax slab of _______ ______ per
cent.
13. To align with the agriculture production cycle, _________
Pradesh became the first state to change the budget cycle to
January-December from the existing April-March.
14. A CA firm which has been appointed as the internal auditor
of a PF Trust by a Government Company cannot be appointed
as its _________Auditor.
15. Dibrugarh University of Dibrugarh has recognised CA
qualification as equal to _________in__________.
DOWN
2. The GST will subsume the present _____________ tax and
service tax making movie-going cheaper with a single 28% tax
on cinema halls.
3. The Real Estate Act aims to protect the interests of ________by
ensuring transparency has come into effect.
4. The Benami Transactions (Prohibition) Act, 1988 will be
renamed as the ________ Act,1988.
5. Maharishi Arvind University of Jaipur recently recognised the
Chartered Accountancy qualification along with the Bachelors
degree for the purpose of Chartered Accountants admission
into their_______ programme.
6. _________has released FAQs on GST in various regional
languages to disseminate the knowledge in the local language to
various stakeholders.
7. As per the Prohibition of Benami Property Transactions Act,
1988 _____________means a person or a fictitious person,
as the case may be, in whose name the benami property
is transferred or held and includes a person who lends his
name.
8. Income Tax Department initiated Operation _____ ______to
investigate tax evaders.
NOTE: Members can claim one hour CPE Credit Unstructured
Learning for attempting this crossword by filling the details in the self-
declaration form to be submitted to your regional office annually to
avail CPE hours credit for Unstructured Learning activities under the
activity Providing Solutions to Questionnaires/puzzles available on
Web/Professional Journals. There is no need to individually send this
crossword in hard copy or email.

SOLUTION CROSSWORD 1 3 1
1
S
2 3
P O F
4 5
D U B A I S U P P L I E S
C C N
6 7
M E R G E D A
8
I T N
9
F I L I N G H C
I I I
10
A M S T E R D A M
The difference between a cat and a complex A T L
11 12

sentence is that the former has claws at the end S E A L Y

O
of its paws and the latter has a pause at the end 13 14
M C A
of its clause. E
R
15
N C L T

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