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Monday, October 22, 2012

Section 32(1) not applicable If assessee is only permitted to use trade mark /brand name of foreign collaborator with certain conditions

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IN THE ITAT CHENNAI BENCH ‘B’
Fenner (India) Ltd.
v.
Additional Commissioner of Income-tax
IT APPEAL NOS. 722 & 1047 (MDS.) OF 2009
[ASSESSMENT YEAR 2005-06]
APRIL 23, 2012
 
With regard to the contention of the revenue that the assessee has acquired intangible asset and therefore depreciation is allowable under section 32(1); it is opined that the provisions of section 32(1) are applicable when the assessee acquires on or after 1-4-1998 and owns wholly or partly any know-how, patents, copy rights, trade mark, etc. and uses the same for the purpose of business or profession. In this case, the assessee has not either owned wholly or partly any know-how, patents, copy rights, trade mark, etc. so as to apply the provisions of section 32(1). The assessee is only permitted to use trade mark and brand name of the foreign collaborator with certain conditions. Therefore, the provisions of section 32(1) are not applicable to the facts of the assessee’s case. 

No Capital gain tax firm if it doesn’t distribute any capital asset to retiring partners

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IN THE ITAT MUMBAI BENCH ‘F’
Income-tax Officer – 25(3)(4)
v.
Fine Developers
IT APPEAL NO. 4630 (MUM.) OF 2011
[ASSESSMENT YEAR 2008-09]
OCTOBER 12, 2012
 
Allocation of assets of the firm to the retiring partners is the basis for invocation of provisions of Section 45(4). In the case under consideration, neither there was any dissolution nor other event took place that had an effect of allocation of exclusive interest in any capital asset to the retiring partners. In these circumstances, FAA was justified in holding that conditions of Section 45(4) were not fulfilled. In our opinion the firm or the continuing partners were not liable to be taxed under the head ‘capital gains’, as held by the FAA. Retiring partners had relinquished their rights in the assets of the firm and in lieu of that firm had paid the retiring partners money lying in their capital account. Obviously, assessee-firm had not transferred any right in capital asset to the retiring partners rather it is the retiring partners who have transferred the rights in capital assets in favour of the continuing partners. So, even if capital gain has to be taxed it has to be in the hands of the retiring partners not in the case of the assessee-firm.

Carry forward business losses & depreciation cannot be set off against profits of an undertaking while working out claim u/s. 10B

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IN THE ITAT MUMBAI BENCH ‘A’
ASB International (P.) Ltd.
v.
Deputy Commissioner of Income tax, Circle-1
IT Appeal Nos. 245, 7040 to 7042 (Mum.) of 2011
[Assessment years 2005-06 to 2007-08]
JUNE 29, 2012

Since the provisions of section 10A and 10B are similar in nature and as the jurisdictional High Court decided the issue while considering the provisions of section 10B also respectfully following the above, we uphold the contention of assessee that carry forward business losses and depreciation cannot be set off to the profits of the undertaking while working the claim u/s 10B. Therefore, AO is directed to do the needful in light of the above principles laid down.

Friday, October 19, 2012

Splitting of cash payment to circumvent the provisions of law attracts Section 40A(3)

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IN THE ITAT JODHPUR BENCH
Vaishali Builders & Colonizers
v.
Additional Commissioner of Income-tax,
IT APPEAL NO. 391 (JODH.) OF 2011
[ASSESSMENT YEAR 2008-09]
JULY 25, 2012
 
The assessee did not produce sale deed or the agreement during the course of arguments to prove that part cash payments were made in instalments for purchase of land. If it was advance money given to the villagers for purchase of land in instalment, there was no necessity to make payment in cash in instalment. It could be paid by cheques/drafts. Further if the amount was paid at the time of execution of sale deed, the villager/seller would not accept cash payments in instalments everyday during the whole year after the execution of sale deed. Therefore, it is clear that the books of account of the assessee have been manipulated to circumvent the provisions of law. The assessee has, thus, failed to prove genuine payments in instalments to the villagers in cash. Hon’ble Supreme Court in the case of CIT v. Durga Prasad More [1971] 82 ITR 540 and in the case of Sumati Dayal v. CIT[1995] 214 ITR 801 held that “the Courts and Tribunals have to judge the evidences before them by applying the test of human probabilities after considering the surrounding circumstances.”
Regarding the business expediency, the assessee has not filed any evidence before the authorities below and nothing is clarified as to what were the other relevant factors, for which the cash payment has been made and no specific Rule has been explained u/r 6DD, which is applicable to the case of the assessee. The ld. counsel for the assessee argued that for purchase of agricultural land and payment made to the villagers, the provisions of section 40A(3) may not be applied as provided in exception to Rule 6DD. We have gone through the Rule 6DD applicable now and prior to amendment also, in which none of the exception has been provided for making payment in cash for purchase of land. It is, however, provided that above rule can be avoided if payment is made for purchase of agricultural produce which is not the case of the assessee at all. The assessee is dealing in real estate and in land and as such, it was for the assessee to establish that the cash payments have been made for business exigencies, which the assessee has failed to prove in this case. Further Rule 6DD(j) would not apply in this case because the assessee failed to prove that on the date of payment whether banks were closed either on account of holiday or strike. The ld. CIT(A), therefore, rightly noted in his finding that the assessee has not satisfied as to under which Rule, the assessee’s case would fall. In the case of Trivedi Corporation Pvt. Ltd. (supra), ITAT Ahmedabad Bench considered the issue of disallowance u/s. 40A(3) in respect of cash payment made to Gujrat State Electricity Board, which was considered as one of the undertaking of the State Government. Therefore, it was considered to be a payment made to Government Body and was falling in exception. The case law cited by the ld. counsel for assessee would not support the case of the assessee because they are based on their own facts and that the theory of real income would not apply for dealing with the issue of section 40A(3) of the IT Act. Considering the facts and circumstances and above discussion, it is very clear that the assessee consciously split up the payments in whole of the year, which is impracticable, illogical as noted above and it was done just to circumvent the provisions of law. There was no justification for the assessee to split up the transactions of crores of rupees in small payments of Rs. 15,000/- to Rs. 20,000/- everyday. Whatever plea was taken before the authorities below was not supported by any evidence. Therefore, the assessee failed to prove any business expediency or other facts for making staggered payments in cash. The case of the assessee would not fall in any exception to Rule. The assessee deliberately and consciously split up the payments in part so as to circumvent the provisions of law. We, therefore, do not find any justification to interfere with the orders of the authorities below. There is no merit in these grounds of appeal by the assessee. Same are accordingly dismissed.

To revise claim made in Original Return filing of revised return is must

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IN THE ITAT CHENNAI BENCH ‘C’
Assistant Director of Income-tax (International Taxation)
v.
Litostroj
IT APPEAL NOs. 1241, 1429 & 2132 TO 2135 (mad.) of 2010
[ASSESSMENT YEARS 2004-05, 2006-07 & 2007-08]
MARCH 30, 2012
 
 Assessees had filed revised computation during the course of assessment proceedings, applying Section 44BBB for computing their respective income, whereas initially they had returned their income based on the audited books of accounts. Application of Section 44BBB of the Act for computing the income was first made through such revised computation. Hon’ble jurisdictional High Court in the case of CIT v. Shriram Investments (TCA 344 of 2005 dated 16.6.2012) relying on the decision of Hon’ble Apex Court in the case of Goetze (India) Ltd. v. CIT [2006] 284 ITR 323 has clearly held that for making a claim other than what was originally made in return of income, filing of a revised return is mandatory. Neither the A.O. nor the CIT(Appeals) have considered these fundamental aspects regarding status and validity of a claim made other than through revised return. Further, assessees had also not placed before A.O. various details regarding erection charges received and break-up of the work done by them to M/s TNEB for verifying whether their billings included any fee for technic service. We are, therefore, of the opinion that the matter requires a re-visit by the A.O. for considering the issues de novo. We, therefore, set aside the orders of authorities below and remit it back to the file of the A.O. for consideration afresh in accordance with law.

Service tax paid on maintenance of garden eligible for input service credit

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CESTAT, BANGALORE BENCH
BASF India Ltd.
v.
Commissioner of Central Excise, Mangalore
FINAL ORDER NO. 70 of 2012
APPEAL NO. ST/560 of 2008
FEBRUARY 3, 2012
 
Landscaping of factory or garden certainly would fall within the concept of modernization, renovation, repair, etc. of the office premises. At any rate, the credit rating of an industry is depended upon how the factory is maintained inside and outside the premises. The Environmental law expects the employer to keep the factory without contravening any of those laws. That apart, now the concept of corporate social responsibility is also relevant. It is to discharge a statutory obligation, when the employer spends money to maintain their factory premises in an eco-friendly, manner, certainly, the tax paid on such services would form part of the costs of the final products. In those circumstances, the Tribunal was right in holding that the service tax paid in all these cases would fall within the input services and the assessee is entitled to the benefit thereof.

Tribunal cannot consider validity of retrospective amendment

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HIGH COURT OF KERALA
M. Abdul Rehuman Kunju
v.
Assistant Commissioner of Income-tax, Circle-I, Kollam
I T Appeal Nos. 50 & 63 of 2012
August 3, 2012
 
The validity of a provision cannot be considered or adjudicated upon by the Tribunal constituted under the Act. Section 260A provides for an appeal from every order passed by the Appellate Tribunal. If it involves a substantial question of law, such question of law should arise from the order of the Tribunal. If the Tribunal cannot consider the validity of a retrospective amendment, no doubt such question does not arise from its order and the jurisdiction conferred on the High Court under section 260A cannot also enable the High Court to consider such validity or otherwise.

Interest on bad & doubtful debts kept in reserve account eligible for deduction u/s. 43D

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IN THE ITAT MUMBAI BENCH ‘L’
American Express Bank Ltd.
v.
Additional Commissioner of Income-tax
IT APPEAL NO. 5374 (MUM.) OF 2001
INT. T.A. NO. 97 (MUM.) OF 2001
[ASSESSMENT YEAR 1998-99]
AUGUST 10, 2012
 
Mere crediting of the interest to a reserve cannot be said to be an incidence by which the said interest could be charged to tax. Whatever has been recovered by the assessee has been shown as income. Therefore, the assessee is entitled to claim of such interest under the provisions of section 43D and the claim of the assessee cannot be rejected simply on the ground that interest had been credited on such type of debts in the reserve account. However, for the verification of the figures, the Assessing Officer is directed to see that what has actually received by the assessee during the year has been offered to tax. Thus, the matter is restored to the file of the Assessing Officer for such verification. This ground of the assessee is allowed for statistical purposes in the manner aforesaid.
The inclusion of aforesaid amount of interest in the taxable interest was challenged by the assessee on the basis of proviso to section 5 of the Interest-tax Act read with section 43D according to which interest on such non-performing assets was to be charged to interest tax only in the year in which the said interest is credited to the profit and loss account or in the year of receipt, which is earlier. It is already noted that section 43D is applicable to the case of the assessee and interest can only be charged to the extent it is actually received during the year.
It has already been mentioned that interest on non-performing assets as described in section 43D can be assessed only in a condition that either they are credited to profit and loss account or it is actually received. In the present case of the assessee since interest is not credited on such assets to the profit and loss account, therefore, whatever interest is actually received on such assets is taxable. The same principle will be applicable to interest tax also.

Due date to FILE XBRL Statement for FY 2011-12

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The Ministry of Corporate Affairs vide Notification Number GSR 748 (E) dated 05.10.2011 had mandated filing of financial statements of select class of companies with Registrar of Companies using extensible Business Reporting Language (XBRL).
Vide Ministry’s General Circular No. 16/2012 dated 06.07.2012, select class of companies having their financial year commencing on or after 01.04.2011 have been mandated to file their financial statements (based upon new Schedule VI) for Financial Year 2011 -12 using extensible Business Reporting Language (XBRL). The applicable Taxonomy, Business Rules and Validation Tool have been finalized and are available on the MCA XBRL website (http://www.mca.qov.in/XBRL/) The XBRL filings of financial statements (based upon new Schedule VI) for F.Y. 2011-12 on MCA website is enabled with effect from 14th October, 2012.
Kindly note that all eligible companies may file their financial statements (based upon new Schedule VI) in XBRL till 15th November, 2012 or within 30 days from date of its AGM, whichever is later, without any additional fees. For further details, visit MCA website www.mca.gov.in

Trust deed is to be treated as settlement deed & would be chargeable to stamp duty

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HIGH COURT OF MADRAS
P.N. George Wilson v. State
W.A. NO. 1197 OF 2012
M.P. NO. 1 OF 2012
JULY 17, 2012
 
It is to be noted that a settlement is an admixture of gift or partition or trust. In law, a family arrangement/settlement is accepted as a transfer of interest in the property in favour of an individual between whom the family arrangement or settlement is so made. Just because a deed/instrument answers the description of a ‘Trust Deed’, it does not cease to be a ‘settlement’ for the purpose of stamp duty, if it answers the description of ‘settlement’ also. As a matter of fact, a deed of trust/trust deed can also be a settlement deed.
In the present case, the Chief Controlling Authority, Inspector General of Registration, passed an order on 31-5-2008 among other things observing that as per the deed the property is transferred to the trust and held that the deed is settlement outside the family and hence stamp duty leviable as per section 58(a)(ii) and dismissed the revision upholding the orders of the District Registrar.
Looking at from any point of view, on an over all assessment of the facts and circumstances of the present case in a cumulative fashion, it is concluded and held that the trust deed dated 14-7-2003 in issue is chargeable to stamp duty as per article 58 (ii) of the 1899 Act treating it as a settlement deed as per section 2(24) of the 1899 Act.

Wednesday, October 3, 2012

Levy of Service Tax on Transportation of Goods by Rail from 1st October 2012

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In compliance of the provisions contained in Finance Bill 2010 and subsequent notifications issued by Ministry of Finance, the Service Tax in case of transportation of goods by rail, which was exempted upto 30th September 2012, would now be levied on total freight charges with effect from 1st October 2012.
Since an abatement of 70% has been permitted on freight for the taxable commodities by the Ministry of Finance, the Service Tax will be charged on 30% of the total chargeable freight inclusive of all charges (like busy season charges, development charge etc.,) would be calculated as follows:-
(i) Service Tax of 12% will be charged on 30% of freight (equivalent to 3.6% on the total freight charges)
(ii) Education Cess of 2% on Service Tax will be added (equivalent to 0.072% on total freight) and
(iii) Higher Education Cess of 1% on Service Tax will also be added (equivalent to 0.036% on total freight)
(iv) Total Service Tax implication will be (i)+(ii)+(iii)=3.708% on the total freight charges.
Certain commodities have been exempted from payment of service tax as per Ministry of Finance notification. The list of such commodities and further details on the modalities of levy and collection of Service Tax on transportation of goods by rail, may be ascertained from Indian Railways’ web site i.e. www.indianrailways.gov.in
The amount of Service Tax collected by Railways would be deposited with the Ministry of Finance as per prescribed procedure.

New Nature of Payments have been introduced under OLTAS Challan No./ITNS 281

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4 New Categories of payment been added to the existing list of 32 categories. Revised List is follows :-
193 – Interest on Securities
194 – Dividend
195 – Other sums payable to a non-resident
4BB – Winning from Horse race
4EE – Payments in respect of Deposits under National Saving Schemes
4LB – Income by way of interest from infrastructure debt fund payable to a non-resident
4LC – Income by way of interest from specified company payable to a non-resident
6CA – Alcoholic liquor for human consumption
6CB – Timber obtained under forest lease
6CC – Timber obtained other than forest lease
6CD – Any other forest produce not being timber or tendu leaves
6CE – Scrap
6CF – Parking Lot
6CG – Toll Plaza
6CH – Mining and Quarrying
6CI – Tendu Leaves
6CJ – Minerals
6CK – Bullion and Jewellery
92A – Payment to Govt. Employees other than Union Govt. employees
92B – Payment of Employees other than Govt. Employees
94A – Interest other than Interest on Securities
94B – Winning from lotteries and crossword puzzles
94C – Payment of contractors and sub-contractors
94D – Insurance commission
94E – Payments to non-resident Sportsmen/Sport Associations
94F – Payments on account of Re-purchase of Units by Mutual Funds of UTI
94G – Commission, prize etc. on sale of Lottery tickets
94H – Commission or Brokerage
94I – Rent
94J – Fees for Professional or Technical Services
94K – Income Payable to a resident assesse in respect of units of a specified Mutual Fund or of the Units of the UTI
94L – Payment of Compensation on Acquisition of Certain Immovable property
96A – Income in respect of Units of non-residents
96B – Payments in respect of Units to an Offshore Fund
96C – Income from foreign currency Bonds or Shares of Indian Company payable to a non-resident
96D – Income of Foreign Institutional investors from securities

Employees’ contribution towards PF paid before Due Date of Return Filing is allowable

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INCOME TAX APPELLATE TRIBUNAL DELHI
ITA No.1020/Del /2012 – Assessment Year: 2008-09
ACIT V/s. M/s Vipul Facility Management Pvt. Ltd.
Date of Pronouncement: 06-09-2012
 
Employees’ contribution towards PF paid by the assessee before the due date of filing of return u/s 139(1) of the Act for the assessment year under consideration is admissible.

Due Date Extended for Annual Return Filing (Non XBRL) with ROC to 03/11/12 & 22/ 11/12

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General Circular No.30/2012, Dated: – 28th September, 2012
Sub: Filling of Balance Sheet and profit and loss Account by companies in Non-XBRL for the accounting year commencing on or after 01.04.2011.
The Ministry has issued general circulars No. 21/2012 dated 28/09/12 and No. 28/2012 dated 03/09/12 extending time for filing e-form 23AC (Non-XBRL) and 23ACA (Non-XBRL) up to 15/10/12 or within 30 days from the date of AGM whichever is later. The revise e-forms 23AC (Non-XBRL) and 23ACA (Non-XBRL) have now been notified vide notification dated 24/09/12 and shall come into effect from 30/09/12.
In order to ensure smooth filing and to avoid last minute rush, it is to inform you that with the approval of the competent authority, the due date of filing of e-forms 23AC (Non-XBRL) or 23ACA (Non-XBRL) as per new schedule VI is now further extended in following manner without any additional fees:-
(a) Company holding AGM or whose due date for holding AGM is on or before 20/09/12, the time limit will be 03/11/12 or due date of filing, whichever is later.
(b) Company holding AGM or whose due date for holding AGM is on or after 21/09 /12, the time limit will be 22/ 11/ 12 or due date of filing, whichever is later.

ST return to be filed by 25-10-2012 shall be for the period from 1-4-2012 to 30-6-2012

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Service Tax (Fourth Amendment) Rules, 2012 – Amendment in rule 7
Notification No. 47/2012 ST, DATED 28-9-2012
In exercise of the powers conferred by sub-section (1) read with sub-section (2) of section 94 of the Finance Act, 1994 (32 of 1994), the Central Government hereby makes the following rules further to amend the Service Tax Rules, 1994, namely:-
1. (1) These rules may be called the Service Tax (Fourth Amendment) Rules, 2012.
(2) They shall come into force on the date of their publication in the Official Gazette.
2. In the Service Tax Rules, 1994, in rule 7, in sub-rule (2), the following proviso shall be inserted, namely:-
“Provided that the Form ‘ST-3′ required to be submitted by the 25th day of October, 2012 shall cover the period between 1st April to 30th June, 2012 only.”

Guidelines on Internal Audit, Information Systems Audit & Concurrent Audit Systems

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F. No. 7/124/2012-BOA
Government of India
Ministry of Finance
Department of Financial Services
Subject : Master Circular on Audit Systems.
The Government of India has issued guidelines / instructions to banks on Audit Systems. In order to have these guidelines / instructions at one place for ready reference, a Master Circular incorporating the existing guidelines / instructions issued by the Government on the subject has been prepared.
2. All CEOs are requested to acknowledge receipt and ensure compliance of the above guidelines in their PSBs and Regional Rural Banks (RRBs) sponsored by their banks.
3. This issues with the approval of Secretary (FS).
————

Guidelines on Internal Audit, Information Systems Audit and Concurrent Audit Systems.

Introduction
It has been observed that there is a multiplicity of overlapping audits in the Public Sector Banks (PSBs). While the audit is essential for the health of the PSBs, it has been observed that multiple overlapping audits throughout the year engage a lot of attention, resources and time of the PSBs. It has also been observed that there is a need to revamp the audit system in PSBs in the wake of increasing computerization and shifting of operations on I.T. based system. The present audit system is lagging behind the technological advancement achieved by PSBs.
Area of concern
In the above background the Government of India has constituted a Committee under the Chairmanship of Shri Basant Seth, ex-CMD of Syndicate Bank which has submitted its report. The Committee has identified certain areas of concern in the PSBs namely:
i. Effective Internal Audit (IA) should work as a strong deterrent and preventive mechanism for frauds.
ii. A strong audit system should be well supported by the Offsite Monitoring Unit (OMU) through System generated reports/ MIS.
iii. Multiplicity of Audits is resulting in Audit fatigue. There is a need to stream line the number of Audits by strengthening the Internal Audit and Concurrent Audits.
iv. Strengthening the IA by converting it into a stronger Risk Based Internal Audit (RBIA) function and also strengthening the Concurrent Audit by bringing Risk focus into the CA could reduce some of the other Audits in the Branches wherein RBIA, CA are conducted.
v. Banks should give adequate attention to IS Audit as many of the frauds are IT related which have shown substantial increase in the recent times.
vi. Currently 70% of business of banks is covered under Concurrent Audit System and yet the irregularities / frauds could not be controlled. The basic reason for the poor quality of work done by the Concurrent Auditors is on account of low fees structures and lopsided empanelment and appointment procedure followed by Banks. The Committee feels that there is urgent need to rectify the position in order to make the Concurrent Audit System effective.
vii. Statutory Branch Audit has become routine and not much effective post implementation of CBS in PSBs.
viii. In many Banks all the Inspection Reports are put to ACB directly, which is diluting the focus of ACB on High Risk Areas / Branches.
In the light of the above areas of concern identified by the committee, it was felt that the following guiding principles on Internal, I.S., Concurrent and Branch Statutory Audit should be followed by all the PSBs after suitably adapting them to the need of their organization.
I. General Guiding Principles
1. Need to stream line the number of Audits by strengthening the Internal Audit and Concurrent Audits and making them risk based.
2. The model policies contained in the draft manual attached may be adapted by the PSBs.
3. All the PSBs should form Audit Committee of Executives (ACE) headed by the Head of Audit (IA&A), GM (Risk) and other two GMs as Members. Zonal Audit Committee of Executives (ZACE) with similar composition at lower level be constituted by large banks.
4. ACE/ ZACE should meet minimum six times in a year. The ACE & ZACE will work under the guidance of ACB and all the minutes of ACE & ZACE should be put up to ACB
5. High Risk Audit Reports should be put up to ACB and in case of large banks Very High Risk Audit Reports- Critical Findings (Below 40% marks) may be put up to ACB. (Banks having Local Board may consider forming local ACB for reviewing High Risk Audit Reports- Critical Findings at Zonal Level, the minutes be put up to ACB at Central Level. However, closure of such reports can be done by CGM- Inspection/ Audit Department.
6. Banks should set-up proper off-site monitoring cell in the Audit Department or put in place suitable similar structure. Such cell/ structure to review the MIS on critical items and sensitise the Controlling Offices and Branches / Departments for corrective action on a daily basis. The OSM cell should also apprise Top Management of serious irregularities, if any, immediately
7. Banks while selecting the branches should consider, material changes that took place in overall risk profile/ its updation, risk involvement in new products/ processes at branch level, business growth.
8. Inspection/ Audit Department should critically analyse the high frequency low severity as well as low frequency high severity areas.
9. The Banks should move to Software based Audit process.
10. In order to attract good talent into Audit function, HR policies have to be properly modified making it mandatory a minimum two year term of working in Internal Audit Department for consideration to promotion DGM & above.
11. Inspection & Internal Audit department should be strengthened with adequate man power having requisite experience. – The team should consists of a proper mix of audit officers / Chartered Accountants / Cost Accountants/ CISA Qualified / Seniors having experience in all the Banking functions/ Juniors having basic knowledge of various banking functions
12. Bank should provide suitable training programs to all the auditors associated with Internal Audit and Concurrent Audit functions.
13. All the Audit team members should be made to sign Do’s & Don’ts given in the manual attached.
II. Guiding Principles on Risk Based Internal Audit (RBIA):
1. RBI team should also carry out IS compliance audit as part of their audit routine for small & low rated branches as well as follow up work for non compliance issues of the branch in IS audit areas.
2. Conflict of interest between Audit team member and Auditee should be avoided.
3. The frequency of Audits under Risk based system should be uniformly fixed at 9-12 months for Extremely High/ High Risk Branches, 12-15 months for medium Risk Branches and 15-18 months of low Risk Branches.
4. Risk Assessment matrix for Branches / Departments given in the manual under the suggested RBIA Policy may be adopted by banks.
5. Audit team should guide the branches on spot rectification of the deficiencies to the extent possible.
6. It is advised that all the Audit qualifications should be rectified within 90 days of submission of Audit Report and to be closed not later than 120 days.
III. Guiding Principles on Information Systems (IS)Audit:
1. The Banks should form separate IS Audit teams with persons having adequate IT experience and suitably CISA qualified Professionals. The IS Audit should be carried out on a continuous basis adopting Risk based Approach as per the IS Audit policy.
2. Continuous IS Audit should be introduced in critical areas in a phased manner.
3. Assessment of Internal Audit resource involvement at appropriate levels should be done.
4. I S Audit should become essential part of Internal Audit in the post CBS scenario.
5. Branch managers should submit compliance of Do’s and Don’ts regarding IS Audit Key Areas, on monthly basis.
IV. Guiding Principles on Concurrent Audit:
1. For Concurrent Audit Chartered Accountant Firms should be appointed from the RBI panel as per the gradation based on the size of the Branch. The remuneration of Concurrent Auditors may be enhanced suitably based on the coverage of audit, quality of the audit, skill sets required, number of staff required etc. The focus should be on substantive checking of the High Risk areas like
• Credit Risk
• Regulatory/Statutory Compliance Risk
• Fraud Risk
• Revenue Risk
2. Some of the High Risk Branches, specialized branches viz., Agri, SME, Mid Corporate, Infrastructure, Large Corporate, CPU, retail assets, portfolio management, forex, back office etc. should also be covered under the Concurrent Audit
3. BanksInternal Audit Department should interact with the Concurrent Auditors at least once in a quarter
4. The Banks should make it mandatory giving feedback to Concurrent Auditors on the frauds involving the Branch audited by them.
5. The performance of Concurrent Auditor should be reviewed on Annual basis
6. To avoid conflict of interest, an undertaking should be taken from the Concurrent Auditors that they will not have any professional or commercial relationship with the borrowers of the Branch / Department which they are auditing.
7. The Auditor should sign on the Do’s & Don’ts statemen n order to have proper arms length relationship with the Branch / Department which they are conducting Audit
8. Suitable deterring provisions should be incorporated in the Concurrent Auditors engagement for delayed submission of Reports and unsatisfactory performance
9. The functions performed by the statutory auditor should be transferred to Concurrent Auditors. Concurrent Auditors should be advised to provide various Certifications done presently by Branch Statutory Auditors, covering NPA provisioning, Insurance coverage, P & L Account, ALM, CRAR, DICGC, LFAR etc., similarly, Certification regarding Tax Audit may also be taken from the Concurrent Auditors.
10. With regard to other Branches not covered under Concurrent Audit but is covered under the Branch Statutory Audit the threshold limit of advances should be enhanced suitably, ensuring adequate coverage of Urban, Semi-Urban and Rural branches keeping in view the inflation over time, on the following lines:
11. All the branches not subjected to concurrent audit but covered under the Branch Statutory Audit, with the enhanced threshold limit of advances and 1/5th of remaining branches should be subjected to certification by external Chartered Accountants under Branch Statutory Audit System in the banks, where the CBS is not stabilized, for a maximum period of two years.
12. However, in case of banks where the CBS is stabilized and running well, the certification as per the above norms should be done at central level by the Central Statutory Auditor.
13. The above aspect of Annual Certifications should be kept in view while revising Fees of Concurrent Auditors as suggested earlier. This is expected to result in reduction in overall cost to the Banks and improvement in quality of CA on adopting this suggestion
14. Thus, going forward the existing Branch Statutory Auditor appointment system gets phased out, in view of the above suggested guiding principles.

Service Tax on Railway Passengers Travelling in AC Classes/First Class from 01.10.2012

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Levy of Service Tax on Railway Passengers Travelling in AC Classes/First Class from tomorrow i.e. 1st October 2012
No Service Tax to be Levied on Tickets Issued Prior to 1st October 2012
In Case of Cancellation of Tickets Issued on or after 1st October 2012, the Applicable Amount Including Service Tax to be Refunded by Railways
In compliance of the provisions contained in Finance Bill 2012 and subsequent notifications issued by Ministry of Finance, the Service Tax in case of railway travel will be levied on the fare of passenger services in the following classes from tomorrow i.e. 1st October 2012:-
(i) AC First Class, (ii) Executive Class, (iii) AC-2 tier Class, (iv) AC-3 tier class, (v) AC Chair Car class, (vi) AC Economy class and (vii) First Class.
Since an abatement of 70% has been permitted on passenger services by Ministry of Finance, the Service Tax will be charged on 30% of total fare including reservation charge, development charge, superfast surcharge which would be calculated as follows:-
1. Service Tax of 12% will be charged on 30% of fare (equivalent to 3.6% on the total fare)
2. Education Cess of 2% on Service Tax will be added (equivalent to 0.072% on total fare) and
3. Higher Education Cess of 1% on Service Tax will also be added (equivalent to 0.036% on total fare)
4. Total Service Tax implication will be (i)+(ii)+(iii)=3.708% on the total fare.
On Concessional value tickets, service charge will be levied @ 3.708% of the total fare actually being paid by the passengers.
Through a subsequent corrigendum issued by M/o Railways, it has been clarified that the Service Tax would be collected on the tickets issued/bookings made on or after 01.10.2012. Service Tax is not livable on tickets issued prior to 01.10.2012 and hence will not be collected on board the trains.
In case of cancellation of tickets booked by the passengers on or after 01.10.2012, the applicable amount including refundable Service Tax amount will be refunded by Railways as per Railwayrefund rules and Finance Ministry guidelines.
The amount of Service Tax collected from passengers will be deposited with the Ministry of Finance as per prescribed procedure. Finance Departments of Zonal Railways have been instructed for proper accountal and remittance of Service Tax amount to the Government.

Inclusion of ‘closing amount of Modvat’ in closing stock without modifying figures of purchases, sales & opening stock not justified

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IN THE ITAT MUMBAI BENCH ‘D’
R.R. Kabel Ltd.
v.
Additional Commissioner of Income-tax, 7(2), Mumbai
IT APPEAL NOS. 1292 & 2106 (MUM.) OF 2011
[ASSESSMENT YEAR 2007-08]
MAY 2, 2012
 
AO observed that the assessee has not included the excise duty in the valuation of closing stock. Under the provisions of section 145A of the Act, the assessee should include the excise duty component of purchase price of raw material while valuing closing stock of raw material, Work-in-Progress (WIP) and finished goods. The assessee claimed that non-inclusion of the same will have no effect on its profits. The AO while rejecting the claim of the assessee applied the provisions of section 145A of the Act and discussed the issue at length at pages 2 to 13 of the assessment order and added Rs. 1,13,19,681/-, Rs. 283,50,504/-, Rs. 4,48,190/-, and Rs. 2,00,000/- to the total income of the assessee.
We have carefully considered the submissions of the rival parties and perused the material available on record. We find that there is no dispute that the A.O. while making the addition of Rs. 1,13,19,681/-, interalia, observed that the similar addition was made in A.Y. 2006-07 and the ld. CIT(A) has granted relief against which the Department has filed appeal before the Tribunal. We further find that it is also not in dispute that the Tribunal on the appeal filed by the Revenue has upheld the order of the ld. CIT(A) in deleting the addition made by the A.O. vide finding recorded in paragraph 22 of its order dated 11.01.2012 (supra) wherein it has been held as under:-
“22. In the absence of any distinguishing feature brought on record by the Revenue, we respectfully following the consistent view of the Tribunal and keeping in view that the assessee is following consistent method of accounting and there is no change in accounting system followed by the assessee in the year under consideration, we hold that the ld. CIT(A) was fully justified in deleting the addition of Rs. 11,08,904/- made by the AO u/s 145A of the Act. The grounds taken by the Revenue are therefore rejected.”
In the absence of any contrary material placed on record by the Revenue, we respectfully following the order of the Tribunal (supra) and the consistent view of the Tribunal and also keeping in view that the assessee is following consistent method of accounting and there is no change in system of accounting followed by the assessee in the year under consideration, we hold that the Ld. CIT(A) was fully justified in deleting the addition of Rs. 1,13,19,681/-.