Nellore Branch (SIRC) of The Institute of Chartered Accountants of India

Volume 1 / Issue 03 May 2014

NELLORE

CHARTERED ACCOUNTANT N E W S L E T T E R www.icainellore.org

Dear Members,

Editor CA. V.M.V. Subbarao Cell : 93902 21100 Email : [email protected]

Editorial Committee CA. Chinni Sravan Kumar CA. K. Rajesh CA. B. Durga Prasad CA. P. Ramesh Kumar Reddy

Managing Committee CA. K. Kiran Kumar Chairman

CA. P.V. Rama Raghava Rao Vice Chairman

CA. R. Yugandhar Reddy Secretary

When any person takes any position he should have vision. The first step in this direction for us was to understand the needs of members and students, thereafter to identify issues for adoption and to act. To achieve this goal our team taking newer steps, they are Action Plan, issuing physical news letter, website development & Mock test for IPCC also conducted. Programmes : I am happy to share with you that the Seminar on Companies Act held on 30th April, 2014 most of the members participated in the programme. The programme updated our members on various provisions in New Companies Act, 2013. Labour laws some of the laws in that are Shop & Establishment Act, Provident Fund Act, ESI Act , & Bonus Act. To Enlighten practical aspects in this area CPE Seminar for 3 hours scheduled on 24th May, 2014 to be held in our branch, see for programme brochure in this news letter. Members are requested to attend for the programme and interact with faculty on various aspects of this laws as speaker is independent consultant on these acts. Various public & private sector undertakings are his clients. For students we are going to organize CPT mock test , complete details will be announced soon. We hope all casted the vote in the interest of nation & democracy

CA. A. Sankaranarayana Treasurer

CA. J.V. Chalapathi Rao SICASA - Chairman

CA. A. Pundarikaksham Member

CA. B. Sekkizhar

Ex-Officio & Regional Council Member

www.icainellore.org

“Making way for Bigger Horizons” With Warm Regards,

CA. K. KIRAN KUMAR CHAIRMAN

“Making way for Bigger Horizons”

1

Volume 1 / Issue 03 May 2014

Release of News letter during Bank Audit Seminar conducted at ICAI Branch, NELLORE on 23-03-2014

Best Wishes :

Date

Name

occassion

Mobile No.



25.05.2014

CA M. Mallikarjuna Reddy

Marriage Day

9989140484



31.05.2014

CA K. Sreehari Reddy

Birthday

9246825663



07.06.2014

CAP. Madhusudhan

Marriage Day

9866130700



08.06.2014

CA S. Lakshmi Prasanna

Birthday

9492523565



10.06.2014

CA PVS. Kalyan

Birthday

9986222482



12.06.2014

CA T. Venkata Narahari

Marriage Day

9848315391



12.06.2014

CA Shaik Zameer

Birthday

9966104760



14.06.2014

CA A. Pundarikaksham

Marriage Day

9866290509



14.06.2014

CA B. Srinivasulu

Marriage Day

9441938059



16.06.2014

CA A.V. Hanumantha Rao

Birthday & Marriage Day

9885618736



19.06.2014

CA B.V. Suneel Kumar

Birthday

09666691291



21.06.2014

CA C.L. Narayana Rao

Marriage Day

9347075969



22.06.2014

CA J.V. Chalapathi Rao

Marriage Day

9848184083



24.06.2014

CA P. Upendra Kumar

Birthday

9393667567

www.icainellore.org

“Making way for Bigger Horizons”

2

Volume 1 / Issue 03 May 2014

Members requested to contribute articles by mailing to us

Email ID : [email protected] www.icainellore.org

“Making way for Bigger Horizons”

11

Volume 1 / Issue 03 May 2014

COMPANIES ACT,2013

Analysis on Acceptance of Deposits (Loans) by Companies under Companies Act,2013 (with reference to The Companies (Acceptance of Deposits) Rules,2014) As per Section 2(31) “deposit” includes any receipt of money by way of depositor loan or in any other form by a Company, but does not include such categories of amount as may be prescribed in consultation with the Reserve Bank of India. Earlier this definition is not part of definition section of the Act and it is provided in Rules.

CA.V.M.V.S.Rao Nellore

Definition is changed, now all money accepted as deposit or loan shall be treated as deposit except such categories as prescribed by RBI. As per the New Act, NBFC’s are not covered by the provisions relating to acceptance of deposits and they will be governed under rules issued by Reserve Bank of India.

Acceptance of Deposits (Section 73) 

A Company cannot accept deposits from persons other than its members.



A Company may accept deposits from its members subject to fulfillment of the following conditions:



Passing of resolution in a general meeting.



Issue of circular to members showing the financial position of the Company, the credit rating obtained, the total number of depositors and the amount due towards deposits in respect of any previous deposits accepted by the Company etc.



Circular in Form DPT-1



Deposit Trust Deed in Form DPT – 2 (to be executed seven days before executing circular)



Filing a copy of the circular with the Registrar within 30 days before the date of issue of the circular.



Providing deposit insurance.



Certification by the Company that it has not defaulted in the repayment of deposits.



Provision of security in respect of deposit and interest and creation of charge on company’s properties and assets.



An amount of not less than 15% of the deposits maturing during a financial year shall be deposited in Deposit Repayment Reserve account which shall not be used for any other purpose.

www.icainellore.org

“Making way for Bigger Horizons”

3

Volume 1 / Issue 03 May 2014



A Public Company, having a net worth of not less than Rs.100 Crores or a turnover of not less than Rs.500 Crores , may accept deposits from persons other than its members, subject to compliance with above conditions referred and the rules prescribed, after consultation with the Reserve Bank of India . (Section 76)



Special Resolution to be passed in Annual General Meeting.



Ordinary Resolution to be passed in Annual General Meeting if accepting deposits will not exceeds aggregate of its paid up share capital and free reserves. (Section 180(1)( c).



Deposits accepted by the Company before 1st April, 2014 or any interest thereon shall be repaid within one year of 1st April,2014 or the due date, whichever is earlier.



Form DPT-4 to be filed with Registrar before 30th June, 2014 along with Auditor’s Certificate (No specific format prescribed for auditor’s certificate)



Every Company shall on or before 30th day of June of every year, file with Registrar a Return in Form DTP-3 along with fee and furnish the information contained therein as on 31st day of March of that year duly audited by auditor of the Company. (No specific format prescribed for auditor’s certificate).



The Form of application for deposits shall contain a declaration by the intending depositor to the effect that the deposit is not being made out any money borrowed by him from any other person.



Every Company shall furnish deposit receipt to depositors within a period of 21 days from the date of receipt of money or realization of cheque or date of renewal.



Every Company shall maintain Register of Deposits with particulars specified in Rules at its registered office and preserve it in good order for a period of not less than 8 years from the financial year in which the latest entry in the register.



As per Rule 2(1)( c) of The Companies (Acceptance of Deposits) Rules 2014, the deposit does not include:



any amount received from Government & Foreign Government.



any loan received from Bank/Public Financial Institutions



any amount received against issue of commercial paper



any amount received by a Company from any other Company



any amount received as share application money



If share application money is not refunded within 75 days of receipt of share application money for shares where shares are not allotted within 60 days of receipt of money shall be treated as deposits.



any amount received from a person who, at the time of the receipt of the amount, was a director of the Company. www.icainellore.org

“Making way for Bigger Horizons”

4

Volume 1 / Issue 03 May 2014



any amount raised by the issue of bonds or debentures.



Any amount received from employee of the Company.



Any non-interest bearing amount received or held in Trust.



Any amount received in the course of or for the purpose of the business of the Company.



Advance should be appropriate within 365 days of acceptance of deposit.



Any amount brought in by the promoters of the Company by way of unsecured loan in pursuance of the stipulation of any lending financial institution or banks subject to certain conditions.



Any amount accepted by a Nidhi Company in accordance with the rules made under Section 406 of the Act.



Any amount received by the Company, whether in the form of instalments or otherwise, from a person with promise or offer to give returns, in cash or in kind, on completion of the period specified , in cash or kind, on completion of the period specified in the promise , or offer, or earlier accounted for in any manner whatsoever shall be treated as deposit.



Various Monthly Schemes of Business Entity like Gold Deposit Scheme offered by Jewelers.

Terms and Conditions of Acceptance of Deposits: 

No Company shall accept deposit whether secured or unsecured :



which is repayable on Demand



Upon receiving a notice within a period of less than 6 Months from the date of acceptance of deposit.



Upon receiving a notice more than 36 months from the date of acceptance of deposit.

A Company shall not accept or renew deposit from its members, if the amount of such deposits together with the amount of other deposits outstanding as on the date of acceptance or renewal of such deposits exceeds 25% of the aggregate of the paid-up share capital and free reserves of the company. 

A Company can accept deposit from members only to the extent of 25% of the paid up capital and reserves.



This restriction in acceptance of deposit will give practical difficulties to Private Limited Companies.



A Public Eligible Company shall not accept any deposit from its members more than 10% of paid-up capital and free reserves.



A Public Eligible Company shall not accept any other deposit more than 25% of paid-up capital and free reserves. www.icainellore.org

“Making way for Bigger Horizons”

5

Volume 1 / Issue 03 May 2014



The rate of interest on Deposit shall not exceed maximum rate of interest prescribed by the Reserve Bank of India.



In case of repayment of deposit before expiry of period tenure of deposit after expiry of six month, the rate of interest shall reduced by 1%.



The Penal Provisions for violation of Section has not yet been notified by the Government.



Penal provisions are very stringent.



Any contravention to any provision of the Rules for which no punishment is provided in the Act, the Company and every officer of the who is in default shall be punishable with fine which may extend to Rs.5,000/-, with a further fine which may extend to Rs.5,000/- for every day after the first day during which the contravention continues.

This article is contributed by CA. V.M.V. Subba Rao, any specific query you can reach him at [email protected]/ [email protected]/Mobile: 0 9390221100

SERVICE TAX

Service Tax demand on service receiver is not sustainable when service provider has already deposited service tax The issue involved was whether the recipient of “Transport of Goods by Road Services” (“GTA Services”) was liable to pay service tax under the reverse charge mechanism in cases where the provider of GTA services had already deposited the service tax. The Mumbai Tribunal, relying on various judicial precedents, held that once the amount of service tax had been deposited by the provider of GTA Services, had been accepted by the Revenue, it could not be demanded separately from the receipt of GTA services.

(Umasons Auto Compo Pvt Ltd V. CCE&C Anurangabad (2014-TIOL-126-CESTAT-Mum) (Members may send their request for full text of the judgement to [email protected])

www.icainellore.org

“Making way for Bigger Horizons”

6

Volume 1 / Issue 03 May 2014

Direct Taxes

CBDT optimist on Standard Operating Procedure; Urges taxpayers to file rectification request for TDS mismatches SECTION 139D OF THE INCOME-TAX ACT, 1961 - FILING OF RETURN IN ELECTRONIC FORM - EXTENSION OF FACILITY TO TAXPAYERS TO VERIFY IF DEMAND IN THEIR CASE IS DUE TO TAX CREDIT MISMATCH ON ACCOUNT OF INCORRECT FURNISHING OF SPECIFIED PARTICULARS AND SUBMIT RECTIFICATION REQUESTS WITH CORRECT PARTICULARS OF TDS/TAX CLAIMS FOR CORRECTION OF THESE DEMANDS

PRESS NOTE NO.402/92/2006-MC, DATED 17-4-2014 Detailed instructions have been issued by the CBDT to all the assessing officers laying down a Standard Operating Procedure (SOP) for verification and correction of demand by the AOs. As per this SOP, the taxpayers can get their outstanding tax demand reduced/deleted by applying for rectification along with the requisite documentary evidence of tax/demand already paid. The SOP also makes special provisions for dealing with the tax demand upto Rs. 1,00,000/- in the case of Individuals and HUFs in order to accommodate certain extraordinary situations. The SOP is expected to mitigate the long standing grievances of taxpayers by way of reduction/deletion of tax demands. The CBDT has further noted that many taxpayers are committing mistakes while furnishing their tax credit claims in the return of income. Such mistakes include quoting of invalid/incorrect TAN; quoting of only one TAN against more than one TAN tax credit; furnishing information in wrong TDS Schedules in the Return Form; furnishing wrong challan particulars in respect of Advance tax, Self-assessment tax payments etc. As a result of these mistakes, the tax credit cannot be allowed to the taxpayers while processing returns despite the tax credit being there in 26AS statement. The CBDT, therefore, desires the taxpayers to verify if the demand in their case is due to tax credit mismatch on account of such incorrect particulars and submit rectification requests with correct particulars of TDS/tax claims for correction of these demands. The rectification requests have to be submitted to the jurisdictional assessing officer in case the return was processed by such officer, or the taxpayer is informed by CPC, Bangalore that such rectification is to be carried out by Jurisdictional assessing officer. In all other cases of processing by CPC, Bangalore, an online rectification request can be made by logging into e-filing website http://incometaxindiaefiling. gov.in as per the procedure given in detail in its Help Menu. financial condition of the company.

No depreciation on development of roads/highways on BOT basis Development exp. to be amortized - CBDT clarifies SECTION 119, READ WITH SECTION 32, OF THE INCOME-TAX ACT, 1961 - INCOME-TAX AUTHORITIES - INSTRUCTIONS TO SUBORDINATE AUTHORITIES - CLARIFICATION ON TREATMENT OF EXPENDITURE INCURRED FOR DEVELOPMENT OF ROADS/HIGHWAYS IN BOT AGREEMENTS

CIRCULAR NO. 9/2014 [F.NO.225/182/2013/ITA.II], DATED 23-4-2014 It has come to the notice of the Board that disputes have arisen as to whether the expenditure incurred on development and construction of infrastructural facilities like roads/highways on Build-Operate-Transfer (‘BOT’) basis with right to collect toll is entitled for depreciation under section 32(1)(ii) of the Act or the same can be amortized by treating it as an allowable business expenditure under the relevant provisions of the Income-tax Act, 1961 (‘Act’). www.icainellore.org

“Making way for Bigger Horizons”

7

Volume 1 / Issue 03 May 2014

2. In such projects, the developer (hereinafter referred to as ‘assessee’), in terms of concessionaire agreement with Government or its agencies is required to construct, develop and maintain the infrastructural facility of roads/highways which, inter-alia, includes laying of road, bridges, highways, approach roads, culverts, public amenities etc. at its own cost and its utilization thereof for a specified period. In lieu of consideration of the expenditure incurred on construction, operation and maintenance of the infrastructure facility covered by the period of the agreement, the assessee is accorded a right to collect toll from users of such facility. The expenditure incurred by such assessee on development and construction of such infrastructural facility are capitalized in the accounts. It is seen that in returns-of-income, assessees are generally claiming depreciation on such capitalized expenditure treating it as an ‘intangible asset’ in terms of section 32(1)(ii) of the Act while in assessments, such claims are being disallowed by the Assessing Officer on the grounds that such infrastructural facility is not owned wholly or partly, by the taxpayer which is an ‘essential condition for claiming depreciation and further right to collect toll does not fall in any of the categories of intangible assets’ specified in sub-clause(ii) of sub-section (1) of section 32 of the Act. 3. In BOT arrangements for development of roads/highways, as a matter of general practice, possession of land is handed over to the assessee by the Government/notified authority for the purposes of construction of the project without any actual transfer of owrership and such assessee has only a right to develop and maintain such asset. It also enjoys the benefits arising from use of asset through collection of Toll for a specified period without having actual ownership over such asset. Therefore, the rights in the land remain vested with the Government or its agencies. Thus, as assessee does not hold any rights in the project except recovery of toll fee to recoup the expenditure incurred, it cannot therefore be treated as an owner of the property, either wholly or partly, for purposes of allowability of depreciation under section 32(1)(ii) of the Act. Thus, present provisions of the Act do not allow claim of depreciation on Toll ways due to non-fulfilment of ownership criteria in such cases. 4. There is no doubt that where the assessee incurs expenditure on a project for development of roads/highways, he is entitled to recover cost incurred by him towards development of such facility (comprising of construction cost and other pre-operative expenses) during the construction period. Further, expenditure incurred by the assessee on such BOT projects brings to it an enduring benefit in the form of right to collect the toll during the period of the agreement Hon’ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd. v. CIT 225 ITR 802 allowed spreading over of liability over a number of years on the ground that there was continuing benefit to the company over a period. Therefore, analogously, expenditure incurred on an infrastructure project for development of roads/highways under BOT agreement may be treated as having been made/ incurred for the purposes of business or profession of the assessee and same may be allowed to be spread during the tenure of concessionaire agreement. 5. In view of above, Central Board of Direct Taxes, in exercise of the powers conferred under section 119 of the Act hereby clarifies that the cost of construction on development of infrastructure facility of roads/highways under BOT projects may be amortized and claimed as allowable business expenditure under the Act. 6. The amortization allowable may be computed at the rate which ensures that the whole of the cost incurred in creation of infrastructural facility of road/highway is amonized evenly over the period of concessionaire agreement after excluding the time taken for creation of such facility. 7. In the case where an assessee has claimed any deduction out of initial cost of development of infrastructure facility of roads/ highways under BOT projects in earlier year, the total deduction so claimed for the Assessment Years prior to the Assessment Year under consideration may be deducted from the initial cost of infrastructure facility of roads/highways and the cost ‘so reduced’ shall be amortized equally over the remaining period of toll concessionaire agreement. 8. It is hereby clarified that this Circular is applicable only to those infrastructure projects for development of road/highways on BOT basis where ownership is not vested with the assessee under the concessionaire agreement 9. This may be brought to the notice of all concerned.

www.icainellore.org

“Making way for Bigger Horizons”

8

Volume 1 / Issue 03 May 2014

CASE LAW

DISALLOWANCE UNDER SECTION 40(A)(I) OF THE ACT APPLIES ONLY TO THE AMOUNT ‘PAYABLE’ AT THE YEAR END The taxpayer was a manufacturer of rubber tubes, tyres and rubber products. In the assessment order for the year under consideration, the AO made certain disallowances including disallowances under Section 40(a)(i) of the Act for non-withholding of tax from payments to non-residents for professional and consultancy services. The CIT(A) deleted the disallowance made by the AO. Aggrieved by the order of CIT(A), the tax department filed an appeal before of the Chennai bench of the tribunal. The Chennai tribunal observed that entire payment for services was made and nothing was outstanding. The question under consideration was that whether Section 40(a) (i) applies only to amounts outstanding at the end of the year or on the entire amount of expenditure. The tribunal also observed that the Allahabad High Court in the case of CIT vs. Vector Shipping Services (P) Ltd.[TS-352-HC-2013(ALL)] had upheld the Special Bench ruling in Merilyn Shipping and Transport vs. ACIT[TS-220-ITAT-2012(VIZ)] as good law. It was held in Merilyn Shipping ruling that Section 40(a)(i) did not apply to those amounts which had already been paid by the tax payer before the close of the relevant previous year. On the other hand it was also observed that Calcutta High Court in the case of CIT vs. Sikandarkhan N. Tuanvar [TS-186-HC-2013(GUJ)] had disapproved the ratio of Merilyn Shipping and Transport. Thus, there were contradictory views of the different High Courts on the issue under consideration. Relying on the decision of Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC) the Tribunal held that the view in favour of the taxpayer should be adopted, and hence disallowance under Section 40(a)(i) applied only to the amounts ‘payable’ and not to those amounts amounts which were already ‘paid’ during the year.

DICIT V MRF Limited (I.T.A. No.1985/Mds/2011, 4th March, 2014)

AP VAT STATE RE-ORGANISATION INFORMATION

ISSUE OF TINS TO VAT DEALERS IN THE WAKE OF AP STATE RE ORGANISATION: HELP DOCUMENT FOR DEALERS DT :15-April-2014 In the wake of re-organization of the state of Andhra Pradesh, new TINS with appropriate state codes have to be issued to all VAT dealers. The respective state codes are decided by the Government of India and will be made known to all soon. To facilitate the process of issuing TINs to dealers, an online form has been designed to seek the dealer’s option for continuing Registration in the state(s) of their choice. This online option form is available in the dealer login and will pop up once a dealer logs in to file his return/ take statutory forms etc. The Department advises you to fill the online option form at the earliest.

Using the online option Form • The option form is enabled in the dealer login www.icainellore.org

“Making way for Bigger Horizons”

9

Volume 1 / Issue 03 May 2014

• It will pop up once a dealer logs in to file his return/ take statutory forms or transact on the portal • Dealer has to choose relevant option depending on the scenario i.e. can choose to continue only in the Residuary State of AP, can choose to continue only in Telangana, can choose to have Registration in both the states, can choose to shift entire Registration from one state to another. • Please see power point presentation at the following link for detailed steps for each scenario. • Once the dealer clicks on “submit” button, he/she cannot go back and edit the data. So the dealers are requested to exercise due caution while filling the form and submitting the data. • Once a dealer submits an option form, he/she can print an acknowledgement and file it for record.

CST Registration • If a dealer has CST Registration, the CST registration will continue to be valid and his CST registration data holds good. However, the dealer is requested to collect CST registration certificate from the concerned Registering au thority, on /after 02-June-2014.( Because TIN will change) • If a dealer does not have CST Registration and is opting for Registration in both the states of Telangana and Residuary State of Andhra as a result of State bifurcation, he will be given an online option to give CST commodity details. The dealer is requested to collect the new CST Registration Certificate along with VAT RC from their Registering Authority

Generation of TINs • Once all option forms from dealers are received, TINS will be generated as a batch process. The TIN generated with the changed state code will be notified well in advance to the dealer online or through e-mail as per the timelines given below. • The TIN is the same for both VAT & CST

Issue of Registration Certificate • VAT Registration Certificates will be issued by the concerned Registration Authority on/after 02-June-2014. The dealers are requested to collect the RCS from their respective Circle Offices.

Timelines • Filing of online option form : By 30-April-2014 • Generation of TINs :By 08-May-2014 • Issue of RCs by Department : On/after 02-June-2014

Helpdesk • For any clarification, query regarding the Issue of TINs, please write to [email protected] or [email protected].

We will be glad to assist you! Note: This document will be updated from time to time, based on feedback/suggestions received from the dealers

DICIT V MRF Limited (I.T.A. No.1985/Mds/2011, 4th March, 2014)

www.icainellore.org

“Making way for Bigger Horizons”

10

Volume 1 / Issue 03 May 2014

Nellore Branch ICAI Bhawan, NH-5, Near Toll Plaza, Venkatachalam, NELLORE (A.P.) Tel: (0861) 2164355, 8500084499 Email: [email protected] Website: www.icainellore.org

www.icainellore.org

For Advertisments & Information

BOOK-POST

CA. V.M.V. Subba Rao

Cell : 93902 21100 Email : [email protected]

“Making way for Bigger Horizons”

12