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Sunday, December 15, 2013
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Section 68: Cash Credit

The Gujarat High Court has held that partners  having declared unsecured loan given to assessee-
firm in their independent returns, said amount could not be added in hands of assessee-firm.

Section 37(1): General Expenditure

The Bombay High Court has held that payment on account of gratuity, retrenchment
compensation and leave encash ment made to workers in connection with VRS on closure of

business was allowable as revenue expenditure.

The Allahabad High Court has held that where  by providing scholarship, business of assessee-
coaching institute was expanded, same would be allowable as business expenditure.

Section 43B: Deduction on payment basis

The Punjab & Haryana High Court has held  that where assessee deposited employer’s and
employees contribution to PF and ESI after expiry of due date but prior to filing return of income
under section 139(1), amount so deposited could not be disallowed by invoking provisions of section


Section 40A(3): Dis allowance for cash payments exceeding Rs 20000

The Karnataka High Court has held that payment  made to government concern in cash in excess of amount prescribed under section 40A(3) would be allowable.

Section 45, read with section 2(47): Income from Capital Gains

The Allahabad High Court has held that Capital  gains would be charged only on receipt of sale
consideration after development of land; and not when agreement was signed for development of


Section 271(1)(c): Penalty for concealment of  Income

The Allahabad High Court has held that where  assessee admitted undisclosed income found during search and he was ready to make payment of  tax, no penalty was to be levied.

Section 54EC, read with section 50: Exemptions  from Capital Gains

The Gujarat High Court has held that where capital  gain arose out of long-term capital asset was invested in specified assets, exemption under section 54EC could not be denied on account of fact that deeming fiction of short-term capital gain was created under section 50.

Section 50C: Capital Gains on sale of land or  building or both

The Mumbai ITAT bench has held that Section 50C cannot be invoked to a transfer of leasehold rights.

Section 92C: Computation of Arm Length Price

The Ahmedabad ITAT bench has held that where assessee granted loan to its foreign subsidiary
company which was subsequently converted into equity capital, in view of fact that as per loan agreement interest was not chargeable in such a situation, addition made by TPO/Assessing Officer on account of notional interest was to be set aside.
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Government plans concessional GST

The following changes are made in the proposed Goods & Service Tax (GST) bill :

Earlier proposal: no tax for business with annual sales below Rs 25 lakhs

Proposed Additional SOP: Lower than standard  GST rate for manufacturers, service providers, dealers in Rs 25-75 lakh bracket

Objective: Making new tax regime acceptable to small businesses

The Caveat: Lower rate applicable only on intra – state sales by manufacturers, service providers and traders, all of whom will be categorized as dealers

Benefit: Service providers of Rs 10 lakh turnover can expand sales 7-fold and still pay only
compounded rate. For manufacturers with Rs 25 –75 lakh sales, impact may be cushioned to some extent. Traders with Rs 5- 10 lakh sales who pay state VAT need not pay GST upto Rs 25 lakhs sales, those with Rs 25 – 75 lakh sales to pay lower rate.
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E-payment of tax above Rs 1 lakh a must

Threshold of mandatory e-payment reduced from Rs 10 lakh to Rs 1 lakh for both central excise and
service tax payment. The revised changes are applicable from January 1, 2014. The threshold
annual turnover above which traders have to pay central excise tax is Rs 1.5 crore; for service tax, it
is Rs 10 lakh
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Latest draft rules issued by ministry outrage cost auditors

The latest draft rules issued by the Ministry of Corporate Affairs (MCA) related to the cost records
and audit mechanism could substantially curb the scope of the cost audit profession and have outraged its practitioners.

The salient features of the draft rules are as under:

  • Number of industries covered is reduced.
  • Turnover and Net worth thresholds have been increased substantially. The threshold has been threshold from net worth of Rs 5 crore to Rs 500 crore and the threshold of turnover from the specified product is fixed at Rs 100 crore.
  • Apart from companies required to undergo cost audit, all others have been exempted from maintaining even cost accounting records
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No overkill in cheque bounce cases: SC

The Supreme Court of India has said that once the amount in a dishonored cheque is paid with
interest and compensation, the payee cannot insist on criminal prosecution of the directors of a firm
who issued the cheque. The object of Section 138 of the Negotiable Instrument Act, which makes
issuing of cheques without sufficient balance in the account an offence, is meant to “inculcate faith
in the efficacy of banking operations and credibility of transactions". It is not meant only to punish the guilty, as directed by the supreme court in Lafarge Aggregates & Concrete India Ltd vs Sukarsh Azad.
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EPFO caps pension contribution of firms

Employees Provident Fund Organisation (EPFO) has decided to not allow employers contribute
higher than the mandatory amount towards its pension scheme in fresh cases. This amounts to
capping the employers’ contribution to employees’ pension at Rs 541 per month The Supreme Court of India has said that medical profession is a noble profession dedicated to the service of society and therefore doctors cannot be classified as “workmen” entitled to invoke the Industrial Disputes Act.
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After ESOPs, SEBI eyes regulating other employee benefits

To bring all types of employee benefit schemes under its ambit, a Securities and Exchange Board
of India (SEBI) discussion paper has proposed that trusts set up managed and financed directly
or indirectly by companies, should be regulated. Trusts include those managing general employee
benefits such as education, scholarship, medical, retirement benefits such as superannuation,
gratuity or any other schemes. Currently, SEBI regulates only employee stock option plans (ESOP) and employee stock purchase schemes.
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SEBI needs to step up criminal enforcement in markets: ESMA

European market watchdog European Securities  and Markets Authority (ESMA) has noted that the legal authority of SEBI (Securities and Exchange Board of India) has been strengthened and it now has broad regulatory, licensing, investigation, supervision and enforcement powers.
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SEZ Board to give licences for defence goods production

Special Economic Zone (SEZ) units producing defence related items will no longer have to go to
the Department of Industrial Policy & Promotion (DIPP) for an industrial licence.The Board of Approval (BoA) for SEZs, which approves proposals for setting up these zones and takes decisions on matters related to their operation, will now also issue industrial licences for producing defence related goods.
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Reporting Platform for OTC Foreign Exchange and Interest Rate Derivatives

The Reserve Bank of India (RBI) has decided to operationalise the CCI platform with effect from
December 30, 2013 for the following OTC derivative instruments: -

  • Inter-bank and client transactions in Currency  Swaps
  • Inter-bank and client transactions in FCY FRA/  IRS
  • Client transactions in INR FRA/IRS
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Third party payments for export / import transactions

The Reserve Bank of India (RBI) has said that normally payment for exports has to be received
from the overseas buyer named in the Export Declaration Form (EDF) by the exporter and the
payment shall be received in a currency appropriate to the place of final destination as  mentioned in the EDF irrespective of the country of residence of the buyer. Similarly, the payments for the import should be made to the original overseas seller of the goods and the AD should ensure that the importer furnishes evidence of import, such as, Exchange Control copy of the Bill of Entry to satisfy itself that goods equivalent to the value of remittance have been imported. AD banks may allow payments for export of goods / software to be received from a third party (a party other than the buyer) subject to conditions as specified. AD banks are also allowed to make payments to a third party for import of goods, subject to conditions as specified.
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Provide loans to women’s self help groups at 7%: RBI

The Reserve Bank of India (RBI) has directed public sector banks to provide credit to women
self help groups at a rate of 7% per annum so as to get the benefit of interest subvention scheme
under the Swarnajayanti Gram Swarozgar Yojana Aajeevika (SGSY) scheme.
RBI has also said that Public Sector Banks (PSBs) will be subverted to the extent of difference between the Weighted Average Interest charged and 7% subject to the maximum limit of 5.5%,
for the FY-2014.
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SIDBI given Rs 5,000 crore to refinance receivables of MSEs: RBI

The Reserve Bank of India (RBI) will provide refinance of Rs. 5,000 crore to the Small Industries Development Bank of India (SIDBI) for direct liquidity support for finance receivables to micro and small industries (MSEs), by SIDBI or selected intermediaries like banks, NBFCs and state finance corporations. The refinance will be available against receivables, including export receivables, outstanding as on November 14, 2013 on wards.
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RBI questions on FC arbitrage

The Reserve bank of India (RBI) has questioned Foreign Currency (FC) arbitrage transactions. Dollars bought from Mumbai branch of a foreign bank and sold to same bank in Singapore. Such trades allow companies to profit from arbitrage in forward trade in two markets. But forward trades such as dollar buying weakens the spot rupee as well. RBI is unhappy with the banks undertaking such transactions.
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Mandatory filing of records of equitable mortgages with the Central Registry

The Reserve Bank of India (RBI) has said that the institutions notified under the SARFAESI Act have to mandatory register with Central Registry of  Secularization Asset Reconstruction and the Security Interest of India (CERSAI), the records of the mortgages created in their favor by deposit of title deeds. All NBFCs are advised to file and register the records of all equitable mortgages created in their favor on or after 31st March 2011 with the Central Registry and they shall also register the records with the Central Registry as and when equitable mortgages are created in their favor.
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Exchange Traded Cash Settled Interest Rate Futures (IRF) permitted

The Securities and Exchange Board of India (SEBI) has decided to permit stock exchanges
to introduce cash settled Interest Rate Futures on 10-Year Government of India Security. Two
different designs (Option-A: Coupon bearing Government of India security as underlying and
Option-B: Coupon bearing notional 10-year Government of India security with settlement
price based on basket of Securities as underlying) are permitted for cash settled futures on 10-year
Government of India (GoI) Security. Exchanges are permitted to launch contracts on either one
or both of these options.
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SEBI says issuers can opt for shelf prospectus

The Securities and Exchange Board of India  (SEBI) plans to allow frequent issuers of non-convertible debentures with credit rating of AA and above to raise money using a shelf prospectus.
The issuers include public financial institutions, banks and issuers authorised by the Central Board
of Direct Taxes to issue tax-free bonds and RBI-regulated infra debt funds and NBFCs.Other NBFCs and listed companies with a credit rating of AA and above subject to minimum net worth of Rs 500 crore, besides distributed profit (three years for NBFCs and five for listed companies) with no default on deposit/interest payments also would be allowed.
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Foreign Banks free to enter India

The Reserve Bank of India (RBI) has released guidelines stating that wholly owned Subsidiaries
(WOSes) of foreign banks could acquire domestic private-sector banks, as well as set up branches
anywhere in the country. The Central Bank also said that these WOSes might be permitted to enter into merger & acquisition (M&A) transactions with any private bank in India, subject to the overall foreign investment limit of 74 per cent. The following are the main highlights of the guidelines: -

  • The Subsidization is not mandatory but foreign banks with complex structures and concentrated shareholding will have to create wholly-owned subsidiaries (WOSes)
  • Foreign banks opting for branch presence must  convert into WOSes when it becomes systemically important.
  • Foreign banks creating subsidiaries to be permitted to acquire local banks
  • Restriction is to be placed on entry of new WOSes and capital infusion when capital & reserves of WOSes and foreign bank branches exceed 20% of the banking system’s capital & reserves
  • Rs 500 crore prescribed as initial minimum paid-up voting equity capital for a WOS
  • The Priority Sector Lending requirement for WOSes to be on a par with Indian banks —40%
  • Corporate governance norms for WOSes to be stringent, including two-thirds of directors to be non-executive
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FDI in financial sector – relaxed

The Reserve bank of India (RBI) has decided that the requirement of NoC(s) will be waived from
the perspective of Foreign Exchange Management Act, 1999 and no such NoC(s) need to be filed
along with form FC-TRS. However, any ‘fit and proper/ due diligence’ requirement as regards the non-resident investor as stipulated by the respective financial sector regulator shall have to be complied with.
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Corporate Debt: Placement with FII, QFI, etc.

The Reserve Bank of India (RBI) has decided to allow Securities and Exchange Board of India (SEBI) registered Foreign Institutional Investors (FIIs), Qualified Foreign Investors (QFIs) and
long term investors registered with SEBI – Sovereign Wealth Funds (SWFs), Multilateral Agencies, Pension/ Insurance/ Endowment Funds, foreign Central Banks - to invest in the credit enhanced bonds, up to a limit of $ 5 billion within the overall limit of $ 51 billion earmarked for corporate debt.
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ECB – Liberalised

In order to strengthen the flow of resources to infrastructure sector, the Reserve Bank of India (RBI) has decided to permit Holding Companies / Core Investment Companies (CICs) coming under the regulatory framework of the Reserve Bank to raise ECB under the automatic route/approval route, as the case may be, for project use in Special Purpose Vehicles (SPVs) with the specified terms and conditions.
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The recent announcements of election results are historic and has brought to light serious concerns of the nation, the economy, society and most importantly public at large about the current political as well as economic state of affairs. This is very clear from active involvement a record turnout of voters for the election. Almost uprooting of the ruling party in Delhi and Rajasthan is a very strong message to all political parties, bureaucrats, judiciary and specially to those who device policy and administer them that nation and Indian society cannot be taken for granted and the general public is
seriously concerned about price rise and inflation, corruption, lack of employment opportunities, complete dismantling of confidence of investors. The Indian economy is negatively impacted by too many procedures, hyper active tax legislations, prosecution of senior business leaders, severely impairing business sentiments and several such factors. The nation as a whole, have expressed that the decision makers and administrators need to act firmly, strongly and a decisive manner with a clear vision and direction. It is important to address all major and minor issues, troubling the public at large. The Company law is interfering in private sector in the name of corporate Governance, restrictions to even undertake financial transactions among group companies even by private limited companies. Severe penalties and prosecutions with imprisonment are prescribed even in those cases where no public interest is involved. SEBI has been given sweeping powers of raids, searches, asset attachment etc, without any checks and balances. The scenario on the front of foreign exchange as well as current account deficit is also a matter of concern. Reserve Bank of India has been able to arrest the free fall of rupee by some temporary effective but cosmetic measures including permission to Indian banks to borrow internationally and a special FCNRB Swap Scheme, wherein RBI has agreed to take the risk of exchange fluctuation indirectly. The real issue of balance of payment, current account deficit and pressure on Indian rupee exchange rate are critical issues not adequately addressed. The GDP and IIP low growth rates are matters of very serious concern.

It is very important for the government to learn the tough lesson immediately. The Government need to address all issues with compassion , positive attitude and concern for the common man and all the actions, policies and procedures need to be redesigned and implemented to bring a soft-touch to restore confidence in every echelon of the society.