The corporate governance norms announced by the Securities and Exchange Board of India SEBI) go beyond those mentioned in the Companies Act. SEBI has pushed for better corporate governance of listed companies through measures such as the need for a succession policy, prior approval of the audit committee for all related- party transactions and e-voting facility for all shareholder resolutions by the top 500 companies (by market capitalisation). All these measures have either not been specified in the Companies Act or haven’t been made mandatory.

The new Corporate Social Responsibility (CSR) Rules are notified & effective from April 1, 2014. It is applicable on companies with net worth of over Rs. 500 crore or turnover of over Rs. 1000 crore or net profit of over Rs. 5 crore.

The Eligible activities for CSR Spending are as follows :

• Eradicating hunger, poverty and malnutrition, promoting preventive healthcare and sanitation
• Making available safe drinking water
• Promoting education, including special education & employment-enhancing vocation skills.
• Promoting gender equality, empowering women, setting up homes and hostels for women, orphans.
• Ensuring environmental sustainability.
• Protection of national heritage sites, art and culture including restoration of buildings and sites of historical importance
• Measures for benefit of Armed Forces veterans, war widows.
• Training to promote rural sports, Olympic sports, nationally recognized sports.
• Contribution to Prime Minister's National Relief Fund.
• Contributions to technology incubators located within academic institutions approved by Centre.
• Rural development projects.

For single-group entity exposure

• Exposure limit of 5% of the paid-up capital for unregulated, non-financial cos
• Exposure limit 10% of the paid-up capital for regulated financial services cos

For aggregate-group exposure

• Limit of 10% of paid-up capital for unregulated, non-financial cos
• Limit of 20% of paid-up capital for regulated financial services cos

Market regulator Securities & Exchange Board of India (SEBI) has notified changes in IPO regulations which make grading of initial share sales by credit rating agencies optional. Earlier, it was mandatory.

The crisis-hit United Bank of India (UBI), which has run into losses amid suspiciously high bad loans, now faces fresh probes for possible lapses related to auditing and corporate governance norms. Raising alarm, the lender’s gross Non Performing Assets (NPAs) touched Rs 8,546 crore during the same period. The amount of NPAs surged from just Rs 2,964 crore at the end of March last year. Besides, there are apprehensions about the books of UBI amid fears that rising bad loans might have not been properly reported for quite sometime.

In its chargesheet filed with the special magistrate on economic offences in Gurgaon, the Serious Fraud Investigation Office (SFIO) has named Reebok India’s statutory auditor — N Narasimhan & Co — and KPMG India and its affiliate auditing arm BSR & Co, along with its sacked top executives Subhinder Singh Prem and Vishnu Bhagat, for fudging and fabricating accounts of the company.

The Supreme Court restrained the Andhra Pradesh (AP) government from collecting service tax from the Tirupati Balaji temple in Andhra Pradesh for accommodation provided to pilgrims.

The High Court of Punjab & Haryana has held that where assessee offered additional income after search operation unearthing substantial undisclosed income for earlier years, concealment penalty was to be imposed upon assessee and waiver of penalty could not be granted.

The Delhi Bench of ITAT has held that where, as per importation agreement between assessee and its foreign associate enterprises, assessee had performed greater intensity of service than a normal distributor, by also performing functions of advertisement, it contributed to brand building for its associated enterprise, and constituted an international transaction.

The Mubai Bench of ITAT has held that joint ownership of a house property allows section 54 deductions to both husband and wife.

The Mumbai Bench of ITAT has held that Section 25 Company registered with a foreign director is eligible for deduction under section 80G.

Section 50, read with section 50C - Provisions of section 50C would also apply in case of capital gain from depreciable assets.

Section 28(i), read with section 36(1)(vii) - Deposits/advances given in connection with business could not be allowed as bad debt but had to be considered as business loss.

The Ahmedabad Bench of ITAT has held that Normal dress worn by employees in office is not ‘uniform’ for the purposes of exemption uniform allowance u/s 10(14)(i).

Section 194C, read with section 194J - Provisions of section 194C which specifically cover activity of production of television serial programmes will prevail over section 194J which is general in nature.

Section 194C, read with section 194J - Dubbing charges and processing fees being a part of production of television serials and programmes, are squarely covered under specific provisions of section 194C.

Section 68 – Revenue is fully entitled to rely on reports of its investigation wing which entailed serious doubt with regard to genuineness of share application money; however, assessee is to be given opportunity to confront those materials.

Section 73 - In absence business activity during year, loss on account of valuation of inventories, should be treated as speculation loss.

Section 234B - If working of interest is not repugnant to law, same is to be upheld.

The Delhi Bench of ITAT has held that in course of determining Arm Length Price (ALP), preference should be given to internal uncontrolled comparable over external uncontrolled comparable, however, if nature of transaction with Associated Enterprise (AE) is different from that with non-AE or data in respect of two segments is either not workable or not reliable, then assistance from such internally comparable uncontrolled transactions should be avoided.

Section 11, read with Section 24 - Charitable or religious trust:- In case of assessee, a charitable trust, claiming exemption under section 11(1)(a), it is only expenditure actually incurred to earn rental income, i.e., repairs, municipal taxes etc. which has to be allowed as deduction, however, assessee’s claim for standard deduction under section 24(a) cannot be allowed.

Section 11 - Charitable or religious trust:- Donation made by one charitable trust to another charitable trust would entitle donor trust to claim exemption qua application of income under section 11(1) even if donation is towards corpus of donee-fund.

Technical and professional personnel were deputed by applicant to assist its affiliates to optimally execute the contract received by it or its affiliate. The applicant had the power to recall these technical or professional personnel and replace them with other personnel. These personnel would work under the supervision of Indian affiliate. However, the overall control over these personnel was with the applicant. On these facts, the Indian affiliate shall be deemed to be PE of applicant.

The High Court of Delhi has held that Section 43B doesn’t apply to contractual liability to pay customs duty to the importer of goods.

The High Court of Gujarat has held that reopening of assessment in relation to a matter which is subject matter of block assessment is evidently without jurisdiction.

The High Court of Calcutta has held that where trade advances becoming unrealizable, provision was made and profit & loss account was debited in earlier year, same was to be allowed when written off in subsequent year.

The High Court of Bombay has held that no capital gains tax on amount received by partner arising from transfer of goodwill would arise at time on retirement from firm.

The High Court of Andhra Pradesh has held that identity, creditworthiness and genuineness of transaction is not established merely by filing bank account details.

The High Court of Punjab & Haryana has held that merely because a trustee is a life long member of a trust, it would not lead to finding that trust is not charitable.

The High Court of Delhi has held that extended time limit of 6 years under section 149(1)(b) requires data for prima facie computation of income escaping assessment.

The High Court of Punjab & Haryana has held that where assessee purchased superior quality goods from sister concern at a higher rate but third parties purchased same at a more higher rate, excess payment would be allowable.

The High Court of Allahabad has held that in course of block assessment proceedings, Assessing Officer could not make addition to asses see's taxable income on basis of material collected during a survey conducted prior to search proceedings.

There is no requirement under section 36(1)(iii) that assessee should have separate account in respect of non-interest bearing funds from that of interest bearing funds to establish that investments have been made out of its own funds i.e. non-interest bearing funds.
Section 37(1) - Business expenditure:- In view of consistent practice followed by assessee, Tribunal rightly allowed its claim for prior period expenses which were crystallized during relevant assessment year on receipt of bills even though assessee was following mercantile system of accounting.

The High Court of Delhi has held that if share application money had been assessed in hands of share applicants, then same would not be assessed in hands of assessee.

The High Court of Gujarat has held that where for purpose of computing capital gain arising from sale of property acquired prior to 1-4-1981, assessee adopted fair market value of property on basis of report of registered valuer who had given his opinion on basis of four different sale instances, Tribunal was justified in accepting said fair market value and, thus, no substantial question of law arose from Tribunal’s order.

The Delhi High Court has held that the current year losses & brought-forward losses of non-export processing zone unit of an organization need not be set off against profit/income of export processing zone unit. The full amount of profit/ income of export processing zone unit shall be exempt.

Due to rapid developments in technology, software up gradation is required to keep & ensure marketability of product specially in mobile phoning. Sale ability of a software or upgrade lasts only as long as a newer update/upgrade is not available. The period between two upgrades is not substantial and as such, there may be no enduring benefit from the software. Expenditure which enables the profit-making structure to work more efficiently leaving the source of profit- making structure untouched would be revenue in nature.

Signs of Revival

• 30% Industry gross loan portfolio growth in Q2 FY14 over Q2 FY13
• 54% Portfolio growth of MFIs other than CDR MFIs
• 300% Growth of funding to the industry in Q2 FY14 over Q1 FY14
• 50% Rise in total loan disbursal compared to Q2 FY12
• Lending rises significantly in states such as Uttarakhand, Rajasthan, Punjab and UP

For India Inc, loan recast by banks is set to become tougher. The corporate debt restructuring (CDR) cell has mandated that the lead bank in a consortium of lenders conduct an audit of how a company has utilized the loan before processing its request for debt recast According to Raj Kumar Bansal, Chairman, CDR Cell, the lead bank could also press for special audit where diversion of funds and fraud are suspected. All references for corporate debt restructuring by lenders / borrowers are made to the CDR Cell. The CDR mechanism covers only multiple banking accounts, syndication/ consortium accounts, where all banks and institutions together have an outstanding aggregate exposure of Rs. 10 crore and above.    

The Reserve Bank of India (RBI) has removed the 26% interest rate cap on loans given by micro finance companies regulated by it and linked the interest rate to the cost of funds, providing a greater leeway to the lenders from April 1. RBI said the micro finance institutions (MFIs) should arrive at the lending rate by calculating their cost of funds plus a maximum 10% margin or the average base rate of the five largest commercial banks by assets multiplied by 2.75 times, whichever is lower.

The general elections have been announced and within 3 to 4 weeks voting process will commence. It is very important for the Chartered Accountants fraternity to actively participate in the election process not only by casting their votes but also actively participating in shaping the thought process of the society. In the last 2 to 3 years India has witnessed a very serious lack of policy and administrative initiative at macro- economic level, resulting into very serious issues in the overall economic scenario including infrastructure sector, banking, power, telecom, coal, roads, water management, real estate, petroleum and gas and so on. The chartered accountancy profession which has a very large force of 2.25 lakh members, 1 million students and millions of clients and employees, who can be directly influenced through a proper dialogue. We can as a class be a very powerful class of intellectuals by our active participation. The nation is currently suffering from multiple taxes and highly litigate approach of the tax officials, severe corruption, huge compliance costs and complex legal requirements. Similarly the new Companies Act, 2013, the draft rules framed there under, draconian powers given to SEBI for searches and seizure and very highly complex corporate law compliance's requirement even for private limited and closely held small and mid- size Companies are some very serious issues, which are impacting the business and economic environment adversely.It is important for us to put forth a clear mandate and consensus to the newly elected government that Indian democracy will not permit so much powers and procedures that are unwarranted and unjustified, in the hands of bureaucracy. The size of the government and powers given to them has to be brought down substantially and a congenial business and economic environment to do business with ease and pride is necessary.The entire C.A. profession and a very large number of voters which can be influenced by us should talk in one voice on all electoral forums to potential candidates, seeking their support to a business friendly environment conducive to rapid growth. The revival of capital market, availability of adequate low cost funds from the financial market including towards risk equity capital and easy availability of funds to self-employed small and medium sector are certain pre-requisites. The introduction of single GST, providing for a clear-cut
automatic sharing between State and Central Government, providing for automatic credit of share of State and Central government by electronic bank transfer of all collection of GST, will be very necessary to bring easy implementation of GST as well as full respect to federal constitution framework. The expenditure of the Central and State Government can also be substantially reduced by merging all central level and state level taxes into one single GST. The concept of dual GST is basically incorrect and will only bring more confusion and anarchy. To ensure complete transparency and eradication of corruption at all levels, a transparent, robust electronic governance portal needs immediate implementation. The government also needs to consider to completely withdrawing the large number of regulations, procedures, compliances and tax laws, which are redundant, unreasonable and unfriendly. Most of the Central Government, State Government and local government related interaction and approvals needed by the citizen should be shifted to electronic system so as to eradicate corruption, reduce the size of the government and reduce burden on the exchequer. The current tax GDP ratio is too high and a substantial reduction will fuel big growth momentum.

An Indian Company may issue shares or convertible debentures to a person resident outside India in
excess of 24% of its capital if:

• It has given up its Small Scale Industrial Undertaking (SSI) status, and
• It is not engaged or does not propose to engage in manufacture of items reserved for small scale sector 

The Reserve Bank of India (RBI) has allowed micro and small enterprises (MSEs) who have de-registered their small scale industry status to sell stake to foreign investors to help them attract funds. It has been decided that such companies may issue shares or convertible debentures to a person president outside India. A company which is reckoned as Micro and Small Enterprises (MSE) may issue shares or convertible debentures to a person resident outside India, subject to the limits prescribed. It also allowed industrial units not into MSE to issue shares in excess of 24 per cent of its paid up capital with approval of the government.

The Reserve Bank of India (RBI) is soon expected to simplify and streamline the payment process in the interest subvention scheme so that banks can credit the interest subsidy benefit upfront to exporters against quick reimbursement by the central bank/ government. The exports sector is currently struggling and the January data showed a modest growth of 3.79%.

The Reserve Bank of India (RBI) liberalized third party payment norms for import of goods by removing the ceiling of $100,000.

Foreign institutional investors (FII) and non-resident Indians (NRIs) can now invest in the insurance sector, within the overall 26 per cent cap on foreign direct investment (FDI).

The Insurance Regulatory and Development Authority (IRDA) said insurance companies shall remit proceeds of all claims, maturity payments or any sum due to policyholders or nominees only through electronic mode.

Independent directors will soon have to provide “detailed reasons” for their resignations from boards of listed companies and the same would need to be made public under new norms being finalised by the regulator Securities & Exchange Board of India (SEBI)  If an independent director is citing “personal reasons” for his/her resignation from a company board, then he/she may be required to explain the logic behind staying on boards of other companies.

Under the new Corporate Governance rules, an individual can serve as an independent director on a maximum of seven listed companies. The Securities & Exchange Board of India (SEBI) also decided that if an individual is a whole-time director in a listed company, he can serve as an independent director in a maximum of three companies. Also, if one has completed five years or more as an independent director, he will be eligible for just one more term of five years. Managerial remuneration will be decided by a compensation committee headed by an independent director. The board has also decided that the definition of related-party transactions will be widened. SEBI said that there will be voting (by the shareholders) in which the related party cannot vote.