SETTLEMENT COMMISSION – A Viable Option

ACQUAINTANCE

 A forum named as Settlement Commission was set up in 1976 on the basis of recommendations of Direct Taxes Enquiry Committee headed by the former Chief Justice of Supreme Court, Shri K. N. Wanchoo. It was estblished to ensure effective and speedy disposal of complex cases so as to minimize the litigation and to ensure speedy and early resolution of dispute. The relevant provisions were inserted by the Taxation Amendment Act, 1975 w.e.f. 01.04.1976 in the form of chapter XIX – A of the I.T. Act in sections 245A to 245L of the Income tax Act.

PRESENT SCHEME

The present scheme relating to Settlement Commission provides vide section 245C(1) that an assessee can make an application to the Settlement Commission at any stage of a case relating to him. The term case is defined vide clause (b) of section 245A providing that there should be pendency of proceedings on the date of filing the application before the Income Tax Authority.

PURPOSE

The purpose for forming Settlement Commission were as follows:

  1. Immunity, to the extent possible, from penalty and prosecution
  2. To enable an assessee to make a true and fair disclosure and at the same time get assured that he shall go through minimal litigation
  3. To restrict revenue to take the case to higher authorities when there is no sufficient merit in it.
  4. To ensure early collection of revenue.

ELIGIBLE PENDING CASES

i) Assessment Proceedings u/s 143(3)/144:

Cases where notice u/s 143(2)/ show cause notice u/s 144 has been issued for scrutiny assessment or best judgement assessment.

ii) Assessment / re-assessment proceeding u/s 147:

Proceeding shall be deemed to be have commenced

  1. from the date on which notice under section 148 is issued for any assessment year
  2. from the date of issuance of the notice referred to in sub-clause(a), for any other Assessment Year or Assessment Years for which a notice u/s 148 has not been issued, but such notice should have been issued on such date, if the return of income for the other Assessment Year or Assessment Years has been furnished u/s 139 or in response to a notice u/s 143

Note: The above paragraph (b) above is a recent amendment. This is a big relief, where the assessee was doubtful that the Assessing Officer would find out any undisclosed income ultimately but was not able to disclose under this section because notice was not issued, now can go ahead and disclose even for assessment years where such notice u/s 148 could have been issued.

iii)  Fresh Assessment Proceedings:

 Where fresh assessment is made pursuant to order passed u/s 254/263/264 cancelling the assessment and directing fresh assessment. Such fresh assessment proceedings shall be deemed to have been commenced on the date on which order u/s 254/263/264 cancelling the assessment was passed.

iv)  Assessment/re-assessment proceedings u/s 153A:

The proceeding u/s 153A for the six assessment years, prior to the assessment year relevant to the precious year in which search and seizure was made shall be deemed to commence on the date on which notice u/s 153A is issued. If in the four assessment years, preceding the six assessment years mentioned above the aggregate undisclosed income exceeds 50 lakhs then the assessment years covered in this section shall extent to them too.

v) Assessment proceedings of the previous year in which search is conducted:

These proceedings shall be deemed to have commenced from the date on which the return of income for that Assessment Year is furnished u/s 139 or in response to a notice serviced u/s 142.

 

ADDITIONAL INCOME TAX DISCLOSED

As per section 245C, an application can be filed before the Settlement Commission, only if the additional amount of income-tax payable on  the income disclosed in the application exceeds the specified limit.

  • Specified limit in search cases: Section 245A provides that the proceedings for assessment or reassessment resulting from search/requisition would fall within the definition of a “case” which can be admitted by the Settlement Commission. Consequently, section 245C provides that the additional amount of income-tax payable on income disclosed in the application should exceed ` 50 lakh, for an application to be made before the Settlement Commission in such

Therefore, if proceedings have been initiated against the applicant (hereinafter referred to as specified person) under section 153A or under  section 153C as  a  result of search or a requisition of books of account, an application can be made  before the Settlement Commission if the additional amount of income-tax payable on the income disclosed in the application exceeds Rs. 50 lakh.

  • Specified limit in other cases: An application can also be made, where the  applicant is related to the specified person, and in  whose  case also  proceedings  have been initiated as a result of search, provided the additional income-tax payable on the income disclosed in the application exceeds ` 10

 

APPLICATION BEFORE SETTLEMENT COMMISSION

  • Tax and interest to be paid before making application: Such tax and interest thereon,   which would have been payable had such income been disclosed in  the return of income  before the Assessing Officer on the date of application, should  be  paid  on or before the date  of making the application. Further, proof of such payment should be attached with the application.
  • Applicant, in relation to the Specified Person: The applicant, in relation to the specified person, means –

  Specified person   Related entity
(i) Individual (1) Relative of the individual
    (2) Where the individual or his relative has a substantial interest in
      a business or profession carried on by any other person, the
      person who carries on such business or profession.
(ii) HUF (1) Member of HUF or relative of such member
    (2) Where the HUF  or  its member or relative of such member has  a substantial interest in a business or profession carried on by any other person, the person who carries on such business or profession.
(iii) Company (1) Director of the company or any relative of such director

Any person who has substantial interest in the business or profession of the company. In addition, the following are also considered as related entity –

·          If such person is an individual, any relative of such individual.

·          If such person is a company, any director  of  such company or any relative of such director.

·          If such person is a firm, any partner of such firm, or any relative of such partner.

·          If such person is an AOP or HUF, any member of the AOP or HUF, or any relative of such member.

A company, whose director has a substantial interest in the business or profession of this company;

Any director of such company; Any relative of such director.

A firm, whose partner has a substantial interest in the business or profession of the company;

Any partner of such firm;

Any relative of such partner.

An AOP, whose member has a substantial interest in the business or profession of the company;

Any member of such AOP; Any relative of such member.

A HUF, whose member has a substantial interest in the  business or profession of the company;

Any member of such HUF;

    (2)
     

 

 

 

 

(3)

     

 

(4)

     

 

(5)

     

 

(6)

     

(7)

Any relative of such member.

Where the company or its director or relative of such director has a substantial interest in a business or profession carried on by any other person, the person who carries on such business  or profession.

(iv) Firm (1) Partner of the firm or any relative of such partner

Any person who has substantial interest in the business or profession of the firm. In addition, the following are also considered as related entity –

·          If such person is an individual, any relative of such individual.

·          If such person is a company, any director  of  such company or any relative of such director.

·          If such person is a firm, any partner of such firm, or any relative of such partner.

·          If such person is an AOP or HUF, any member of the AOP or HUF, or any relative of such member.

A company, whose director has a substantial interest in the business or profession of the firm;

Any director of such company; Any relative of such director.

A firm, whose partner has a substantial interest in the business or profession of this firm;

Any partner of such firm;

Any relative of such partner.

An AOP, whose member has a substantial interest in the business or profession of the firm;

Any member of such AOP; Any relative of such member.

A HUF, whose member has a substantial interest in the  business or profession of the firm;

Any member of such HUF; Any relative of such member.

Where the firm or its partner or relative or such partner has a substantial interest in a business or profession carried on by  any other person, the person who carries on such business or profession.

    (2)
     

 

 

 

 

(3)

     

 

(4)

     

 

(5)

     

 

(6)

     

 

(7)

(v) AOP (1) Member of AOP or any relative of such member

Any person who has substantial interest in the business or profession of the AOP. In addition, the following are also considered as related entity –

·          If such person is an individual, any relative of such individual.

·          If such person is a company, any director  of  such company or any relative of such director.

·          If such person is a firm, any partner of such firm, or any relative of such partner.

·          If such person is an AOP or HUF, any member of the AOP or HUF, or any relative of such member.

A company, whose director has a substantial interest in the business or profession of the AOP;

Any director of such company; Any relative of such director.

A firm, whose partner has a substantial interest in the business or profession of the AOP;

Any partner of such firm;

Any relative of such partner.

An AOP, whose member has a substantial interest in the business or profession of this AOP;

Any member of such AOP; Any relative of such member.

A HUF, whose member has a substantial interest in the  business or profession of the AOP;

Any member of such HUF; Any relative of such member.

Where the AOP or its member or relative of such member has a substantial interest in a business or profession carried on by any other person, the person who carries on such business or profession.

    (2)
     

 

 

 

 

(3)

     

 

(4)

     

 

(5)

     

 

(6)

     

 

(7)

Cases where a person shall be deemed to have a substantial interest in a business or profession:

 

  Case Condition
(i) Where the business or profession is carried on by a company Such person is, on the date of  search,  the  beneficial owner of shares (not being shares entitled to a fixed rate   of dividend, whether with or without a right to participate in profits) carrying not less than 20% of the voting power.

 

(ii) In any other case Such person is, on the date of search, beneficially entitled to not less than 20% of the profits of such business or profession.

Such beneficial ownership/beneficial entitlement  may  be at any time during the previous year.

  • Manner of calculation of additional amount of income-tax: The additional amount of income-tax has to be calculated in the following manner as  provided in sub-section (1B)  read with sub-section (1C), in  a case where the income disclosed in  the application relates to only one previous year–

(i) If the applicant has not furnished a return in respect of the total income of that year. Tax should be calculated on the income disclosed in the application as if such income is the total income. Such tax represents the additional amount of income-tax.
(ii) If the applicant has furnished a return in respect of the total income of that year. The tax should be calculated on the aggregate of total income returned and the income disclosed in the application i.e. as if the aggregate represents the total income. The additional amount of income-tax is the amount calculated on such aggregate as  reduced  by the amount of tax calculated on the total  income returned for that year.

Where the income disclosed in the application relates to more than one previous year, then the above procedure is to be adopted in respect of each previous year and the aggregate of tax payable is to be calculated [Sub-section (1D)].

  • Prescribed fees [Section 245C(2)]: Every settlement application made under sub-section(1) should be accompanied by the prescribed fees of  Rs. 500.
  • Withdrawal not permissible [Section 245C(3)]: The settlement application made under sub-section (1) cannot be withdrawn by the applicant [Sub-section (3)].
  • Intimation to Assessing Officer [Section 245C(4)]: The assessee should also intimate to the Assessing Officer in the prescribed manner that he has made an application to the Settlement Commission. Such intimation should be made on the same date when he makes an application to the Settlement

PROCEDURE ON RECEIPT OF APPLICATION [SECTION 245D]

Admission of Petition [Section 245D(1)]

  • On receipt of the settlement application, the Settlement Commission shall issue a notice to the applicant, requiring him to explain as to why the application made by him be allowed to be proceeded with, within 7 days from the date of receipt of application.
  • After hearing the applicant, the Settlement Commission shall pass an order either rejecting or allowing the application to be proceeded with  within 14 days from the  date of
  • Application not disposed off within 14 days shall be treated as
  • Copy of every order under section 245D(1) has to be sent to the applicant and to the Principal Commissioner or Commissioner [Sub-section (2)].

Time limit for furnishing report by Principal Commissioner or Commissioner and passing order by the Settlement Commission [Section 245D(2B) & (2C)]

  • The Settlement Commission shall call for a report from the Principal Commissioner or Commissioner within 30 days from the date of
  • The Principal Commissioner or Commissioner is required to furnish the report within 30 days from the receipt of communication from the Settlement
  • The Settlement Commission can also pass an order declaring the application as invalid on the basis of the report of the Principal Commissioner or
  • Such order should be passed in writing within 15 days of the receipt of report after giving the applicant an opportunity of being
  • A copy of the order should be sent to  the applicant and the Principal Commissioner  or
  • However, in a case where the Principal Commissioner or Commissioner has not furnished the report within the prescribed time, the Settlement Commission shall proceed further in the matter without the report of the Principal Commissioner or

Proceedings after admission [Section 245D(3)]

  • The Settlement Commission may call for records from the Principal Commissioner or Commissioner in respect of an application which has not been declared invalid under sub-section (2C) or an application which has been allowed to be further proceeded with under sub-section (2D).
  • After examination of such records, the Settlement Commission may require the Principal Commissioner or Commissioner to make further enquiry  or  investigation and furnish a report on the matters covered by the application and any other matter relating to the
  • The Principal Commissioner or Commissioner shall furnish the report within a period of 90 days of the receipt of communication from the Settlement
  • If the Principal Commissioner or Commissioner fails to furnish the report within the said period of 90 days, the Settlement Commission may proceed to pass an order under sub-section (4) without such

Final order of settlement [Section 245D(4) and (4A)]

  • The Settlement Commission may pass such order as it thinks fit on the matters covered by the application and any other matter relating to the case not covered by the application but referred to in the report of the Principal Commissioner or
  • Such order should be passed by the Settlement Commission after –
    • examining the records and report of the Principal Commissioner or Commissioner, if any, received at the time of admission or on investigation or enquiry conducted as per the instructions of the Settlement Commission;
    • giving an opportunity of being heard to the applicant and the Principal Commissioner or Commissioner;
    • examining such further evidence as may be placed before it or obtained by
  • The time limit for passing such order is –

(1) In respect of an application made on or after 1.6.2010 Within 18 months from the end of the month in which the application was made.
(2) In respect of an application made between 1.6.2007                         and 31.5.2010. Within 12 months from the end of the month in which the application was made.
  • Order of Settlement Commission to express views of majority [Section 245D(5)]:  Before passing any order and subject to the provisions dealing with the jurisdiction of Settlement Commission, the various materials brought on record before the Settlement Commission must be considered by the members of the concerned Bench and in cases where there is any difference of opinion among the members, the opinion of the majority   shall prevail and the order of the Settlement Commission must also be  expressed in  terms  of the views of the
  • Order to provide for terms of Settlement [Section 245D(6)]: All the orders passed by the Settlement Commission under section 245D(4) must provide for the terms of the settlement including any demand by way of tax, penalty, the manner in which any amount due as a  result of the settlement should be paid and all other matters which are essential to make the settlement of the case
  • Order to be void if obtained by fraud or misrepresentation [Section 245D(6)/(7)]: The order should also provide that the settlement shall be void if it is subsequently found by the Settlement Commission that the settlement order was obtained by fraud or any misrepresentation of facts by the applicant. In  cases  where the settlement becomes void,  the proceeding, in respect of which the settlement order was passed, must be deemed to  have been revived from the stage at which the application was  allowed to  be  proceeded  with by the Settlement Commission and the Income-tax authority concerned may complete  the proceedings for assessment or re-assessment of income or the levy of  penalty, fine,   etc., at any time before the completion of two years from the end of  the financial year in  which the settlement becomes void.
  • Interest leviable if tax not paid within prescribed time [Section 245D(6A)]: Where the tax payable in pursuance of an order passed by the Settlement Commission is not paid by the assessee within 35 days of receipt of a copy of final order, the assessee shall be liable to pay simple interest @ 1¼% for every month or part of a month  on  the outstanding amount from  the date of expiry of 35 days. Such liability will arise even in cases where the Commission extended the time allowed for such payment or permitted payment by
  • Time limit for amendment of Settlement Order [Section 245D(6B)]: The Settlement Commission may amend any order passed by it under section 245D(4) to rectify  any  mistake apparent from the

The Settlement Commission may, with a view to rectifying any mistake apparent from the record, amend any order passed by it under section 245D(4), at any time within a period of  six months from the end of month in which –

  • the order was passed; or
  • an application for rectification has been made by the Principal Commissioner or Commissioner or the applicant, as the case may

However, no application for rectification can be made by the Principal Commissioner or the Commissioner or the applicant after the expiry of 6 months from the end of the month in  which an order under section 245D(4) is passed by the Settlement Commission.

  • Time limit under section 153 not applicable in respect of Settlement Order [Section 245D(8)]: The time limit for completion of assessments and re-assessments contained in section 153 shall have no application to any order passed by the Settlement Commission or to any order of assessment or re-assessment or recomputation required to be made by the Assessing Officer in pursuance of any directions contained in an order passed by the Settlement

POWER OF SETTLEMENT COMMISSION TO ORDER PROVISIONAL ATTACHMENT TO PROTECT REVENUE [SECTION 245DD]

  • Under section 245DD, the Settlement Commission is empowered to provisionally attach the property belonging to the applicant for protecting the interest of the revenue. The manner in which such provisional attachment is to be effected is provided in the Second Schedule. Such provisional attachment is valid for a period of 6 months, after which it ceases to have effect.
  • The Settlement Commission may, for reasons to be recorded in writing,  extend  the  aforesaid period by such further period or period as it thinks.

The Settlement Commission shall not have any power to reopen the proceedings in respect of an application made on or after 1.6.2007.

JURISDICTION AND POWERS OF THE SETTLEMENT COMMISSION [SECTION 245BA]

The jurisdiction, powers and authority of the Settlement Commission may be exercised by benches thereof.

  • Constitution of Benches: A bench shall be presided over by the Chairman or a Vice- chairman and shall consist of two other

The bench for which the Chairman is the presiding officer shall be the  principal  bench and the other benches shall be known as additional benches.

The Chairman may authorise the Vice-chairman or other Member appointed to one bench to discharge also the functions of the Vice-chairman or other member of another bench.

The Vice-chairman has been empowered to act as chairman and discharge his functions under certain circumstances as vacancy, death, resignation etc.

  • Constitution of Special Bench: Where the presiding officer or other member of a bench is unable to discharge his functions owing to absence, illness or any other cause or where a vacancy occurs in the office of the presiding officer or a member the remaining two persons may function as the bench and if the presiding officer is not one of the members, the senior member will be the presiding However, if it is felt that the case is such that it should be heard by a  bench of  three members the chairman has powers to  transfer the case to  such a bench. The chairman for the disposal of a particular  case,  constitute  a  Special Bench consisting of more than three members.
  • Benches to sit at notified places: The places at which the Principal Bench and the Additional Benches shall ordinarily sit shall be notified by the Central Government. The Central Government has specified that New Delhi is the place where the  Principal Bench  and Bombay, Calcutta and Madras as the places where Additional Benches of  the  Settlement Commission shall ordinarily
  • Transfer of cases: On the application of the assessee or the Principal Commissioner or Commissioner and after notice to them and hearing, the chairman may transfer any case pending before one bench, for disposal, to another
  • Decision based on opinion of majority members: If the members of a bench differ in opinion on any point the point shall be decided according to the opinion of the If  they are equally divided they shall state the point on which they differ and make a reference  to the chairman who shall either hear the point himself or refer the point  to  one or  more of the other members and such point shall be decided according to the opinion of  the majority  of the members who have heard the case including those who first heard it.
  • Exclusive Jurisdiction of Settlement Commission: The Settlement  Commission  has been vested with all the powers which are vested in an Income-tax authority under the Income-tax Act,

Accordingly, in cases where an application made by the assessee under section 245C has been allowed by the Settlement Commission to be proceeded with under section 245D, the Settlement Commission is empowered to exercise exclusively the jurisdiction and powers  and perform the functions allotted to an Income-tax authority under the Income-tax Act until  an order for settlement of the case is passed.

Such exclusive jurisdiction would begin with the date of filing of application with the Settlement Commission.

The exclusive jurisdiction of the Settlement Commission would end on –

  • the date of passing an order under section 245D(4); or
  • the date of passing the order rejecting the application under section 245D(1); or
  • the date on which the application is not allowed to be proceeded with under section 245D(2A); or
  • the date on which the application is declared invalid under section 245D(2C); or
  • Certain provisions of Income-tax Act, 1961 to apply in the absence of contrary directions by the Settlement Commission: However, in the absence of any express direction to the contrary by the Settlement Commission, the operation of any other provision of the Income-tax Act, 1961 requiring the applicant to pay the tax on the basis of self- assessment shall continue to be applicable in relation to matters which are before the Settlement Commission for Further, in the absence of any express directions by the Settlement Commission to the contrary, the provisions of sections 245A to  245L  would not affect the operation of any other provision of the Income-tax Act, 1961 insofar as those provisions relate to any matters other than those covered by the case before the Settlement Commission.

  • Settlement Commission to regulate its own procedure: The Commission shall subject to the provisions of this Chapter have power to  regulate its own procedure and the procedure of benches thereof in all matters arising out of the exercise of its powers or of the discharge of its functions including the places at which the Board shall hold their
  • Inspection of reports: According to section 245G, no person is  entitled  to  inspect  or obtain copies of any reports made by any Income-tax authority to the  Settlement   Commission in relation to the case, but, the Settlement Commission may, in its discretion, furnish copies thereof to any person or receipt of an application made to it in this behalf and  on payment of the prescribed fee. However, in order to enable any person whose case is under consideration to rebut any evidence which has been brought on record against him in any such report, the Settlement Commission shall, on receipt of an application in this behalf and on payment of the prescribed fee, furnish to the applicant, a certified copy of any such report or particular thereof which may be relevant for the

POWER TO GRANT IMMUNITY FROM PROSECUTION AND PENALTY [SECTION 245H]

  • Recording of reasons in order granting immunity: The Settlement Commission may, if it is satisfied that any person who made the application for settlement under section 245C has co-operated with the Settlement Commission in the conduct  of  the proceedings before  it  and has made a true disclosure of his income, and the manner in which such income has been derived, grant to such person immunity from prosecution for any offence under the Income-tax Act, 1961 or under the Wealth-tax Act, However, the Settlement Commission, while granting immunity to any person from prosecution shall record the  reasons in writing in the order passed by it.

Such an immunity may also be granted in the matter of imposition of any penalty under the Income-tax Act, 1961 in respect of the case which is covered by the settlement.

  • Grant of partial immunity: The Commission can grant partial immunity from imposition of penalty to the
  • Immunity to be subject to conditions: The power of the Settlement Commission to grant immunity from prosecution and the imposition is, however, subject to such conditions as the Commission may think fit to impose in the circumstances of the
  • No immunity if prosecution proceedings have been initiated before receipt of application: No such immunity shall be granted by the Commission in cases where the proceedings for the prosecution for any such offence have been instituted before the date of receipt of the application for
  • Restriction on power to grant immunity: Under section  245H,  the  Settlement Commission may grant immunity from prosecution for any offence under the Indian Penal Code, Income-tax Act, 1961 and any other Central Act.  This power has now been restricted in respect of application made under section 245C on or after 1.6.2007. In respect of such cases, the Settlement Commission shall not grant immunity from  prosecution  for  any  offence under the Indian Penal Code or under any Central Act other  than  the  Income-tax Act, 1961 and Wealth-tax Act, 1957. However, in respect of applications pending as on 1.6.2007, the Settlement Commission has the power to grant immunity from prosecution for any offence under the Indian Penal Code and other Central Acts also.

Withdrawal of immunity:

  • An immunity granted under this section shall stand withdrawn if such person fails to pay any sum specified in the order of settlement within the time specified in the order or within such further time as may be allowed by the Commission or fails to comply with any other condition subject to which the immunity was granted and thereupon   the provisions of this Act shall apply as if such immunity had not been
  • An immunity granted by the Settlement Commission to any person may, at any time, be withdrawn by it in cases where it is satisfied that the person concerned had, in the course of the settlement proceedings concerned may be tried for the offence with respect to which the immunity was granted or  for any  other offence in respect of  which he has been found guilty in connection with the
  • After the withdrawal of the immunity from prosecution,  the  person concerned may also become liable to the imposition of the penalty under the Income-tax Act, 1961 to which he would otherwise have been liable in the absence of the immunity given to  him under section

ABATEMENT OF PROCEEDING BEFORE THE SETTLEMENT COMMISSION [SECTIONS 245HA & 245HAA]

  • Specified date of abatement in different cases: In the following cases, the proceedings before the Settlement Commission shall abate on the specified date as given below –

  Case Specified date
(i) where an application made to the Settlement Commission on or  after 1.6.2007 has been rejected under section 245D(1). The date on which the application was rejected.
(ii) where an application has been declared invalid under section 245D(2C). The last day of the month in which the application was declared invalid.
(iii) Where an order under section 245D(4) has The day on which the order under

  been passed not providing for the terms of settlement. section      245D(4)      was     passed                 not providing for the terms of settlement.
(iv) Where an order under section 245D(4) has not been passed within the time allowed under section 245D(4A). The date on which the time or period specified in section 245D(4A) expires.
  • Cases to revert to jurisdictional Assessing Officer: On abatement of proceedings, the case would revert back to the Assessing Officer having jurisdiction or any other income-tax authority before whom the proceedings were pending at the time of making the Such income-tax authority shall dispose of the case in accordance with the provisions of the Act.
  • Assessing Officer entitled to use the material, information and results of enquiry: For completing the proceedings, the Assessing Officer or other Income-tax authority shall be entitled to use the material and information produced by the assessee before  the   Settlement Commission as if such material and information had been produced before the Assessing Officer or other income-tax authority. Similarly, the Assessing Officer or other Income-tax authority shall be entitled to use the results of the inquiry held or evidence recorded by the Settlement Commission in the course of the proceedings before it, as  if   such inquiry or evidence had been held or recorded by him in the course of the proceedings before
  • Exclusion of time period: The period from the date on which the application was made before the Commission up to the date on which proceedings get abated shall be excluded from the time limit for completion of proceedings by the Assessing Officer and  for payment  of interest under section 243, 244 or
  • Credit for tax and interest paid [Section 245HAA]: In case of abatement of settlement proceedings, the Assessing Officer is required to give credit for the tax and interest paid on  or before the date of making the application or during the pendency of the case before the  Settlement

ORDER OF SETTLEMENT COMMISSION TO BE CONCLUSIVE [SECTION 245-I]

Section 245-I provides that every order of the Settlement Commission passed under  section 245D(4) shall be conclusive in respect of the matters contained therein. Consequently, no matter covered by the Settlement Order shall be liable to be reopened in any proceeding under the Income-tax Act or under any other law for the time being in force. The only exception is the  reopening of the case by the Settlement Commission itself under section 245D(7) where the settlement becomes void.

However, the Supreme Court has held in CIT vs. B.N. Bhattacharjee (1979) 118 ITR  461  that  Article 136 of the Constitution was wide enough to bring within the Supreme Court’s jurisdiction orders passed by the Settlement Commission.

RECOVERY OF SETTLED AMOUNT [SECTION 245J]

According to section 245J, any amount specified in an order of settlement passed  by  the  Settlement Commission under section 245D(4), may be recovered and any penalty for default in making the payment may be imposed and recovered  from  the person concerned in  accordance  with the provisions of the Income-tax Act,  1961. The power for making the recovery if any, as may be specified by the Settlement Commission in the order passed by it. The right of recovery may be exercised by the Assessing Officer having jurisdiction over the person who has made  the  application for settlement under section 245C.

BAR ON SUBSEQUENT APPLICATION FOR SETTLEMENT [SECTION 245K]

  • In the event of occurrence of any of the following, the person concerned or any person  related to such person shall not be entitled to apply for settlement in relation to any other matter –
    • the order of settlement passed under section 245D(4) provides for imposition of penalty for concealment of income; or
    • after the passing of order under section 245D(4) in relation to a case, the person is convicted of an offence under Chapter XXII in relation to that case; or
  • The case of such person was sent back to the Assessing Officer by the Settlement Commission on or before 6.2002.
  • Further, with effect from 1.6.2007, the option of going to the Settlement Commission would be available only once in the lifetime of a person. Therefore, where an application for settlement is made on or after 1.6.2007 and such application has been allowed to be proceeded with, then such person will not be subsequently entitled to make any application under section

Note – Any person related to the person who has already approached the Settlement Commission once, also cannot approach the Settlement Commission subsequently. The related person with respect to a person means –

Person Related person
Individual ·          any company in which such person holds more than 50%  of  the shares or voting rights at any time; or

·          any firm or AOP or BOI in which such person is entitled to

  more than 50% of the profits at any time; or

·          any HUF in which such person is a karta

Company ·          any individual who held more than 50% of the shares or voting rights in such company at any time before the date of application before the Settlement Commission by such person
Firm or AOP or BOI ·          any individual who was entitled to more than 50% of the profits in such firm, AOP or BOI, at any time before the date of application before the Settlement Commission by such person
HUF ·          The karta of that HUF

The restriction of not approaching the Settlement Commission again was so far applicable only to  the concerned person. Therefore, an individual who has approached the Settlement Commission once can subsequently approach again through an entity controlled by him. This defeats  the  purpose of restricting the opportunity of approaching the Settlement Commission only once for any person. Therefore, section 245K has been amended with effect from 1st June, 2015 to apply the restriction to the related persons as well.

PROCEEDINGS TO BE JUDICIAL PROCEEDINGS [SECTION 245L]

All the proceedings under the Income-tax Act, 1961 before the Settlement Commission shall be deemed to be judicial proceedings within the meaning of sections 193, 196 and 228 of the Indian Penal Code.

LATEST IN JUDICIARY

  • Commissioner of Income Tax Vs Anjum M.H. Ghaswala & Ors, 2001, Supreme Court:

Section 245D does not empower the Settlement Commission to waive or reduce the statutory interest payable u/s 234A, 234B or 234C. Interest u/s 234A, 234B and 234C are mandatory interest and Settlement Commission cannot waive or reduce such interests. Settlement Commission has the same power as conferred by the Income-tax Act on Income-tax Authorities. Therefore, Settlement Commission can waive/reduce the interest under section 234A/B/C to the extent it can be waived by CCIT/Director General(Investigation) as permitted by the Board’s circular.

  • Lakshmansa And Co. Vs. Commissioner of Income Tax, 2017, Supreme Court:

The issue which aroused was that if an assessee receiving refund consequent to waiver of interest under section 234A to 234C of the Income-tax Act, 1961 by the Settlement Commission, also entitled to interest on such refund under section 244A ?

The assessee had approached the Settlement Commission for waiver of interest under sections 234A to 234C of the Income-tax Act, 1961. The said interest has already been paid by the assessee. The Settlement Commission waived the interest but refused to grant interest on refund on the ground that sectin 244A does not provide for payment of interest in such cases. Further, the Settlement Commission’s power to waive interest does not enable the Commission to provide for payment of interest under section 244A.

The Supreme Court held that under section 244A, it is enough if the refund becomes due under the Income-tax Act,1961 in which case the assessee shall, subject to the provisions of that section, be entitled to receive simple interest. It does not matter that the interest being waived is discretionary in nature. The moment that discretion is exercised and refund becomes due consequently, a right to claim interest springs into being in favour of the assessee. The Supreme Court held that the assessee has a right to interest on refund under section 244A.

                               The author is an advocate and can be reached at pkshillong@gmail.com

BENEFICIAL OWNER

BENEFICIAL OWNER.. This term is a buzz among the Corporate Sector in the light of corporate scandals of the like such as that done by Vijay Mallya (ex-chairman of United Breweries, a group of 17 Indian Banks are trying to collect Rs. 9000/- Crore from him) and Nirav Modi (he started his Company named Firestar and is associated with Gitanjali Group) who has defrauded Punjab National Bank to the tune of Rs. 28,000/- Crore. When Companies commit fraud, the main culprit behind the wrongdoings often goes scot-free and other directors or managers are made scapegoats for the same. In order to curb this practice, the Ministry of Corporate Affairs, have come out with the requirement of every Company filing the FORM BEN2 indicating the Specified Beneficial Owner who together with any indirect holding holds at least 10% or more of the paid-up Equity Share Capital of the Reporting Company. Once the identity is ascertained in this manner, the legal authorities now know as to whom to pursue. The last date of filing this form is 31.03.2020 and this form is to be filed everytime there is change in the Specified Beneficial Ownership.

A letter in the format of Ben4 has to be sent by a reporting company to every non-individual member of the Company, seeking if there is any Specified Beneficial Owner (SBO) in the reporting company.

The declaration by Specified Beneficial Owner (SBO) has to come in the Form BEN1 to the Company.

Ben1 has to be attached in the Form Ben2 to be filed with the Registrar of Company through the MCA (Ministry of Corporate Affairs) portal.

Ben3 is the prescribed form of Register to be maintained for recording the details of Specified Beneficial Owner.

A thing to be remembered in this regard is that if an individual member, say ‘X’ of a reporting company A Pvt. Ltd. holds directly 10% or more in that Company but does not hold any indirect holding then he is not a Specified Beneficial Owner. A person becomes a specified beneficial owner only if his indirect holding along with direct holding comes to 10% or more.

The prominent question that arises is , What is Indirect Holding ? An indirect holding can be explained by way of following illustration:

Illustration :

Suppose the Reporting Company, A Pvt. Ltd. has a member ‘X’ with 5% direct holding and B Ltd. Pvt. Ltd. having 6 % as direct holding and C Pvt. Ltd. with 12% as direct holding. Let’s say that ‘X’ also holds more than 50% equity shares in B Pvt. Ltd. Now there is a Company ‘D Pvt. Ltd.’ which holds 51% in C Pvt. Ltd. and ‘X’ holds 60% equity shares of D Pvt. Ltd. The question is what is the indirect and direct holding of ‘X’ for the purpose of declaring in Ben1 to A Pvt. Ltd. as a Specified Beneficial Owner (SBO)

The answer is as follows:

Direct holding of ‘X’ in A Pvt. Ltd. …………… 5%

Indirect holding in B Pvt. Ltd. ……………. 6%

——–

11%

——–

Holding by B Pvt. Ltd. to the extent of 6% shall be considered as indirect holding by ‘X’ in A Pvt. Ltd. because ‘X’ holds majority stake (more than 50% shares) in B Pvt. Ltd. Had the holding of ‘X’ in B Pvt. Ltd. be less than 51% then we would not have considered the shareholding of B Pvt. Ltd. (6%) as an indirect holding of ‘X’. We should not take 5% of 6% or 0.3% as indirect holding of ‘X’.

Though D Pvt. Ltd. holds 51% in C Pvt. Ltd. and X holds 60% in D Pvt.Ltd., the shareholding of C Pvt. Ltd. 12% in A Pvt. Ltd. shall not be considered as indirect holding by ‘X’ Ltd. The reason for this stand is that X Ltd. does not holds direct controlling interest in C Pvt. Ltd., he holds it through D Pvt. Ltd.

Form Ben2 requires the date on which beneficial ownership is acquired. Another pertinent question that comes to mind is that what is this date. Let us try to find out. We are given the following dates in relation to A Pvt. Ltd. :

01.05.2002 is the date when ‘X’ became member in A Pvt. Ltd.

01.06.2004 is the date when B Pvt. Ltd. became member in A Pvt. Ltd.

15.06.2014 is the date when ‘X’ acquired more than 50% shareholding in B Pvt. Ltd.

In this case, the date when ‘X’ holds the beneficial interest in A Pvt. Ltd. shall be 15.06.2014. The reason being that without holding majority stake, there would be no indirect holding.

The notification of the Government dated 08.02.2019 is as follows:

MINISTRY OF CORPORATE AFFAIRS

NOTIFICATION

New Delhi, the 8th February, 2019 G.S.R. 100(E).— In exercise of the powers conferred by sub-sections (1) and (2) of section 469 read with section 90 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the following rules further to amend the Companies (Significant Beneficial Owners) Rules, 2018, namely:-

  1. (1) These rules may be called the Companies (Significant Beneficial Owners) Amendment Rules, 2019.

(2) They shall come into force on the date of their publication in the Official Gazette.

  1. In the Companies (Significant Beneficial Owners) Rules, 2018 (hereinafter referred to as the principal rules), in rule 2, in sub-rule (1), for clauses (b) to (e), the following clauses shall be substituted, namely:-

‘(b) “control” means control as defined in clause (27) of section 2 of the Act;

(c) “form” means the form specified in Annexure to these rules;

(d) “majority stake” means;-

(i) holding more than one-half of the equity share capital in the body corporate; or

(ii) holding more than one-half of the voting rights in the body corporate; or

(iii) having the right to receive or participate in more than one-half of the distributable dividend or any other distribution by the body corporate;

(e) “partnership entity” means a partnership firm registered under the Indian Partnership Act, 1932 (9 of 1932) or a limited liability partnership registered under the Limited Liability Partnership Act, 2008 (6 of 2009);

(f) “reporting company” means a company as defined in clause (20) of section 2 of the Act, required to comply with the requirements of section 90 of the Act;

(g) “section” means a section of the Act;

(h) “significant beneficial owner” in relation to a reporting company means an individual referred to in subsection (1) of section 90, who acting alone or together, or through one or more persons or trust, possesses one or more of the following rights or entitlements in such reporting company, namely:-

(i) holds indirectly, or together with any direct holdings, not less than ten per cent. of the shares;

(ii) holds indirectly, or together with any direct holdings, not less than ten per cent. of the voting rights in the shares;

(iii) has right to receive or participate in not less than ten per cent. of the total distributable dividend, or any other distribution, in a financial year through indirect holdings alone, or together with any direct holdings;

(iv) has right to exercise, or actually exercises, significant influence or control, in any manner other than through direct holdings alone:

Explanation I. – For the purpose of this clause, if an individual does not hold any right or entitlement indirectly under sub-clauses (i), (ii) or (iii), he shall not be considered to be a significant beneficial owner.

Explanation II. – For the purpose of this clause, an individual shall be considered to hold a right or entitlement directly in the reporting company, if he satisfies any of the following criteria, namely.––

(i) the shares in the reporting company representing such right or entitlement are held in the name of the individual;

(ii) the individual holds or acquires a beneficial interest in the share of the reporting company under subsection (2) of section 89, and has made a declaration in this regard to the reporting company.

Explanation III. – For the purpose of this clause, an individual shall be considered to hold a right or entitlement indirectly in the reporting company, if he satisfies any of the following criteria, in respect of a member of the reporting company, namely:-

(i) where the member of the reporting company is a body corporate (whether incorporated or registered in India or abroad), other than a limited liability partnership, and the individual,––

(a) holds majority stake in that member; or

(b) holds majority stake in the ultimate holding company (whether incorporated or registered in India or abroad) of that member;

(ii) where the member of the reporting company is a Hindu Undivided Family (HUF) (through karta), and the individual is the karta of the HUF;

(iii) where the member of the reporting company is a partnership entity (through itself or a partner), and the individual,-

(a) is a partner; or

(b) holds majority stake in the body corporate which is a partner of the partnership entity; or

(c) holds majority stake in the ultimate holding company of the body corporate which is a partner of the partnership entity.

(iv) where the member of the reporting company is a trust (through trustee), and the individual,-

(a) is a trustee in case of a discretionary trust or a charitable trust;

(b) is a beneficiary in case of a specific trust;

(c) is the author or settlor in case of a revocable trust.

(v) where the member of the reporting company is,-

(a) a pooled investment vehicle; or

(b) an entity controlled by the pooled investment vehicle,

based in member State of the Financial Action Task Force on Money Laundering and the regulator of the securities market in such member State is a member of the International Organization of Securities Commissions, and the individual in relation to the pooled investment vehicle,-

(A) is a general partner; or

(B) is an investment manager; or

(C) is a Chief Executive Officer where the investment manager of such pooled vehicle is a body corporate or a partnership entity.

Explanation IV. Where the member of a reporting company is,

(i) a pooled investment vehicle; or (ii) an entity controlled by the pooled investment vehicle,

based in a jurisdiction which does not fulfil the requirements referred to in clause (v) of Explanation III, the provisions of clause (i) or clause (ii) or clause (iii) or clause (iv) of Explanation III, as the case may be, shall apply.

Explanation V. – For the purpose of this clause, if any individual, or individuals acting through any person or trust, act with a common intent or purpose of exercising any rights or entitlements, or exercising control or significant influence, over a reporting company, pursuant to an agreement or understanding, formal or informal, such individual, or individuals, acting through any person or trust, as the case may be, shall be deemed to be ‘acting together’.

14 THE GAZETTE OF INDIA : EXTRAORDINARY [PART II—SEC. 3(i)]

Explanation VI. – For the purposes of this clause, the instruments in the form of global depository receipts, compulsorily convertible preference shares or compulsorily convertible debentures shall be treated as ‘shares’.

(i) “significant influence” means the power to participate, directly or indirectly, in the financial and operating policy decisions of the reporting company but is not control or joint control of those policies’.

  1. In the principal rules, for rules 3 and 4, the following rules shall be substituted, namely:-

“2A. Duty of the reporting company.- (1) Every reporting company shall take necessary steps to find out if there is any individual who is a significant beneficial owner, as defined in clause (h) of rule 2, in relation to that reporting company, and if so, identify him and cause such individual to make a declaration in Form No. BEN-1.

(2) Without prejudice to the generality of the steps stated in sub-rule (1), every reporting company shall in all cases where its member (other than an individual), holds not less than ten per cent. of its;-

(a) shares, or (b) voting rights, or (c) right to receive or participate in the dividend or any other distribution payable in a financial year,

give notice to such member, seeking information in accordance with sub-section (5) of section 90, in Form No. BEN-4.

  1. Declaration of significant beneficial ownership under section 90.- (1) On the date of commencement of the Companies (Significant Beneficial Owners) Amendment Rules, 2019, every individual who is a significant beneficial owner in a reporting company, shall file a declaration in Form No. BEN-1 to the reporting company within ninety days from such commencement.

(2) Every individual, who subsequently becomes a significant beneficial owner, or where his significant beneficial ownership undergoes any change shall file a declaration in Form No. BEN-1 to the reporting company, within thirty days of acquiring such significant beneficial ownership or any change therein.

Explanation.- Where an individual becomes a significant beneficial owner, or where his significant beneficial ownership undergoes any change, within ninety days of the commencement of the Companies (Significant Beneficial Owners) Amendment Rules, 2019, it shall be deemed that such individual became the significant beneficial owner or any change therein happened on the date of expiry of ninety days from the date of commencement of said rules, and the period of thirty days for filing will be reckoned accordingly.

  1. Return of significant beneficial owners in shares.- Upon receipt of declaration under rule 3, the reporting company shall file a return in Form No. BEN-2 with the Registrar in respect of such declaration, within a period of thirty days from the date of receipt of such declaration by it, along with the fees as prescribed in Companies (Registration offices and fees) Rules, 2014.”.
  2. In the said principal rules, for rules 7 and 8, the following rules shall be substituted, namely:-

“7. Application to the Tribunal.- The reporting company shall apply to the Tribunal, –

(i) where any person fails to give the information required by the notice in Form No. BEN-4, within the time specified therein; or

(ii) where the information given is not satisfactory,

in accordance with sub-section (7) of section 90, for order directing that the shares in question be subject to restrictions, including –

(a) restrictions on the transfer of interest attached to the shares in question;

(b) suspension of the right to receive dividend or any other distribution in relation to the shares in question;

(c) suspension of voting rights in relation to the shares in question;

(d) any other restriction on all or any of the rights attached with the shares in question.

  1. Non-Applicability.-These rules shall not be made applicable to the extent the share of the reporting company is held by,-

(a) the authority constituted under sub-section (5) of section 125 of the Act;

(b) its holding reporting company:

Provided that the details of such holding reporting company shall be reported in Form No. BEN-2.

(c) the Central Government, State Government or any local Authority;

(d) (i) a reporting company, or

(ii) a body corporate, or

(iii) an entity,

controlled by the Central Government or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments;

(e) Securities and Exchange Board of India registered Investment Vehicles such as mutual funds, alternative investment funds (AIF), Real Estate Investment Trusts (REITs), Infrastructure Investment Trust (InVITs) regulated by the Securities and Exchange Board of India,

(f)Investment Vehicles regulated by Reserve Bank of India, or Insurance Regulatory and Development Authority of India, or Pension Fund Regulatory and Development Authority.

  1. In the principal rules, for Form No. BEN-1, Form No. BEN-2 , Form No. BEN-3 and BEN-4 the following Forms shall be substituted, namely:—

“Form No. BEN-1

Declaration by the beneficial owner who holds or acquires significant beneficial ownership in shares

[Pursuant to section 90(1) of the Companies Act, 2013 and rule 2A, 3]

To

Name of the company:

Registered office address:

  1. Purpose of filing the form (choose any one)

For declaration of Significant Beneficial Ownership under Section 90

For Change in Significant Beneficial Ownership under Section 90 ID of the Significant Beneficial Owner

  1. Particulars of the holder of the significant beneficial interest: Name of the Significant Beneficial Owner (Given name and last Name)

Address and Email id Date of Birth/Age Father’s/ Mother’s/Spouse’s name Occupation Nationality Passport No. (in case of foreign national)

3A. Nature of indirect holding or exercise of right in the reporting company through member of the reporting company (where more than one repeat this para of the Form)

(a) Type of Member (Company/ LLP/Any other Body Corporate/HUF/ Partnership Firm/Discretionary Trust/Charitable trust/Specific Trust/Revocable Trust /Pooled Investment vehicle (PIV) / Entity controlled by PIV)

(b) Corporate Identity number(CIN) or Limited Liability Partnership Identification number(LLPIN) or any other registration number allotted by the regulator established under the Act

(c) Name of the Member (d) Address

Line I

Line II City State

Country Pin Code

16 THE GAZETTE OF INDIA : EXTRAORDINARY [PART II—SEC. 3(i)]

(e) Nature of indirect holding or exercise of right in the reporting company:

By virtue of shares % By virtue of voting rights in shares % By virtue of rights on distributable dividend or any other distribution % By virtue of exercise of control (attach copy of agreement) By virtue of exercise of significant influence (attach copy of agreement)

(f) Status of significant beneficial owner in the member of the reporting company (choose any one)

Individual in case of company or any other body corporate Partner in case of partnership firm or LLP Karta in case of HUF Trustee in case of a discretionary trust or charitable trust Beneficiary in case of a specific trust Author or settlor in case of a revocable trust General Partner, Investment Manager or CEO in case of pooled investment vehicle or entity controlled by pooled investment vehicle

(g) In case the member is a partnership firm or LLP, specify whether significant beneficial owner: is a partner holds majority stake in the body corporate partner holds majority stake in the ultimate holding company of the body corporate partner

(h) In case the member is a company or any other body corporate, specify whether significant beneficial owner holds: majority stake in such company or body corporate majority stake in the ultimate holding company of such company or body corporate

(i) Whether Significant Beneficial Owner has any direct holding or right in the reporting company Yes / No If yes, enter details below:

By virtue of shares % By virtue of voting rights in shares % By virtue of rights on distributable dividend or any other distribution % By virtue of exercise of control (attach copy of agreement) By virtue of exercise of significant influence (attach copy of agreement)

Date: Place: Signature of the holder of the significant beneficial interest Attachments:

FORM NO. BEN-2 [Pursuant to section 90(4) of The Companies Act, 2013 and rule 4 and 8 of The Companies (Significant Beneficial Owners) Rules, 2018]

Return to the Registrar in respect of declaration under section 90

Form language o English o Hindi Refer the instruction kit for filing the form.

  1. (a) *Corporate Identity Number (CIN) of company
  1. (a) Name of the company

(b) Registered Office Address

(c) *email Id

  1. * Purpose of filing the form

For declaration of Significant Beneficial Ownership under Section 90

Number of Significant Beneficial Owners for whom the form is being filed

For Change in Significant Beneficial Ownership under Section 90

ID of the Significant Beneficial Owner

For declaration of holding reporting company CIN of the holding reporting company

  1. (A) Number of Members through whom indirect holding or right in reporting company is being exercised

(B) Details of the Member I. * Manner in which significant beneficial interest is being held or exercised either indirectly or together with any direct holding or right (select one or more as may be applicable)

By virtue of shares % By virtue of voting rights in shares % By virtue of rights on distributable dividend or any other distribution % By virtue of exercise of control (attach copy of agreement) By virtue of exercise of significant influence (attach copy of agreement)

Particulars of the Member (a) Type of Member

(b) Corporate Identity number(CIN) or Foreign Company Registration Number (FCRN) or Limited liability partnership Identification number(LLPIN) or any other registration number (c) Name of the Member (d) Address

Line I

Line II

City State

Country Pin Code

(e) Email ID of the Member

(f) Date of entry of name in register u/s 88 (DD/MM/YYYY)

(C) Status of the SBO

Pre-fill

18 THE GAZETTE OF INDIA : EXTRAORDINARY [PART II—SEC. 3(i)]

(D) Whether individual (SBO) has majority stake in the Member of the Reporting Company Ultimate Holding Company of the member of the reporting company

Corporate Identity number (CIN) or FCRN or any other registration number

Name of the ultimate holding company (E) Whether the individual (SBO): is a Partner of the member holds majority stake in the body corporate partner holds majority stake in the ultimate holding company of the body corporate partner

Corporate Identity number(CIN) or FCRN or any other registration number

Name of the body corporate partner/ ultimate holding company

(F) Particulars of the Significant Beneficial Owner

(a) Name First name Last name Middle name

(b) Father’s Name (Even married women must give father’s name) First name Last name Middle name

(c) Date of birth (DD/MM/YYYY)

(d) Nationality

(e) Whether a citizen of India O Yes O No

(f) Income Tax PAN

(g) Passport Number

(h) Address Line I

Line II

City State

Country Pin Code

(i) Email ID of the Significant Beneficial Owner

(j) Date of acquiring Significant Beneficial Interest (DD/MM/YYYY)

(k) Date of declarations under sub-section (1) of section 90 (DD/MM/YYYY)

(l) Date of receipt of the declaration by the company (DD/MM/YYYY)

Verify Income-tax PAN Details

Pre-fill

(m) Whether Significant Beneficial Owner has any direct holding or right in the reporting company O Yes O No If yes, enter details below: By virtue of shares % By virtue of voting rights in shares % By virtue of rights on distributable dividend or any other distribution % By virtue of exercising control (attach copy of agreement) By virtue of exercising significant influence (attach copy of agreement)

Attachments:

  1. *Declaration under Section 90
  2. Optional attachments, if any

Declaration

To the best of my knowledge and belief, the information given in this form and attachments is correct and complete. I have been authorized by board of directors’ resolution dated* (DD/MM/YYYY) to sign and submit this form.

*To be digitally signed by DSC BOX

*Designation

*Director identification number of the director; or DIN or PAN of the manager or CEO or CFO; or Membership number of company secretary.

Certificate by Practicing Professional It is hereby certified that I have gone through the provisions of the Companies Act, 2013 and Rules thereunder for the subject matter of this form and matters incidental thereto and I have verified the above particulars (including attachment(s)) from the original records maintained by the Company which is subject matter of this form and found them to be true, correct and complete and no information material to this form has been suppressed. O Chartered Accountant (in whole-time practice) or O Cost Accountant (in whole-time practice) or O Company Secretary (in whole-time practice) DSC BOX Whether Associate or Fellow O Associate O Fellow Membership Number Certificate of Practice Number

Modify Check form Prescrutiny Submit

Note: Attention is also drawn to provisions of Section 448 and 449 which provide for punishment for false statement and punishment for false evidence respectively.

This e-Form has been taken on file maintained by the register of companies through electronic mode and on the basis of statement of correctness given by the Director and professional.

List of

Remove attachment

20 THE GAZETTE OF INDIA : EXTRAORDINARY [PART II—SEC. 3(i)]

Form no. BEN-3

Register of beneficial owners holding significant beneficial interest

[Pursuant to section 90(2) of the Companies Act, 2013 and rule 5(1)]

Name of the company:

Registered office address:

Sl. No. Name of the Beneficial Owner

Address and E-mail id Date of Birth/ Age Father’s/ Mother’s/ Spouse’s name

Occupation Nationality PAN/UIN Passport No. (in case of foreign national) Status

Date of declaration under section 90

Date of cessation

Date of entry in Register

Date of filing of BEN-2(SRN wise)

Any other interest, if any (11)

Instructions, if any, given by the member

Form no. BEN-4

[Pursuant to section 90(5) of the Companies Act, 2013, rule 2A, 6 and rule 7] [<<Insert Company Name>>] (the “Company”)

<<Insert Date>> [By post/email]

To: Name and address of significant beneficial owner/any other person Date: Subject: Notice under sub-section (5) of Section 90 of the Companies Act, 2013 and rules made thereunder

The Company has reasonable cause to believe that* : • you are a significant beneficial owner of the company; • have knowledge of the identity of significant beneficial owner/another person ………………..likely to have such knowledge; • being a member hold not less than 10% of the shares/voting rights/rights on dividend or any other distribution in the company • have been a significant beneficial owner of the company during the three years immediately preceding the date of this notice, and

in respect of the above significant beneficial ownership, the return prescribed under Section 90 of the Act has not been filed in compliance with the Act.

You are accordingly advised to give the following information within 30 days of the date of this notice in accordance with the section 90 of the Companies Act, 2013:

  1. Name and Address of the Beneficial Owner 2. PAN of the B.O 3. Name of the person/entity/trust/body etc in whose name the shares/rights are registered/held
  2. Date of acquiring beneficial interest 5. Documents, terms and conditions or any other particulars regarding the BO ownership 6. Reason for not filing declaration in Form No. BEN-1. 7. Any other information incidental to or relevant or in your possession or knowledge to enable the company to evaluate this matter.

* A copy of Form No. BEN-1 is attached for compliance.

The abovementioned particulars should be submitted in writing to the registered address of the company not later than 30 days of the date of this notice failing which the company shall proceed in the matter without further notice as per the provisions of the Act.

Name & signature (Person authorized to issue notice)

*Delete whichever is not applicable

[ F.No. 1/1/2018 CL-V] K.V.R. MURTY, Jt. Secy.

Note: The principal rules were published in the Gazette of India, Part II, Extra ordinary, Section 3, Sub section (i) vide number G.S.R. 561(E), dated the 13th June, 2018.

*******

ANNUAL RETURN FOR GST – FORM 9

REQUIREMENT

Section 44(1) read with Rule 80(1)  require that every registered person needs to file Annual Return before 31st December of next year.  Exemption is provided TDS/TCS  Deductor, ISD , CTP and a NR before 31st December of next year. Vide Order No.8/2019-CT[ROD]dt.14-Nov-2019, this date has been extended upto 31.12.2019 for Financial Year 2017-18 and upto 31.12.2020 for Financial Year 2018-19.

 

STRUCTURE OF THE FORM

The FORM GSTR-9 has been divided into following 6 parts-

 

Part I 

Contains the fundamental details of :

(i ) Financial Year

(ii) GSTIN,

(iii) Trade Name

 

Part II

Details of the outward supplies  & inward supplies:

T-4: Supplies on which tax is payable

Previously, the tax payer was required to dole out the information of outward supplies and details of Credit Note or Debit Note under separate sub-tables, now the details can be given in Table 5A-Exports, 5B-SEZ, 5C-RCM Suppies, 5D-Exempted, 5E – Nil Rated and 5F- Non GST, after netting of Debit Notes or Credit Note. This has been possible due to amendment NN-56 / 2019 – CT dated 14.11.2019

 

T-5: Supplies on which tax is not payable

Amendment NN-56/2019-CT, dated14-Nov-2019

  • BeforeNN56/2019, a taxpayer was required to give details of outward supplies and details of CN/DN/amendments under separate sub-tables, whereas the amendment has provided that now a taxpayer can opt to provide such information net of CN/DN etc. in Table5A-Exports, 5B-SEZ, 5C-RCM supplies, 5D-Exempted, 5E-Nil rated, 5F-Non-GST

 

  • Exempted, nil rated and non-GST supplies which were to be given separately T-5D, T-5E, T -5F. Now a taxpayer can opt to give consolidated figure in T-5D

Part III

Information relating to Input Tax Credit:

T-6: Details of ITC availed

The relevant amendment is amendment no. NN-56/2019-CT dt. 14.11.2019

  • Information of Input Tax Credit on inputs, capital goods and input services in aggregate under the head Input Tax Credit on inputs only has to be mentioned here.  The relevant Tables are T-6B to 6E

 

  • Reverse Charge Mechanism on Unregistered Dealer and Reverse Charge Mechanism on Registered Dealers has to be provided in T-6D.

 

T-7: Details of reversal/ineligible

The relevant amendment is amendment no. NN-56/2019-CT dt. 14.11.2019

  • Details of Input Tax Credit reversals should be provided under T-7F: Tran-1, T-7G: Tran-2 and T-7H

T-8:  ITC related information [Comparison with 2A]

The relevant amendment is amendment No. NN-56/2019-CT dt. 14.11.2019

 

  • FORM GSTR-2A data would be auto-populated in T-8.

 

  • It may so happen that there may be difference between data auto populated by GSTN and in the Form GSTR-2A of the tax payer, the reason could be due to various reasons like submission of return date, point-of-sales or cut-off date.

 

  • Amendment has been brought by NN-56/2019-CT that for FY 2017-18 and FY 2018-19, the taxpayer can upload the details for the entries in Table 8A to 8D in pdf format in Form GSTR 9C without any certification from CA. This is done because the information in Table 8A is mainly statistical.

 

Part IV

The information on taxes paid would be auto-populated in T9.

 

Part V

Details regarding Financial Year 2017-2018 wold be given in next Financial Year:

T-10: For Debit notes;

T-11: For Credit notes;

T-12: For Reversal of ITC; (made option)

T-13: For ITC availed;(made option)

T-14: For Differential tax paid, if any.

Part VI

The other details are :

T-15: Demands and Refunds;

T-16: Details relating to inward supplies from composition; supply made under S.143 and goods sent

For approval;

T-17: HSN for outward;

T-18: HSN for inward;

T-19: Late fee payable and paid

It is optional to fill T-15 to T-18.

 

PLEASE NOTE :

  1. Even cancelled dealers are to file FORM GSTR-9
  2. The filing of GSTR-3B/GSTR-1 should preceed the filing FORM GSTR-9
  3. Annual return is a final chance to rectify mistakes committed in GSTR-3B/GSTR-1
  4. FORM DRC-03 should be used to pay any extra liability due to there as on mistakes

found while filing annual return. This additional payment should be made in cash.

 

  1. In the Annual Return, only that ITC can be claimed which was claimed while filing original returns

FORM GSTR-3B

Non-compliance will result in late fee of Rs.100. Additional Rs.100 per day has to be paid for each day of delay, subject to maximum of 0.25%+0.25% of his turnover in the State

Goods & Services Tax – New GST Return

The GST Council in its 31st meeting informed that a new GST return system will be put forth.  An offline tool, on pilot basis, has already been introduced on the common portal to give a hand-on experience  of the tool to the users. There are three main parts of the new return – one main return (FORM GST RET-1) and two annexures (FORM GST ANX-1 and FORM GST ANX-2).  GST users would be able to upload invoices using the FORM GST ANX-1 offline tool from the month of July 2019 itself.  One can view and download, the inward supply of invoices by using the offline tool FORM GST ANX-2. The summary of inward supply invoices would could be seen from the common portal online. They would also be able to import their purchase register in the Offline Tool and match it with the downloaded inward supply invoices to find mismatches from August 2019. This trial would have no effect on the tax liability or input tax credit of the taxpayer. In this period, taxpayers shall continue to fulfill their compliances by filing FORM GSTR-1 and FORM GSTR- 3B i.e. taxpayers would continue to file their outward supply details in FORM GSTR-1 on monthly / quarterly basis and return in FORM GSTR-3B on monthly basis. Non-filing of these returns shall attract penal provisions under the GST Act.   FORM GST ANX-1 shall be made compulsory and FORM GSTR- 1 would be replaced by FORM GST ANX-1 from October, 2019 onwards. The large taxpayers (i.e. those taxpayers whose aggregate annual turnover in the previous financial year was more than Rs. 5 Crore) would upload their monthly FORM GST ANX-1 from October, 2019 onwards. However, the first compulsory quarterly FORM GST ANX-1 to be uploaded by small taxpayers (with aggregate annual turnover in the previous financial year upto Rs. 5 Crore) would be due only in January, 2020 for the quarter October to December, 2019. It may be noted that invoices etc. can be uploaded in FORM GST ANX-1 on a continuous basis both by large and small taxpayers from October, 2019 onwards. FORM GST ANX-2 may be viewed simultaneously during this period but no action shall be allowed on such FORM GST ANX-2. v. For October and November, 2019, large taxpayers would continue to file FORM GSTR-3B on monthly basis. They would file their first FORM GST RET-01 for the month of December, 2019 by 20th January, 2020. The small taxpayers would stop filing FORM GSTR-3B and would start filing FORM GST PMT-08 from October, 2019 onwards. They would file their first FORM GST-RET-01 for the quarter October, 2019 to December, 2019 from 20th January, 2020. vii. From January, 2020 onwards, all taxpayers shall be filing FORM GST RET-01 and FORM GSTR-3B shall be completely eliminated.

ACCOUNTING STANDARDS – APPLICABILITY

Accounting Standards issued by the Institute of Chartered Accountants of India
The Central Government may prescribe  the standards of accounting or any addendum thereto, as recommended by the Institute of Chartered Accountants of India, constituted under section 3 of the Chartered Accountancy Act, 1949 (38 of 1949), in consultation with and after examination of recommendations made by the National Financial Reporting Authority.
In exercise of the powers conferred by section 133 and section 469 of the Companies Act, 2013 , the Central Government, in consultation with the National Advisory Committee on Accounting Standards, has issued Companies (Indian Accounting Standards) Rules, 2015

Rule 4   states the obligation to comply with Indian Accounting Standards (Ind AS) , the following companies have to comply with Ind AS:

(1) The Companies and their auditors shall comply with the Indian Accounting Standards Ind AS) specified in Annexure to these rules in preparation of their Financial statements and audit respectively, in the following manner, namely:-

(i) a[any company and its holding, subsidiary, joint venture or associate company] may comply with the Indian Accounting Standards (Ind AS) for financial statements for accounting periods beginning on or after 1st April, 2015, with the comparatives for the periods ending on 31st March, 2015, or thereafter;

(ii) the following companies shall comply with the Indian Accounting Standards (Ind AS) for the accounting periods beginning on or after 1st April, 2016, with the comparatives for the periods ending on 31st March, 2016, or thereafter, namely:-

(a) companies whose equity or debt securities are listed or are in the process of being listed on any stock exchange in India or outside India and having Net worth of rupees five hundred crore or more;

(b) companies other than those covered by sub-clause (a) of clause (ii) of sub- rule (1) and having net worth of rupees five hundred crore or more;

(c) holding, subsidiary, joint venture or associate companies of companies covered by sub-clause (a) of clause (ii) of sub- rule (1) and sub-clause (b) Of clause (ii) of sub- rule (1) as the case may be;  and

(iii) the following companies shall comply with the Indian Accounting Standards (Ind AS) for the accounting periods beginning on or after 1st April, 2017, with the comparatives for the periods pending on 31st March, 2017, or thereafter, namely:-

(a) companies whose equity or debt securities are listed or are in the process of being listed on any stock exchange in India or outside India and having net worth of less than rupees five hundred crore;

(b) companies other than those covered in clause (ii) of sub- rule (1) and sub-clause (a) of clause (iii) of sub-rule (1), that is, unlisted companies having net worth of rupees two hundred and fifty crore or more but less than rupees five hundred crore.

(c) holding, subsidiary, joint venture or associate companies of companies covered under sub-clause (a) of clause (iii) of sub- rule (1) and sub-clause(b) of clause (iii) of sub- rule (1), as the case may be:

Provided that nothing in this sub-rule, except clause (i), shall apply to companies whose securities are listed or are in the process of being listed on SME exchange as referred to in Chapter XB or on the Institutional Trading Platform without initial public offering in accordance with the provisions of Chapter XC of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009.

Explanation 1. – SME Exchange shall have the same meaning as assigned to it in Chapter XB of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009.

Explanation 2. – “Comparatives” shall mean comparative figures for the preceding accounting period.

 

For Companies that do not fall in the above category have to comply with the AS-1 to AS-29 issued by the Institute of Chartered Accountants of India as mentioned below and the applicability on the Company depends on the Level of the Enterprise (Company)

 

Criteria for classification of enterprises  
 
Level I Enterprises  
Enterprises which fall in any one or more of the following categories, at any time during the accounting period,

are classified as  Level I enterprises:

      i.        Enterprises whose equity or debt securities are listed whether in India or outside India.
     ii.        Enterprises which are in the process of listing their equity or debt securities as evidenced by the board

of directors’ resolution in this regard.

 

    iii.        Banks including co-operative banks.
    iv.        Financial institutions.
     v.        Enterprises carrying on insurance business.
    vi.     All commercial, industrial and business reporting enterprises, whose turnover for the immediately

preceding  accounting period on the basis of audited financial statements exceeds Rs. 50 crore.

Turnover does not does not include ‘other income’.

 
   vii.        All commercial, industrial and business reporting enterprises having borrowings, including public deposits,

in excess   of Rs. 10 crore at any time during the accounting period.

viii.        Holding and subsidiary enterprises of any one of the above at any time during the accounting period.
Level II Enterprises
Enterprises which are not Level I enterprises but fall in any one or more of the following categories are classified as

Level II enterprises:

i.              All commercial, industrial and business reporting enterprises, whose turnover for the immediately

preceding accounting period on the basis of audited  financial statements exceeds Rs. 40 lakhs but

does not exceed Rs. 50 crore. Turnover does not include ‘other income’.

ii.             All commercial, industrial and business reporting enterprises having borrowings, including public deposits,

in excess of Rs. 1 crore but not in excess of Rs. 10 crore at any time during the accounting period.

    iii.        Holding and subsidiary enterprises of any one of the above at any time during the accounting period.
Level III Enterprises
Enterprises which are not covered under Level I and Level II are considered as Level III enterprises.

 

Applicability of Accounting Standards
SL. Name of Accounting Standard Applicable to all Exemptions to SME (Level III) Non-Applicability Apply to Level II & III with relaxation
AS-1 Disclosure of Accounting Policies Applicable to Level I, II and III      
AS-2 Valuation of Inventories Applicable to Level I, II and III      
AS-3 Cash Flow Statement   SME    
AS-4 Contingencies and Events Occuring after the Balance Sheet Date Applicable to Level I, II and III      
AS-5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies Applicable to Level I, II and III      
AS-6 Depreciation Accounting Applicable to Level I, II and III      
AS-7 Construction Contracts (Revised 2002) Applicable to Level I, II and III      
AS-8 Accounting for Research and Development Applicable to Level I, II and III      
AS-9 Revenue Recognition Applicable to Level I, II and III      
AS-10 Accounting for Fixed Assets Applicable to Level I, II and III      
AS-11 The Effects of Changes in Foreign Exchange Rates (Revised 2003) Applicable to Level I, II and III      
AS-12 Accounting for Government Grants Applicable to Level I, II and III      
AS-13 Accounting for Investments Applicable to Level I, II and III      
AS-14 Accounting for Amalgamations Applicable to Level I, II and III      
AS-15 Accouting for Retirement Benefits in the Financial Statements of Employers Applicable to Level I, II and III      
AS-16 Borrowing Costs Applicable to Level I, II and III      
AS-17 Segment Reporting   SME    
AS-18 Related Party Disclosure   SME    
AS-19 Leases       Paragraphs 22(c), (e) and (f); 25(a), (b) and (e); 37(a), (f) and (g); and 46(b), (d) and (e), of AS 19 are not applicable to Level II and Level III enterprises
AS-20 Earning Per Share       i.        As regards AS 20, diluted earnings per share and information required by paragraph 48 of AS 20 are not required to be disclosed by Level II and Level III enterprises if this standard is applicable to these enterprises because they disclose earnings per share. So far as companies are concerned, since all the companies are required to apply AS 20 by virtue of the provisions of Part IV of Schedule VI to the Companies Act, 1956, requiring disclosure of earnings per share, the position is that the companies which do not fall in Level I, would not be required to disclose diluted earnings per share and information required by paragraph 48 of AS 20.
AS-21 Consolidated Financial Statement     N.A. to Level II & III  
AS-22 Accounting for Taxes on Income Applicable to Level I, II and III   N.A. to Level II & III  
AS-23 Accounting for Investments in Associates in CFS        
AS-24 Discontinuing Operation   SME    
AS-25 Interim Financial Reporting     N.A. to Level II & III  
AS-26 Intangible Assets Applicable to Level I, II and III      
AS-27 Financial Reporting of Interest in Joint Ventures (to the extent of requirement relating to CFS)     N.A. to Level II & III  
AS-28 Impairment of Assets Applicable to Level I, II and III      
AS-29 Provisions, Contingent Liabilities and Contingent Assets     Paragraph 67 is not applicable to Level II enterprises
Paragraphs 66 and 67 are not applicable to Level II and Level III enterprises
 
           

 

SAMPLE PARTNERSHIP DEED

THIS DEED OF PARTNERSHIP is made this 7th day of May, in the year Two Thousand Eighteen BETWEEN :

  1. Sri Basant Sarawgi, S/o (L) Mahabir Sarawgi, hereinafter called the party hereto of the FIRST PART,
  2. Sri SANJAY KUMAR SARAWG, S/o (L) Shankar Sarawgi, hereinafter called the party hereto of the SECOND PART,
  3. Neeta Devi Sarawgi, W/o (L) Mahabir Sarawgi, hereinafter called the party hereto of the THIRD PART,
  4. SONU AGARWAL, W/o Sri Naresh Agarwal, hereinafter called the party hereto of the FOURTH PART

AND

  1. Sri DIPAK Sarawgi, S/o (L) Shankar Sarawgi, hereinafter called the party hereto of the FIFTH PART.

All by caste Agarwala, by religion Hindu, by profession merchant and residing presently at Sarai Rohilla, Delhi -110 005 in the State of Delhi.

Each of the above expression, unless excluded by or repugnant to the context, shall mean and include their respective heirs, executors, administrators and assigns.

WHEREAS the parties hereto of the 1st , 2nd, 3rd and 4th Part were carrying on business in the partnership under the name and style of ‘M/s B.S.AGENCY’ with its principal place of business situated at Shastri Nagar, Delhi  – 110 007 since 01.04.1992 as per Deed of Partnership executed on 28.04.1992.

AND WHEREAS the Party hereto of the FIFTH PART is the younger brother of the party hereto of the 2nd Part and is an energetic, talented and trustworthy young entrepreneur and has vast knowledge of the firm’s line of business and who at the invitation of the other partners, is willing to join them as a co-partner and whereas on acceptance of the offer by the Fifth Party, all the above parties have agreed to become partners w.e.f. 01.04.2018 under certain terms and conditions as mutually agreed among them.

AND WHEREAS it has been further considered expedient and advisable by the parties hereto to reduce into writing all the agreed terms and conditions in accordance with which the business of the partnership shall be carried in the shape of a formal Deed of Partnership in order to avoid all future disputes, mis-understandings and legal difficulties regarding them or the firm.

NOW, THEREFORE, THIS DEED OF PARTNERSHIP WITNESSES the said terms and conditions as under:-

  1. That the business of the partnership shall continue to be carried on under the name and style of “M/s B. S. AGENCY” with its principal place of business located at Shastri Nagar, Delhi – 110 007 in the State of Delhi. Branch or branches of this partnership can be opened within the State or outside the State as may be decided from time to time by the partners.

 

  1. That the business of the partnership shall be that of dealing in all types of Motor Parts & Accessories, Tyres & Tubes, Lubricants, Batteries, Electrical & Hardware items and to act as Distributors, Stockists, Order Suppliers and Commission Agents. The partners may take up any other line or lines of business in future as may be mutually decided among them.

 

  1. That the Assets and Liabilities of M/s B. S. AGENCY as on 01.04.2018 shall henceforth be the Assets and Liabilities of the re-constituted partnership firm.

 

  1. That the business of the partnership shall be deemed to have commenced on and from 1st April, 2018 and shall continue till it is dissolved or determined otherwise by the partners in the manner mutually decided among them.

 

  1. That the amount standing to the credit of the parties hereto of the 1st, 2nd, 3rd and 4th Part in the Balance Sheet as on 01.04.2018 shall be treated as their respective capital contributions in the partnership. The party hereto of the 5th Part shall bring in capital as decided among the partners. Further, capital may be brought in as agreed by the partners. The capital contributed shall carry interest @ 12% per annum subject to any restrictions imposed by future Finance Acts. Any amount withdrawn during the year by the partners for their personal expenses etc. and debited to their respective capital accounts will be adjusted against the interest/salary payable to such partners and against their share of profit.

 

  1. That the Accounting Year of the Firm shall be Financial Year beginning on 1st April and ending on following 31st At the end of each and every financial year, the accounts of the Firm shall be finalized and a Profit & Loss A/c and Balance Sheet drawn up and checked by the partners who shall be bound thereby except for errors discovered and rectified. The resultant profit or loss after adjustment of payment/provisions of interest and salaries to partners, shall be divided among the partners according to their respective shares as mentioned in clause 7(seven) below.

 

  1. That the partners hereto shall share the net profit or loss of the Firm in the following proportions :
  2. Sri Basant Sarawgi                                    20%
  3. Sri Sanjay Kumar Sarawgi                      25%
  4. Sri Dipak Sarawgi                                     25%
  5. Neeta Devi Sarawgi                                  15%
  6. Sonu Agarwal                                            15%

 

  1. That the books of accounts in respect of the partnership business as may be considered necessary and proper by the parties hereto, shall be maintained. Each of the parties hereto shall have the right to inspect the said books at all reasonable times and may take such extracts as he/she thinks fit.

 

  1. That the Firm’s bank account can be opened with any bank or banks as may be decided mutually by the partners. The bank accounts shall be operated upon either by Sri Basant Sarawgi or by Sri Dipak Sarawgi. The operation of bank account may be altered or may also be operated upon by any of the partners or by any such other person as may be authorized by the partners. The Firm’s present O.D. A/c with HDFC Bank Ltd. shall continue.

 

  1. That the partners hereto of the 1st ,2nd and 5th Part shall diligently, faithfully and actively participate and look after the business affairs of the Firm and shall be treated as Working Partners. At present each of the above Working Partner shall be entitled to a salary of Rs. 10000/- per month. If due to their sincere efforts the profitability of the Firm increases, their remuneration will increase accordingly but in case of insufficiency of profit or the Firm incurring a loss, the partners will neither get any salary nor any interest on capital. The salary/remuneration if drawn shall be payable in the following manner:
(a) On the First Rs.3,00,000 of the book profit or in a case of a loss Rs. 1,50,000 or at the rate of 90 per cent of the book–profits, whichever is more;
(b) On the balance of the book-profit At the rate of 60 percent;

The Salary/remuneration so paid shall be allowed in the manner and to the extent provided u/s 40(b)(v) of the Income Tax Act, 1961 and it is also hereby decided that the terms of Salary/Remuneration may be altered/modified in future as per mutual decision of the partners.

 

  1. That each partner shall punctually pay or/and discharge his/her separate and private debts and engagements and keep the other partners and Firm indemnified therefrom and from all actions, costs, claims and proceedings. The Firm or its other partners shall not be liable for any personal business debt or other personal liabilities of any partner.

 

  1. That no partner shall, without the written consent of other partners
  • Sell, pledge, charge or otherwise transfer his/her right, share, title or interest in the partnership to anybody else.
  • Compromise, release or discharge any debt or property due to the partnership.

 

  1. That the death of any partner shall not dissolve the partnership. The heirs of the deceased partner may be taken in as partners subject to such terms and conditions as agreed.

 

  1. That any of the parties hereto shall be entitled to act, appear, sign instrument and/or documents, statements, verifications in and regarding any civil, criminal or revenue matter connected with the affairs of the partnership and to represent the same before all such courts, authorities, public bodies, banks, district councils, Govt. offices and departments, firms and companies. The partners may delegate any of their powers to such other person as may be decided by them from time to time.

 

  1. That the parties hereto shall be entitled to withdrawn such reasonable amounts for their personal expenses as may be agreed upon amongst the partners against their salary/interest on capital and share of profit.

 

  1. That a partner may retire from the partnership by giving other partners 3(three) month’s notice in writing. The remaining partners may continue the business under the old name and style of the Firm. New partner or partners may be admitted only by written consent of all the partners.

 

  1. That the partners may borrow money for Firm’s business or Firm’s other obligations from any individual, firm, company, Government, Semi-Government body, financial institutions and banks upon such terms and conditions as may be thought proper and fair by the partners.

 

  1. That in case of any dispute or difference between the parties hereto connecting them or the partnership, if not settled mutually, the same shall be referred to arbitration by a panel of five arbitrators, one selected by each, whose majority decision shall be binding on the parties.

 

  1. That any of the terms and conditions of this Deed of Partnership can be varied, altered, added , deleted or amended with the written consent of all the partners.

 

 

  1. That subject to the terms and conditions stated herein above the partnership shall be governed by the provisions of the Indian Partnership Act, 1932 as amended.

 

IN WITNESS WHEREOF the parties hereto have signed these

presents on the day, month and year above first written.

 

 

SIGNATURE OF WITNESSES AND ADDRESS                                                 SIGNATURE OF THE PARTIES

 

 

 

  1.                                                                                                    1.   (Sri Basant Sarawgi)

 

  1.                                                                                                    2.    (Sri Sanjay Sarawgi)

 

3. (Smt. Neeta Devi Sarawgi

 

4.  (Smt. Sonu Agarwal)

 

5.    (Sri Dipak Sarawgi)

Come March and the words about bank audits goes buzzing… This year it is louder than ever before due to the MODI GATE which has shaken the very foundation of Trust. The role of an auditor calls for a resonance, more fervent than ever before. In the backdrop of Cabinet approving the forming of NFRA (National Financial Reporting Authority) as a regulating agency, it’s but apparent that our Audit Report should sound our presence.

The Auditing and Assurance Standard Board has issued ‘Guidance Note on Bank Audit’ on 11.03.2018. The link is https://resource.cdn.icai.org/49205icai-aasb-gnabanks2018.pdf

The most important areas covered are summarized below:

Scope of Assignment

a) This includes any special reports or certificates to be given by the SCAs in addition to the main report. Presently, the SCAs have to furnish the following reports/certificates in addition to their main audit report:a) Report on adequacy and operating effectiveness of Internal Controls over Financial Reporting in case of banks which are registered as companies under the Companies Act in terms of Section 143(3)(i) of the Guidance Note on Audit of Banks (Revised 2018),Companies Act, 2013 which is normally to be given as an Annexure tothe main audit report as per the Guidance Note on Audit of Internal Financial Controls over Financial Reporting issued by the ICAI.

b) Long form audit report.

c) Report on compliance with SLR requirements.

d) Report on whether the treasury operations of the bank have been conducted in accordance with the instructions issued by the RBI from time to time.

e) Certificate on reconciliation of securities by the bank (both on its own investment account as well as PMS Banks’ account).

f) Certificate on compliance by the bank in key areas of prudential and other guidelines relating to such transactions issued by the RBI.

g) Report on whether the income recognition, asset classification and provisioning have been made as per the guidelines issued by the RBI from time to time.

h) Report on whether any serious irregularity was noticed in the working of the bank which requires immediate attention.

i) Certificate in respect of custody of unused Bank Receipt forms and their utilisation.

j) Authentication of capital adequacy ratio, including disclosure requirements and other ratios reported in the notes to accounts.

k) Certificate in respect of DICGC claims.

l) Report on status of the compliance by the bank with regard to the implementation of recommendations of the Ghosh Committee relating to frauds and malpractices and of the recommendations of Jilani Committee on internal control and inspection/credit system.

m) Report on instances of adverse credit-deposit ratio in the rural areas.

n) Asset liability management.

o) Certificate on Corporate Governance in case of banks listed on Stock Exchange. In some banks this certification may not be offered to the central auditors.

p) Certification on claim of various interest subsidies and interest subvention.

 

Assessment of Engagement Risk

The assessment of engagement risk is a critical part of the audit process and should be done prior to the acceptance of an audit engagement since it affects the decision of accepting the engagement and also in planning decisions if the audit is accepted.

Planning

SA 300, “Planning an Audit of Financial Statements” requires that the auditor shall undertake the following activities prior to starting an initial audit:

(a) Performing procedures required by SA 220, “Quality Control for an Audit of Financial Statements” regarding the acceptance of the client relationship and the specific audit engagement; and

(b) Establish understanding of terms of engagement as per SA 210, “Agreeing the Terms of Audit Engagements”.

Identifying and Assessing the Risks of Material Misstatements

Standard on Auditing (SA) 315, “Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and Its Environment” requires the auditor to identify and assess the risks of material misstatement at the financial statement level and the assertion level for classes of transactions,account balances, and disclosures and paragraph 26 of SA 315 provides a basis for designing and performing further audit procedures.

Observing various existing Audit Reports:

Call for the following audit reports, if bank have them, and review the report and the observations of the auditors, if any.:

 Internal Audit Report

The internal audit function constitutes a separate component of internal control with the objective of determining whether other internal controls are well designed and properly operating.

Revenue Audit Report

Revenue audit is usually conducted depending on size and volume of branches and is aimed at identifying cases of leakage of revenue due to wrong computation of interest, non-application of interest on time, incorrect rates of interest/exchange/commission, non-application of penal interest, non-recovery or short-recovery of service charges on guarantees and letters of credit, etc. This type of revenue audit is also known as ‘income and expenditure audit’ or ‘income leakage audit’.

Branch Inspection Report

Such inspection is much broader in scope than revenue audit, and covers all important areas of functioning of the branch, including efficacy of systems and procedures, compliance with head office directions, customer service, maintenance of books and records, etc. Most banks have a fixed schedule of branch inspection.

Concurrent Audit Report

A system of concurrent audit at large and other selected branches has been in vogue in most of the banks for quite long.

Systems Audit Report

The bank carries out a systems audit periodically to assess the effectiveness of the hardware, software and operations to identify any changes required therein based on the guidelines mentioned in the RBI, vide its circular no. DBS.CO.OSMOS.BC/11/33.01.029/2003-04 dated April 30, 2004 on “Information System Audit – A review of Policies and Practices”.

Understand the Bank’s Accounting Process

The accounting process produces financial and operational information for management’s use and it also contributes to the bank’s internal control. Thus, understanding of the accounting process is necessary to identify and assess the risks of material misstatement whether due to fraud or not, and to design and perform further audit procedures. In obtaining an understanding of the accounting process, the auditor may seek to identify the significant flow of the transactions and significant application systems that are relevant to the accounting process.

When obtaining an understanding of the accounting process, the auditors, ordinarily, focus only on such processes that relate to the effectiveness and efficiency of operations and compliance with laws and regulations and impact the financial statements or their audit procedures. While obtaining the understanding of the significant flow of the transactions, the auditor should also obtain an understanding of the process of recording and processing of journal entries, and should also make inquiries about inappropriate or unusual activity relating to the processing of journal entries and other adjustments, Transactions flow automated across CBS, digital banking, payments and settlement systems, card operations etc. and their integration with external systems such as NPCI, international payment gateways, SWIFT and INFINET etc. (SWIFT INSIGHT :IN 1973 global finance saw a back-room revolution when a group of banks formed a co-operative to offer those moving money across borders a slick alternative to the clunky old telex. Today the electronic financial-messaging system of the Society for Worldwide Interbank Financial Telecommunication (SWIFT) transmits more than 5 billion bank-to-bank messages each year. In 2013 it oiled the transfer of trillions of dollars globally by the 10,500 banks, asset managers and firms that are its members. SWIFT does not initiate transfers, hold customers’ money, or clear or settle payments. Rather, it provides a template that helps international transfers flow smoothly and be tracked. Without SWIFT, global trade and investment would be slower, costlier and less reliable.)

 

Structure of Internal Control Procedures in a Bank

The specific internal control procedures to be followed in an enterprise depend on the nature, volume and complexities of its operations and the management’s attitude towards control. As in the case of other enterprises, the internal control procedures relevant to assertions made in the financial statements of bank generally fall under the following categories:

I. Delegation of Powers

Banks have detailed policy on delegation of powers. The financial and

administrative powers of each committee/each official/each position are fixed and

communicated to all persons concerned. This policy on delegation of powers is

approved either by Board of Directors or Executive Committee.

 II. Authorisation of Transactions

Authorisation may be general (i.e., it may relate to all transactions that

conform to prescribed conditions referred to as routine transactions) or it may be

specific with reference to a single transaction (non-routine transactions and

accounting estimates).

III. Segregation and Rotation of Duties

A fundamental feature of an effective internal control system is the segregation and rotation of duties in a manner conducive to prevention and timely detection of occurrence of frauds and errors. Functions typically segregated are authorisation of transactions; execution of transactions; physical custody of related assets; maintenance of records and documents etc.

IV. Maintenance of Adequate Records and Documents

Accounting controls should ensure that the transactions are recorded at correct amount and in the accounting periods in which they are executed, and that they are classified in appropriate accounts. Moreover, recording of transactions should be such as would facilitate maintaining the accountability for assets.

The procedures established in banks to achieve these objectives usually include the following:

 All records are maintained in the prescribed books and registers only. This ensures that all requisite particulars of a transaction are adequately recorded and also that the work of finalisation of accounts is facilitated. For example, deal slips pertaining to purchase and sale of securities along with the respective counterparty confirmations for the deals are filed together in the deal register.

 All Bank branches have a unique code number which is circulated amongst all offices of the bank and is required to be put on all important instruments.

 All books are to be balanced periodically and it is to be confirmed by an official specifically assigned for the same. For example, in case of purchase  and sale of security transactions, the banks periodically reconcile the security balance in the banks book vis-à-vis the balance in the custodian account (i.e., Subsidiary General Ledger or Demat Account). It may be noted that the RBI vide its Master Circular DBR No. BP. BC.6/21.04.141/2015-16 dated July 1, 2015, “Prudential Norms for Classification, Valuation and Operation of Investment Portfolio by Banks” has also mandated that investment balances as per bank’s book should be reconciled at quarterly intervals with the balances in the Public Debt Office’s books. If the number of transactions warrant, such reconciliation should be undertaken more frequently, say on a monthly basis. This reconciliation should be periodically checked by the Internal Auditors.

 All inter-office transactions are to be reconciled at regular intervals within a specified time frame.

V. Accountability for and Safeguarding of Assets

The accountability for assets starts at the time of their acquisition and continues till their disposal.

The following are some of the important controls implemented by banks in this regard:

 Particulars of lost security forms which are immediately advised to branches

to exercise caution.

 Specimen signatures of all officers are captured and scanned in the system and available for view/access in all branches which were earlier maintained in a book. The officials approving the payment of the instruments drawn on their branches by other branches are required to confirm the signatures on the instruments with reference to the specimen signatures. Likewise, the branches have on record the specimen signatures of the authorised officials of approved correspondent banks also.

 Instruments of fund remittances above a cut-off level are to be signed by more than one official.

 Important financial messages, when transmitted electronically, are generally encrypted.

 Negative lists like stop-payment cheques or stop payment instructions are kept, which may deal with the particular kind of transaction. There may be a caution list for advances also.

 Sensitive items like currency, valuables, draft forms, term deposit receipts, traveller’s cheques and other such security forms are in the custody of at least two officials of the branch. (However, in the case of very small branches having only one official, single custody is also permitted.)

 All assets of the bank/charged to the bank are physically verified at specified intervals.

VI. System Configuration and Account Mapping

Information technology (IT) has played a major role in providing a competitive edge to banks in differentiating themselves in the market place and to deliver their services more effectively at a lower cost.

VII. Independent Checks

Independent checks involve a periodic or regular review of functioning of the system by independent persons to ascertain whether the control procedures are being performed properly. Banks have an elaborate system of various forms of independent checks covering virtually every key aspect of their functioning.

 

Understanding the Risk Management Process

Management develops controls and uses performance indicators to aid in managing key business and financial risks. An effective risk management system in a bank generally requires the following:

Oversight and involvement in the control process by those charged with governance (TCWG): TCWG should approve the documented risk management policies.

Identification, measurement and monitoring of risks:

Risks that could significantly impact the achievement of bank’s goals should be identified, measured and monitored against pre-approved limits and criteria in a Documented Risk Register.

Control activities:

A bank should have appropriate controls including embedded in IT System to manage its risks, including effective segregation of duties (particularly, between front and back offices), accurate measurement and reporting of positions, verification and approval of transactions, reconciliation of positions and results, setting of limits, reporting and approval of exceptions, physical security and contingency planning.

RBI has directed banks vide its Master Direction No. RBI/FMRD/2016-17/31 FMRD Master Direction No. 1/2016-17 on ‘Risk Management and Interbank Dealings’ dated July 5, 2016 (updated March 21, 2017), the risk management framework and reporting requirements with respect to certain categories of transactions such as, forward contracts and hedging transactions entered into by the bank with residents, managing of assets and liabilities of the bank and hedging the same, hedging of Tier I capital in case of foreign banks,etc.

For every bank in India, certain risk management limits such as, the Net Open Position (‘NOP’) Limit and Aggregate Gap Limit (‘AGL’) are approved by the RBI after making an assessment of each bank’s overall risk appetite. Banks install checks in their daily processes to ensure that these limits are being adhered to at all times.

As part of regulatory reporting, banks are also required to report to the RBI a host of other risk management limits such as, single and group borrower limits (these limits give an indication of concentration risk), credit exposure for derivatives (this indicates the potential replacement cost of the derivative portfolio), capital market exposure of the bank, country risk exposure and exposure to sensitive sectors such as, real estate, etc.

Operating Framework for Identifying and Dealing with Frauds

All banks have policy and operating framework in place for detection, reporting and monitoring of frauds as also the surveillance/ oversight process in operation so as to prevent the perpetration of frauds. The RBI, vide its Circular No. DBS. CO.FrMC.BC.No.10/23.04.001/2010-11 dated 31st May 2011 had identified certain areas wherein frauds had shown occurrence or increasing trend in banks. These areas include:-

 loans/ advances against hypothecation of stocks.

 housing loans cases.

 submission of forged documents including letters of credit.

 escalation of overall cost of the property to obtain higher loan amount.

 over valuation of mortgaged properties at the time of sanction.

 grant of loans against forged FDRs.

 over-invoicing of export bills resulting in concessional bank finance,

exemptions from various duties, etc.

 frauds stemming from housekeeping deficiencies.

Provisioning for Frauds

RBI has vide its circular RBI/2015-16/376 DBR.No.BP.BC.92/21.04.048/2015-16 dated 18th April, 2016, decided to amend the provisioning norms in respect of all cases of fraud, as under:

Banks should normally provide for the entire amount due to the bank or for which the bank is liable (including in case of deposit accounts), immediately upon a fraud being detected. While computing the provisioning requirement, banks may adjust financial collateral eligible under Basel III Capital Regulations – Capital Charge for Credit Risk (Standardised Approach), if any, available with them with regard to the accounts declared as fraud account;

However, to smoothen the effect of such provisioning on quarterly profit and loss, banks have the option to make the provisions over a period, not exceeding four quarters, commencing from the quarter in which the fraud has been detected;

Where the bank chooses to provide for the fraud over two to four quarters and this results in the full provisioning being made in more than one financial year, banks should debit ‘other reserves’ [i.e., reserves other than the one created in terms of Section 17(2) of the Banking Regulation Act 1949] by the amount remaining un-provided at the end of the financial year by credit to provisions. However, banks should proportionately reverse the debits to ‘other reserves’ and complete the provisioning by debiting profit and loss account, in the subsequent quarters of the next financial year;

Banks shall make suitable disclosures with regard to number of frauds reported, amount involved in such frauds, quantum of provision made during the year and quantum of unamortised provision debited from ‘other reserves’ as at the end of the year.

BASEL III Framework

The Basel Committee on Banking Supervision (BCBS) and the Financial Stability Board (FSB) had undertaken an extensive review of the regulatory framework in the wake of the sub-prime crisis. In the document titled ‘Basel III: A global regulatory framework for more resilient banks and banking systems’, released by the BCBS in December 2010, it had inter alia proposed certain minimum set of criteria for inclusion of instruments in the new definition of regulatory capital. The RBI issued a circular no. DBOD.No.BP.BC.98 /21.06.201/2011-12 dated May 2, 2012 on the subject “Guidelines on Implementation of Basel III Capital Regulations in India” and also Master Circular No. DBR.No.BP.BC.1/ 21.06.201/2015-16 dated July 1, 2015 on “Basel lII – Capital Regulations”. Vide these circulars the RBI has prescribed the final guidelines on Basel III capital regulations. The reader may refer to the chapter 1, “Basel III” of Part VI of the Guidance Note for the detailed guidance on the New Capital Adequacy Framework, i.e., Basel III.

Annexure 1

Risks Associated with the Banking Activities

Risk is a function of probability or likelihood of occurrence and the significance of the impact. Risk implies vulnerability and threat. Risks associated with banking activities can be broadly categorised as follows:

a) Concentration Risk: Banking risks increase with the degree of concentration of a bank’s exposure to any one customer, industry,geographic area or country. For example, a bank’s loan portfolio may have large concentrations of loans or commitments to particular industries, and some, such as real estate, shipping and natural resources, may have highly specialized practices.

b) Country Risk: The risk of foreign customers and counterparties failing to settle their obligations because of economic, political and social factors of the counterparty’s home country and external to the customer or counterparty.

c) Credit Risk: The risk that a customer or counterparty will not settle an obligation for full value, either when due or at any time thereafter.

d) Currency Risk: The risk of loss arising from future movements in the exchange rates applicable to foreign currency assets, liabilities, rights and obligations.

e) Fiduciary Risk: The risk of loss arising from factors such as failure to maintain safe custody or negligence in the management of assets on behalf Risk Assessment and Internal Control of other parties.

f) Interest Rate Risk: The risk that a movement in interest rates would have an adverse effect on the value of assets and liabilities or would affect interest cash flows.

g) Legal and Documentary Risk: The risk that contracts are documented incorrectly or are not legally enforceable in the relevant jurisdiction in which the contracts are to be enforced or where the counterparties operate.

h) Liquidity Risk: The risk of loss arising from the changes in the bank’s ability to sell or dispose of an asset. The risk of liquidity risk turning into a solvency risk needs to be monitored as risk can swiftly move across the entity.

i) Modelling Risk: The risk associated with the imperfections and subjectivity of valuation models used to determine the values of assets or liabilities.

j) Operational Risk: The risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events.

k) Price Risk: The risk of loss arising from adverse changes in market prices, including interest rates, foreign exchange rates, equity and commodity prices and from movements in the market prices of investments.

l) Regulatory Risk: The risk of loss arising from failure to comply with regulatory or legal requirements in the relevant jurisdiction in which the bank operates. It also includes any loss that could arise from changes in regulatory requirements. For example, money laundering risk is a Regulatoryrisk. (The circular – DBS.CO.PP.BC.6/11.01.005/2006-07 dated April 20, 2007 on “Compliance Function in Banks” which lays down detailed requirements in respect of compliance related aspects such as compliance risk, responsibility of the Board of Directors, responsibility of the senior management, compliance policy, compliance structure, compliance principles, process, procedures, compliance programme, etc. is relevant).

 

Security and Risk Mitigation Measures for Electronic Payment Transactions

Electronic Payments effected through alternate products/channels are becoming popular among the customers with more and more banks providing such facilities to their customers. One such initiative by RBI is mandating additional factor of authentication for all Card Not Present (CNP) transactions. Banks have also to put in place mechanisms and validation checks for facilitating on-line funds transfer, such as: (i) enrolling customer for internet/mobile banking; (ii) addition of beneficiary by the customer; (iii) velocity checks on transactions.

The dependence of banks on mobile banking service providers may place knowledge of bank systems and customers in a public domain. Mobile banking system may also make the banks dependent on small firms (i.e.,mobile banking service providers) with high employee turnover. It is therefore imperative that sensitive customer data, and security and integrity of transactions are protected. It is necessary that the mobile banking servers at the bank’s end or at the mobile banking service provider’s end, if any, should be certified by an accredited external agency. In addition, banks should conduct regular information security audits on the mobile banking systems toensure complete security.

Transactions up to Rs. 5000/- can be facilitated by banks without end-to-end encryption. The risk aspects involved in such transactions may be addressed by the banks through adequate security measures. (Circular DPSS.CO.No.2502/02.23.02/ 2010-11 dated May 4, 2011)

RBI Circular dated 4th December 2014 on Mobile Banking Transactions in India – Operative Guidelines for Banks has felt the need for greater degree of standardization in procedures relating to on-boarding of customers for mobile banking (new customers, existing account holders whose mobile numbers are available with the bank but not registered for mobile banking, and existing account holders where mobile number is not available with the bank), as also the subsequent processes for authentication, including accessible options for generation of MPIN by customers.

Where banks are providing E-Wallet facility, auditor should evaluate proper controls and checking of transactions through E-Wallets and presentation of the balances of E-Wallet in the financial statements based on underlying arrangement for providing such facility.

Financing Housing Projects

During the recent period, housing sector has emerged one of the biggest loan portfolios of banks. The focus of the RBI, therefore, is to ensure orderly growth of this portfolio. The Master Circular No.DBR.No.DIR.BC.13/08.12.001/2015-16 dated July 1, 2015 on Housing Finance provides guidance in respect of the housing finance provided by the banks. Banks could deploy their funds under the housing finance allocation in any of the three categories as per the norms provided in the Master Circular, i.e.

 Direct Finance.

 Indirect Finance.

 Investment in Bonds of NHB/HUDCO, or combination thereof.

 

Loan to Value (LTV) ratio

In order to prevent excessive leveraging, the LTV ratio and risk weight and standard as set provisioning in respect of individual housing loans have been prescribed. Vide RBI circular dated June 7, 2017 revised LTV ratio is applicable for all loan sanctioned post June 7, 2017 is as under.

Category of loan                            LTV ratio (%)                            Risk Weight (%)

Upto ₹ 30 lakh                                    ≤ 80                                             35

> 80 and ≤ 90                                   50

Above ₹ 30 lakh and upto ₹ 75

Lakh                                                    ≤ 80                                            35

Above ₹ 75 lakh                                  ≤ 7 5                                           50

The LTV ratios, Risk Weights and Standard Asset Provision set out in the circular DBR.BP.BC.No.44/08.12.015/ 2015-16 dated October 8, 2015, on the captioned subject, shall continue to apply to loans sanctioned up to June 6, 2017.

Category of loan                              LTV ratio (%)                          Risk Weight (%)

Upto ₹ 30 lakh                                    ≤ 80                                            35

> 80 and ≤ 90                                50

Above ₹ 30 lakh and upto ₹ 75

Lakh                                                       ≤ 75                                           35

> 75 and ≤ 80                               50

Above ₹ 75 lakh                                    ≤ 75                                         75

The LTV ratio should not exceed the prescribed ceiling in all fresh cases of sanction. In case the LTV ratio is currently above the ceiling prescribed for any reasons, efforts should be made to bring it within limits.

Relief for MSME borrowers registered under GST

The RBI has issued a circular dated February 07, 2018 granting relief for MSME Borrowers registered under GST, thus, the auditors needs to be vigilant as regards the applicability of the said circular and eligibility of the borrower. This circular applies only to borrowers which are classified as micro, small and medium enterprise under the MSMED Act, 2006. The exposure of banks to such borrowers would be classified as standard assets subject to conditions specified in the circular:

  1. The borrower is registered under the GST regime as on January 31,2018;

 

  1. The aggregate exposure including non-fund-based facilities of banks and NBFCs, to the borrower does not exceed Rs. 25 crores as on January 31, 2018. Thus, the overall exposure of the borrower (including that of multiple banking, consortium banking) as on January 31, 2018 should not exceed Rs. 25 crores, i.e. the overall exposure of the borrower to banks and NBFCs combined should not exceed the cap of Rs. 25 crores. Further, it is to be noted that as per RBI Master Circular on Exposure Norms – ‘Exposure’ shall include credit exposure (funded and non-funded credit limits) and investment exposure (including underwriting and similar commitments). The sanctioned limits or outstandings, whichever are higher, shall be reckoned for arriving at the exposure limit. However, in the case of fully drawn term loans, where there is no scope for re-drawal of any portion of the sanctioned limit, banks may reckon the outstanding as the exposure.
  1. The borrower’s account should be standard account as on August 31,2017. It would be pertinent to note that some banks may be following a system of marking of accounts as NPA in the system as at quarter-end instead of marking the accounts on on-going basis. However, the borrower account needs to be tested for classification purpose as on August 31, 2017 and in case if such account is a NPA account as per the extant of IRAC norms specified by RBI as on August 31, 2017, irrespective of the account being marked or not by the bank, such accounts will not be eligible for relief granted by this circular;

 

  1. The amount from the borrower, overdue as on September 01, 2017 and payments from the borrower due between September 01, 2017 and January 31, 2018 are paid not later than 180 days from their respective original due date.  As per para 2.3 of Master Circular of RBI on IRAC norms – ‘any amount due to the bank under any credit facility is ‘overdue’ if it is not paid on the due date fixed by the bank’. Thus, the extension period of 180 days granted for the repayment of the overdue amount as on September 01,2017 as well as the amounts due between the specified period is restricted to the extent of 180 days from the respective ‘due date’. The words ‘overdue’ as well as ‘due date’ mentioned in the said clause are significant, since both are applicable in case of facilities other than CC/OD like Term Loan, Bill Discounting, etc. only and thus, are not relevant as far as CC/OD facilities are concerned as CC/OD accounts per se do not have the concept of ‘overdue’ but have concept of ‘overdrawn’ and, there is no ‘due date’ concept w.r.t. CC/OD account. Further, it is to be noted that a CC/OD account would qualify to be a NPA if the account remains ‘out of order’ as indicated in para 2.2 of the Master Circular of the RBI on IRAC Norms. Thus, the said extension granted is confined to the facilities which are other than CC/OD.
  1. A provision of 5% shall be made against such exposures which are not classified as NPA (due to the relaxation as provided above), which otherwise would have been classified as NPA as per usual IRAC norms(of accounts overdue beyond 90 days period).

 

  1. The additional time provided is for the purpose of asset classification only and not for income recognition. Thus, if an account is otherwise eligible to be classified as NPA as per usual IRAC norms (of accounts overdue beyond 90 days period) but is classified as PA based on the above-mentioned relaxation granted, the income is required to be recognised on realisation basis and not on accrual basis.

 

Corporate Social Responsibility (CSR)

As per Section 135 of the Companies Act, 2013 a CSR committee has been formed by the Company. The funds are utilized throughout the year on the activities which are specified in Schedule VII of the aforesaid Act. Gross Amount required to be spent by the company during the year – XX crores.

Disclosure Requirements in Financial Statements in the areas of CSR activities and contributions made thereto are as follows –

Particulars In cash Yet to be paid in

Cash

Total

Amount spent during the

year on –

1) Construction/

Acquisition of any

assets

2) For purposes other than

(1) above:

(Specify)

For detail guidance, refer “Guidance Note on Accounting for Expenditure on

Corporate Social Responsibility Activities”, issued by ICAI in May, 2015.

 

Questionnaire Applicable to Specialised Branches

  1. For Branches dealing in Foreign Exchange Transactions

It should be noted that certain branches do not deal in foreign exchange transactions but foreign currency accounts are maintained there and all records of account opening documentation are held at these branches. In such cases, checking and reporting should be done of the account opening documentation and commented upon in this section of LFAR.

  1. Are there any material adverse features pointed out in the reports of concurrent auditors, internal auditors and/ or the Reserve Bank of India’s inspection report which continue to persist in relation to NRE/ NRO/ NRNR/ FCNR-B/ EEFC/ RFC and other similar deposit accounts If so, furnish the particulars of such adverse features.The auditor should make a written request to the branch Management for furnishing him the latest available reports of the statutory auditors and of the concurrent auditor or stock auditor or internal auditors, as also of the RBI where inspection or special audit has taken place for the branch. The auditor should scrutinise the contents of such reports in relation to NRE/ NRO/ NRNR/ FCNR-B/ EEFC/ RFC and other similar deposit accounts and take a note of relevant major adverse comments. In case adverse features are observed to persist at the branch or where no remedial action has been initiated or taken by the branch Management, he should report the same.
  1. Whether the Branch has followed the instructions and guidelines of the Controlling Authorities of the bank with regard to the following in relation to the foreign exchange and, if not, state the irregularities.

(a) deposits

(b) advances

(c) export bills

(d) bills for collection

(e) any other area

The auditor also has to make himself familiar with the relevant aspects of the Exchange Control Manual and its compliance. The auditor should verify whether the instruction and guidelines of the Controlling Authorities of the bank in relation to the foreign exchange have been followed by the branch in respect of these areas. If any irregularity is observed the same should be reported with details. Auditor to verify proper filing of BEF & Long Form Audit Report in Case of Bank Branches

  1. XOS returns –

 Obtain a list of all NOSTRO Accounts maintained/ operated by the Branch from the branch Management.

The auditor should obtain a list of all NOSTRO Accounts for the purpose of verification from the branch Management.

(a) Are the NOSTRO Accounts regularly operated?

The auditor should verify whether the NOSTRO Accounts are being regularly operated. If not give the list of NOSTRO Accounts with balances outstanding, which are not operated regularly, the date of last transaction, etc. The auditor should specifically comment on overdrafts in NOSTRO accounts, if any.

(b) Are periodic balance confirmations obtained from all concerned overseas branches/ correspondents?

The auditor should verify whether the balance confirmation from all concerned overseas branches/ correspondents have been obtained on a periodic basis. He should report the names of the bank and the period wise outstanding balances, which remain unconfirmed.

(c) Are these accounts duly reconciled periodically? Your observations on the reconciliation may be reported.

While examining the transaction in foreign exchange, the auditor should also pay attention to reconciliation of NOSTRO Accounts with the respective mirror account. The amount in the NOSTRO account is stock of foreign currency in the form of bank accounts with the overseas branches and correspondents. Un-reconciled NOSTRO Accounts, on an examination, may reveal unauthorised payments from the foreign currency account, unauthorised withdrawals, and unauthorised debit to mirror account. The auditor should also evaluate the internal control with regard to inward/ outward messages. The inward/outward messages should be properly authenticated and discrepancies noticed should be properly dealt with in the books of accounts. In case balance confirmation certificate have been received but the same have not been reconciled, the auditor should report, in respect of each bank, the balances as per books maintained by the branch and the balance as per the relevant balances confirmation certificate, stating in either case whether the balance is debit or credit.

 (d) Whether the branch is following HO guidelines for reporting requirements under Foreign Account Tax Compliance Act (FATCA) and Common Guidance Note on Audit of Banks (Revised 2018)

  1. Does the Branch follow the prescribed procedures in relation to maintenance of VOSTRO Accounts?

The auditor should verify whether prescribed procedure in relation to interbank confirmation in the VOSTRO account is followed or not. In case balance confirmation certificate have been received but the same have not been reconciled, or where confirmation has not been received the same should be reported, in respect of each VOSTRO Account. The RBI has also issued the Master Directions FED Master Direction No.2 /2015-16 dated January 01, 2016 (updated on May 19, 2017) on “Opening and Maintenance of Rupee/Foreign Currency VOSTRO Accounts of Non-resident Exchange Houses”.

Role of Auditors of Banks

Based on RBI appointment letter, the external auditors of the bank are required to provide a certification on the capital adequacy ratio computation. The auditor needs to understand more comprehensively the approach and mechanism adopted by the bank, and accordingly certify the computation.

Considering the intricacies involved in the computation itself further supplemented by enhanced judgement factor, it would be prudent for the certifying auditor to obtain an adequate understanding of the Basel III norms as prescribed by RBI and also deploy more senior members of its staff to audit the capital adequacy computations.

Further, some banks may also avail services of their external auditors to review the quality .of internal controls and systems, and assess the scope and adequacy of the internal audit function

Role of the Reserve Bank of India as the Central Bank

The Reserve Bank of India (hereinafter referred to as RBI) acts as the monetary authority and the central bank of the country. In an effort to bring greater coordination among financial regulators, the Government of India has constituted an over-arching body – the Financial Stability and Development Council (“FSDC” or “Council”) in December 2010. The Council is headed by the Honorable Finance Minister and composed of the Governor of the RBI, the chairs of the SEBI, the IRDA and the PFRDA, and other Ministry of Finance (“MoF”) officials. It envisages strengthening and institutionalizing the mechanism of maintaining financial stability, financial sector development, inter-regulatory coordination along with monitoring macro-prudential regulation of the Indian economy. On February 20, 2015 the RBI and Government signed the Monetary Policy Framework Agreement. In addition to it after amendment in RBI Act, the Monetary Policy Committee (MPC) headed by Governor was setup. The MPC is entrusted with the task of fixing the benchmark policy interest rate (repo rate) to contain inflation within the target level.  The RBI is the central bank of our country. As such, RBI is responsible fordevelopment and supervision of the constituents of the Indian financial system (which comprises banks and non-banking financial institutions) as well as for determining, in conjunction with the Central Government, the monetary and credit policies keeping in with the need of the hour. Among its important functions are issuance of currency; regulation of currency issue; acting as banker to the central and state governments; and acting as banker to commercial and other types of banks including term-lending institutions. Besides, RBI has also been entrusted with the responsibility of regulating the activities of commercial and other banks.

Banks can commence business by opening the branches as per branch opening policy of RBI. The RBI also has the power to inspect any bank. The Banking Regulation Act, 1949 provides the legal framework for regulation and supervision of banks. This statute, together with some provisions in the Reserve Bank of India Act, 1934, State Bank of India Act, 1955, State Bank of India (Subsidiary Banks) Act, 1959 and Banking Companies (Acquisition and Transfer of Undertakings) Acts, 1970 & 1980, empowers the RBI to prescribe standards and Guidance Note on Audit of Banks (Revised 2018)monitor liquidity, solvency and soundness of banks, so as to ensure that depositors’ interests are protected at all times.  Periodic inspections of banks under section 35 of the Banking Regulation Act, 1949 are undertaken as a follow-up of the bank licensing regulation and objectives as laid down in section 22 of the Banking Regulation Act, 1949. The substantive objective of the statutory inspections has been to verify whether the conditions subject to which the bank has been issued license to undertake banking business in terms of sub-section (3) of section 22 [including sub-section(3A) for foreign banks] continue to be fulfilled by it. The conditions include:

(a) the bank “is or will be in a position to pay its present or future depositors in full as their claims accrue” (i.e. it is solvent and has adequate liquidity);

(b) the bank “has adequate capital structure and earning prospects”;

(c) “the affairs of the (banking) company are not being, or are not likely to be, conducted in a manner detrimental to the interests of its present or future depositors”; and

(d) “the general character of the management of the bank is not prejudicial to the public interest or the interest of its depositors” (i.e. it has sound operational systems and adequate controls operated by a prudent management). Section 22(4) of the Banking Regulation Act, 1949 authorizes the RBI to cancel the banking license “if at any time, any of the conditions referred to in sub-section (3) and sub-section (3A) is not fulfilled”.

Based on the recommendations of a High Level Steering Committee (HLSC) for Review of Supervisory Processes of Commercial Banks, the Reserve Bank of India had in September 2012, introduced a Supervisory Program for Assessment of Risk and Capital (SPARC) for commercial banks. This Risk Based Supervision (RBS) approach, helps the regulator in focusing on evaluating both present and future risks, identifying incipient issues and facilitating prompt intervention/ early corrective action – as against the earlier compliance-based and transaction testing approach (CAMELS) which was more in the nature of a ‘point in time’ assessment. The RBS approach also benefits the regulator by optimizing its use of supervisory resources and assisting the regulated entities in improving their risk management systems, oversight and controls.

RBI is empowered under section 21 of the Banking Regulation Act, 1949, to control advances by banks in general or by any bank in particular. Among the measures that the RBI can adopt for this purpose are to prescribe purposes and extent of advances, margin requirements, maximum exposure to a single Banking in India borrower, rate of interest and other terms and conditions, etc. Besides these measures (which are usually called ‘selective credit control’ measures), RBI also controls the total volume of bank credit by varying bank rate through open market operations or by varying cash reserve and similar requirements.

Bank rate refers to the rate of interest at which the RBI re-discounts the first class bills of exchange or other eligible instruments from banks. Variations in bank rate affect the interest rates charged by banks – generally, interest rates of banks move up or down in tandem with movements in bank rate.

Under Base Rate system which came into effect from July 1, 2010, all categories of domestic rupee loans of banks are priced only with reference to the Base Rate, subject to certain conditions. For monetary transmission to occur, lending rates have to be sensitive to the policy rate. At present, banks follow different methodologies for computing their Base Rate like average cost of funds method, marginal cost of funds, blended cost of funds (liabilities) etc.

Open market operations involve sale or purchase of government securities in the open market. When RBI buys government securities from banks in the open market, the funds in the hands of selling banks increase, enabling them to expand credit, and vice versa. Banks are required to maintain at least a prescribed minimum percentage of their demand and time liabilities in India in the form of cash and/or current account balances with the RBI (called ‘cash reserve ratio’). Additionally, they are required to maintain a further percentage in the form of cash and/or other liquid assets (called ‘statutory liquidity ratio’). Varying the cash reserve ratio and/or statutory liquidity ratio enables the RBI to increase or decrease (as the case may be) the funds available to banks for lending and other similar purposes.

A major development that has implications for banks throughout the world is the “International Convergence of Capital Measurement and Capital Standards” generally known as the Basel Accord. Basel III ensures better quality of capital and robust liquidity risk management.

The smooth functioning of the payment and settlement systems is a prerequisite for stability of the financial system. In order to have focused attention on payment and settlement systems, a Board for Regulation and Supervision of Payment Systems (BPSS) was set up in March, 2005. The launch of the Real Time Gross Settlement System (RTGS) and NEFT (National Electronic Funds Transfer) has led to a reduction of settlement risk in large-value payments in the country. Similarly, IMPS (Inter bank Mobile Payment Service/Immediate Payment Service) is a mobile based payment mechanism introduced by the National

Payments Corporation of India to allow customers to transfer money instantly, facilitating instant remittance across multiple platforms. The setting up of NSDL Guidance Note on Audit of Banks (Revised 2018) and CDSL for the capital market settlements and CCIL for G-sec, forex and money market settlements have improved efficiency in market transactions and settlement processes. A series of legal reforms to enhance the stability of the payment systems have been carried out. With the introduction of the Payments and Settlement Act in 2008, the Reserve Bank has the legislative authority to regulate and supervise payment and settlement systems in the country.

In India, deposit insurance is provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly owned subsidiary of the Reserve Bank of India. Deposit insurance in India is mandatory for all banks (commercial/cooperative/ RRBs/LABs). It covers all kinds of deposits except those of foreign governments, Central/State Governments, inter-bank, deposits received abroad and those specifically exempted by DICGC with prior approval of the Reserve Bank. The premium charged for deposit insurance is on a flat rate basis, which is currently 10 paise per Rs.100 of assessable deposits with a statutory ceiling on premium at 15 paise. The premia to be paid by the insured banks are computed on the basis of their assessable deposits. Insured banks pay advance insurance premia to the Corporation semi-annually within two months from the beginning of each financial half year, based on their deposits as at the end of previous half year. The amount of coverage is presently limited to Rs.1 lakh per depositor and extends to deposits held in the same right and in the same capacity.

Banks and financial institutions (FIs) have also been advised by RBI to follow certain customer identification procedure for opening of accounts and monitor transactions of suspicious nature for the purpose of reporting the same to appropriate authority. These ‘Know Your Customer’ (KYC) guidelines have been revisited in the context of the recommendations made by the Financial Action Task Force (FATF) on Anti Money Laundering (AML) standards and on Combating Financing of Terrorism (CFT). Detailed guidelines based on therecommendations of FATF and the paper issued on Customer Due Diligence (CDD) for banks by the Basel Committee on Banking Supervision (BCBS), with suggestions wherever considered necessary, have been issued. Banks/FIs have been advised by RBI to ensure that a proper policy framework on ‘Know Your Customer’ and Anti-Money Laundering measures is formulated and put in place with the approval of their Boards. The objective of KYC/AML/CFT guidelines is to prevent banks/FIs from being used, intentionally or unintentionally, by criminal elements for money laundering or terrorist financing activities. KYC procedures also enable banks/FIs to know/understand their customers and their financial dealings better and manage their risks prudently. Foreign Account Tax Compliance Act (FATCA) is a US law, which was enacted in March 2010 by the US Government which was aimed at preventing tax evasion through off shore assets by US citizens and US residents. Foreign Financial Institutions (FFIs)Banking in India such as the Bank that enter into a FATCA FFI agreement with the US government are required to conduct certain due-diligence to identify its US clients(individual and entity) and report on their accounts to the US Internal Revenue Service (IRS).

India has signed the Inter-Governmental Agreement (IGA) with USA for improving international tax compliance and implementing the Foreign Account Tax Compliance Act (FATCA). India has also signed a multilateral agreement on June 3, 2015, to automatically exchange information based on Article 6 of the Convention on Mutual Administrative Assistance in Tax Matters under the Common Reporting Standard (CRS), formally referred to as the Standard for Automatic Exchange of Financial Account Information (AEoI).

Apart from directions relating to operational matters, RBI also issues, from time to time, guidelines on accounting matters to be followed by banks. These guidelines have a profound effect on annual accounts of banks. The text of the  notifications/ circulars/guidelines, etc., issued by RBI are normally also available on its website www.rbi.org.in.

Prompt Corrective Action (PCA) framework for NPAs

Reserve Bank of India under its supervisory frame work uses various measures/ tools to maintain sound financial health of the bank. PCA frame work is one of such supervisory tools which involve monitoring of certain performance indicators of the banks as early warning exercise and is initiated once such thresh holds as relating to capital, asset quality etc. are breached.

Its objective is to facilitate the banks to take corrective measures including those prescribed by RBI, in a timely manner to realize financial health of the bank.

PCA frame work is in operations

Since December 2002 & the guidelines have been issued from time to time and recently on 13th April 2017, revised frame work has been issued by the Bank.

RBI has come up with a notification titled “Revised Prompt Corrective Action

(PCA) framework for banks.

The revised framework would apply to all banks operating in India including small and foreign banks. The new set of provisions will be effective from April 1 based on the financials of banks as of March 2017.

The revised framework will override the existing PCA framework. The revised framework will be again reviewed after three years.

Need for revised framework

RBI had promised to revise the PCA framework at its first monetary policy review of the current fiscal held on April 6, as the bad loans including those Guidance Note on Audit of Banks (Revised 2018) already restructured reached USD 80 billion or 15% of the system as of March 2017.

Salient guidelines of revised PCA

Capital, Asset Quality and profitability would be the basis on which the banks would be monitored. Banks would be placed under PCA framework depending upon the audited annual financial results and RBI’s supervisory assessment. RBI may also impose PCA on any bank including migration from one threshold to another if circumstances so warrants. RBI has defined three kinds of risk thresholds and the PCA will depend upon the type of risk threshold that was breached. If a bank breaches the risk threshold, then mandatory actions include the restriction on dividend payment/remittance of profits, restriction on branch expansion, higher provisions, restriction on management compensation and director’s fees. Specifically, the breach of ‘Risk Threshold 3’ of CET1 (common equity tier 1) by a bank would call for resolution through tools like amalgamation, reconstruction, winding up among others.

RBI in its discretion can also carry out the following actions:

 Recommend the bank owner be it government/promoters/parent of foreign bank branch to bring in new management/board.

 Advise bank’s board to activate the recovery plan as approved by the supervisor.

 Advise bank’s board to carry out a detailed review of business model, the profitability of business lines and activities, assessment of medium and long term viability, balance sheet projections among others.

 Review short term strategies and medium-term business plans and carry out any other corrective actions like the removal of officials and supersession or suppression of the board.

The information on bank audit is vast and it is not possible to cover all of it here but I hope that the information provided here shall make you aware of the most important areas in bank audit.

 

BUDGET 2018 HIGHLIGHTS

* Govt’s health scheme to provide health cover to 10 crore poor families is world’s largest.

* Electronic IT assessment throughout Country will lead to greater efficiency and transparency.

* PAN to be used as Unique Entity Number for non- individuals from April 1.

* Govt makes PAN mandatory for any entity entering into a financial transaction of Rs 2.5 lakh or more.

* Tax long term capital gains exceeding Rs 1 lakh at 10 per cent without indexation.

* Exemption of interest income on bank deposits raised to Rs 50,000 for senior citizens

* Custom duty on Mobile phones increased to 20 per cent.

* Health and education cess has been increased to 4 per cent.

* Tax on distributed income by equity oriented mutual funds to be at 10 per cent.

* Standard deduction of Rs 40,000 for salaried employees in lieu of transport and medical expenses.

* If the turnover of a Company is up to Rs 250 crore, it would be taxed at 25 per cent

*There is no changes in tax slabs for the salaried class this year.

* FM proposes a fiscal deficit of 3.3% of GDP for 2018-19.

* Finance Minister Arun Jaitley proposes revising emoluments as per the following structure:

— Rs 5 lakh for the President of India
— Rs 4 lakh for the Vice President
— Rs 3.5 lakh for the Governors

* Jaitley also proposes automatic revision of emoluments of Parliamentarians every five years, indexed to inflation.

* In rural areas, 5 lakh WiFi hotspots will be set up to provide easy internet access.

* Government will take all steps to eliminate use of cryptocurrencies which are funding illegitimate transactions.

* Govt announces Amrut program to focus on water supply to all households in 500 cities. Water supply contracts for 494 projects worth Rs 19,428 core will be awarded.

* 4,000 km of new railway track will be laid down by 2019.

* All railways stations with footfall more than 25,000 to have escalators.

* The government will do redevelopment of 600 major railway stations across the country.

* Arun Jaitley announces capital expenditure of Rs 1,48,528 crore for Indian Railways in 2018-19.

* National Heritage City Development Augmentation Scheme has been undertaken to preserve and protect heritage cities in the country, announces the Finance Minister.

* Government to contribute 12 per cent of EPF contribution for new employees in all sectors: FM

* Target of 3 lakh crore for lending under PM Mudra Yojana: FM

* MSME enterprises are a major element for growth, says Jaitley. He also added that mass formalisation of MSME sector is happening after demonetisation and GST.

* Govt will launch health scheme to cover 10 crore poor families.

* Government aims to bring 60 crore bank accounts under the Jan Dhan Yojana.

* Eklavya schools to be started for Scheduled Tribe populations.

* Rs 600 crore allocated to Tuberculosis patients undergoing treatment.

* Govt will set up two new Schools of Planning and Architecture.

* To tackle brain drain, Jaitley announces scheme to identify bright students pursuing B Tech in premiere engineering institutes, and providing them higher-education opportunities in the IITs and IISc. These students will receive handsome fellowships, and will be expected to dedicate a few hours to teach in higher education institutions weekly.

* Specialised railway university to be set up at Vadodara.

* Jaitley proposed integrated BEd programme for teachers: “training of teachers during service is essential.” Technology will be the biggest driver in improving the quality of education.

* Budget allocates money for social security and protection programme for all widows and orphaned children.

* We have a target to provide all Indians with their own homes by 2022, says Jaitley.

* Ujjwala scheme to amplify targets, will now provide 8 crore rural women free LPG connections.

* Air pollution in Delhi-NCR has been a cause of concern, govt has proposed subsidised machinery for in-situ management of crop residue in Punjab, Haryana, Uttar Pradesh and NCT Delhi.

* Govt of India will take necessary measures to put in place measures for the state government to purchase surplus solar power produced by local farmers at sutiable prices.

* Arun Jaitley proposes a sum of Rs 500 crore for ‘Operation Green’ on the lines of ‘Operation Flood’.

* Food processing sector is going at an average of 8 per cent per annum.

* Arun Jaitley on Minimum Support Price of agricultural products: Only increasing the MSP is not enough, the government will fix the MSP of agricultural products at 1.5 times the market rate.

*Long term Capital gain exemption under section 10(38) in respect of listed STT paid shares being withdrawn, however, capital gains upto 31.01.2018 shall not be taxed as cost of acquisition will be taken as Fair Market Value as on 31.01.2018. Tax on STT paid long term capital gain shall be taxed at 10% under section 112A. Further such tax shall be liable to TDS.

* Provision of secion 40(ia) and 40A(3) and 40A(3A) are being made applicable to Charitable Trust. Therefore, expenditure incurred without deducted of tax and in cash will not be eligible as application of income under section 10(23C) and 11(1)(a)

*Provision of Section 43CA, 50C and 56(2)(x) being amended to allow 5% of sale consideration in variation vis a vis stamp duty value. This is on account of location, disadvantage, etc.

*Deemed dividend to be taxed in the hands of the Company itself as Dividend distribution of tax @ 30%.

* Market to market loss computed as per ICDS to be allowed under new section 43AA

* Agriculture Commodity Derivatives income/loss not be considered as speculative under section 43(5)

 

Salient Features of Prohibition of Benami Property Transactions Act, 1988

Benami Property Transactions Act, 1988 has been amended by the Benami Transactions (Prohibition) Amendment Act, 2016 (BTP Amendment Act). The rules and all the provisions of the BTP Amendment Act shall come into force on 1stNovember, 2016. After coming into effect of the BTP Amendment Act, the existing Benami Transactions (Prohibition) Act, 1988 shall be renamed as Prohibition of Benami Property Transactions Act, 1988 (PBPT Act).

Section 2.         The PBPT Act defines benami transactions, prohibits them and further provides that violation of the PBPT Act is punishable with imprisonment and fine. The PBPT Act prohibits recovery of the property held benami from benamidar by the real owner. Properties held benami are liable for confiscation by the Government without payment of compensation.

Section 3.         An appellate mechanism has been provided under the PBPT Act in the form of Adjudicating Authority and Appellate Tribunal. The Adjudicating Authority referred to in section 6(1) of the Prevention of Money Laundering Act, 2002 (PMLA) and the Appellate Tribunal referred to in section 25 of the PMLA have been notified as the Adjudicating Authority and Appellate Tribunal, respectively, for the purposes of the PBPT Act.

Section 4.         A Joint / Additional Commissioner of Income-tax, an Assistant / Deputy Commissioner of Income-tax and a Tax Recovery Officer in each Pr. CCIT Region have been notified to perform the functions and exercise the powers of the Approving Authority, Initiating Officer and Administrator, respectively under the PBPT Act.

Section  2(5) “attachment” means the prohibition of transfer, conversion, disposition or movement of property, by an order issued under this Act;

Section 2(6) “authority” means an authority referred to in sub-section (1) of section 18;

Section 2(8) “benami property” means any property which is the subject matter of a benami transaction and also includes the proceeds from such property;

Section 2(9) “benami transaction” means,—

(A) a transaction or an arrangement—

(a) where a property is transferred to, or is held by, a person, and the consideration for such property has been provided, or paid by, another person; and

(b) the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration,

except when the property is held by—

  • a Karta, or a member of a Hindu undivided family, as the case may be, and the property is held for his benefit or benefit of other members in the family and the consideration for such property has been provided or paid out of the known sources of the Hindu undivided family;
  • a person standing in a fiduciary capacity for the benefit of another person towards whom he stands in such capacity and includes a trustee, executor, partner, director of a company, a depository or a participant as an agent of a depository under the Depositories Act, 1996 (22 of 1996) and any other person as may be notified by the Central Government for this purpose;
  • any person being an individual in the name of his spouse or in the name of any child of such individual and the consideration for such property has been provided or paid out of the known sources of the individual;
  • any person in the name of his brother or sister or lineal ascendant or descendant, where the names of brother or sister or lineal ascendant or descendant and the individual appear as jointowners in any document, and the consideration for such property has been provided or paid out of the known sources of the individual;

or

(B) a transaction or an arrangement in respect of a property carried out or made in a fictitious name; or

(C) a transaction or an arrangement in respect of a property where the owner of the property is not aware of, or, denies knowledge of, such ownership;

(D) a transaction or an arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious;

Explanation.—For the removal of doubts, it is hereby declared that benami transaction shall not include any transaction involving the allowing of possession of any property to be taken or retained in part performance of a contract referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882), if, under any law for the time being in force,—

  • consideration for such property has been provided by the person to whom possession of property has been allowed but the person who has granted possession thereof continues to hold ownership of such property;
  • stamp duty on such transaction or arrangement has been paid; and
  • the contract has been registered.

Section 2(10) “benamidar” means a person or a fictitious person, as the case may be, in whose name the benami property is transferred or held and includes a person who lends his name;

Section 2(11) “Bench” means a Bench of the Adjudicating Authority or the Appellate Tribunal, as the case may be;

Section 2(12) “beneficial owner” means a person, whether his identity is known or not, for whose benefit the benami property is held by a benamidar;

Section 2(13) “Board” means the Central Board of Direct Taxes constituted under the Central Boards of Revenue Act, 1963 (54 of 1963);

Section 2(14) “director” shall have the same meaning as assigned to it in clause (34) of section 2 of the Companies Act, 2013 (18 of 2013);

Section 2(15) “executor” shall have the same meaning as assigned to it in clause (c) of section 2 of the Indian Succession Act, 1925 (39 of 1925);
Section 2(16) “fair market value”, in relation to a property, means— (i) the price that the property would ordinarily fetch on sale in the open market on the date of the transaction; and (ii) where the price referred to in sub-clause (i) is not ascertainable, such price as may be determined in accordance with such manner as may be prescribed;

Section 3. Prohibition of benami transactions.—

(1) No person shall enter into any benami transaction. 2 * * * * * 3

(2) Whoever enters into any benami transaction shall be punishable with imprisonment for a term which may extend to seven years or with fine or with both.

(3) Whoever enters into any benami transaction on and after the date of commencement of the Benami Transactions (Prohibition) Amendment Act, 2016 (43 of 2016) shall, notwithstanding anything contained in sub-section (2), be punishable in accordance with the provisions contained in Chapter VII.]

Section 4. Prohibition of the right to recover property held benami.—(1) No suit, claim or action to enforce any right in respect of any property held benami against the person in whose name the property is held or against any other person shall lie by or on behalf of a person claiming to be the real owner of such property. (2) No defence based on any right in respect of any property held benami, whether against the person in whose name the property is held or against any other person, shall be allowed in any suit, claim or action by or on behalf of a person claiming to be the real owner of such property.

Section 5. Property held benami liable to confiscation.—Any property, which is subject matter of benami transaction, shall be liable to be confiscated by the Central Government.

Section 6. Prohibition on re-transfer of property by benamidar.—

(1) No person, being a benamidar shall re-transfer the benami property held by him to the beneficial owner or any other person acting on his behalf.

(2) Where any property is re-transferred in contravention of the provisions of sub-section (1), the transaction of such property shall be deemed to be null and void.

(3) The provisions of sub-sections (1) and (2) shall not apply to a transfer made in accordance with the provisions of section 190 of the Finance Act, 2016 (28 of 2016).]

Section 33. Qualifications for appointment of Chairperson and Members of Appellate Tribunal.—

(1) A person shall not be qualified for appointment as Chairperson of the Appellate Tribunal unless he is a sitting or retired Judge of a High Court, who has completed not less than five years’ of service. 15

(2) A person shall not be qualified for appointment as a Member unless he— (a) in the case of a Judicial Member, has been a Member of the Indian Legal Service and has held the post of Additional Secretary or equivalent post in that Service; (b) in the case of an Administrative Member, has been a Member of the Indian Revenue Service and has held the post of Chief Commissioner of Income tax or equivalent post in that Service.

(3) No sitting Judge of a High Court shall be appointed under this section except after consultation with the Chief Justice of the High Court.

(4) The Chairperson or a Member holding a post as such in any other Tribunal, established under any law for the time being in force, in addition to his being the Chairperson or a Member of that Tribunal, may be appointed as the Chairperson or a Member, as the case may be, of the Appellate Tribunal under this Act.

Section 48. Right to representation.

(1) A person preferring an appeal to the Appellate Tribunal under this Act may either appear in person or take the assistance of an authorised representative of his choice to present his case before the Appellate Tribunal.

(2) The Central Government may authorise one or more of its officers to act as presenting officers on its behalf, and every person so authorised may present the case with respect to any appeal before the Appellate Tribunal. Explanation.—For the purposes of this section, “authorised representative” means a person authorised by the appellant in writing to appear on his behalf, being— (i) a person related to the appellant in any manner, or a person regularly employed by the appellant; or (ii) any officer of a scheduled bank with which the appellant maintains an account or has other regular dealings; or (iii) any legal practitioner who is entitled to practice in any civil court in India; or (iv) any person who has passed any accountancy examination recognised in this behalf by the Board; or (v) any person who has acquired such educational qualifications as the Board may prescribe for this purpose.

Section 54. Penalty for false information.—Any person who is required to furnish information under this Act knowingly gives false information to any authority or furnishes any false document in any proceeding under this Act, shall be punishable with rigorous imprisonment for a term which shall not be less than six months but which may extend to five years and shall also be liable to fine which may extend to ten per cent. of the fair market value of the property

This Act promises to discourage corruption and a strict implementation of the Act will definitely witness a lot of Court drama of high profile personalities.

MEANING , TIME AND VALUE OF TAXABLE SUPPLY

 

Meaning and Scope of Supply
Q 1. What is the taxable event under GST?

 

Ans. The taxable event under GST shall be the supply of goods or services or both made for consideration in the course or furtherance of business. The taxable events under the existing indirect tax laws such as manufacture, sale, or provision of services shall stand subsumed in the taxable event known as ‘supply’.

 

Q 2. What is the scope of ‘supply’ under the GST law?

 

Ans. The term ‘supply’ is wide in its import covers all forms of supply of goods or services or both that includes sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. It also includes import of service. The model GST law also provides for including certain transactions made without consideration within the scope of supply.

 

Q 3. What is a taxable supply?

 

Ans. A ‘taxable supply’ means a supply of goods or services or both which is chargeable to goods and services tax under the GST Act.

 

Q 4. What are the necessary elements that constitute supply under CGST/SGST Act?

 

Ans. In order to constitute a ‘supply’, the following elements are required to be satisfied, i.e.- (i) t h e a c t i v i t y i n v o l v e s supply of goods or services or both; (ii) the supply is for a consideration unless otherwise specifically provided for; (iii) the supply is made in the course or furtherance of business; (iv) t h e supply is made in the taxable territory; (v) the supply is a taxable supply; and (vi) t h e supply is made by a taxable person.

 

Q 5. Can a transaction in which any one or more of the above criteria is not fulfilled, be still considered as supply under GST?

 

Ans. Yes. Under certain circumstances such as import of services for a consideration whether or not in the course or furtherance of business (Section 3(1) (b)) or supplies made without consideration, specified under Schedule-I of CGST /SGST Act, where one or more ingredients specified in answer to question no.4 are not satisfied, it shall still be treated as supply for levy of GST.

 

Q 6. Import of Goods is conspicuous by its absence in Section 3. Why?

 

Ans. Import of goods is dealt separately under the Customs Act, 1962, wherein IGST shall be levied as additional duty of customs in addition to basic customs duty under the Customs Tariff Act, 1975.

 

Q 7. Are self-supplies taxable under GST?

 

Ans. Inter-state self-supplies such as stock transfers, branch transfers or consignment sales shall be taxable under IGST even though such transactions may not involve payment of consideration. Every supplier is liable to register under the GST law in the State or Union territory from where he makes a taxable supply of goods or services or both in terms of Section 22 of the model GST law. However, intra-state self-supplies are not taxable subject to not opting for registration as business vertical.

 

Q 8. Whether transfer of title and/or possession is necessary for a transaction to constitute supply of goods?

 

Ans. Title as well as possession both have to be transferred for a transaction to be considered as a supply of goods. In case title is not transferred, the transaction would be treated as supply of service in terms of Schedule II (1) (b). In some cases, possession may be transferred immediately but title may be transferred at a future date like in case of sale on approval basis or hire purchase arrangement. Such transactions will also be termed as supply of goods.

 

Q 9. What do you mean by “supply made in the course or furtherance of business”?

 

Ans. “Business” is defined under Section 2(17) include any trade, commerce, manufacture, profession, vocation etc. whether or not undertaken for a pecuniary benefit. Business also includes any activity or transaction which is incidental or ancillary to the aforementioned listed activities. In addition, any activity undertaken by the Central Govt. or a State Govt. or any local authority in which they are engaged as public authority shall also be construed as business. From the above, it may be noted that any activity undertaken included in the definition for furtherance or promoting of a business could constitute a supply under GST law.

 

Q 10. An individual buys a car for personal use and after a year sells it to a car dealer. Will the transaction be a supply in terms of CGST/SGST Act? Give reasons for the answer.

 

Ans. No, because supply is not made by the individual in the course or furtherance of business. Further, no input tax credit was admissible on such car at the time of its acquisition as it was meant for non-business use.

 

Q 11. A dealer of air-conditioners p e r m a n e n t l y transfers an air conditioner from his stock in trade, for personal use at his residence. Will the transaction constitute a supply?

 

Ans. Yes. As per Sl. No.1 of Schedule-I, permanent transfer or disposal of business assets where input tax credit has been availed on such assets shall constitute a supply under GST even where no consideration is involved.

 

Q 12. Whether provision of service or goods by a club or association or society to its members will be treated as supply or not?

 

Ans. Yes. Provision of facilities by a club, association, society or any such body to its members shall be treated as supply. This is included in the definition of ‘business’ in section 2(17) of CGST/SGST Act. Q 13. What are the different types of supplies under the GST law? Ans. (i) Taxable and exempt supplies. (ii) Inter-State and Intra-State supplies, (iii) Composite and mixed supplies and (iv) Zero rated supplies. Q

 

  1. What are inter-state supplies and intra-state supplies?

 

Ans. Inter-state and intra-state supplies have specifically been defined in Section 7(1), 7(2) and 8(1), 8(2) of the IGST Act respectively. Broadly, where the location of the supplier and the place of supply are in same state it will be intrastate and where it is in different states it will be inter-state supplies.

 

Q 15. Whether transfer of right to use goods will be treated as supply of goods or supply of service? Why?

 

Ans. Transfer of right to use goods shall be treated as supply of service because there is no transfer of title in such supplies. Such transactions are specifically treated as supply of service in Schedule-II of CGST/SGST Act.

 

Q 16. Whether Works contracts and Catering services will be treated as supply of goods or supply of services? Why?

 

Ans. Works contracts and catering servicesshall be treated as supply of services as both are specified under Sl. No. 6 (a) and (b) in Schedule-II of the model GST law.

 

Q 17. Whether supply of software would be treated as supply of goods or supply of services under GST law?

 

Ans. Development, design, programming, customization, adaptation, upgradation, enhancement, implementation of information technology software shall be treated as supply of services as listed in Sl. No. 5 (2)(d) of Schedule –II of the model GST law.

 

Q 18. Whether goods supplied on hire purchase basis will be treated as supply of goods or supply of services? Why?

 

Ans. Supply of goods on hire purchase shall be treated as supply of goods as there is transfer of title, albeit at a future date.

 

Q 19. What is a Composite Supply under CGST/ SGST/UTGST Act?

 

Ans. Composite Supply means a supply made by a taxable person to a recipient comprising two or more supplies of goods or services, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply. For example, where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is the principal supply. Q

 

  1. How will tax liability on a composite supply be determined under GST?

 

Ans. A composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply.

 

Q 21. What is a mixed supply?

 

Ans. Mixed Supply means two or more individual supplies of goods or services or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply. For example, a supply of package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drink and fruit juice when supplied for a single price is a mixed supply. Each of these items can be supplied separately and it is not dependent on any other. It shall not be a mixed supply if these items are supplied separately.

 

Q 22. How will tax liability on a mixed supply be determined under GST?

 

Ans. A mixed supply comprising two or more supplies shall be treated as supply of that particular supply which attracts the highest rate of tax.

 

Q 23. Are there any activities which are treated as neither a supply of goods nor a supply of services?

 

Ans. Yes. Schedule-III of the model GST law lists certain activities such as (i) services by an employee to

the employer in the course of or in relation to his employment, (ii) services by any Court or Tribunal established under any law, (iii) functions performed by members of Parliament, State Legislatures, members of the local authorities, Constitutional functionaries (iv) services of funeral, burial, crematorium or mortuary and (v) sale of land and (vi), actionable claims other than lottery, betting and gambling shall be treated neither a supply of goods or supply of services.

 

Q 24. What is meant by zero rated supply under GST?

 

Ans. Zero rated supply means export of goods and/or services or supply of goods and/or services to a SEZ developer or a SEZ Unit.

 

Q 25. Will import of services without consideration be taxable under GST?

 

Ans. As a general principle, import of services without consideration will not be considered as supply under GST in terms of Section 3. However, import of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business, even without consideration will be treated as supply in terms of Sl. No.4 of Schedule I. **** 5. Time of Supply

 

 

Some FAQs on Time of Supply

 

Q 1. What is time of supply?

 

Ans. The time of supply fixes the point when the liability to charge GST arises. It also indicates when a supply is deemed to have been made. The CGST/SGST Act provides separate time of supply for goods and services.

 

Q 2. When does the liability to pay GST arise in respect of supply of goods and Services?

 

Ans. Section12 & 13 of the CGST/SGST Act provides for time of supply of goods. The time of supply of goods shall be the earlier of the following namely, (i) the date of issue of invoice by the supplier or the last date on which he is required under Section 31, to issue the invoice with respect to the supply; or (ii) the date on which the supplier receives the payment with respect to the supply.

 

 

Q 3. What is time of supply in case of supply of vouchers in respect of goods and services?

 

Ans. The time of supply of voucher in respect of goods and services shall be; a) the date of issue of voucher, if the supply is identifiable at that point; or b) the date of redemption of voucher in all other cases.

 

Q 4. Where it is not possible to determine the time of supply in terms of sub-section 2, 3, 4of Section 12 or that of Section 13 of CGST/SGST Act, how will time of supply be determined?

 

Ans. There is a residual entry in Section 12(5) as well as 13 (5) which says that if periodical return has to be filed, then the due date of filing of such periodical return shall be the time of supply. In other cases, it will be the date on which the CGST/SGST/IGST is actually paid.

 

Q 5. What does “date of receipt of payment” mean?

 

Ans. It is the earliest of the date on which the payment is entered in the books of accounts of the supplier or the date on which the payment is credited to his bank account.

 

Q 6. Suppose, part advance payment is made or invoice issued is for part payment, whether the time of supply will cover the full supply?

 

Ans. No. The supply shall be deemed to have been made to the extent it is covered by the invoice or the part payment.

 

Q 7. What is the time of supply of goods in case of tax payable under reverse charge?

 

Ans. The time of supply will be the earliest of the following dates: a) date of receipt of goods; or b) date on which payment is made; or c) the date immediately following 30 days from the date of issue of invoice by the supplier.

 

Q 8. What is the time of supply of service in case of tax payable under reverse charge?

 

Ans. The time of supply will be the earlier of the following dates: a) date on which payment is made; or b) the date immediately following sixty days from the date of issue of invoice by the supplier.

 

Q 9. What is the time of supply applicable with regard to addition in the value by way of interest, late fee or penalty or any delayed payment of consideration?

 

Ans. The time of supply with regard to an addition in value on account of interest, late fee or penalty or delayed consideration shall be the date on which the supplier received such additional consideration.

 

Q 10. Is there any change in time of supply, where supply is completed prior to or after change in rate of tax?

 

Ans. Yes. In such cases provisions of Section 14 will apply.

 

Q 11. What is the time of supply, where supply is completed prior to change in rate of tax?

 

Ans. In such cases time of supply will be (i) where the invoice for the same has been issued and the payment is also received after the change in rate of tax, the time of supply shall be the date of receipt of payment or the date of issue of invoice, whichever is earlier; or (ii) where the invoice has been issued prior to change in rate of tax but the payment is received after the change in rate of tax, the time of supply shall be the date of issue of invoice; or (iii) where the payment is received before the change in rate of tax, but the invoice for the same has been issued after the change in rate of tax, the time of supply shall be the date of receipt of payment;

 

Q 12. What is the time of supply, where supply is completed after to change in rate of tax?

 

Ans. In such cases time of supply will be (i) where the payment is received after the change in rate of tax but the invoice has been issued prior to the change in rate of tax, the time of supply shall be the date of receipt of payment; or (ii) where the invoice has been issued and the payment is received before the change in rate of tax, the time of supply shall be the date of receipt of payment or date of issue of invoice, whichever is earlier; or (iii) where the invoice has been issued after the change in rate of tax but the payment is received before the change in rate of tax, the time of supply shall be the date of issue of invoice

 

Q 13. Let’s say there was increase in tax rate from 18% to 20% w.e.f.1.6.2017. What is the tax rate applicable when services provided and invoice issued before change in rate in April 2017, but payment received after change in rate in June2017?

 

Ans. The old rate of 18% shall be applicable as services are provided prior to 1.6.2017.

 

Q 14. Let’s say there was increase in tax rate from 18% to 20% w.e.f. 1.6.2017. What is the tax rate applicable when goods are supplied and invoice issued after change in rate in June 2017, but full advance payment was already received in April 2017?

 

Ans. The new rate of 20% shall be applicable as goods are supplied and invoice issued after 1.6.2017

 

Q 15. What is the time period within which invoice has to be issued for supply of Goods?

 

Ans. As per Section 31 of CGST/SGST Act a registered taxable person shall issue a tax invoice showing description, quantity and value of goods, tax charged thereon and other prescribed particulars, before or at the time of (a) removal of goods for supply to the recipient, where supply involves movement of goods or (b) delivery of goods or making available thereof to the recipient in other cases.

 

Q 16. What is the time period within which invoice has to be issued for supply of Services?

 

Ans. As per Section 31 of CGST/SGST Act a registered taxable person shall, before or after the provision of service, but within a period prescribed in this behalf, issue a tax invoice showing description, value of goods, tax payable thereon and other prescribed particulars.

 

Q 17. What is the time period within which invoice has to be issued in a case involving continuous supply of goods?

 

Ans. In case of continuous supply of goods, where successive statements of accounts or successive payments are involved, the invoice shall be issued before or at the time each such statement is issued or, as the case may be, each such payment is received.

 

Q 18. What is the time period within which invoice has to be issued in a case involving continuous supply of services?

 

Ans. In case of continuous supply of services, (a) where the due date of payment is ascertainable from the contract, the invoice shall be issued before or after the payment is liable to be made by the recipient but within a period prescribed in this behalf whether or not any payment has been received by the supplier of the service; (b) where the due date of payment is not ascertainable from the contract, the invoice shall be issued before or after each such time when the supplier of service receives the payment but within a period prescribed in this behalf; (c) where the payment is linked to the completion of an event, the invoice shall be issued before or after the time of completion of that event but within a period prescribed in this behalf.

 

Q 19. What is the time period within which invoice has to be issued where the goods being sent or taken on approval for sale?

 

Ans. The invoice in respect of goods sent or taken on approval for sale or return shall be issued before or at the time of supply or six months from the date of approval, whichever is earlier. 6. Valuation in GST

 

 

 

 

 

VALUE OF TAXABLE SUPPLY

 

 

Q 1. What is the value of taxable supply to be adopted for the levy of GST?

 

Ans. The value of taxable supply of goods and services shall ordinarily be ‘the transaction value’ which is the price paid or payable, when the parties are not related and price is the sole consideration. Section 15 of the CGST/SGST Act further elaborates various inclusions and exclusions from the ambit of transaction value. For example, the transaction value shall not include refundable deposit, discount allowed subject to certain conditions before or at the time of supply.

 

Q 2. What is transaction value?

 

Ans. Transaction value refers to the price actually paid or payable for the supply of goods and or services where the supplier and the recipient are not related and price is the sole consideration for the supply. It includes any amount which the supplier is liable to pay but which has been incurred by the recipient of the supply.

 

Q 3. Are there separate valuation provisions for CGST, SGST and IGST and for Goods and Services?

 

Ans. No, section 15 is common for all three taxes and also common for goods and services.

 

Q 4. Is contract price not sufficient to determine valuation of supply?

 

Ans. Contract price is more specifically referred to as ‘transaction value’ and that is the basis for

computing tax. However, when the price is influenced by factors like relationship of parties or where certain transactions are deemed to be supply, which do not have a price, the value has to be determined in accordance with the GST Valuation Rules.

 

Q 5. Is reference to GST Valuation Rules required in all cases?

 

Ans. No. Reference to GST Valuation Rules is required only in cases where value cannot be determined under subsection (1) of Section 15.

 

Q 6. Can the transaction value declared under section 15(1) be accepted?

 

Ans. Yes, it can be accepted after examining for inclusions in section 15(2). Furthermore, the transaction value can be accepted even where the supplier and recipient are related, provided the relationship has not influenced the price.

 

Q 7. Whether post-supply discounts or incentives are to be included in the transaction value?

 

Ans. Yes. where the post-supply discount is established as per the agreement which is known at or before the time of supply and where such discount specifically linked to the relevant invoice and the recipient has reversed input tax credit attributable to such discount, the discount is allowed as admissible deduction under Section 15 of the model GST law.

 

Q 8. Whether pre-supply discounts allowed before or at the time of supply are includible in the transaction value?

 

Ans. No, provided it is allowed in the course of normal trade practice and has been duly recorded in the invoice.

 

Q 9. When are the provisions of the Valuation Rules applicable?

 

Ans. Valuation Rules are applicable when (i) consideration either wholly or in part not in money terms; (ii) parties are related or supply by any specified category of supplier; and (iii) transaction value declared is not reliable.

 

Q 10. What are the inclusions specified in Section 15(2) which could be added to Transaction Value?

 

Ans. The inclusions specified in Section15 (2) which could be added to transaction value are as follows: a) Any taxes, duties, cesses, fees and charges levied under any statute, other than the SGST/CGST Act and the Goods and Services Tax (Compensation to the States for Loss of Revenue) Act, 2016, if charged separately by the supplier to the recipient; b) Any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods and/or services; c) Incidental expenses, such as commission and packing, charged by the supplier to the recipient of a supply, including any amount charged for anything done by the supplier in respect of the supply of goods and/or services at the time of, or before delivery of the goods or as the case may be supply of the services; d) Interest or late fee or penalty for delayed payment of any consideration for any supply; and e) Subsidies directly linked to the price excluding subsidies provided by the Central and State Government.