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E newsletter july 2011

  1. 1. The LearningP rofessionals Newsletter July 2011 / Volume 1[Type text] Page 1
  2. 2. Learning Professionals e-Newsletter Visit: www.lpguide.wordpress.comEditor’s MEssagE -I feel extremely gratified in communicating withthe readers through the medium of “The LearningProfessionals Newsletter”. The LP Guide Blog i.e. Editors:-lpguide.wordpress.com was started on 1st of Junethis year and in the month with the support of its Rohit Muchhalmembers issued its first eNewsletter in the same Jay Raithathamonth.At the outset, I would first felicitate and convey Ankit Agarwalmy greetings to the CA Fraternity associated withthe blog or the readers on the auspicious occasion Hari Krishanof CA Day, which is observed every year on 1st ofJuly. I would also like to convey my best wishes to CS Hena Srivastavathe examinees who just appeared for theirrespective examinations. May all shimmer with Avinash Jharesounding success.I will not dwell on stating the importance ofcommunication, updation, learning, exercising Visit and Join our Blog:-skill or to be brief the importance of carving outniche for own self as it is clear to all of us but I lpguide.wordpress.comwould definitely ponder upon The Learning Join our SMS Channel:-Professionals’ newsletter and its blog which areone of the medium, of course not only, through ON CSROCKERSwhich one can have an interface with otherlearners- professionals or would be professionals. to 9870807070It carries articles, academic updates, academicguidance and other relevant issues related toprofessional studies. Apart from these updatesyou would also get a platform to communicatewith other professionals and can actively take partin forum, blogs and chat around. Join Facebook Page:-I firmly believe that a real professional becomes an www.fb.com/lpguidearchitect of values through continuousdevelopment of skills, knowledge and proficiency. Disclaimer:-Let us seize the opportunities to position ourselvesas a high role to guiding the corporate. While every effort is made to ensure that the information contained withinIt is my humble request to all of you to utilize the this newsletter is correct, LP Guideforum at the optimum level. The more we Team is not responsible for the accuracy or otherwise of informationcontribute the more our writing skills get provided by the contributors.sharpened and the benefits of flow of language getmanifested during the exams load on theprofessional field. Page 2
  3. 3. Learning Professionals e-Newsletter Visit: www.lpguide.wordpress.com INDEX 1. Article Section :- Page 04 2. SEBI Updates :- Page 10 3. MCA Updates :- Page 12 4. RBI Updates:- Page 14 5. Indirect Tax Updates :- Page 16 6. Service Tax Updates:- Page 18 7. Direct Tax Updates:- Page 20 8. IFRS Updates:- Page 21 9. Post in our blog this month :- Page 22 Page 3
  4. 4. Learning Professionals e-Newsletter Visit: www.lpguide.wordpress.com ARTICLE – THIS MONTHAN INSIGHT TO IFRS:WHY WE NEED IT AND IF WE NEED WHY IT IS DELAYED By Rohit Muchhal, CA FinalIn the field of Accounting, we are expected to start a new reporting procedure coined as IFRS. It was to beapplicable from 1st April 2011 but current status is not known but of course not from April 2011 which wasdecided earlier by the Ministry. I do not pretend to be an expert in the field of IFRS. I however, being a CharteredAccountant Student, love this subject and it is my attempt to have glimpses of the journey of IFRS and pros andcons and why it’s yet a bane to implement.HISTORY AND DEVELOPMENTAll of us have studied, in the 11th standard only, the golden rules of bookkeeping, leading us to various types ofaccounts. Through the medium of real, personal and nominal accounts, we have also learnt the basis ofpreparation of ledger account, periodical trial balance, profit & loss account and a balance sheet.The earliest evidence of present-day bookkeeping was traced back some 800 years, to an Italian Banker. TheItalian monk Luca Paciolo is said to have time documented these bookkeeping principles. He did not claim to be anoriginator or an author of the system, but only a describer of a practice to write the books of accounts. Even thebook (i.e. ‘Summa’) that documents this ‘Bookkeeping’ is a book on mathematics, containing some 36 chapters onbookkeeping and accounts. Since it is a part of a book on mathematics, the present golden rules of bookkeepinghave been expressed in the said book in the form of algebraic equations and not in descriptive narration. Sinceevery business transaction has a two-way effect, it was easy to put it in the form of an algebraic equation. It isrightly said, mathematics is the mother of all sciences. The brief history of origin of bookkeeping emphasises that: (a) Certain principles are fundamental and are not subject to the normal notion of ‘Change’. (b) IFRS is making a sincere attempt to make the figures of P & L A/c and Balance Sheet more mathematics-based and avoiding hypothetical figures based on assumptions. It involves a lot of valuation, but again the valuation is based on mathematical modules. Primary object of the book keeping of as early as 800 years are not changed however what has changed over the year is the trade or commerce in the following aspects: (a) The nature of trade and commerce (b) The volume and value of trade (c) The geographical spread (d) Entities carrying on the business. (e) Number and groups of persons who need to know the results of operations. In early days transactions were important for the businessmen and tax computation was not there instead ad-hoc duties were there. No specific laws, no stakeholders’ activism, no geographical spread, no enterprises structure existed. Individuals existed only might be through a group for business in a mission to earn livelihood and not to acquire businesses, competition at large, mergers or acquisitions, etc. Radically business and book keeping i.e. just a recording of transactions changed to complex accounting system with the advent of machine in machine age, concern of shareholders’ money by shareholders and geographical spread. Stakeholders (the broader sense) became very active and always eager to put an eye into the business operations. Even the law changed radically to safeguard all in their respective interest and “true and fair view” word came into light. To help the industries Accounting Standards were formulated so as Page 4
  5. 5. Learning Professionals e-Newsletter Visit: www.lpguide.wordpress.com to tackle and guide uniformly on the light of transactions/situations and now with the diversified business operations similar Accounting Systems are also required.WHAT ARE ACCOUNTING STANDARDSAccounting standards are authoritative statement on how transactions are to be recorded and disclosed in thefinancial statements. They ensure uniformity amongst the various entities of the readers of financial statements.The compliance to standards is mandatory as per Section 211 to the Companies Act, 1956 to ensure that theaccounts are true and fair.This uniformity is now proposed to be spread from local boundaries to across the world with the advent of singleglobal accounting standard, namely, IFRS.INTRODUCTION TO IFRSIFRSs are adopted by the International Accounting Standards Board (IASB), the independent standard-setting bodyof the International Accounting Standards Committee Foundation (IASC Foundation).More than 100 countries now require or permit the use of IFRSs or are converging with the InternationalAccounting Standards Board’s (IASB) standards. EU recognised IFRS in 2005 and the SEC has in its announcementon November 2007 permitted IFRS without reconciliation with US GAAP for non-US companies. It is also proposedthat soon U.S. will also adopt IFRS within coming few years.Many of the accounting standards forming part of the IFRS are known by the earlier name of InternationalAccounting Standards (IAS), which were issued between 1973 and 2001 by the board of International AccountingStandards Committee (IASC). In April 2001, IASB adopted all IAS and continued their development calling newstandards as IFRS which consist of:  IFRS standards issued after 2001 (Total- 9)  IAS standards issued before 2001(Total- 29)  Interpretations by International financial Reporting Interpretations Committee (IFRIC) (Total- 16) and,  Standing Committee Interpretations (SIC) issued before 2001(Total- 21) Thus, total 38 standards and 27 interpretations.Financial statements under IFRS:Under IFRS the financial statements would comprise:  Statement of financial position as at end of the period and comparatives (Statement of changes in equity for the period),  Statement of comprehensive income for the period,  Statement of cash flow for the period  Notes, comprising a summary of significant accounting policies and other explanatory informationINDIAN INITIATIVE TOWARDS IFRSThe Institute of Chartered Accountants of India (ICAI) has issued a ‘Concept paper on convergence with IFRS inIndia’ in October 2007. The document lays down the convergence strategy. The roadmap of convergence wereissued and was likely to start its implementation from April 2011 but its certainly not possible as still lot ofquestions are yet unanswered.As envisaged, India has finally chosen to converge with IFRS, as opposed to adopting IFRS on the pretext thatIndian regulators and standard-setters will review the existing IFRS standards and their applicability in Indiancontext and will issue converged accounting standards called as Ind-AS. Recently MCA had notified the 35 IndAS(IFRS) though the date of implementation is yet to be notified.The final journey has just begun and we are already seeing deviations in new standards and we don’t know howfar or near we will be from IFRS though MCA have issued the text of Ind AS. Page 5
  6. 6. Learning Professionals e-Newsletter Visit: www.lpguide.wordpress.comKEY DIFFERENCES BETWEEN IFRS AND INDIAN GAAP  The adoption of IFRS affects more than a company’s accounting policies, processes, and people. Ultimately, most aspects of a company’s business and operations are affected potentially.  IFRS is a principle-based approach to standard-setting. It is less reliant on bright lines and detailed rules as compared to the US GAAP.  At various places IFRS provides scope of judgment and requires information to be presented on the basis of substance rather than rule. For example, redeemable preference shares may be treated as liability and convertible debentures as equity.  While applying IFRS, usage by an investor is kept in mind and requirement of the law and management takes a backseat. For example, in case of the business combination the acquirer under IFRS could be different than the legal acquirer (like in case of reverse merger for tax benefit or other purposes).  Financial statements under IFRS place more reliance on the management estimate. For example, in case of depreciation of assets this, under IFRS, would have to be based on estimated useful life as against the present Indian requirement to follow Schedule XIV of the Companies Act, 1956.  The fair value concept is embodied in many of the IFRS (like IAS 30 on Financial Instruments, IAS 40 Investment Property, etc.). The concept of fair value poses several issues on valuation, valuation models and accuracy and reliability of the same for the purpose of accounting and presentation.  Major overhauling cost for fixed assets which can be capitalised under IFRS (provided it meets certain criteria) as against the present requirement to expense out the same  Inventory for service organisation for work which is in progress (already covered by proposed Indian Accounting Standard)  Prior period items to be given effect retrospectively in opening equity  Proposed dividend is not required to be reflected in financial statements under IFRS  Under IFRS, provision made for dismantling of asset or for site closure can be capitalised  Under IFRS, EPS to be disclosed separately for continuing and discontinuing operations, etc. CHALLENGES UNDER IFRS  Joint ventures : Consolidation proportionate or otherwise may become an issue. Consolidation method may impact the structure of new arrangements.  Debt/equity : Possible reclassification of preference shares as liabilities  Subsidiaries and associates : Different rules may impact the current treatment  Valuation : Greater use of fair value  Detailed hedge documentation, and ongoing effectiveness testing is required to achieve hedge accounting under IFRS  Embedded derivatives : Possible requirement to fair value components of other instruments, including long-term contracts  Contracting : Different rules will present different opportunities, challenges, management and accounting issues  Financial communications will have to address changes in presentation of financial information as well as fundamental change towards fair value accounting and its impacts on traditional ratios and performance indicators  Uncertainly about Income-tax Dept. response  Requires multi-disciplinary participation  Aiming at a moving target Page 6
  7. 7. Learning Professionals e-Newsletter Visit: www.lpguide.wordpress.com o Uncertain timetable for implementation o Uncertainty about final form of IFRSCONVERSION/CONVERGENCE TO IFRSThe conversion to IFRS will have to be managed like any other large-scale project. Sufficient time must beincorporated into project plan, proper resources must be ensured and all key players must be involved in criticaldecision-making. IFRS is more than an exercise for the accounting and finance department. Its impact is farreaching, affecting areas from internal control and sales to research and development.Typically the following three phases will be involved in convergence to IFRS: Stages Key focus points Pre-implementation  Formulation to detailed plan phase  Identifying key areas of difference between existing accounting policies and requirements of the IFRS  Understanding the implications  Educating/training the accounting team Transition phase  Make changes in the controls, process, business documentation/SOP  Map the existing systems, process, controls with IFRS and identify the impacted areas Post-implementation  Validation of changes made — this involves testing of high-risk areas for accuracy of phase systems and procedure  Continuous monitoring of IFRS regulatory changesIMPACT AND CONSIDERATIONS OUT OF IFRS  First-time adoption could be a heavy task and hence it is essential to ensure that proper care and diligence is exercised so that there are no spill-over impacts in subsequent periods. IFRS 1 deals exhaustively with the first-time adoption.  To ensure that the judgment, estimated and fair valuation concepts are not misused by the Management, lot of reliance would have to be placed on independent valuers.  Proper planning is required for transition to IFRS and hence to ensure that the company must have a proper road map/strategy and resources to migrate to IFRS.  Emphasis on transparent and exhaustive disclosure which would mean that the source of data, compilation process and methodology are more robust.  To ensure that the commercial colour of the transaction is correctly reflected in the accounting of the same.  More data analysis, narrative accounting and hence more qualitative accountants and more time will be required to review.  The taxation team will have to work closely with the accounts teams to examine IFRS impact. Since, there is no response yet from taxation department then of course Tax laws are to be followed for their compliance.  The CFO will need to focus on the underlying commercial nature of transactions and events. Other areas where more judgment is required include property, leases, revenue recognition, provisions and consolidation policy.  Convergence to IFRS will have an impact on the processes which lead to recording of a specific transaction and necessitate re-engineering of those process and related internal controls. Page 7
  8. 8. Learning Professionals e-Newsletter Visit: www.lpguide.wordpress.comIFRS would benefit all the users of financial statements. It would take accounting and financial reporting to a newlevel. However, it would in the initial years put too much burden on the preparers and reviewers of financialstatements.Lot of research and development is still under progress for various items like fair value, etc. and the evolvedversion would lead to better and more narrative financial statements.IFRS in India is an opportunity for Indian enterprises to be in line with the global companies and would in turn helpraise finances globally. It would be a boon to the accounting fraternity as it would expose them to internationalarena and would help service the global accounting market even now they are internationally honoured.The decision to converge and not to adopt IFRS gives the flexibility to carve out and or deviate from the accountingprinciples and policies in IFRS. The important question is to what extent we should use this flexibility. If, we makesignificant changes in IFRS using the flexibility, the new accounting standards will not be fully convergent with IFRSand the purpose of convergence will be lost. Our accounting practices will fall short of globally acceptedaccounting practices. Inflow of foreign capital may be affected adversely. Indian companies, that are listed in stockexchanges in USA, Europe and other countries, using accounting standards fully convergent with IFRS, will have toprepare two sets of financial statements.Moreover with tax authorities are still silent it appears that the converged accounting standards may not beacceptable for tax filings for next three to five years and till then the current Indian GAAP would be used for taxpurposes. This will ultimately result into three sets of financial statements being prepared by Indian companies.CONCLUSIONThe first decade of the 21st Century noticed severe expectation gap between the stakeholders and those whomanaged the business. Sarbanes-Oxley also played its part. Earlier business failures were also bothering everyoneand a need was felt to have a worldwide common accounting language, along with stringent corporategovernance provisions. Even the US agreed to modify its own earlier tough stand and accepted in principle theworldwide common accounting language and IFRS has now evolved. Our country has also accepted gradualintroduction of IFRS, to begin with, for listed companies. We the Chartered Accountants, in the interest of ourprofessional development, are required to accept them, study them and should take part in their properpresentation. There should be neither an ecstasy nor any agony in the use of a common language.Bookkeeping captured business transactions some 800 years back(as stated) through mathematical module andwe are once again through IFRS, embracing in a way a mathematical base for presentation based on what isknown as fair valuation. The truth is mathematics is pure, but mathematics can give many possible answers butthe truth. What has happened on Wall Street and everywhere in the present situation is all-round confusion,giving rise to a crisis which has given rise to erosion in confidence, leading to depression and doom. Hope so thatIFRS does not get caught by twisted mathematicians in the field of fair valuations. Certainty exist that India willsoon be IFRS compliant one, after all India is having a huge professional resource, though there are manydeviations or lacuna pointed through out to be IFRS-Compliant nation and again it is obvious that the Governmentand professional fraternity must be preparing themselves to find out the solution to the technical and the logicalproblem the nation is facing now.In any debate on convergence or adoption, India must first aspire to uphold the purity of IFRS and be fully IFRS-compliant nation and second it should take a stand that it has full belief in the proposed deviations as being thebest practices and then the confidence and conviction to influence the International Accounting Standards Board(IASB) through consensus about what it believes is right and the need to bring the requiredimprovement/amendments in IFRS rather than remaining as a carved-out nation. We cannot just take short-termlocal view rather we need to take long-term global view on IFRS. Page 8
  9. 9. Learning Professionals e-Newsletter Visit: www.lpguide.wordpress.com Visit and Join www.lpguide.wordpress.com and avail the following features:-  Discussion Board  Chat  Blogs  Updates  Updates through free SMS  Explanations and Implication of the Changes  Topic wise Summary and guidebook for the professional students  Share News with you  Interact with Professionals and other would be professionals Join our Facebook page: www.fb.com/lpguide Join our SMS Channel: & ON CSROCKERS to 9870807070 Page 9
  10. 10. Learning Professionals e-Newsletter Visit: www.lpguide.wordpress.com RELEVANT UPDATES – JUNE 2011 SEBI UpdateShareholding of promoter/promoter group to be in dematerialized mode17 June 2011 CIRCULAR NO. ISD/ 3/2011In order to further promote dematerialization of securities, encourage orderly development ofthe securities market and to improve transparency in the dealings of shares by promotersincluding pledge / usage as collateral, SEBI in consultation with Stock Exchanges, has decidedthat the securities of companies shall be traded in the normal segment of the exchange if andonly if, the company has achieved 100% of promoters and promoter groups shareholding indematerialized form latest by the quarter ended September 2011 as reported to the stockexchanges. In all cases, wherein the companies do not satisfy the above criteria, the trading insecurities of such companies shall take place in trade for trade segment.SIMILALRY, SEBI has also amended Grant of prior approval to registrars to an issue and sharetransfer agents and merchant bankersChange of Name by Listed Companies16 June 2011CIRCULAR NO. MRD/DP/07/2011All listed companies seeking change of name to comply inter alia with the following provision:- At least 50 per cent of its total revenue in the preceding 1 year period should have beenaccounted for by the new activity suggested by the new nameOrThe amount invested in the new activity/project (Fixed Assets + Advances + Works-in-Progress) is at least 50 per cent of the assets of the company. The Advances shall include onlythose extended to contractors and suppliers towards execution of project, specific to newactivity as reflected in the new name.To confirm the compliance of the aforesaid provision 2.2, the company shall submit auditorscertificate to the exchange.Standardisation of Rating Symbols and Definitions15 June 2011CIR/MIRSD/4/2011Considering the international practices, standardised symbols and their definitions have beendevised for the following:a) Long term debt instruments;b) Short term debt instruments;c) Long term structured finance instruments;d) Short term structured finance instruments;e) Long term mutual fund schemes; andf) Short term mutual fund schemes. Page 10
  11. 11. Learning Professionals e-Newsletter Visit: www.lpguide.wordpress.comProcessing of investor complaints against listed companies in SEBI Complaints Redress System(SCORES)03 June 2011CIR/OIAE/2/2011This has the following salient features:• Complaints and reminders thereon are lodged online at anytime from anywhere;• An email is generated instantaneously acknowledging the receipt of the complaint andallotting a unique complaint registration number for future reference and tracking;• The complaint moves online to the entity (intermediary or listed company) concerned for itsredressal;• The entity concerned uploads an Action Taken Report (ATR) on the complaint;• SEBI peruses the ATR and disposes of the complaint if it is satisfied that the complaint hasbeen redressed adequately;• The concerned investor can view the status of the complaint online;• The entity concerned and the concerned investor can seek and provide clarification(s) onlineto each other;• The life cycle of a complaint has an audit trail; and• All the complaints are saved in a central database which would generate relevant MIS reportsto enable SEBI to take appropriate policy decisions and or remedial actions.Liquidity enhancement schemes for illiquid securities in equity derivatives segmentJune 2011CIR/D1NPD/5/20102In consultation with BSE, MCX-SX, NSE and USE, it has been decided to permit StockExchanges to introduce one or more liquidity enhancement schemes (LES) to enhance liquidityof illiquid securities in their equity derivatives segments.The LES can be introduced in any of the following securities:a. New securities permitted on the Stock Exchange after the date of this circular,b. Securities in case of a new Stock Exchange / new Segment, andc. Securities where the average trading volume for the last 60 trading days on the StockExchange is less than 0.1% of market capitalization of the underlying.In consultation with BSE, MCX-SX, NSE and USE, it has been decided to permit StockExchanges to introduce one or more liquidity enhancement schemes (LES) to enhance liquidityof illiquid securities in their equity derivatives segments.Visit for complete details : http://lpguide.wordpress.com/2011/06/24/liquidity-enhancement-schemes-for-illiquid-securities-in-equity-derivatives-segment/Modification to Investor Protection Fund (IPF)/ Customer Protection Fund (CPF) GuidelineCIRCULAR NO. MRD/DP/06/2011Exemptions have been sought by Stock Exchanges from strict compliance with Clause 24 of theAnnexure to Circular dated October 28, 2004 on the ground that the residual amount remainingafter satisfaction of claims against the defaulting broker should be refunded to the broker andnot credited to the IPF/CPF. SEBI hence amended the clause with a view to harmonise thepractices followed by various exchanges to meet investor claims. For Details visit:http://lpguide.wordpress.com/2011/06/20/modification-to-investor-protection-fund-ipf-customer-protection-fund-cpf-guidelines/ Page 11
  12. 12. Learning Professionals e-Newsletter Visit: www.lpguide.wordpress.comPeriodical report- Grant of prior approval to underwriters17 June 2011, CIRCULAR NO. MIRSD/6/2011SEBI (Underwriters) Regulations, 1993, have been amended vide Notification No. LAD-NRO/GN/2011-12/03/12650, dated April 19.With the said amendment, the requirement oftaking prior approval by the underwriters from SEBI for change in status or constitution hasbeen dispensed with. However, the underwriters are required to take prior approval from SEBIfor change in control. Pursuant to the aforesaid notification, all underwriters shall report thefollowing change(s) to SEBI on a half-yearly basis within 15 days of expiry of the half-year,commencing from the half-year ended September 30, 2011.If there is no change during therelevant half-year, it shall be indicated in the report.Grant of prior approval to Depository ParticipantsCIR/MIRSD/9/2011 dt June 17, 2011With this amendment, Depositary Participant would be required to take prior approval fromSEBI for change in control.SIMILARLY FOR DEBENTURE TRUSTEE, CREDIT RATING AGENCY, BANKERS TO AN ISSUE &MECHANT BANKERS. MCA UpdateCompanies (Amendment) Regulations, 201114 June 2011G.S.R. (E).Power of RDs under Section 25 and Section 609(2) has been extended and clarified.Guidelines for declaring financial institution as Public Financial Institution under Section 4A ofthe Companies Act, 195602 June 2011General Circular No 34/2011Now, the Central Government has framed following criteria for declaring any financialinstitution as PFI under section 4A of the Companies Act, 1956:—(a) A company or corporation should be established under a special Act or the Companies Actbeing Central Act;(b) Main business of the company should be industrial/ infrastructural financing; (c) The company must be in existence for at least 3 years and their financial statement shouldshow that their income from industrial/infrastructural financing exceeds 50 per cent of theirincome;(d) The net-worth of the company should be Rs. one thousand crore; Page 12
  13. 13. Learning Professionals e-Newsletter Visit: www.lpguide.wordpress.com (e) Company is registered as Infrastructure Finance Company (IFC) with RBI or as an HousingFinance Company (HFC) with National Housing Bank; (f) In the case of CPSUs/SPSUs, no restriction shall apply with respect to financing specificsector(s) and net-worth.Guidelines for Fast Track Exit mode for defunct companies under section 560 of the CompaniesAct, 195607 June 2011General Circular No. 36/2011 In order to give an opportunity for fast track exit by a defunct company, for getting its namestruck off from the register of companies, the Ministry has decided to modify the existing routethrough e-form – 61 and has prescribed the new Guidelines. The Guidelines for “Fast Track Exitmode” for defunct companies under section 560 of the Companies Act, 1956 are enclosedherewith. These Guidelines will be implemented w.e.f. 3rd July, 2011By 30th June, 2011 on proposed new rules namely Companies (Dematerialization of Certificates)Rules, 201106 June 2011No 17/143/2011-CL.VThe Ministry of Corporate Affairs is considering to issue Companies (Dematerialization ofCertificates) Rules, 2011 so that all public Companies and their subsidiaries which have raisedmoney by issue of shares, debentures, by accepting public deposits, stock, bond or anyother financial instruments from public, other than from directors of the company, shall berequired to issue and keep such share certificates, debenture certificates and certificates issuedfor receipt of deposits, stock, bond or any other financial instruments in dematerialized formonly, in the manner prescribed in the Depositories Act, 1996Clarification regarding participation by shareholders or Directors in meetings under theCompanies Act,1956 through Electronic mode06 June 2011General Circular No. 35/2011Green Initiatives in the Corporate Governance-Clarification regarding participation byshareholders or Directors in meetings under the Companies Act,1956 through Electronic mode.In respect of shareholders meetings to be held during financial year 2011-12, video conferencingfacility for shareholders is optional. Thereafter, it is mandatory for all listed companiesThe Companies (Cost Accounting Records) Rules, 2011June 03 2011NotificationThe Companies (Cost Accounting Records) Rules, 2011 Dated 03-06-2011Companies Director Identification Number (Second Amendment) Rules, 201102 June 2011NotificationSpecial Drive to clear pendency of e-forms filed with Registrar of Companies prior toimplementation of revised Regulation 17 of the Companies Regulation, 1956 Page 13
  14. 14. Learning Professionals e-Newsletter Visit: www.lpguide.wordpress.com RBI UpdateEnhancement of Rates of Provisioning for Non-Performing Assets and Restructured Advances1.Sub-Standard Advances :Advances classified as “sub-standard” will attract a provision of 15 per cent as against theexisting 10 per cent. The “unsecured exposures” classified as sub-standard assets will attract anadditional provision of 10 per cent, i.e., a total of 25 per cent as against the existing 20 per cent.However, “unsecured exposures” in respect of Infrastructure loan accounts classified as sub-standard, in case of which certain safeguards such as escrow accounts are available as indicatedin our circular DBOD.No.BP.BC.96/08.12.014/2009-10 dated April 23, 2010, will attract anadditional provision of 5 per cent only i.e. a total of 20 per cent as against the existing 15 percent.2. Doubtful Advances :Doubtful Advances will continue to attract 100% provision to the extent the advance is notcovered by the realisable value of the security to which the bank has a valid recourse and therealisable value is estimated on a realistic basis. However, in respect of the secured portion,following provisioning requirements will be applicable:The secured portion of advances which have remained in “doubtful” category up to one yearwill attract a provision of 25 per cent (as against the existing 20 per cent);The secured portion of advances which have remained in “doubtful” category for more thanone year but upto 3 years will attract a provision of 40 per cent (as against the existing 30 percent); and the secured portion of advances which have remained in “doubtful” category formore than 3 years will continue to attract a provision of 100%.Inclusion of the “Sberbank” in the Second Schedule to the Reserve Bank of India Act, 193401 June 2011RBI/2010-11/553Remittance of assets by foreign nationals - Opening of NRO Accounts09 June 2011A.P. (DIR Series) Circular No. 70The foreign nationals employed in India holding valid visas are eligible to maintain residentaccounts with an Authorised Dealer Category - I (AD Category-I) bank in India. The ADCategory-I banks are required to close the resident accounts of such foreign nationals on theirleaving the country and transfer their assets to their accounts maintained abroad. When aperson resident in India leaves India for a country (other than Nepal or Bhutan) for taking upemployment, or for carrying on business or vocation outside India or for any other purposeindicating her / his stay outside India for an uncertain period, her / his existing account shouldbe designated as a Non-Resident (Ordinary) [NRO] Account.AD Category-I bank should obtain the full details from the account holder about his legitimatedues expected to be received into his account. There should not be any other inflow / credit tothis account other than this. The funds credited to the NRO account should be repatriatedabroad immediately, subject to the AD Category-I bank satisfying itself regarding the paymentof the applicable Income tax and other taxes in India. The amount repatriated abroad should Page 14
  15. 15. Learning Professionals e-Newsletter Visit: www.lpguide.wordpress.comnot exceed USD one million per financial year. The debit to the account should be only for thepurpose of repatriation to the account holder’s account maintained abroad.Prudential Guidelines on Restructuring of Advances by Banks10 June 2011RBI/2010-11/ 561Banks were advised that if due to lack of expertise / appropriate infrastructure, they find itdifficult to ensure computation of diminution in the fair value of advances extended by theirsmall / rural branches, they will have the option of notionally computing the amount ofdiminution in the fair value and providing therefore at five percent of the total exposure inrespect of all restructured accounts where the total dues are less than rupees one crore till thefinancial year ending March 2011. It was also advised that the position would be reviewedthereafter. On a review, it has been decided that the above alternative option of computingdiminution in the fair value of advances extended by small and rural branches on restructuringwill remain applicable for another two years, i.e. till the financial year ending March 31, 2013.Pre- funded instruments / Electronic fund transfers09 June 2011 CIR/MIRSD/03/2011While receiving funds from the clients through pre-funded instruments, such as, Pay Order,Demand Draft, Banker’s cheque, etc., it is observed that the stock brokers are unable tomaintain an audit trail of the funds so received, as the details of the name of the client and bankaccount-number are not mentioned on such instruments. This may result in flow of third partyfunds / unidentified money, which is not in accordance with the provisions of the aforesaidcircular and also affects the integrity of the securities market.Therefore, with a view to address the aforesaid concerns, it has been decided in consultationwith the major stock exchanges and associations of stock brokers, as under:a. If the aggregate value of pre-funded instruments is ` 50,000/- or more, per day per client, thestock brokers may accept the instruments only if the same are accompanied by the name of thebank account holder and number of the bank account debited for the purpose, duly certified bythe issuing bank. The mode of certification may include the following:i. Certificate from the issuing bank on its letterhead or on a plain paper with the seal of theissuing bank.ii. Certified copy of the requisition slip (portion which is retained by the bank) to issue theinstrument.iii. Certified copy of the passbook/bank statement for the account debited to issue theinstrument.iv. Authentication of the bank account-number debited and name of the account holder by theissuing bank on the reverse of the instrument.b. Maintain an audit trail of the funds received through electronic fund transfers to ensure thatthe funds are received from their clients only. Page 15
  16. 16. Learning Professionals e-Newsletter Visit: www.lpguide.wordpress.comOTHER RELEVANT NOTIFICATIONSParticulars Notification & DatesRetail Electronic Payment Systems – NEFT / NECS / 02 June 2011RBI/2010-11/559RECS / ECS – Levy of Processing ChargesOpening of Branch/Subsidiary/Joint 14 June 2011RBI/2010-Venture/Representative Office or Undertaking 11/566Investment Abroad by NBFCsFindings of Forensic Scrutiny - Guidelines for 31 May 2011RBI/2010-11/555prevention of fraudsReporting of Offshore Derivative Instruments(ODIs)/ 15 JuneParticipatory Notes(PNs) activity 2011CIR/IMD/FII&C/7/2011Redemption of Indian Depository Receipts (IDRs) 03 Juneinto Underlying Equity Shares 2011CIR/CFD/DIL/3/2011Overseas Direct Investment-Liberalisation and 29 JuneRationalism RBI/2010-11/584FDI- Issue of Equity Shares under the FDI Scheme 30 Juneallowed under the Government route RBI/2010-11/586 INDIRECT TAX UpdateCBEC amends tariff value of brass scrap15 June 2011Notification No. 38/2011 - Customs (N. T.)7404 00 22 --- Brass Scrap (all grades) --- Tariff value US $ (Per Metric Tonne) 4323Regarding constitution of Committees to advise the authority for writing off of arrears ofCentral Excise duty and Customs duty01 June 2011Circular No. 946/07/2011It has been decided by the Board to constitute three - member Committees of ChiefCommissioners and Commissioners, which will examine the proposals for write – off ofirrecoverable arrears and recommend deserving cases to the authority competent to order suchwrite – off.Notification related to Diesel and cinematographic film25th June, 2011 Notification No. 33/2011-Central ExciseIn the said notification, in the Table,- Page 16
  17. 17. Learning Professionals e-Newsletter Visit: www.lpguide.wordpress.com(i) against S. No. 19, against item (i) occurring in column (3), for the entry in column (4), theentry “Nil” shall be substituted.(ii) for S.No.73A and the entries relating thereto, the following S.No.37 and entries shall besubstituted, by Colour positive unexposed cinematographic film in rolls of any size and lengthand colour negative unexposed cinematographic film in rolls of 400 feet and 1000 feetNotification related to Crude,Diesel, petrol and petroleum product25 June 2011 Notification No.52/2011-CustomsIn the said notification, in the Table,-(i) after S. No 72A and the entries relating thereto, the following S. No. and entries shallbe inserted, namely:- (1) (2) (3) (4) (5) (6)“72B. 2710, 2711, All goods, other than goods 5% - -’’; 2712, 2713, mentioned at S. Nos. 72 A, 73, 2714 or 2715 74A,74B, 75 E, 76, 77A, 488A and 488B(ii) against S. No. 487, for the entry in column (4), the entry “Nil” shall be substituted;(iii) against S. No. 488A, for the entry in column (4), the entry “2.5%” shall be substituted;(iv) against S. No. 488B, for the entry in column (4), the entry “2.5%” shall be substituted;Regarding imposition of definitive anti-dumping duty on import of sewing machine needlesfrom China PRNotification No. 50/2011-CustomsHeading/Sub Country Country Producer Expor Duty Unit CurrencyHeading of Origin of exports ter Amount(2) (4) (5) (6) (7) (8) (9) (10)8452.30 China PR China PR Any Any 1,55,362 Per lakh Indian needles RupeeSeeks to amend Notification No.107/2008-Customs, dated the 6th October, 2008 so as toenhance the extent of Margin of Preference in respect of specified goods imported from LeastDeveloped Countries of South Asian Free Trade Agreement (SAFTA)Notification No. 49 /2011-CustomsAmendments in the notification of the Government of India in the Ministry of Finance(Department of Revenue), No.107/2008-Customs, dated the 6th October, 2008, published in theGazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 718 (E),dated the 6th October, 2008, namely:- in the Table, in column (4), for the entry “75%”, wherever it occurs, the entry “100%” shall besubstituted. Page 17
  18. 18. Learning Professionals e-Newsletter Visit: www.lpguide.wordpress.com Rate of Exchange or Conversion of each of the foreign currency w.e.f.01.07.2011 28 June 2011 Notification No. 41 /2011-Customs CBEC determines that the rate of exchange of conversion of each of the foreign currency specified in Schedule I & II into Indian currency. Refer www.lpguide.wordpress.com for further details. OTHER RELEVANT NOTIFICATIONS Particulars Notification reference Regarding centralised registration facility for recorded 03 June 2011 smart card manufacturers Notification No.14/ 2011 - Central Excise (N.T.) Bifurcating their excess Input Tax Credit by certain 14 June 2011 dealers No.F.6(86)/Policy/VAT/2011/170 -177 Framing of assessments under CST Act, 1956 Notice Date : 22 June 2011 Clarification on circular No 33/2011 dated 01.06.2011 Notice Date : 20 June 2011 SERVICE TAX Update CBEC came out with a circular clarifying certain issues pertaining to newly introduced services: Short Term Accommodation Service:Sl. Queries Clarification1. What is the relevance of declared tariff? Is the “Declared tariff” includes charges for all amenities tax required to be paid on declared tariff or provided in the unit of accommodation like furniture, actual amount charged? air-conditioner, refrigerators etc., but does not include any discount offered on the published charges for such unit. The relevance of ‘declared tariff’ is in determining the liability to pay service tax as far as short term accommodation is concerned. However, the actual tax will be liable to be paid on the amount charged i.e. declared tariff minus any discount offered. Thus if the declared tariff is Rs 1100/-, but actual room rent charged is Rs 800/-, tax will be required to be paid @ Page 18
  19. 19. Learning Professionals e-Newsletter Visit: www.lpguide.wordpress.com 5% on Rs 800/-.2. Is it possible to levy separate tariff for the It is possible to levy separate tariff for the same same accommodation in respect of accommodation in respect of a class of customers corporate/privileged customers and other which can be recognized as a distinct class on an normal customers? intelligible criterion. However, it is not applicable for a single or few corporate entities.3. Is the declared tariff supposed to include cost Where the declared tariff includes the cost of food or of meals or beverages? beverages, Service Tax will be charged on the total value of declared tariff. But where the bill is separately raised for food or beverages, and the amount is charged in the bill, such amount is not considered as part of declared tariff.4. What is the position relating to off-season When the declared tariff is revised as per the tourist prices? Will they be considered as declared season, the liability to pay Service Tax shall be only on tariff? the declared tariff for the accommodation where the published/printed tariff is above Rupees 1000/-. However, the revision in tariff should be made uniformly applicable to all customers and declared when such change takes place.5. Is the luxury tax imposed by States required For the purpose of service tax luxury tax has to be to be included for the purpose of determining excluded from the taxable value. either the declared tariff or the actual room rent? Services Provided by Restaurants: 1. If there are more than one restaurants belonging to the Service Tax is leviable on the service provide by a restaurant same entity in a complex, out of which only one or which satisfies two conditions: (i) it should have the facility of air more satisfy both the criteria relating to air- conditioning in any part of the establishment and (ii) it conditioning and licence to serve liquor, will the other should have license to serve alcoholic beverages. Within the restaurant(s) be also liable to pay Service Tax? same entity, if there are more than one restaurant, which are clearly demarcated and separately named, the ones which satisfy both the criteria is only liable to service tax. 2. Will the services provided by taxable restaurant in The taxable services provided by a restaurant in other parts of other parts of the hotel e.g. swimming pool, or an open the hotel e.g. swimming pool, or an open area attached to the area attached to a restaurant be also liable to Service restaurant are also liable to Service Tax as these areas become Tax? extensions of the restaurant. 3. Is the serving of food and/or beverages by way of When the food is served in the room, service tax cannot be room service liable to service tax? charged under the restaurant service as the service is not provided in the premises of the air-conditioned restaurant with a licence to serve liquor. Also, the same cannot be charged under the Short Term Accommodation head if the bill for the food will be raised separately and it does not form part of the declared tariff. 4. Is the value added tax imposed by States required to For the purpose of service tax, State Value Added Tax (VAT) has be included for the purpose of service tax? to be excluded from the taxable value. Page 19
  20. 20. Learning Professionals e-Newsletter Visit: www.lpguide.wordpress.comOTHER RELEVANT NOTIFICATIONSSubject Date and Notification No. RemarksAmends Notification No. 14 June 2011 Seeks to rescind Notification07/2010-Service Tax, dated No. 33/2009 dt. 01.09.2009 Notification No. 38/2011-the 27th February,2010 Service TaxExempt service provided in 14 June 2011 Extended upto 1-1-2012relation to transport of Notification No.39/2011-specified goods by rail Service TaxAmends Notification No. 14 June 2011 Seeks to amend09/2010-Service Tax, dated Notification No. 01/2006 Notification No.40/2011-the 27th February,2010 dated 01.03.06 to provide Service Tax abatement for transport of goods by rail.Check the above notifications at: http://www.servicetax.gov.in/st-notfns-home.htm DIRECT TAX UpdateSection 10(15)(i) of the Income Tax Act, 1961 - Amendment in Notification No G.S.R. 607(E),dated the 9th June, 198903 June 2011Section 10(15)(i) of the Income Tax Act, 1961Post Office Savings Bank Account To an extent of the interest of Rs. 3,500 in the case of an individual account and Rs. 7,000 in the case of joint account.Section 10(23AAA) o the Income Tax Act 1961 - Amendment in Notification No S.O. 672(E) datedthe 27th July, 199503 June 2011 NOTIFICATION NO.33/2011In the said notification, in paragraph (1), after clause (c), the following clause shall be inserted,namely:—to meet the cost of annual medical tests or medical checkups of the member, hisspouse and dependent children. Exemption u/s 139(1) to Specified Person from the requirement of furnishing a return of incomefor Assessment year 2011-12In exercise of the powers conferred by sub-section (1C) of section 139 of the Income-tax Act,1961 (43 of 1961), the Central Government hereby exempts the following class of persons, Page 20
  21. 21. Learning Professionals e-Newsletter Visit: www.lpguide.wordpress.comsubject to the conditions specified hereinafter, from the requirement of furnishing a return ofincome under sub-section (1) of section 139 for the assessment year 2011-12, namely :—Class of Persons1. An Individual whose total income for the relevant assessment year does not exceed five lakhrupees and consists of only income chargeable to income-tax under the following head,—(A) "Salaries"; (B) "Income from other sources", by way of interest from a savings account in a bank, notexceeding ten thousand rupees.Conditions2. The individual referred to in para 1,— (i) has reported to his employer his Permanent Account Number (PAN); (ii) has reported to his employer, the incomes mentioned in sub-para (B) of para 1 and theemployer has deducted the tax thereon;(iii) has received a certificate of tax deduction in Form 16 from his employer which mentionsthe PAN, details of income and the tax deducted at source and deposited to the credit of theCentral Government;(iv) has discharged his total tax liability for the assessment year through tax deduction atsource and its deposit by the employer to the Central Government;(v) has no claim of refund of taxes due to him for the income of the assessment year; and(vi) has received salary from only one employer for the assessment year.Cost Inflation Index for Financial Year 2011-12 is 78523 June 2011 Notification No. 35/2011 IFRS UpdateIFRS implementation faces more delayed: The implement of new accounting norms for theIndian Inc. may be delayed by a year, until a new law on taxes i..e.DTC becomes an Act,providing relief to thousands of companies struggling to meet the deadline to shift to newstandards.Global Accounting Body for full IFRS in India: The IASB has requested the government to adoptglobal accounting standard instead of the converged one. As soon India’s problem will becomeglobal issue. Page 21
  22. 22. Learning Professionals e-Newsletter Visit: www.lpguide.wordpress.com POSTS IN OUR BLOG THIS MONTH1. Relaxation in SEBI (Stock Brokers and Sub-brokers) Regulations, 19922 Cost Accounting Records Rules and Cost Audit Report Rules, 20013. Amendment in Companies Act : Definition of PFI4. BSE-New Norms for Revocation & Direct Listing5. MCA General Circular: Regarding filing of Annual Documents6. Companies (Passing if the resolution by Postal Ballot) Rules, 20117. XBRL Mandatory : Latest8. Green Initiative in Corp governance regarding participation Of Shareholders & Directors through E-Mode9. Filing of Balance Sheet and Profit and Loss Account in XBRL Format10. General Circular No. 37/2011 dated 07th June 2011 on XBRL Taxonomy11. Indian Government Accounting Standards (IGAS) 1 – Guarantees given by Governments: Disclosure Requirements12. Last week : News from the Ministry of Corporate Affairs13. SEBI: Standardization of rating symbols and change in criteria for seeking name change14. SEBI: Shareholding of promoter/promoter group to be in dematerialized mode15. Periodical report- Grant of prior approval to underwriters16. Modification to Investor Protection Fund (IPF)/ Customer Protection Fund (CPF) Guidelines17. Withdrawal of 1937 Stamp Duty notification in Delhi on Merger18. Liquidity enhancement schemes for illiquid securities in equity derivatives segment19. Directors & Officer’s Liability Insurance20. Buy Back : Complete21. 12 Cases of Wrong E-Filing Detected22. Shareholders Rights :Must See23. Settlement Of Prosecution Page 22
  23. 23. Learning Professionals e-Newsletter Visit: www.lpguide.wordpress.com24. Learn CARO easily and sequentially25. Section 233B of the Companies Act,1956- Audit of Cost Accounts in certain cases.26. Cost Inflation Index for F.Y.2011-12 is 785.27. Exemption u/s 139(1) to specified person from the requirement of furnishing the return of Income for A.Y.2011-1228. Amendment in the process of issue of TDS Certificate.29. Payment of interest in respect of PPF HUF a/c.30. Rate of Exchange or Conversion of each of the foreign currency w.e.f.01.07.2011.31. ODI-Liberalisation and Rationalism.32. FDI-Issue of Equity Shares under the FDI Scheme allowed under the Government route. Contributors can share their blogs or articles at lpguide.wordpress.com or can mail us at team.lguide@gmail.com. The same will be published in our eNewsletter or Handbooks.We won’t forget to acknowledge the CSClubIndiaTeam for their valuable guidance in making thiseNewsletter.Visit:csclubindia.net or e-mail to rohit@csclubindia.net Page 23