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  1. 1. volume 60 no. 5 november 2011 r100 CHARTERED JOURNALvolume 60 no. 5 november 2011 THE ACCOUNTANT t H e i n s t i t u t e o f c H a rt e r e D a c c o u n ta n t s o f i n D i a set up by an act of parliamentthe chartered accountant ICAI International Conference “Accountancy Profession: Leveraging Emerging Challenges For Inclusive Growth” 6 - 8 January, 2012 at Chennai Trade Centre, Chennai Accounting is becoming more and more intricate with the advance of modern technique in industry. After all, accounts follow facts… an accountant must have a very good inkling-a very comprehensive idea of what he is looking into… the role of an accountant in modern India, r100 which is fast industrialising, is very great indeed…He has to know a great deal in each sphere of activity. He has to be jack of all trades. He has got to know something of everything. Shri V. Narhari Rao First Comptroller and Auditor General of India, on Role of an Accountant and Auditor in National Economy [April 5, 1954, at ICAI Headquarters]
  2. 2. 659 EDITORIALGlobal Economic Turbulence and IndiaT he ongoing global economic turbulence, of Indian shares between August and September this which, in a sense, is a continuation of the year. financial crisis that began in 2007, Europe is one of India’s largest trading threatening to become another major global Austerity measures in European countries and fallingrecession. The grim situation has created panic in consumer expenditure may affect Indian exports,the developed world, so much so that London’s especially in services. If European banks collapseThe Economist has already predicted a double-dip due to exposure to countries such as Greece, Irelandglobal recession led by America. The turbulence, and Portugal, the supply of foreign credit to emergingmainly triggered by the sovereign debt crises in many markets, including India, will dry up. That will putEuropean countries followed by the unprecedented pressure on investment spending in emerging marketsdowngrading of the US sovereign long term credit — already struggling with high capital costs due torating by Standard & Poor, saw the world stock tight monetary policies.exchanges going into a tailspin. The sovereign credit Early warning signs, such as low investorcrisis in the Eurozone has led to virtual insolvency confidence and falling consumer demand acrossof Greece, Ireland and Portugal. The crisis is the board, signal a crisis at India’s doorstep, whichnow threatening Spain and Italy and is unlikely to it cannot completely avoid. But India can considerablystop there. Adding fuel to the fire, the turbulence minimise the damage. And for that it is imperativehas laid the seeds of a more fundamental crisis. that India looks inward and boost domestic demandAs the burden of sovereign debt is passed on to compensate for the shrinking world the common people, their purchasing power Huge domestic demand within India provides a buffercorrespondingly declines and combined with to global economic turbulence. In fact, India does havethe growth of unemployment, leads to a sharp a significant control over its own destiny. Domesticcontraction in domestic demand. India’s Finance consumption accounts for around 70% of its GDP .Minister Pranab Mukherjee recently rightly warned India can reinvigorate itself with domestic structuralthe world community that if not managed with an reform. The key is to spur business investment.iron hand, the crisis will have a contagion However, a major problem is that India is sacrificingeffect and indeed lead to a double-dip growth to fight inflation, with the Union Finance Ministerglobal recession. hinting that India may continue to tighten This crisis has already drastically reduced global monetary policy, in contrast to most other majortrade and slowed down the world economy, with emerging economies, to keep stubbornly-highEurope and the US growing just over 1%. In this inflation in check despite fears of a broader economicbackground, the International Monetary Fund in slowdown.its recent report has trimmed its economic growth Every crisis offers opportunities as well. Indianforecasts for Asia to average 6.3% in 2011 from its policymakers need to maintain domestic demandearlier forecast of 7%. India remains no exception to and work towards gaining investors’ confidence.this widening trend. The global economic turbulence The government must explore export markets likehas been one of the main reasons for Indian growth Africa and the ASEAN countries, and continue toprospects being downgraded to below 8% this fiscal reduce dependence on Europe and the US. Specialfrom 9% projected in the Budget 2011-2012. The World tax incentives for exporters to Europe and the USBank has also recently said that India’s growth was may help them retain their competitiveness in theselikely to slow to 7% to 8% in the next two years as a markets. Some of the pending reforms, whether theyresult of uncertainties weighing on investment, tighter are FDI in retail, labour or financial and insurance sectormacroeconomic policies intended to fight inflation and reforms, need to be pushed ahead to maintain growththe base effect of the strong agricultural rebound last and investment. It is time to show that India is a safeyear. haven for investment, and to do this, bold gover- If the world economy goes into a double-dip nance reforms are needed to improve the overallrecession, it will have considerable negative impact competitiveness of the Indian economy.on FDI inflows, flow of money into Indian bourses, andemployment. The initial symptoms are already evidentin the stock markets, where share values and wealth -Editorial Boardare eroding. FIIs have sold more than $2.2 billion worth ICAI-Partner in Nation Building THE CHARTERED ACCOUNTANT NOVEMbEr 2011 3
  3. 3. CONTENTS 662EDiTORiaL BOaRD vOiCE VOLUME 60 NO. 5 NOVEMBER 2011 R100 CHARTERED JOURNAL VOLUME 60 NO. 5 NOVEMBER 2011EDITOR CA. G. RAMASWAMY, 659 Editorial THE ACCOUNTANT President 664 From The PresidentJOINT EDITOR CA. JAYDEEP N. SHAH, Vice-President T H E I N S T I T U T E O F C H A RT E R E D A C C O U N TA N T S O F I N D I AMEMBERS SET UP BY AN ACT OF PARLIAMENT CA. ATUL C. BHEDA CA. K. RAGHU CA. M. DEVARAJA REDDY MEMBERS CA. MADHUKAR N. HIREGANGE THE CHARTERED ACCOUNTANT ICAI International Conference “Accountancy Profession: Leveraging 670 Readers Write Emerging Challenges For Inclusive Growth” CA. MANOJ FADNIS 6 - 8 January, 2012 at Chennai Trade Centre, Chennai CA. NAVEEN N.D. GUPTA 672 Photographs CA. NILESH S. VIKAMSEY 710 Opinion CA. P RAJENDRA KUMAR . CA. RAJKUMAR S. ADUKIA  Accounting for Leave Liability CA. RAVINDRA HOLANI 771 Know Your Ethics CA. SUBODH K. AGRAWAL 790 Classifieds CA. SUMANTRA GUHA CA. V. MURALI Accounting is becoming more and more intricate with the advance of modern technique in industry. After all, accounts follow facts… an accountant must have a very good inkling-a very comprehensive idea CA. ANIL S. DANI upDaTES of what he is looking into… the role of an accountant in modern India, R100 which is fast industrialising, is very great indeed…He has to know a great deal in each sphere of activity. He has to be jack of all trades. He has got to know something of everything. CA. R. GIRI CA. S. SUNDARRAMAN Legal Update Shri V. Narhari Rao First Comptroller and Auditor General of India, on Role of an Accountant and Auditor in National Economy [April 5, 1954, at ICAI Headquarters]SECRETARY CA. NITIN JAIN 680 Legal DecisionsICAI EDITORIAL TEAM NADEEM AHMED 696 Circular and Notifications SUSANTA K. SAHU DR. N. K. RANJAN 765 National Update NIMISHA SINGH 767 International UpdateTHE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 770 Accountant’s BrowserICAI Bhawan, Post Box No.7100, Indraprastha Marg, 779 Economic UpdateNew Delhi-110002, Tel: +91 (11) 39893989.E-mail:, Website: www.icai.orgSUBSCRIPTION RATESInland subscribers : R1,000 per annum iCai CORpORaTE fORuMOverseas : $150 per annum (subscribers by sea mail) 755 Career AscentFor Overseas Members/Subscribers 763 Gulf Campus •Air Mail Surcharge : R2,100 per annum 775 ICAI Awards •Sea Mail Surcharge : R1,100 per annum 792 Financial ExpoCA Students : R1,400 for 3.5 years 808 Corporate Conclave R400 per annumOther students & faculties : R600 per annum iCai NEWSCLASSIFIEDS:Minimum R1,000/- for the first 25 words or part thereof and R250/- 780 Certificate Course on Enterprise Risk Managementfor five words or part thereof over and above first twenty five words. 781 Certificate Course on Internal AuditPlease contact: The Journal Section at ICAI Bhawan, A-29, Sector-62, Noida or call at +91(120) 3045955 782 Articles requested for new feature, Professional Opportunitiesor e-mail at 782 Invitation to Contribute Articles for E-Newsletter 783 Invitation for Contribution of Questions for ISA-AT Question BankEDITORIAL SUPPORT, DESIGN, ADVERTISEMENT & MARKETINGSPENTA MULTIMEDIA 784 Contribution to the Question Bank of CPTAaron Rodrigues, Subramanian Shankar, Nilesh Juvalekar, Ganesh 785 ICAI Announcement regarding minimum Recommended Scale of FeesWaradkar & Anand Dhuri.MUMBAI: Spenta Multimedia, Peninsula Spenta, Mathuradas Mill 785 Quick Insight: CA ProfessionCompound, N. M. Joshi Marg, Lower Parel. Mumbai-400013. 785 E-learning Courses on Service Tax and Transfer PricingTel: +91 (22) 24811022/24811025, Telefax: -91(22) 24811021.DELHI: No.7, 1st Floor, Nizamuddin (West) Market. 786 CMII Forms 50th CPE Study Circle for Members in IndustryNew Delhi-110013. Tel: +91 (11) 4669 9999. 787 New Publications from the Auditing and Assurance Standards BoardBENGALURU: Old No. 583, New No. 9, Sri Manjunatha Krupa, 788 New Publication from the Research Committee80 Feet Road, 3rd Cross, Opp. Koramangala Police Station,Bengaluru-560095. Tel: +91(80) 4161 8966/77. 789 Announcement regarding compliance with paragraphs 61 and 62 of theKOLKATA: 206-Jodhpur Park, Kolkata - 700068. Tel: +91(33) 2473 Standard on Review Engagements (SRE) 24105896. Telefax: +91(33) 2413 7973.CHENNAI: AKS Pooja Complex, 2nd Floor, Old No: 203 New No: 790 Certificate Course on Indirect Taxes at Chennai154, R. K. Mutt Road, Mandevelli (Next to Jagan Mohan Clinic), 791 ICAI Offers First MBF Campus PlacementChennai-600028.HYDERABAD: H.No: 8-2-684/3/R/1&2, Flat No: 304, Alankrith Apts,Gulmohar Avenue, Rd No: 12, Banjara Hills, Hyderabad. EvENTSTel.: +91 9676666691. 794 Three Days Residential Refresher CPE Course, AlleppeyICAI RESERVES THE RIGHT TO REJECT ADVERTISEMENTSPrinted and published by Vijay Kapur on behalf of The Institute 794 Workshop on Capacity Building Measures of Practitioners & CA Firms,of Chartered Accountants of India (ICAI) Bhavnagar, Kota, Bellary, Nagpur, Baroda, Jalgaon, Shimla, Raigarh, Editor – CA. G. RamaswamyPublished at ICAI Bhawan, P O. Box No. 7100, Indraprastha Marg, . Sriganganagar, Jammu Tawi, Anand and DurgapurNew Delhi - 110 002 and printed at Spenta Multimedia. Peninsula 800 “Auto Connect”- CMII National Conference on Auto Industry, PuneSpenta, Mathuradas Mill Compound. N. M. Joshi Marg, LowerParel, Mumbai - 400013 801 National Residential Refresher Course on CA Profession towardsThe views and opinions expressed or implied in THE CHARTERED Excellence through Capacity Building, Churu(Rajasthan)ACCOUNTANT are those of the authors and do not necessarilyreflect those of ICAI. Unsolicited articles and transparencies are 803 Residential Refresher Course, Rajasthansent in at the owner’s risk and the publisher accepts no liability forloss or damage. Material in this publication may not be reproduced, 804 Two Days Workshop on Auditing, Indorewhether in part or in whole, without the consent of ICAI. 805 Residential Refresher Course, ChailDISCLAIMER: The ICAI is not in any way responsible for the result ofany action taken on the basis of the advertisement published in the 806 Three Days Residential Workshop on Internal Audit, DarjeelingJournal. The members, however, may bear in mind the provision ofthe Code of Ethics while responding to the advertisements. 807 National Seminar on Taxation, KochiTOTAL CIRCULATION: 2,16,272 807 Certificate Course on Arbitration of the ICAI, MumbaiTotal No. of Pages: 164 including CoversCover image, Inside images and Graphics: 6 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
  4. 4. volume 60 no. 5 november 2011 R100 CHARTERED663 JOURNAL THE ACCOUNTANT T H E I N S T I T U T E O F C H A RT E R E D A C C O U N TA N T S O F I N D I A SET Up by AN ACT OF pARlIAmENTiN THiS iSSuE... iNTERNaTiONaL TaxaTiON 741 Special Measures in Respect of Transactions with Persons Located in Notified Jurisdictional Area iNTERNaTiONaL CONfERENCE – CA. Thakur Repudaman 6TH – 8TH JaNuaRy, 2012 aT CHENNai TRaDE CENTRE 676 In the context of integrated and diversified financial 750 Attribution of Profits to Permanent Establishment – operations, our profession is undergoing a sea The Indian Experience change in its fundamentals, including a need for – Committee on International Taxation of the ICAI uniform accounting code. At this crossroads, with our determination to stick to integrity, we can not forgo our responsibility at any cost. This Conference aims to touch essentially all such aspects… MaNagEMENT 757 Benchmarking- A Strategic Tool for CFOs – CA. Sanjay Banka auDiTiNg 716 Benford Distribution - An Effective Audit Tool – Dr. L. Kailasam TECH fOR yOu 773 Mobile Computing: Business Applications and Chartered Accountants – CA. A. Rafeq CORpORaTE & aLLiED LaWS 721 Foreign Contribution (Regulation) Act, 2010 – A Changing Perspective — CA. Anand Pagaria 728 Justice is Important, Rules of Procedure are Handmaids: Discussion in View of SC Verdict – CA. Dev Kumar Kothari and CA. Uma Kothari gENERaL 810 Understanding the ‘Aadhaar’ – CA. Gagan Jain BaCKpagE 816 Cross Word 065 Smile Please TaxaTiON 734 LLP to be Subject to Alternate Minimum Tax – CA. Aadesh Kumar Agrawal THE CHARTERED ACCOUNTANT NOVEMbEr 2011 7
  5. 5. FROM THE PRESIDENT 664 of all human studies must be to create a better and beautiful world around us. I would like to call out the members of my profession to work in unison towards achieving this universal goal. Let us get updated with some recent and important developments in the profession that have taken place in the past one month: International Initiatives It is true that we are at cross- roads between volatile busi- ness environment and economy and subsequent changes being made in accountancy. CA. G. Ramaswamy, President, ICAI But I personally feel better when I contemplate over the way we have been respondingDear Friends, for quite some time to the needs of the contemporary business environment of our nation. Our membershipI n my message, this time, I would like to recall Shri has grown really big, i.e. 1,82,000 at present, and V. Narhari Rao, the first Comptroller and Auditor this demands a responsible vision and growth from General of independent India, who had come to the profession and its stakeholders. Internationallyour headquarters in Delhi, on the occasion of the First too, we have been growing in all possible directionsConference of Chartered Accountants of India, on 5th logically while carrying CSR attitude all the time withApril, 1954, to deliver the last distinguished talk of the us. I, along with the ICAI Vice-President CA. JaydeepConference on the Role of an Accountant and Auditor in N. Shah, visited the Abu Dhabi, Dubai, Muscat andNational Economy. Through his words of wisdom and Doha Chapters of the Institute recently towardswith his underlying objective to secure independence leveraging our international linkages and initiativesand integrity for the profession, Shri Rao had urged with regard to our profession:the members to remain responsible and courageousduring discharge of their professional duties. That First Foreign IT-Training Centre Opened in Dubai:was quite relevant and reinforcing for the profession At Dubai Chapter of the Institute, we have set up anconsidering the formative years that the profession IT-training (ITT) centre, our first such initiative outsidewas passing through. Quite humbly, on behalf of our the country, which was inaugurated by the Indianforefathers in profession, I would like to acknowledge Corporate Affairs Minister, Dr. M. Veerappa Moily,that we had started our journey quite courageously who praised our role in the economic growth of ourwith a just sense of integrity, and we have come really nation while appreciating our proactive partner-in-a long way following the same courage and integrity nation-building endeavours including that for newthrough the good and bad times of economy. Companies Bill under preparation and for new reporting framework under XBRL. The event was also The gap between our knowledge and our wisdom addressed by the Indian Ambassador in U.A.E., H. E.always surprises me. I would urge our stakeholders Shri M. K. Lokesh and the Counsel General of Indiato explore how to bridge this gap and achieve a in Dubai, H. E. Shri Sanjay Verma. They appreciatedhundred percent correspondence between them. that the Dubai Chapter of ICAI is among the mostOur endeavours should aim to create a better and efficient and proactive professional fora in Dubai.more beautiful world around us, so that we could This ITT centre would facilitate, I must appreciate, inexist in a graceful cohesion. To me, the culmination empowering our students abroad in completing their 8 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
  6. 6. 665 FROM THE PRESIDENTarticleship and IT training outside India. The Indian participants on the occasion.Business Professional Council (IBPC) also hosted aprogramme in the honour of Dr. Moily. Initiatives towards Nation-Building Meeting with SEBI Chairman: I had the opportunity Knowledge Sharing Forum in Doha: Our Doha to meet the SEBI Chairman Shri U. K. Sinha recently.Chapter recently organised a well-conceptualised and We requested him to prescribe, through the listingwell-attended ‘annual knowledge-sharing forum’ event agreement, independent internal audit by the externaland held a seminar on Strategic Decision Making, professional firm of chartered accountants for allProject Financing and Green Building Concept. The listed companies. Alternatively, in case the corporateevent further strengthened the esteemed position that entity has its own internal audit department, weIndian professionals occupy in Qatar in particular and suggested him to mandate for external monitoringthe entire Gulf region in general. On the occasion, I of the compliance of standards of the internal auditupdated the gathering on the proposed reforms in system by independent firm of chartered accountants.the regulations governing the profession in India and Further, we also made a suggestion regarding theabroad and bright possibility of ICAI partnering with the need for a Standard Audit Manual for inspection ofQatari authorities in forming an accounting body that mutual funds, which could address the shortcomingswill regulate the profession of accounting and auditing and improve quality in the inspection of mutual fundsin Qatar. I emphasised on the need of corporate social and bring uniformity in reporting the same.responsibility and putting something back into thesociety in line with Qatar’s 2030 Vision of diversifying Independent Directors Meeting in Mumbai: I alsothe local economy. Vice-President CA. Jaydeep N. attended the interactive meeting of independentShah was also the Guest of Honour on the occasion. directors organised by the ICAI from public- and private-sector banks, and financial institutions along International Seminar on Sustainability and Growth with the Vice-President CA. Jaydeeep N.Shah andin Abu Dhabi: In Abu Dhabi, we attended the 23rd various Council members. Shri T. M. Bhasin, ChairmanAnnual International Seminar with the theme Towards & MD, Indian Bank, was the Chief Guest and meetingSustainability and Growth of our Abu Dhabi Chapter was attended by the 30 independent directors ofheld recently at the Armed Forces Officers Club, various banks and financial institutions. This meeting,where the Ambassador of India in U.A.E., H. E. Shri successfully hosted by WIRC of the Institute, providedM. K. Lokesh, was the Guest of Honour and Dr. a platform to independent directors to share their richTayab Kamali, Vice Chancellor, Higher College of experiences on new emerging concepts in bankingTechnology, and Group CEO, Centre of Excellence sector like risk management, internal control system,for Applied Research and Training, was the Chief effectiveness of audit committee, etc.Guest. I acknowledged that the words sustainabilityand growth were important in the context of bringing Workshop on Financial Statements of Corporates intransparency through corporate governance, and that Mumbai: I along with the Vice-President CA. Jaydeepwe would play an important role in the implementation N. Shah, past-President CA. Amarjit Chopra, and myof corporate governance. I asserted that we chartered Central Council colleague CA Manoj Fadnis, amongaccountants, known for quality services, were fully others, attended the Workshop on Analyzing Financialcommitted and involved in the country’s growth. Other Statements of Corporates under IFRS recently heldspeakers included ICAI past-President CA. Amarjit at the RBI Central Office in Mumbai, which wasChopra, among others, who spoke on the status of IFRS organised by the Centre for Advanced Financialimplementation in India. Issues affecting the corporate Research and Learning, promoted by RBI. I addressedworld, including leadership, sustainable growth, etc., the efforts made by the Institute in formulation of thewere discussed too. The Seminar also included an Ind ASs (Indian Accounting Standards) convergedinteresting panel discussion on The Shift of Power with the IFRSs and the steps being taken towardsfrom West to East. the preparation of frequently asked questions on Ind AS. Smt. Usha Thorat, Director, CAFRAL, and CA. Seminar on Economic Growth in Muscat: We were Prabhakar Kalavacherla, Board Member, Internationalalso at the Muscat Chapter of the Institute to attend Accounting Standards Board, also addressed ata one-day CPE event recently, where I delivered a the Workshop. Presentations on would-be financialkey note address at the seminar titled Adding Value statements under Ind ASs were made. An interestingto Economic Growth. CA. Shah also addressed the observation was that the companies which were THE CHARTERED ACCOUNTANT NOVEMbEr 2011 9
  7. 7. FROM THE PRESIDENT 666hitherto following the correct accounting principles will Telugu and Assamese languages under the guidancenot have a significant impact on their top line and of my Central Council colleague CA. Vinod Jain, whichthe bottom line on adopting the Ind AS. I sincerely were developed by the Ministry of Corporate Affairsacknowledge the efforts of Shri Ravi Mohan, Chief for distribution in the investor awareness programmes.General Manager, RBI and member, Accounting We have brought out the same in English versionStandards Board of ICAI. too. Copies of those translations were presented by the Institute to Dr. M. Veerappa Moily, Hon’ble Dr. M. S. Ahluwalia Delivered V. Sankar Aiyar Memorial Minister of Corporate Affairs, during an Investors’Lecture at ICAI: I wish to inform you that I attended Meet 2011 held recently.the V. Sankar Aiyar Memorial Lecture in Chennairecently, which was delivered by Dr. Montek Singh Professional DevelopmentsAhluwalia, Deputy Chairman, Planning Commission. Meeting with CBDT Chairman: As you are aware,Dr. Ahluwalia’s lecture on Economic Reforms for the CBDT had recently issued a discussion paperInclusive Growth, was well-appreciated, especially on Tax Accounting Standards that are proposed tohis thought-provoking references to the mission to be followed for the purpose of computing taxableserve the society, particularly its economically-weaker income. In order to discuss the issues arisingsections. I am confident that our country will touch from that, I recently had a meeting with the CBDTgreat heights of glory under his noble guidance. Dr. Chairman Shri M. C. Joshi, along with my CentralAhluwalia suggested us not to change minds about Council colleague CA. Sanjay Agarwal. Concernsmarket economy just because there was a loss of faith that I raised during the meeting were well-receivedin the industrialised countries. Shri Mani Shankar Aiyar, by the CBDT Chairman, who requested us further toMember of the Rajya Sabha, in the memory of whose submit the detailed suggestions in this regard. Wefather this Lecture was organised, presented the will submit the same shortly.introductory remarks. We suggested on the occasionthat all flagship programmes of the government should Delhi High Court Upholds ICAI Decision: I wish tobe audited by the chartered accountants. Dr. Isher acknowledge before our stakeholders with satisfactionJudge Ahluwalia, Chairperson, Board of Directors, that Delhi High Court has upheld Institute’s decision toIndian Council for Research on International Economic bar an auditor of Global Trust Bank (GTB) from practisingRelations, was also present on the occasion. accountancy for five years. We had found him guilty of professional misconduct as auditor during 2000-2001. More Training Programmes in Accounting Concepts: As you know, it was then that the 1993-formed bankI find it professionally gratifying to communicate that, in was on the verge of collapse due to reckless lending.line with our joint endeavour with the office of C&AG of Although, a single bench of the High Court hadIndia to organise training programmes on accounting quashed our order in the past. After our appeal againstconcepts for the officials of autonomous bodies, we the same, the verdict eventually came out in supportrecently conducted a training programme in Ahmedabad. of our disciplinary proceedings against him. The CourtShri K. P Sasidharan, Director General, Autonomous . has also clarified that the procedures prescribed byBodies, Office of C&AG of India, among others, was the unamended Chartered Accountants Act, 1949, i.e.present during the programme, which was attended Sections 21, 22 and 22A, would be applicable to allby more than 120 participants including the officials pending proceedings in information case and not theof autonomous bodies of Rajasthan and Gujarat, and procedure prescribed after the amendment made bymembers of the profession. Another such programme the Chartered Accountants (Amendment) Act, 2006.was conducted in Bangalore, which was inaugurated We can now initiate an inquiry against an accused onby Shri K. P Sasidharan and attended by about 185 . the basis of information or complaint.participants including the officials of autonomous bodiesof Tamil Nadu, Karnataka and Puducherry. ICAI Proposes Norms in Internal Audit: Realising that quality is one of the fundamental assumptions Two Publications for Investor Awareness of internal audit and there has been a steep rise inProgrammes: I am glad to inform that, with regard to attention on internal audit, we have till date issued 17our responsibility towards the investors of our country, Standards on internal audit to cover the basic principleswe have got the two informative booklets, First steps to and practice of internal audit and establish the basisInvesting -A Beginner’s Guide and Primer for First time for its performance evaluation. To enable the internaland Existing Investors, translated in Punjabi, Gujarati, auditors in performing quality audit, I wish to inform 10 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
  8. 8. 667 FROM THE PRESIDENTour stakeholdersthat the Council ofthe Institute hasrecently decidedthat whereverthe Standardson internal auditare being compliedwith, internal auditreports may mentionthat the audit hasbeen conducted inaccordance with theStandards issuedby the Institute. Weare also in dialoguewith the Ministry ofCorporate Affairsin this regard andhave recommendedmaking it mandatoryfor all companiesto mention in theirinternal auditor’s report that the audit has been application process for nomination, deadline, etc.,conducted in accordance with the Standards on can be collected online from the Institute’s websiteinternal audit issued by the Institute. I am sure that this and also published elsewhere in the journal. In thischange would promote credibility and consistency in regard, I wish to acknowledge the efforts made by mythe internal audit reports. Central Council colleague CA. K. Raghu in planning and conceptualising this mega event. ISA Faculty Meet at Centre of ExcellenceHyderabad: I am happy to inform our stakeholders Guidance Note on Certification of XBRL Financialthat we recently organised the ISA Faculty Meet at Statements: The Ministry of Corporate Affairs had videCentre of Excellence Hyderabad, where eminent and their circulars of July 2011 required that the XBRLexpert faculties from all over the country participated. financial statements be certified by a professional,This event gave me an opportunity to interact personally inter alia, a chartered accountant. This certificationwith each of the faculty participants there. Hopefully, requirement is appearing in the Forms 23AC-XBRLa new revised and an updated curriculum of the ISA and 23ACA-XBRL notified by the Ministry to uploadcourse will be released shortly to help our members the XBRL financial statements under MCA 21. I amat large. glad to inform you that we have recently released the Guidance Note on Certification of XBRL Financial ICAI Corporate Forum to be held in Bangalore: To Statements, which has been developed to help theprovide our members in profession and industry a chartered accountants effectively and efficientlyplatform to interact, and to appreciate our members carry out these certification engagements in thewho have done exceptionally well in professional/ most value added manner. The Guidance Note,social milieu, I wish to inform our stakeholders that among other things, provides guidance on the dutieswe will now be organising our 5th Corporate Forum in and responsibilities of the management vis a visDecember 2011 in Bangalore, which will have a series the chartered accountant with respect to the XBRLof events like Career Ascent, Gulf Campus, Financial mode financial statements as well as theServices Expo, Corporate Conclave, ICAI Awards, etc. detailed procedures to be undertaken by theThe Infosys Chief Mentor, Shri N. R. Narayana Murthy, chartered accountants to provide the assurancehas agreed to head the jury for the ICAI Awards. The sought under Forms 23-AC XBRL and 23-Awards ceremony will take place at the magnificent ACA XBRL. This is also been hosted on theand historic Bangalore Palace. Details about Institute’s website. THE CHARTERED ACCOUNTANT NOVEMbEr 2011 11
  9. 9. FROM THE PRESIDENT 668 Residential Certificate Course on Internal Audit: I am or in the process of our education. Carl Rogers, onepleased to inform you that we recently launched the first of the founding fathers of psychotherapy research,batch of the Residential Certificate Course on Internal is ready to call a person educated on a condition ifAudit at the Centre for Excellence in Hyderabad, which we have learnt how to learn and change. In the sameaims to deliver a programme dealing with the issues context, now, we will be able to understand why Althat impact internal audit profession at present and in McGuire, a well-known basketball coach, said: I thinkfuture. The Course will help our members in acquiring everyone should go to college and get a degree andknowledge on the theory and practice of internal audit then spend six months as a bartender and six monthsand its allied functions and on our role in them, and as a cabdriver. Then they would really be these impact contemporary business enterprises. Education is in fact a patient and an ongoing processDuration of the Course is 200 hours comprising where we simply are required to be diligent.ten classroom days, case-study preparation, selfstudy and e-learning. Classroom sessions will cover All educational degrees or diplomas shouldcontemporary topics including internal controls, prepare us to be ready to learn for the rest of our lives.corporate governance, risk management, etc. To Acclaimed social psychologist Erich Fromm justifiablystrengthen the content and add value to the course, asks: Why should society feel responsible only for thegroup assignments and case studies have also been education of children, and not for the education of allincorporated. adults of every age? Education is not just about books, colleges or institutions. We start feeling the presenceInfrastructure Initiatives of education in our lives when we finish up with ourAhmednagar Branch Building Inaugurated: I am happy formal education and we deal with the realities ofto inform that I recently inaugurated the building of life. We will never precisely realise its presence inthe Ahmednagar Branch of the WIRC in the presence our life unless we reflect on the way we carry out ourof the ICAI Vice-President CA. Jaydeep N. Shah and work, the way we approach a problem, or, the waymy Central Council colleagues, among others. we think about the processes that run around us. I am sure this is what Albert Einstein meant by when Laying Foundation Stone of Trichur Branch: I am glad he said: Education is what remains after one hasto inform our stakeholders that I happened to lay the forgotten everything he learned in school. I would likefoundation stone for the building of the Trichur Branch to advocate this understanding and propagate thisof the Institute recently. CA. K. Shanmukha Sundaram, around us and among all my readers: let us not missSIRC Chairman, was also present on the occasion. a chance to learn after our formal learning is over.Best Wishes for Forthcoming CA Examinations We are a country of numerous faiths and beliefs,When this issue reaches you, an estimated two and and, with pride, I admit that we quite agreeably alwayshalf lakh students might have started appearing at the celebrate and rejoice with the people of all faiths inNovember 2011 Chartered Accountants Examinations their moments of joy. In keeping up with the true spiritof our Institute at 345 examination centres in India as of celebrations, I would like to extend my best wisheswell as abroad. I would like to extend my heartiest on behalf of the Institute to all towards the celebrationswishes to them and hope that they would perform on Id-ul-Zuha (also Id-ul-Aḍha or Bakr-Id) and on Guruwell and come out with flying colours. Nanank Jayanti (founder of Sikh faith Guru Nanak Dev’s birthday). May the prayers offered and greetings Acclaimed ontologist G. K. Chesterton associates shared by the devotees bring further happiness andeducation with the soul of a society. Will Durant calls peace to the people of our nation! Amen!it a transmission of civilization. Political activist EmmaGoldman considers it our effort to unlock the wealth of Best wishessympathy, the kindness and generosity hidden in thesoul of a child. To me, education must enable us todeal with the existing differences and indifferences inour society and with the situations that drive us awayfrom the world of sympathy, kindness and generosity.If we are educated, we will always move towards a CA. G. Ramaswamyunified society. Therefore, if we are not united, there President, ICAIhas to be some flaw somewhere in our being educated October 24, 2011 12 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
  10. 10. READERS WRITE 670October 2011 Issue Well- The articles titled ‘Taxability of taken in this regard will evolvePacked with Knowledge Software Payments under the over time. One of the best visible The range and level of our journal Act—The Controversy Continues’ examples of evolution over a periodis continuously increasing and I am (International Taxation) and ‘How of time is Microsoft Office. Somevery thankful to institute for providing to Succeed in Life Against All things come to my mind which Ius a useful key to knowledge in the Odds’ (General) were also highly would like to share. The registrationform of journal. In the October 2011 informative and useful. Congrats of a firm should be linked with itsissue of the journal, the column for the same. partner data base. Thus, the time of‘From the President’ was very -CA. S. Gulati registration of UDIN, signing dateinformative and updated us on the field input value allows drop downlatest developments pertaining to September’ 2011 list of active partner for the firm.our Institute and the profession. Illuminated the Readers Essentially the signing partner nameThe various informative features The September 2011 shall also get captured in the datalike Editorial, ICAI News, Events, Chartered Accountant Journal base. The system can be built up soKnow Your Ethics, Legal Update, has illuminated the readers with that where there is statutory limitsNational and International Update, the latest developments in the individual, firm and partner whoEconomic Update, Accountant’s Companies Act especially revised are eligible to sign the document,Browser and Tech for You, schedule VI. The articles written system shows pop error messageCrossword, etc. are all very useful about Information technology and even generates list for crossand highly commendable. Further, and chartered accountants are checking on given value. WhereI would like to suggest the feature noteworthy. Index of volume of the individual is acting and partner as‘Speech’, which carries on the one year issue will definitely help well as have individual capacity, thewords of wisdom from eminent the users for a snapshot reference if system shall check data base to putpersonalities, should be published required in case of urgency. Hearty check on upper ceiling on partnerregularly. congratulations to the Editorial and firm at the time of registration. -Aman Daga, CA Final Student Board for the efforts made in terms Another important input value of content as well as design. Further, could be for every document at In the October 2011 issue of I would request you to include more registration is PAN in case of Indianthe journal, the Editorial titled articles of Indian Miscellaneous entity for purpose of identification.‘Concept of Independence in Laws so that our professional Foreign entities do not have PANIndependent Auditor’ was really colleagues can enhance their and they shall have extra field namethought provoking and informative. area of work and meet their client of country to register documentThe Editorial rightly says that often requirements. without PAN is believed that auditors reportto the shareholders but work for -CA Jomon C.V., Mumbai -CA. Sanjeev Vijayvargiathe management and this myth nlays the stress and strain for the Unique Document Corrigendumindependence, excellence and Identification Number readers please note that in the credit lineintegrity of the auditors. Indeed, Identification and application of of the article titled ‘Forensic Accounting-the auditors, in order to preserve Unique Document Identification Another Feather in the Hat of Accounting’their reputation for independence, Number is a stepping stone in the published on pages 568-571, the title ‘Dr.’should not have any commercial or process of establishing authenticity was erroneously prefixed with the nameconflict of interest in the company of document. Though a lot of of the author Indrani Ghosh. The error isin which they are the auditors. considerations and measures regretted.Editor For the Attention of Readers Write to Editor Readers’ attention is specifically invited to the fact ‘Information is Power’ and our ever-evolving profession that the views and opinions expressed or implied in needs more and more of that today than ever before. The Chartered Accountant journal are those of the Do you have any relevant points to make, experiences respective authors only, and not of the ICAI. The ICAI to share, and views to spread among the CA fraternity? bears no responsibility of any sort whatsoever in case If yes, e-mail us at of any action taken by any reader based on any article or write to: published in the Journal. The Editor, The Journal Section, ICAI, A-29, Sector 62, Noida (UP) - 201309 14 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
  11. 11. PHOTOGRAPHS 672 Inauguration of IT Training Lab in Dubai Convocation CeremonyUnion Minister of Corporate Affairs Shri Veerappa Moily with ICAI President Union Minister of Coal Shri Shriprakash Jaiswal with ICAI President CA. G.CA. G. Ramaswamy and ICAI Vice President CA. Jaydeep N. Shah at the Ramaswamy and ICAI Vice President CA. Jaydeep N. Shah at the convocationinauguration of IT Training lab of Dubai Chapter of ICAI. (1st October, 2011) ceremony of the newly qualified chartered accountants of CIRC at Kanpur. (24th September, 2011) V. Sankar Aiyar Memorial Lecture Meeting with CBDT ChairmanDeputy Chairman of Planning Commission Dr. Montek Singh Ahluwalia and ICAI President CA. G. Ramaswamy in a meeting with Chairman of CentralMember of Rajya Sabha Shri Mani Sankar Aiyar with ICAI President CA. G. Board of Direct Taxes Shri Mukesh Chand Joshi at New Delhi. (21st October,Ramaswamy, Central Council member CA. P Rajendra Kumar, SIRC Chairman . 2011)CA. K. Shanmukha Sundaram and other dignitaries on the occasion of V.Sankar Aiyar Memorial Lecture in Chennai. (19th October 2011) International Seminar in Abu Dhabi Knowledge Sharing Forum in DohaICAI President CA. G. Ramaswamy and ICAI Vice President CA. Jaydeep N. ICAI President CA. G. Ramaswamy and ICAI Vice President CA. Jaydeep N.Shah with Vice Chancellor of Higher College of Technology U.A.E. Dr. Tayab Shah with other dignitaries at the ‘Annual Knowledge Sharing Forum’ event andKamali, India’s ambassador in U.A.E. Shri M. K. Lokesh and other dignitaries Seminar organised by Doha Chapter of ICAI in Doha. (12th October, 2011)on the occasion of 23rd Annual International Seminar on ‘Towards Sustainabilityand Growth’ organised by Abu Dhabi Chapter of ICAI. (13th -14th October, 2011) 16 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
  12. 12. PHOTOGRAPHS 674 32nd Regional Conference of CIRC Diamond Jubilee Conference of WIRCICAI President CA. G. Ramaswamy, ICAI Vice President CA. Jaydeep N. Shah, CA. G. Ramaswamy, President, ICAI presenting a memento to Shri V. B.Central Council Members CA. Anuj Goyal and CA. Ravindra Holani, CIRC Haribhakti, Past President of the ICAI during the WIRC Diamond JubileeChairman CA. Vivek Khanna and other dignitaries at the inauguration of 32nd Conference while ICAI Vice-President CA. Jaydeep N. Shah and WIRCRegional Conference of CIRC at Kanpur. (8th October, 2011) Chairman CA. Y. Shriniwas Joshi sharing the moment. Workshop for Practitioners and CA Firms Foundation Stone Laying CeremonyICAI President CA. G. Ramaswamy with Justice Dinesh Singh, Central Council ICAI President CA. G. Ramaswamy, SIRC Chairman CA. K. ShanmukhaMembers CA. Vijay Garg and CA. Ravindra Holani, and other dignitaries at the Sundaram and other dignitaries during the foundation laying ceremony ofWorkshop on ‘Capacity Building Measures for Practitioners and CA Firms’ at Trichur branch of ICAI. (28th September, 2011)Patna. (18th September, 2011) Ahmednagar UdaipurInauguration of ICAI Bhawan, Ahmednagar Branch of WIRC. ICAI President CA. ICAI President CA. G. Ramaswamy, Vice-President CA. Jaydeep N. ShahG. Ramaswamy, Vice-President CA. Jaydeep Shah, Central Council member and Central Council member CA. Vijay Garg lighting the lamp to inaugurateCA. S.B. Zaware, WIRC Chairman CA. Y. Shriniwas Joshi, Founder Chairman of National Conference on Excellence in Profession through Capacity Buildingthe Branch, CA. Mohan Barmecha and Branch Chairman CA. Vijay Marda are hosted by Udaipur Branch of CIRC.seen in the photograph among other dignitaries. (20th October, 2011) 18 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
  13. 13. International Conference Accountancy Profession: Leveraging Emerging Challenges For Inclusive Growth 6 – 8 January, 2012 at Chennai Trade Centre As financial markets integrate and business operations diversify; the seamless integration has occasioned ripples never seen before. While at one end one sees the expanding horizons for professionals and professional services; one still grapples with sporadic issues of service quality, need for a uniform lexicon of globalised standards to name a few. Accountancy profession like any other professional services is today at threshold. The responsibility is cast more on the accountancy profession as unlike others it touches upon vast segment of society. The challenges of trust, utility, technology, relevance and in process adherence to laid ethical norms are all the more important and should form the part of “must do” for each one of us so that the profession is projected as a responsible constituent and collaborative partner in whatever sphere of economic activities it is. The ICAI believes that in such complex and emerging times; it is knowledge sharing of emerging paradigm and its application in a practical context which would provide the requisite information, skill application and empathisation to broader context so that these learning outcomes are dovetailed by membership and other stakeholders in their professional pursuits. Recognising its responsibility to the stakeholders in general and ICAI members in particular; the ICAI is organising the International Conference. The International Conference is a forum of establishing interface for region’s most influential thought leaders in the field of accounting, finance & business and participants from academics, researchers, practitioners and policy makers to share and gain fresh insights in cutting-edge information on global trends, issues and challenges. Participants would not only have the occasion to professionally upgrade but also have enough networking opportunities with vast segment of accounting fraternity which is likely to participate not only from across pan India also likely to see significant delegations from SAARC Region and galaxy of International speakers and those from industry, government and other regulatory constituents. It is an event which extends to full two days on 7th & 8th January, 2012 with inauguration on 6th January. The Conference would be an assimilation of learned resources in areas of financial reengineering, Governance, harmonisation of standards; Financial cauldron & learning lessons, SMP Context, Accountants and millennium Developmental goal and related issues out of current and emerging context.CPE Hours 12 hoursDelegate Fees Members (ACA) R2000 Members (FCA) R2500 Non Members R3000 Foreign Delegates US$ 125 On the spot Registration Members R3000How to make payment Pay online at or by Demand Draft in favour of ‘Secretary ICAI, Chennai International Conference 2012 A/c’, Payable at ChennaiProgram Significant Thematic Issues:Details ▪ Towards Globalised Accounting Framework – A Reality Check ▪ Value Creation through Innovation & Entrepreneurial Vision ▪ Professional & Social Panorama ▪ Accountancy Profession: Serving a Wider Landscape ▪ Financial Sector – Fulcrum of Inclusive Economic Growth ▪ Harmonisation of International Auditing Standards – International & Indian Perspective ▪ Encouraging Good Governance through Market Mechanisms ▪ Emerging Paradigm of Accounting ProfessionOrganisers Conference Chairman Conference Co-Chairman CA. G. Ramaswamy CA. Jaydeep N. Shah President, ICAI Vice-President, ICAI Conveners CA. S. Santhankrishnan CA. V. Murali CA. Rajendra P Kumar . Central Council Member Central Council Member Central Council Member Co-Convener CA. K. Shanmukha Sundaram Chairman, SIRC Co-ordinators CA. S. Murali CA. P R. Aruloli . CA. Gopal Krishna Raju Secretary, SIRC Regional Council Member Regional Council MemberFor registration and Shri D. Vijayaragavan, Deputy Secretary (044-30210325), email: vijayaragavan@icai.inother details please Shri T. V. Srinivasan, Sr. Assistant Secretary (044 -30210320), email: tvsrinivasan@icai.orgcontact Shri Nitin Grover, Executive Officer (011-3011 0443), email: ICAI Bhawan, 122, Mahatma Gandhi Road, Post Box No. 3314, Nungambakkam, CHENNAI-600 034 Website: http://www.icai.orgFor sponsorship Dr. Surinder Pal, Sr. Dy. Director ( 011-3011 0430)related details please Email:;contactSponsorship Avenues SPONSORSHIP AVENUES PLATINUM SPONSOR (R25 lacs)  Providing a fully furnished exclusive stall(15 sqm) outside the conference premises, allowing your to showcase your products to the participants  Acknowledgement on International Conference website as “Platinum Sponsor”  Acknowledgement on the Invitation Card of the Conference  Acknowledgement as the Conference sponsor on the banners & signages  Display of 10 Standees on the event sites  Logo on the cover page of the writing pad to be used in Conferences/Seminars/ Workshops  Advertisement in the Conference Souvenir  Logo on the Conference bag  Complementary passes(15) for delegates  Full Coloured Page Advertisement in ICAI’s Journal (January/February Edition) GOLD SPONSOR (R20 lacs)  Providing a fully furnished exclusive stall(10 sqm) outside the conference premises, allowing your to showcase your products to the participants  Acknowledgement on International Conference website as “Gold Sponsor”  Acknowledgement on the Invitation Card of the Conference  Display of 6 Standees on the event sites  Advertisement in the Conference Souvenir  Complementary passes(10) for delegates  Full Coloured Page Advertisement in ICAI’s Journal (January/February Edition)
  14. 14. Sponsorship Avenues SPONSORSHIP AVENUES EMERALD SPONSOR (R10 lacs)  Providing a fully furnished exclusive stall (6 sqm) outside the conference premises, allowing your to showcase your products to the participants  Acknowledgement on International Conference website as “Emerald Sponsor”  Acknowledgement on the Invitation Card of the Conference  Advertisement in the Conference Souvenir  Complementary passes(5) for delegates  Full Coloured Page Advertisement in ICAI’s Journal (January/February Edition) SILVER SPONSOR (R7.5 lacs)  Providing a fully furnished exclusive stall (6 sqm) outside the conference premises, allowing your to showcase your products to the participants  Acknowledgement on International Conference website as “Silver Sponsor”  Acknowledgement on the Invitation Card of the Conference  Advertisement in the Conference Souvenir  Complementary passes(2) for delegates  Full Half Coloured Page Advertisement in ICAI’s Journal (January/February Edition) PEARL SPONSOR (R5 Lacs)  Providing a fully furnished exclusive stall (6 sqm) outside the conference premises, allowing your to showcase your products to the participants  Acknowledgement on International Conference website as “Silver Sponsor”  Acknowledgement on the Invitation Card of the Conference  Advertisement in the Conference Souvenir  Complementary passes(1) for delegates  Full Half Coloured Page Advertisement in ICAI’s Journal (January/February Edition) OTHER SPONSORSHIP AVENUES Dinner +Cultural Evening (7 January, 2012) – R15,00,000 (1 event) Conference Lunch (3) (7-8 January, 2012) - R7,50,000 each Tea–Coffee Plaza (3) (7-8 January, 2012) - R1,50,000 each Delegate Kit - R15,00,000 Souvenir-Advertisement Back Cover Page- R2,50,000 Inside Front Cover Page - R2,00,000 Inside Back Cover Page - R2,00,000 Full Page Colour Advertisement - R1,50,000 Half Page Colour Advertisement - R75,000 Full Page B/W Advertisement - R50,000 Half Page B/W Advertisement - R25,000 Display Stalls - R75,000/Day Attractions Cultural Extravaganza 7th January, 2012 For more details, please visit  ICAI International Conference on “Accountancy Profession: Leveraging Emerging Challenges For Inclusive Growth” 6 – 8 January, 2012 at Chennai Trade Centre Registration Form Yes, I am interested in participating in the International Conference on “Accountancy Profession: Leveraging Emerging Challenges For Inclusive Growth” Name of the Delegate: Organisation/Firm: Address: Tel (with STD/ ISD Code): Fax (with STD/ ISD Code): E-mail: Member of the Institute: Yes: No: Membership No: CATEGORY FEES MEMBER (ACA) R2000 MEMBER (FCA) R2500 ICAI NON-MEMBERS R3000 FOREIGN DELEGATES $ 125 ON THE SPOT REGISTRATION MEMBERS R3000 Mode of payment: DD/Cheque No. dated drawn on for R in the name of “Secretary ICAI, Chennai International Conference 2012 A/c” payable at Chennai. Kindly send in duly filled in Registration Form alongwith requisite payment to: International Conference 2012 ICAI Bhawan, 122, Mahatma Gandhi Road, Post Box No. 3314, Nungambakkam, CHENNAI-600 034 For Online Payment Please visit:
  15. 15. LEGAL UPDATE Legal Decisions 680Legal Decisions1 Income-tax Act Expenditure – Allowable as DIRECT LD/60/49 Ransom money paid to kidnappers for release of a whole TAXES The Scientific Instrument Co. Ltd. time Director was an allowable deduction Vs. The assessee, an private limited company, whose CIT main income is from manufacturing and sale of bidis. One August 12, 2011 (ALL) ‘S’ was whole time Director of the assessee company. He [Assessment Years 1989-90, 1990-91, was looking after the purchase, sales and manufacturing 1992-93 & 1993-94] of bidis. He was kidnapped for ransom by a dacoit gang Section 28(i) read with Section 22 of while he had gone to for purchase of tendu leaves.the Income-tax Act, 1961 – Business and Professional Immediately complaint and FIR were lodged with Police.Income – Chargeable as The police were unsuccessful to recover him from theWhere assessee continued its business while renting clutches of dacoit. Ultimately a sum of R5,50,000 wasout one of business properties to bank in lieu of which paid by way of ransom for his release. Assessee’s claimit received relatively higher income in form of rent and for deduction of this ransom amount under the head ofinterest free loan, income from leasing would be assessed General Expenses was disallowed by the Assessingas business income Officer. The assessee is carrying on business of import and The High Court of Madhya Pradesh held that sectionsale of scientific instruments. The assessee rented out 37(1) provides that kidnapping a person for ransom is anits property to Citibank on Leave and Licence basis and offence and any person doing so or compelling to pay, isreceived a huge deposits as advance free of interest liable for the punishment as provided in the section, butwhich was to be adjusted by Citibank. The Assessing nowhere it is provided that to save a life of the person if aOfficer assessed the income from said property under the ransom is paid, it will amount to an offence. No provisionhead ‘Income from house property’. is brought to notice that payment of ransom is prohibited The High Court held that all the assets of the business by any law. In absence of it, the Explanation of sub-sectionwere not rented out by the assessee company. It was (1) of section 37 would not be applicable in the presentdoing the main business of manufactures, imports, case and the aforesaid expenditure was to be allowed aspurchases and dealing in scientific apparatus, chemicals, business expenditure.chemical products, articles of glass, metal, wood, paperetc., more or less connected with science, as given in the LD/60/51memorandum of association. Out of the three properties iPolicy Network (P Ltd. .)at Mumbai, the property in dispute was being used for its Vs.Regional Office. In the interest of the company, it decided Income-tax Officerto let out one of its properties, to the City Bank, by way June 17, 2011 (ITAT-DEL)of exploitation of business assets, for making profit. The [Assessment Year 2006-07]assets were let out, while carrying out other business Section 92C of the Income-tax Act, 1961 - Transferactivities. There was nothing on record, to show that the Pricing - Computation ofappellant had sold away the properties or abandoned Where difference in arm’s length price determined by TPOits business activities. In the circumstances, in order to and price charged by assessee was less than 5 per cent,exploit business assets, as a prudent business decision, applying unamended proviso, addition had to be deletedthe appellant took interest free loan from the City Bank If the unamended proviso is compared with theand rented out, one of its properties to it, and shifted its amended proviso to section 92C(2), then, it is clearlyRegional Office. In this commercial venture, the appellant noticed that there is a substantial change in the relief givenreceived a higher income regularly from its commercial to the assessee. By the unamended proviso, an optionassets. Therefore, the whole income from renting of was given to the assessee to have its price of internationalproperty would be assessed as business income, and not transaction in variation of (+/-) 5 per cent of arithmeticalincome from property. mean through which the arm’s length price is determined by the TPO by adopting most appropriate method in a LD/60/50 case where more than one price is determined by the said Commissioner of Income-tax appropriate method. By the amended proviso, firstly it has Vs. been provided that in a case where more than one price Khemchand Motilal Jain is determined by the most appropriate method, the arm’s August 23, 2011 (MP-Jabalpur) length price will be the price as determined by adoptingSection 37(1) of the Income-tax Act, 1961 – Business arithmetical mean of such prices. It is further provided that1 Readers are invited to send their comments on the selection of cases and their utility at 24 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
  16. 16. LEGAL UPDATE Legal Decisions 682if the variation between arm’s length price so determined facts and a wrong claim made by assessee by withholdingand price at which international transaction has actually material facts fully and truly; it is only in latter case thatbeen undertaken and it does not exceed 5 per cent of the Assessing Officer would be entitled to proceed underlatter, then, the price at which the international transaction Section 147has actually been undertaken shall be deemed to be the The Petitioner filed return of Income for the assessmentarm’s length price. Thus, a deeming provision has been year 1997-98 along with the duly audited Accountscreated to adopt an arm’s length price if the price actually Tax Audit Report, etc. in respect of its income from theundertaken by the assessee does not exceed 5 per cent of manufacturing fabrication and servicing of components.the amount at which international transaction has actually After the assessment, the petitioners income for the saidbeen undertaken. Thus, 5 per cent difference has to be year was assessed by an Order under Section 143(3) of thereckoned from the price at which international transaction Act on 29-12-1999. An appeal against that was decided onhas actually been undertaken instead of reckoning from 31-7-2000 by the Commissioner of Income Tax of Appeals.price which is determined by the TPO, which was the On 18-3-2004, the Respondents issued the impugnedposition under unamended proviso. Thus, there is a basic notice for re-opening of assessment under Section 147.difference in both the provisos i.e., pre-amended and post The notice under section 148 stated that theamended. Assessing Officer had reasons to believe that income had A bare reading of the pre amended proviso will escaped assessment because the assessee had wronglyclearly reveal that in a case where more than one price claimed deduction under Section 80-IA in respect ofis determined by the most appropriate method, the arm’s income which was not derived from the income of thelength price shall be taken to be the arithmetical mean Petitioners Unit. Further, that long term capital gains hadof such prices, or at the option of the assessee, a price been wrongly claimed by the assessee which had beenwhich may vary from the arithmetical mean for an amount wrongly considered for the set off of the said Unit whichnot exceeding 5 per cent of such arithmetical mean. had resulted in escapement of income. Nowhere has the The arithmetical mean in the present case was 15.64 Assessing Officer stated that there was any failure on theper cent and by adopting the same, the arm’s length price part of the assessee to disclose fully and truly all materialhad been determined at R15,08,43,128/-. The arithmetical facts necessary for assessment.mean in the present case had been computed on the The Bombay High Court held that having regard to thebasis of three comparables; therefore, it was a case purpose of the section, the power conferred by Sectionwhere more than one price was determined by the most 147 does not provide a fresh opportunity to the Assessingappropriate method which is TNMM. If it is so, then, 5 Officer to correct an incorrect assessment made earlierper cent of a price which was determined by calculating unless the mistake in the assessment so made is thethe arithmetical mean was to be taken as the relevant result of a failure of the assessee to fully and truly disclosedifference for computing the benefit of safe harbour of all material facts necessary for assessment. Indeed,+/- 5 per cent. In other words, the safe harbour had to be where the assessee has fully disclosed all the materialcomputed with reference to arm’s length price determined facts, it is not open for the Assessing Officer to re-openby the TPO. The 5 per cent difference of arm’s length price the assessment on the ground that there is a mistake indetermined by the TPO came to R75,42,156 and if the assessment. Moreover, it is necessary for the Assessingsame was included in the revenue shown to be received Officer to first observe whether there is a failure to discloseby the assessee, the total would come to R15,08,75,869, fully and truly all material facts necessary for assessmentwhich was in excess of arm’s length price determined by and having observed that there is such a failure tothe TPO. Therefore, the difference in the arm’s length price proceed under Section 147. It must follow that where thedetermined by the TPO and charged by the assessee was Assessing Officer does not record such a failure he wouldless than 5 per cent. Therefore, applying the unamended not be entitled to proceed under Section 147.proviso the addition on that very ground had to be deleted In the instant case the Assessing Officer had notand was accordingly deleted. recorded the failure on the part of the Petitioner to fully and truly disclose all material facts necessary for the LD/60/52 assessment year. What was recorded was that the Titanor Components Ltd. Petitioner had wrongly claimed certain deductions which Vs. he was not entitled to. Assistant Commissioner of Income Tax There is a well known difference between a wrong June 9, 2011 (BOM-GOA) claim made by an assessee after disclosing all the true and [Assessment Year 1997-98] material facts and a wrong claim made by the assesseeSection 147 read with Section 80-IA of Income-tax by withholding the material facts fully and truly. It is only inAct, 1961 - Income escaping assessment the latter case that the Assessing Officer would be entitledThere is a well known difference between a wrong claim to proceed under Section 147.made by an assessee after disclosing all true and material 26 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
  17. 17. LEGAL UPDATE Legal Decisions 684 LD/60/53 considered in the appellant’s block assessment and the Status Home and Enclaves (P Ltd..) matter was required to be examined in the subsequent Vs. year. The Tribunal allowed the Revenue’s appeal. CIT The High Court of Calcutta held that it would appear August 12, 2011 (CAL) that the promissory note in question on the face of it did [Block Period from 1992-93 to 1997-98] not disclose that the same was payable to the appellant-Section 158B of the Income-tax Act, 1961 – Block company. On a plain reading of the said promissory note,assessment in search cases – Block Period/ it appears that on demand the firm TC promised to payUndisclosed income to the director of the appellant company a sum of R4 lacAny promissory note promising to pay an amount to a being the premium amount for development agreement.Director of company cannot be deemed to be an amount On the basis of such promissory note, the amountpayable to company; company cannot deny tax liability of was not payable to the appellant but was payable to itsequal sum disclose in search director. Any promissory note promising to pay an amount A search was conducted against the appellant to a Director of the company cannot be deemed to be anin course of which a promissory note in original was amount payable to the company and thus, the authoritiesseized from the residence of the appellant’s director. The below acted illegally in treating the amount payable underAssessing Officer initiated block assessment proceeding that promissory note to be an amount receivable by thepursuant to the said search against the appellant. appellant, the Company. The case of the appellant, a real estate business- However, having regard to the fact that in thecompany was that it undertook a project and invested promissory note itself, the development agreementdiverse amounts in the said project. The appellant being indicated and the appellant itself having taken theclaimed that due to paucity of fund, a development plea that the same was a security to the appellant, andagreement was entered into between the appellant and a the Commissioner (Appeals) having relied upon suchconstruction firm TC. In terms of the said agreement, the document, the matter was to be remanded back.said firm agreed to complete the project at its own costand, in turn, to provide a portion of the constructed area LD/60/54to the appellant by way of consideration. The appellant Deputy Commissioner of Income-taxclaimed that the said firm also agreed to pay the appellant Vs.a sum of R4 lac towards reimbursement of part of the Summit Securities cost and preliminary expenses incurred August 10, 2011 (ITAT-MUM-SB)by the appellant. In order to secure the payment of the [Assessment Year 2006-07]said sum of R4 lac, it had obtained from the said firm a Section 255 of the Income-tax Act, 1961 - Appellatepromissory note. Since the said firm did not pay the said Tribunal – Procedure ofsum of R4 lac to the appellant within the financial year Reference to Special Bench cannot be withdrawn merelyending on March 1997 and in the account for the relevant for reason that High Court has admitted identical questionfinancial year, the said sum of R4 lac was reduced from of law in another casethe cost of work-in-progress relating to the project and an There should be consistency in the approach ofidentical amount together with interest of R18,000/- was various Benches of the Tribunal. Once a case has beenshown as receivable from the said fund. decided by an earlier Bench, the subsequent Bench According to the appellant, the said firm had also should respect such decision and should not endeavourshown the said sum of R4 lac together with interest of to make departure therefrom unless the facts are differentR18,000/- as payable to the appellant during the relevant or the legal position appreciated by the earlier Benchfinancial year ending on March 31, 1997. The appellant has undergone change because of some statutoryfurther claimed that in the financial year ending on March amendment or enunciation of law by the Supreme Court31, 1998, the said firm allotted additional constructed area or the jurisdictional High Court. Consistency in the judicialto the appellant in the project and adjusted the said sum approach removes the sword of uncertainty hanging overof Rs.4 lac against the same. the heads of litigants. The Income-tax Appellate Tribunal The Assessing Officer treated the said sum of R4 lac is an all India Body working through its Benches acrossas the appellant’s undisclosed income for the block period the country. The judicial discipline requires that the viewon the ground that the promissory note did not indicate taken by one Bench should be respected and ordinarilythat the payment had not been made to the appellant and followed by the others. This type of approach results intofurther that the appellant could not furnish the agreement consistency in the administration of justice as the partieswith the said firm. can reasonably predict the decision of a subsequent The Commissioner (Appeals) allowed the appeal of Bench when the same issue has been decided by anthe appellant and held that the sum of R4 lac could not be earlier Bench. 28 THE CHARTERED ACCOUNTANT NOVEMbEr 2011