Newsletter January 2016talatiandtalati.com/img/our-publications/2016/newsletter...Preface Private &...

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Newsletter January 2016

Transcript of Newsletter January 2016talatiandtalati.com/img/our-publications/2016/newsletter...Preface Private &...

Page 1: Newsletter January 2016talatiandtalati.com/img/our-publications/2016/newsletter...Preface Private & Confidential Welcome 2016!!! Wishing all our readers a very Happy and Prosperous

Newsletter January2016

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Preface

Private & Confidential

Welcome 2016!!! Wishing all our readers a very Happy and Prosperous New Year and Happy

Makar Sankranti from entire Talati & Talati Family. Let this New Year bring happiness and good

professional opportunities.

The beginning of a New Year implies opportunity for a new beginning. New Year means

different things to different people. For some it is the start of the New Year with new vision, new

reason, new resolution, and new challenges. However, for all of us it means another calendar

year has started, and our journey has been kicked off for another milestone. It is, fittingly, a

time for looking forward, considering the lessons we learnt in past.

Our January month’s newsletter includes topic on Related Party Transaction under SEBI

(Listing Obligation & Disclosure Regulation), Few Circulars and Notifications, Case law on

Re-opening u/s 148 based on of revisiting of existing material is bad in law & Comprehensive

Chart of Penalties under Companies Act 2013.

And again, we are looking forward to your ideas, suggestions or feedbacks.

Enjoy Reading!!!!!

Regards,

Editorial Team

Talati & Talati

02 Dec. 2015

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Analysis of Regulation 23 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Listing Regulations) which relates to Related party transactions-

All the requirements and conditions to be fulfilled in case of related party transactions have been altered to be in line with the provisions of Companies Act, 2013.

“This is the provisions of SEBI (Listing Obligation & Disclosure Regulation) (LODR), which are applicable with immediate effect from 2nd September, 2015; Passing of ordinary resolution instead of special resolution in case of all material related party transactions subject to related parties abstaining from voting on such resolutions.“A. “RELATED PARTY” means a related party as defined under sub-section (76) of section 2 of the [1] Companies Act, 2013 or under the applicable accounting standards:

Not Applicable: This definition shall not be applicable for the Units Issued by Mutual Funds which are listed on a recognized stock exchange(s);

B. “Related Party [2] Transaction” means

Condition-1

• A transfer of Resources,

• A transfer of Services or

• A transfer of obligations

Condition-2: Between a Listed Entity and a Related Party.

Condition-3: Regardless of whether a price is charged and

Non Applicability: This definition shall not be applicable for the units issued by mutual funds which are listed on a recognized stock exchange(s);

•These provisions shall be applicable to all prospective transactions.

I. POLICY OF MATERIALITY: Listed entities shall formulate a policy on [3] Materiality of Related Party Transaction and on dealing with related party transactions.

Materiality of Related Party Transaction:

A transaction with a related party shall be considered material,

Related Party Transaction under SEBI (Listing Obligation & Disclosure Regulation)

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• if the transaction(s) to be entered into individually or taken together with previous transactions during a financial year,

• exceeds 10% of the annual consolidated turnover of the listed entity

• As per the latest Audited Financial Statements.

II. Condition for Related Party Transaction:

1.Prior approval of the audit committee is required and omnibus approval may be given.(sub regulation 2)

2.All material related party transactions shall require approval of the shareholders through a resolution [4]. (sub regulation 4)

3.Related parties shall abstain from voting on such resolutions, whether the entity is a related party to the particular transaction or not – Regulation 23(4). (sub regulation 4)

Abstain from Voting: For the purpose of this regulation, all entities falling under the definition of related parties shall abstain from voting irrespective of whether the entity is a party to the particular transaction or not.

III. Related Party Transactions already entered (Sub Regulation 8):

All existing material related party contracts or arrangements

• Entered into prior to the date of notification of these regulations and

• which may continue beyond such date

Shall be placed for approval of the shareholders in the first General Meeting subsequent to notification of these regulations.

Non Applicability:

The provisions of sub-regulations (2), (3) and (4) shall not be applicable in the following cases:

(a) Transactions entered into between Two [5] Government Companies;

(b)Transactions entered into between a Holding Company And Its Wholly Owned Subsidiary whose accounts are consolidated with such holding company and placed before the shareholders at the general meeting for approval.

[6] Omnibus approval by audit committee: [7]

Audit committee may grant omnibus approval for related party transactions proposed to be entered into by the listed entity subject to the following conditions, namely-

Conditions for omnibus approval:

a) The audit committee shall lay down the

• Criteria for Granting the omnibus approval in line with the policy on related party transactions of the listed entity and

• Such approval shall be applicable in respect of transactions which are repetitive in nature;

b) The audit committee shall Satisfy Itself regarding the need for such omnibus approval and that such approval is in the interest of the listed entity;

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c) The omnibus approval shall specify:

• The name(s) of the related party,

• Nature of transaction,

• Period of transaction,

• Maximum amount of transactions that shall be entered into,

• The indicative base price / current contracted price and

• The formula for variation in the price if any; and

• Such other conditions as the audit committee may deem fit

Approval of Omnibus transaction without fulfilling the above criteria:

Special Condition: where the need for related party transaction cannot be foreseen and aforesaid details are not available, audit committee may grant omnibus approval for such transactions subject to their value Not Exceeding Rupees One Crore per Transaction.

Duty of audit committee:

The audit committee shall review, at least on a Quarterly Basis, the details of related party transactions entered into by the listed entity pursuant to each of the omnibus approvals given.

Term of omnibus approval:

Omnibus approvals shall be valid for a period not exceeding one year and shall require fresh approvals after the expiry of one year.

Compliance requirement: regulation 27(2):

Details of all material transactions with related parties shall be disclosed in compliance report.

The listed entity shall submit a Quarterly Compliance Report on corporate governance in the format as specified by the Board from time to time to the recognized stock exchange(s) within 15 (fifteen days) from close of the quarter.

Disclosure requirement:

1.The listed entity shall disseminate on its website policy on dealing with related party transactions. regulation 46(2)(g)

2.The annual report of the listed entity shall contain disclosures related party disclosures as specified in Para A of Schedule V. regulation 53 (f)

Role of audit committee:

1.The audit committee shall mandatorily review statement of significant related party transactions (as defined by the audit committee), submitted by management

Conclusion:

This regulation corresponds to Clause 49VI of the Listing Agreement. The definition of related party in Listing Regulations 2015 continues to define related party as a synthesis of Companies Act, 2013 and Accounting Standard – 18.

Therefore, as per regulation 23(8), all the existing material related party contracts or

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arrangements entered into prior to the date of notification of these regulations and which may continue beyond such date shall be placed for approval of the shareholders in the first General Meeting subsequent to notification of these regulations. Now the ordinary resolution will suffice the purpose of approval from shareholders instead of special resolution in Listing Agreement.

Still the related parties are abstain from voting on such resolutions whether they are related party to that particular transaction or not.

This point differs with Section 188 of the Companies Act, 2013 whereby the Ministry of Corporate Affairs clarified vide General Circular No. 30/2014 dated 17.07.2014, only the related party in the context of the contract or arrangement were abstained from voting.

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06 Jan. 2016

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CBDT enhances monetary limits for filing of appeals with retrospective effect

Circular No. 21/2015

F No 279/Misc. 142/2007-ITJ (Pt)

Government of India

Ministry of Finance

Department of Revenue

Central Board Direct Taxes

New Delhi the 10th December, 2015

Subject : Revision of monetary limits for filing of appeals by the Department before Income Tax Appellate Tribunal and High Courts and SLP before Supreme Court – measures for reducing litigation – Reg.

Reference is invited to Board’s instruction No 5/2014 dated 10.07.2014 wherein monetary limits and other conditions for filing departmental appeals (in Income-tax matters) before Appellate Tribunal and High Courts and SLP before the Supreme Court were specified.

2.In supersession of the above instruction, it has been decided by the Board that departmental appeals may be filed on merits before Appellate Tribunal and High Courts and SLP before the Supreme Court keeping in view the monetary limits and conditions specified below.

3. Henceforth, appeals/ SLPs shall not be filed in cases where the tax effect does not exceed the monetary limits given hereunder:

Private & Confidential

07 Jan. 2016

Sr. No.

1

2

3

Appeals in Income-tax matters

Before Appellate Tribunal

Before High Court

Before Supreme Court

Monetary Limit (in Rs)

10,00,000/-

20,00,000/-

25,00,000/-

Circulars

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It is clarified that an appeal should not be filed merely because the tax effect in a case exceeds the monetary limits prescribed above. Filing of appeal in such cases is to be decided on merits of the case.

4. For this purpose, “tax effect” means the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of the issues against which appeal is intended to be filed (hereinafter referred to as “disputed issues”). However the tax will not include any interest thereon, except where chargeability of interest itself is in dispute. In case the chargeability of interest is the issue under dispute, the amount of interest shall be the tax effect. In cases where returned loss is reduced or assessed as income, the tax effect would include notional tax on disputed additions. In case of penalty orders, the tax effect will mean quantum of penalty deleted or reduced in the order to be appealed against.

5. The Assessing Officer shall calculate the tax effect separately for every assessment year in respect of the disputed issues in the case of every assessee. If, in the case of an assessee, the disputed issues arise in more than one assessment year, appeal, can be filed in respect of such assessment year or years in which the tax effect in respect of the disputed issues exceeds the monetary limit specified in para 3. No appeal shall be filed in respect of an assessment year or years in which the tax effect is less than the monetary limit specified in para 3. In other words, henceforth, appeals can be filed only with reference to the tax effect in the relevant assessment year. However, in case of a composite order of any High Court or appellate authority, which involves more than one assessment year and common issues in more than one assessment year, appeal shall be filed in respect of all such assessment years even if the ‘tax effect’ is less than the prescribed monetary limits in any of the year(s), if it is decided to file appeal in respect of the year(s) in which ‘tax effect’ exceeds the monetary limit prescribed. In case where a composite order/ judgement involves more than one assessee, each assessee shall be dealt with separately.

6. In a case where appeal before a Tribunal or a Court is not filed only on account of the tax effect being less than the monetary limit specified above, the Commissioner of Income-tax shall specifically record that “even though the decision is not acceptable, appeal is not being filed only on the consideration that the tax effect is less than the monetary limit specified in this instruction”. Further, in such cases, there will be no presumption that the Income-tax Department has acquiesced in the decision on the disputed issues. The Income-tax Department shall not be precluded from filing an appeal against the disputed issues in the case of the same assessee for any other assessment year, or in the case of any other assessee for the same or any other assessment year, if the tax effect exceeds the specified monetary limits.

7. In the past, a number of instances have come to the notice of the Board, whereby an assessee has claimed relief from the Tribunal or the Court only on the ground that the Department has implicitly accepted the decision of the Tribunal or Court in the case of the assessee for any other assessment year or in the case of any other assessee for the same or any other assessment year, by not filing an appeal on the same disputed issues. The Departmental representatives/counsels must make every effort to bring to the notice of the Tribunal or the Court that the appeal in such cases was not filed or not admitted only for

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08 Jan. 2016

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the reason of the tax effect being less than the specified monetary limit and, therefore, no inference should be drawn that the decisions rendered therein were acceptable to the Department. Accordingly, they should impress upon the Tribunal or the Court that such cases do not have any precedent value. As the evidence of not filing appeal due to this instruction may have to be produced in courts, the judicial folders in the office of CsIT must be maintained in a systemic manner for easy retrieval.

8. Adverse judgments relating to the following issues should be contested on merits notwithstanding that the tax effect entailed is less than the monetary limits specified in para 3 above or there is no tax effect:

(a) Where the Constitutional validity of the provisions of an Act or Rule are under challenge, or

(b) Where Board’s order, Notification, Instruction or Circular has been held to be illegal or ultra vires, or

(c)Where Revenue Audit objection in the case has been accepted by the Department, or

(d) Where the addition relates to undisclosed foreign assets/ bank accounts.

9. The monetary limits specified in para 3 above shall not apply to writ matters and direct tax matters other than Income tax. Filing of appeals in other Direct tax matters shall continue to be governed by relevant provisions of statute & rules. Further, filing of appeal in cases of Income Tax, where the tax effect is not quantifiable or not involved, such as the case of registration of trusts or institutions under section 12A of the IT Act, 1961, shall not be governed by the limits specified in para 3 above and decision to file appeal in such cases may be taken on merits of a particular case.

10. This instruction will apply retrospectively to pending appeals and appeals to be filed henceforth in High Courts/ Tribunals. Pending appeals below the specified tax limits in para 3 above may be withdrawn/ not pressed. Appeals before the Supreme Court will be governed by the instructions on this subject, operative at the time when such appeal was filed.

11. This issues under Section 268A (1) of the Income-tax Act 1961.

(D. S. Chaudhry)

CIT (A&J), CBDT,

New Delhi

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09 Jan. 2016

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SEBI: Facility for Basic Services Demat Account (BSDA)

Securities and Exchange Board of India

Circular No. CIR/MRD/DP/ 20/2015

Dated- December 11, 2015

To,

The Depositories

Dear Sir/ Madam,

Subject: Facility for Basic Services Demat Account (BSDA)

1. SEBI vide circular no. CIR/MRD/DP/22/2012 dated August 27, 2012 had introduced the facility of “Basic Services Demat Account” (BSDA) with limited services for eligible individuals with the objective of achieving wider financial inclusion and to encourage holding of demat accounts.

2. Further, vide the aforesaid circular, the Depository Participants (DPs) were advised to provide an option to all the existing eligible individuals to convert their demat account into BSDA. So far, few demat accounts have actually been converted into BSDA during the last three years despite large number of demat accounts being eligible for conversion into BSDA.

3. In order to facilitate the eligible individuals to avail the benefits of BSDA, DPs are advised to convert all such eligible demat accounts into BSDA unless such Beneficial Owners (BOs) specifically opt to continue to avail the facility of a regular demat account.

4. The DPs shall assess the eligibility of the BOs at the end of the current billing cycle and convert eligible demat accounts into BSDA.

5. The Depositories are advised to:-

a) make amendments to the relevant bye-laws, rules and regulations for the implementation of the above decision as may be applicable / necessary; and

b) communicate to SEBI, the status of implementation of the provisions of this circular by the DPs in the Monthly Development Report.

6. This circular is being issued in exercise of the powers conferred by Section 11 (1) of Securities and Exchange Board of India Act, 1992 and section 19 of the Depositories Act, 1996 to protect the interest of investors in securities and to promote the development of, and to regulate, the securities market.

Yours faithfully,

Susanta Kumar DasDeputy General Manager

[email protected]

Private & Confidential

10 Jan. 2016

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[TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY, PART II, SECTION 3, SUB-SECTION (i)]

Government of India

Ministry of Finance

(Department of Revenue)

NOTIFICATION

No. 44/2015-Central Excise

thNew Delhi, the 24 November, 2015

G.S.R. (E).- In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby makes the following further amendments in the notification of the Government of India, in the Ministry of Finance (Department of Revenue), No. 12/2012-Central Excise, dated the 17thMarch, 2012, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 163(E), dated the 17thMarch, 2012, namely:-

In the said notification, in the Table,-

i. in serial number 306B, in column (3), the following Explanation shall be inserted, namely:- Explanation- Nothing contained in this exemption shall have effect on or after the 24th day of November, 2015. ;

ii.after serial number 306B and the entries relating thereto, the following serial number

306C Any Chapter

Nil 2 and 3.Raw materials and parts, for use in the manufacture of goods falling under heading/tariff item 8901, 8902, 8904 00 00, 8905 (except tariff item 8905 20 00) or 8906 Explanation.- For the purposes of this entry, it is clarified that in the case of steel already procured under Sl.No.306B above and lying unutilized,-

i. the unit will furnish a separate bond to the jurisdictional Deputy Commissioner of Central Excise or the Assistant

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Notification

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306C Any Chapter

Nil 2 and 3.Commissioner of Central Excise, as the case may be, giving details of such goods and also undertake to utilize the same for manufacture of goods falling under heading/tariff item 8901, 8902, 8904 00 00, 8905 (except tariff item 8905 20 00) or 8906; and

ii. in the event of failure to use such goods for the specified purpose, the unit shall pay on demand, an amount equal to the duty payable on such goods but for the exemption under this notification.

[F.No. 354/166/2014-TRU]

(K. Kalimuthu)

Under Secretary to the Government of India

Note- The principal notification No. 12/2012-Central Excise, dated the 17th March, 2012, was published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 163(E), dated the 17th March, 2012 and last amended vide notification No. 43/2015-Central Excise, dated the 6th November, 2015, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 844(E), dated the 6th November, 2015.

[TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY, PART II, SECTION 3, SUB-SECTION (i)]

Government of India

Ministry of Finance

(Department of Revenue)

Notification

No. 45/2015-Central Excise

New Delhi, the 24th November, 2015

G.S.R. (E).- In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944), read with sub-section (3) of section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957) and sub-section (3) of section 3 of the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 (40 of 1978), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby makes the following further amendment in the notification of the Government of India, in the Ministry of Finance (Department of Revenue), No. 22/2003-Central Excise, dated the

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12 Jan. 2016

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31st March, 2003, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 265(E), dated the 31st March, 2003, namely:-

In the said notification, in Paragraph 6, for the second proviso, the following proviso shall be substituted, namely:-

Provided further that where such articles (including rejects, waste, scrap and remnants) are either non excisable or such articles (including rejects, waste, scrap and remnants) other than articles falling under heading/tariff item 8901, 8902 00 10, 8905 10 00 or 8906 if imported, are leviable to nil rate of duty of customs specified under First Schedule to the Customs Tariff Act, 1975 (51 of 1975) and nil additional duty leviable under section 3 of the said Customs Tariff Act, read with exemption notification in this regard , if any, no exemption in respect of inputs utilized for the purpose of processing, manufacture, production or packaging of such articles (including rejects, waste, scrap and remnants) shall be available under this notification .

[F.No. 354/166/2014-TRU]

(K. Kalimuthu)

Under Secretary to the Government of India

Note- The principal notification No. 22/2003-Central Excise, dated the 31st March, 2003 was published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 265(E), dated the 31st March, 2003 and last amended by notification No. 30/2015-Central Excise, dated the 25th May, 2015, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 419 (E), dated the 25th May, 2015.

Minimum Export Price (MEP) revised to US$ 400 F.O.B. per MT.

(To be published in the Gazette of India Extraordinary Part-II, Section – 3, Sub-Section ii)

Government of India

Ministry of Commerce & Industry

Department of Commerce

Udyog Bhawan

Notification No. 26/2015-20

New Delhi, Dated: 11th December, 2015

Subject: - Export Policy of Onions- revision in Minimum Export Price (MEP).

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13 Jan. 2016

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S.O. (E) In exercise of powers conferred by Section 5 of the Foreign Trade (Development & Regulation) Act, 1992 (No. 22 of 1992), as amended, read with Para 1.02 of the Foreign Trade Policy, 2015-20, the Central Government hereby makes the following amendment, with immediate effect, in Notification No. 18/2015-20 dated 24.08.2015 read with Notification No. 73 (RE- 2013)/2009-14 dated 12.03.2014 relating to export of onion.

2. Para 2 of Notification No. 18/2015-20 dated 24.08.2015 is amended to read as:

“Export of onion for the item description at Serial Number 51 & 52 of Chapter 7 of Schedule 2 of ITC (HS) Classification of Export & Import Items shall be permitted subject to a Minimum Export Price (MEP) of US$ 400 F.O.B. per Metric Ton”.

3. Effect of this notification:

The Minimum Export Price (MEP) for export of all varieties of onions as described above is revised from US$ 700 F.O.B. per MT to US$ 400 F.O.B. per MT.

(Anup Wadhawan)

Director General of Foreign Trade

E-mail: [email protected]

(Issued from File No. 01/91/180/922/AM08/PC-III/Export Cell)

[To Be Published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-Section (I)]

Government of India

Ministry of Finance

(Department of Revenue)

NOTIFICATION No. 56/2015-Customs

New Delhi, the Dated- 11th December, 2015

G.S.R.- In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby makes the following further amendment in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No.39/96-Customs, dated the 23rd July, 1996, published in the Gazette of India, Extraordinary, vide number G.S.R. 291(E), dated the 23rd July, 1996, namely:-

In the said notification, in the TABLE, against S.No.13, in column (3), the Explanation shall be omitted.

[F.No. 354/190/2015-TRU]

(Anurag Sehgal)

Under Secretary to the Government of India

Note.- The principal notification No.39/96-Customs dated the 23rd July, 1996 was published in the Gazette of India, Extraordinary, Part-II, Section 3, Sub-section (i) vide number G.S.R.

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14 Jan. 2016

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291 (E), dated the 23rd July,1996 and last amended vide notification No. 42/2015-Customs dated the 30th July, 2015, published in Gazette of India, Extraordinary part II, Section 3, Sub-section (i) vide number G.S.R.599(E), dated the 30th July, 2015.

Sec. 80C deduction on Investment in HDFC Retirement Saving Fund eligible from AY 2016-17

Government of India

Ministry of Finance

Department of Revenue

(Central Board of Direct Taxes)

Notification No. 91/2015

New Delhi, the 8th December, 2015

S.O. (E) – In exercise of the powers conferred by clause (xiv) of sub-section 2 of the section 80C of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby specifies the HDFC Retirement Savings Fund, set up by the HDFC Mutual Fund registered under the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 having registration No. MF/044/00/6, dated the 30th June 2000, as a pension fund for the purposes of the said section for the assessment year 2016-17 and subsequent assessment years.

This notification shall come into force from the date of its publication in the Official Gazette.

[F. No. 178/21/2014-ITA.I]

(Rohit Garg)

Deputy Secretary to the Govt. of India

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15 Jan. 2016

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Re-opening u/s 148 based on of revisiting of existing material is bad in law

Case law Citation:

Mohan Jhangiani vs ACIT (ITAT Kolkata), ITA No.1039/Kol/2011, A.Y. 2006-07, Date of Order: 06.11.2015

Brief of the case:

In Mohan Jhangiani vs ACIT, Kolkata Tribunal held that Non-consideration of the relevant provisions of the Act while forming a belief that income has escaped assessment is not permissible as per law. Further, the assumption of jurisdiction u/s 147 by the Learned AO is based only on change of opinion and made without any tangible material on record, hence the reopening of assessment u/s 148 and consequential reassessment order passed u/s 147 is bad in law.

Fact of the Case:

The assessee was a shareholder and director in two companies namely PAN Services Pvt Ltd and Cemcoat India Pvt Ltd. The said companies choose to avail the easy exit scheme brought out by the Ministry of Corporate Affairs in view of no running business operations. The Companies went into liquidation in accordance with the provision of the Companies Act, 1956 and shares

held by the assessee got extinguished. Admittedly, no consideration was paid by the companies to the shareholder and accordingly the assessee claimed the long term capital loss duly indexed amounting to Rs. 3, 48,579/- to be eligible to be carried forward to subsequent years. The detailed workings of the same had been filed along with the return of income by the assessee. The Assessment was completed u/s 143(3) of the Act accepting the income returned. No finding was given in the said assessment order with regard to examination of the veracity of the long term capital loss claimed by the assessee and with regard to the eligibility of the same to be carried forward to subsequent years. Later this assessment was sought to be reopened by issuance of notice u/s 148 of the Act and loss claim by the assessee disallowed by the A.O which was upheld by the Learned CIT (A). Aggrieved, the assessee filed appeal before Tribunal.

Contention of Assessee:

The Ld. AR argued that the relevant provisions to be looked into in the facts of the case is section 46(2) of the Act which has not been applied by the Learned AO while forming an opinion of reason to believe that income has escaped. He further argued that formation of belief for reopening the assessment without considering the relevant provisions of the Act is

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16 Jan. 2016

Case Law

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bad in law. He placed reliance on the decision of the Gujarat High Court in the case of Devesh Metcast Ltd vs JCIT reported in (2011) 338 ITR 130 (Guj) in support of this contention. He further argued that the provision of section 46(2) of the Act is a deeming provision and hence full effect has to be given to the same. As per sec 46(2), the capital gain arising out of extinguishment of capital assets pursuant to liquidation of company shall be chargeable to tax in the hands of the shareholders as company could not be in existence after liquidation. In this regard, he placed reliance on the decision of Gujarat High Court in the case of CIT vs Jaykrishna Harivallabhdas reported in (2000) 112 Taxman 683 (Guj) in support of this contention. He further argued that the reopening is bad in law in the facts of the case as even though it is done within 4 years but still all the details were already on record before the Learned AO and hence there is no tangible material with the Learned AO which enables him to form an opinion that income has escaped assessment. It only amounts to revisiting of existing materials already available on record which is not permissible in law. Hence it only amounts to change of opinion.

Contention of Revenue:

The Learned DR argued that the assessee as a director had filed affidavit before the Registrar of Companies that there are no liabilities exist in the company as on the date of filing of application. Hence it could be concluded that the assessee had received consideration for his extinguishment of rights in the shares held by him which was not disclosed by the assessee and hence the long term capital loss could not be allowed to be carried forward.

Held by Tribunal:

The Tribunal found that the provisions of section 46(2) of the Act are squarely applicable in the facts of the instant case. Hence the Learned AO had reopened the assessment without considering the provisions of section 46(2) of the Act and hence his basic formation of belief that income has escaped assessment fails. It is settled law that formation of belief by the Learned AO should have direct nexus with the provisions of the Act and in this case, it fails directly. Non-consideration of the relevant provisions of the Act while forming a belief that income has escaped assessment is not permissible as per law. In this regard, the reliance on the decision of Gujarat High Court in the case of Devesh Metcast Ltd vs JCIT reported in (2011) 338 ITR 130 (Guj) is very well placed and is directly on the point, wherein it was held that:-

19. As submitted by the learned counsel for the respondent, it may be that the Assessing Officer has reopened the assessment under an honest belief that income chargeable to tax has indeed escaped assessment, however, if such honest belief is entertained on an erroneous interpretation of the relevant statutory provisions, the assessee should not be required to face the rigours of reassessment merely because the Assessing Officer entertains an honest belief. Such honest belief should be based upon the material on record and should, in fact, give rise to the belief that income has escaped assessment.

Further, when the fact of liquidation is not disputed on record and there is no evidence brought on record as to whether any consideration was indeed received by the assessee on extinguishment of rights in shares, the assessee’s claim of long term capital loss needs to be allowed to carry forward to subsequent years. In this regard, reliance on the decision of Gujarat High Court in the case of CIT vs Jaykrishna Harivallabhdas reported in (2000) 112 Taxman 683 (Guj) is very well placed and is directly on the impugned issue. The

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instant case was concerned with the return of capital of shareholder, which is a final act in the process of winding up. The conclusion reached was that even extinguishment of the right of a shareholder amounts to transfer for the purposes of section 48. In a case where nothing is distributed on liquidation of a company, the extinction of rights would result in total loss with no consequence. A shareholder who has incurred total loss in a transaction of sale of shares would be entitled to claim set-off or carry forward as the cased may be, in respect of capital loss suffered by virtue of section 45 read with section 48, 71 and 74. There is, therefore, no reason why a shareholder, who is in distribution of assets has not received any deemed consideration in satisfaction of his rights and interests in the holding and has thereby suffered a total loss, cannot claim the benefit of set-off or carry forward of the loss suffered by him.

The Tribunal also found that the Learned AO had originally completed the assessment u/s 143(3) of the Act and the details of computation of long term capital loss is part and parcel of the memo of income filed along with the return of income by the assessee. Even though the reopening in this case was done within the period of 4 years, we find that there is absolutely no tangible material available with the Learned AO to come to a conclusion that income has escaped assessment. It only amounts to revisiting of the existing materials already available on record. It only amounts to change of opinion on which ground reopening is not permissible as per law. In support, reliance was placed on the decision of CIT vs. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC), CIT vs. Bhanji Lavji [1971] 79 ITR 582 (SC) and CIT-Central I vs M/s Kanoi Industries (P) Ltd in ITA No. 108 of 2012 dated 15.6.2012 rendered by the Jurisdictional Calcutta High Court.

Respectfully following the judicial precedents on the impugned subject including that of Supreme Court, Jurisdictional High Court and other High Courts, reassessment order passed u/s 147 was held to be bad in law and accordingly the reassessment proceedings stand quashed.

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Comprehensive Chart of Penalties under Companies Act 2013

Section Number Section Name Penalty Heading Penalty DescriptionSr.No.

Such person shall be punishable with imprisonment for a term which may extend to six months and or with fine which may extend to fifty thousand rupees and where the contravention is a continuing one, with a further fine which may extend to five hundred rupees for every day after the first during with the contravention continues

The Company and every officer who is in default shall be punishable with the fine which shall not be less than fifty thousand rupees but which may extend to five lakhs rupees

The Company and every officer who is in default shall be punishable with the fine which shall not be less than fifty thousand rupees but which may extend to five lakhs rupees

Company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to ten thousand rupees and where the contravention is continuing one with a further fine which may extend to one thousand rupees for every day after the first during which the contravention continues

The company shall be punishable with fine which shall not be less than twenty ‐five thousand rupees but which may

extend to one lakh rupees and every officer of the company who is in default shall be punishable with fine which shall not be less than twenty five thousand rupees but which may extend to one lakh rupees

Director to intimate DirectorIdentificationNumber.

Company to inform Director IdentificationNumber to Registrar

Obligation to indicate Director Identification Number

Right of personsother than retiring directors to stand for directorship

Right of personsother than retiringdirectors to stand for directorship

Section 156

Section 157

Section 158

Section 160

Section 160

126

127

128

129

130

Default in complying with any requirement under this section by any director

Failure to furnish DIN under sub‐section

(1), before the expiry o f t h e p e r i o d s p e c i f i e d u n d e r section 403 with additional fee.

Default in complying with any requirement under this section

Default in complying with any requirement under this section

Default in complying with any requirement under this section by the director

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Section Number Section Name Penalty Heading Penalty DescriptionSr.No.

The Company and every officer who is in default shall be punishable with the fine which shall not be less than fifty thousand rupees but which may extend to five lakhs rupees

Company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to ten thousand rupees and where the contravention is continuing one with a further fine which may extend to one thousand rupees for every day after the first during which the contravention continues

The Company and every officer who is in default shall be punishable with the fine which shall not be less than fifty thousand rupees but which may extend to five lakhs rupees

Company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to ten thousand rupees and where the contravention is continuing one with a further fine which may extend to one thousand rupees for every day after the first during which the contravention continues

Company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to ten thousand rupees and where the contravention is continuing one with a further fine which may extend to one thousand rupees for every day after the first during which the contravention continues

The Company and every officer who is in default shall be punishable with the fine which shall not be less than fifty thousand rupees but which may extend to five lakhs rupees

Appointment ofadditional director,alternate directorand nomineedirector

Appointment of additional director,alternate directorand nomineedirector

Appointment of directors to be voted individually

Appointment of directors to be voted individually

Appointment of directors to be voted individually

Option to adoptprinciple of proportionalrepresentation for appointment of directors

Section 161

Section 161

Section 162

Section 162

Section 162

Section 163

131

132

133

134

134

135

Default in complying with any requirement under this section

Default in complying with any requirement under this section by the director

Default in complying with any requirement under this section

Default in complying with any requirement under this section by the director

Default in complying with any requirement under this section by the director

Default in complying with any requirement under this section

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Section Number Section Name Penalty Heading Penalty DescriptionSr.No.

The Company and every officer who is in default shall be punishable with the fine which shall not be less than fifty thousand rupees but which may extend to five lakhs rupees

Company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to ten thousand rupees and where the contravention is continuing one with a further fine which may extend to one thousand rupees for every day after the first during which the contravention continues.

The company and every officer in default shall be punishable with fine which shall not be less than five thousand rupees but which may extend to twenty‐five

thousand rupees for every day during which the contravention continues.

Such person shall be punishable with fine which shall not be less than five thousand rupees but which may extend to twenty five thousand rupees for every day after the first during which the contravention continues

Any director who contravenes the provisions of this section shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakhs rupees

Such director shall be punishable with imprisonment for a term which may extend to 1 year or with fine which shall not be less than one lakh rupees but which may extend to five lakhs rupees, or with both.

Disqualifications for appointment of director

Disqualifications for appointment of director

Number of directorships

Number ofdirectorships

Duties of directors

Vacation of office of director

Section 164

Section 164

Section 165

Section 165

Section 166

Section 167

136

137

138

139

140

141

A p p o i n t m e n t o f d i rector, who is disqualified as per the provisions of this section

Default in complying with any requirement under this section by the director

Default in complying with any requirement under this section

Default in complying with any requirement under this section by the director

Default in complying with any requirement under this section by the director

Any person, who after knowing that the office of director held by him has become vacant on a c c o u n t o f a n y d i s q u a l i f i c a t i o n s p e c i f i e d i n sub‐section (1), still

acts as a director

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Section Number Section Name Penalty Heading Penalty DescriptionSr.No.

The company and every officer in default shall be punishable with fine which shall not be less than five thousand rupees but which may extend to twenty‐five

thousand rupees for every day during

Company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to ten thousand rupees and where the contravention is continuing one with a further fine which may extend to one thousand rupees for every day after the first during which the contravention continues.

The Company and every officer who is in default shall be punishable with the fine which shall not be less than fifty thousand rupees but which may extend to five lakhs rupees

Every officer of the company whose duty is to give notice under this section and who fails to do so shall be liable to a penalty of twenty‐five thousand rupees

Company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to ten thousand rupees and where the contravention is continuing one with a further fine which may extend to one thousand rupees for every day after the first during which the contravention continues

Company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to ten thousand rupees and where the contravention is continuing one with a further fine which may extend to one thousand rupees for every day after the first during which the contravention continues

Vacation of office of director

Resignation ofdirector

Removal of directors

Meetings of Board

Meetings of Board

Quorum for meetings of Board

Section 167

Section 168

Section 169

Section 173

Section 174

Section 175

142

143

144

145

146

147

Default in complying with any requirement under this section

Default in complying with any requirement under this section by the director

Default in complying with any requirement under this section

Failure by the officer of the company to give notice under this section

Default in complying with any requirement under this section except those relating to sending of notices

Quorum for meetings of Board

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Section Number Section Name Penalty Heading Penalty DescriptionSr.No.

Company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to ten thousand rupees and where the contravention is continuing one with a further fine which may extend to one thousand rupees for every day after the first during which the contravention continues

Company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to ten thousand rupees and where the contravention is continuing one with a further fine which may extend to one thousand rupees for every day after the first during which the contravention continues

The company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to 1year or with fine which shall not be less than twenty‐five thousand

rupees but which may extend to one lakh rupees or with both.

Passing of resolution bycirculation

Defects in appointment of directors not toinvalidate actions taken

Audit committee

Section 175

Section 176

Section 177

148

149

150

Default in complying with any requirement under this section

Default in complying with any requirement under this section

Default in complying with the provisions related to this section

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*If payment of MVAT made as per time prescribed, additional 10 days are given for uploading e-return

5Service TaxService tax Payment by Companies for DecemberService tax Payment by other than Companies for October to December

6Central Excise Payment of Excise duty for all Assessees(Including SSI Units)

10Central ExciseFilling ER-1 Return(Other than SSI Units)Filling Quarterly ER-3 Return by SSI Units availing small scale exemptionFilling Quarterly Return ER-8 by the units paying 2% dutyFilling Quarterly Return ER-2 by 100% EOUs.Filling monthly ER-6 Returns by specified class of Assessees regarding principal inputs

15Income Tax TDS/TCS Quarterly Statements(other than Government Deductor)

P.F.P.F. Payment for NovembeOctober to December

Central Excise Filling Quarterly Returns(ANN.13B) by the registered dealers.

7Income taxTDS Payment of December

20Central Excise Due Date for filing Quarterly Returns (Annexure 75) bu units availing area-based exemption

MVATTDS Payment of December

21E.S.I.C. E.S.I.C. Payment for December

MVAT*Monthly and Quarterly payment till DecemberMVAT Monthly Returns for December.(TAX>1000000)MVAT Quarterly Returns for October to December.(TAX>100000/-<=1000000/-)

30

31

Income taxIssue of TDS Certificate (Form16A) by Non-Government Deductor for Q3

Prof.TaxPayment for December

January

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