Background MaterialSeminar oneXtensible Business Reporting Language ( XBRL) &

Tax Audit

September 11, 2010 Hotel Le Meridien, Janpath Windsor Place, New Delhi

Northern India Regional Council ofThe Institute of Chartered Accountants of India

Organised by

XBRL An OverviewIntroduction to XBRL and the basic concepts of XBRL

Compiled by:

Shri S. Swaminathan CA. Indrajit Shah

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XBRL An OverviewUnderstanding XBRLIntroduction

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BRL stands for eXtensible Business Reporting Language. It is an open standard, and being developed by XBRL International, a non-profit organization. XBRL is a revolutionary concept in the world of business and financial information and will have a far reaching impact across the entire financial reporting chain. Worldwide adoption of XBRL as the information standard for business and financial reporting has gathered substantial pace in past two years with regulators in US, Japan, European Union, China and now in India successfully implementing XBRL based reporting systems. XBRL means bar-coding business information with tags. The business information no longer remains a block of text but each information element is tagged which makes it computer-readable. Traditional business reporting is done in various formats viz. printed financials, spreadsheets, PDF documents, html and so on. All these are human readable and can be interpreted by human beings or by systems with human intervention. The structure of XBRL makes handling and processing of business data platform independent. It supports all the standard tasks involved in compiling, storing and using business data. All types of entities can experience cost benefits and process efficiencies with the use XBRL. Extensibility being one of the underlying principles of XBRL, it can be easily adapted to a wide variety of different requirements. All the stakeholders of the financial information supply chain can benefit.

Need for XBRLXBRL is rapidly being adopted worldwide as a de facto financial and business reporting standard. XBRL facilitates convergence of accounting standards by the ability to align financial concepts among public taxonomies. Stock Exchanges, Supervisory and Regulatory bodies across globe are looking forward for XBRL adoption. Few reasons why should XBRL be adopted1.Accurate and Quality Data XBRL validates the data based on the rules and relationships defined amongst the data elements, which results in obtaining clean and valid. 2. Automation With XBRL, the intelligence of understanding and interpreting the data is transferred to the system and this facilitates automation in data processing and management. By using XBRL, companies and other producers of financial data and business reports can automate the processes of data collection. 3. Reduce cost of ownership of data The XBRL data is interoperable and thus created once can be used by multiple agencies seamlessly. And as a result of interoperability the overall cost of creating data and meeting the compliance requirements is reduced dramatically. Moreover, XBRL is a open and royalty free standard

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XBRL An Overview4. Reduce reporting burden Many of the information requirements of the different agencies is similar and companies have to submit the same multiple times. As the data is interoperable, the redundant information elements can be done away with and thus reducing the reporting burden on enterprises 5. Seamless Integration The XBRL data carries along with it, the additional attributes and facts, which makes the data self-explanatory. And thus the data remains no longer dependent on any application or platform for interpretation and processing. The XBRL data can be easily integrated into any system 6. Efficient Business Processing As XBRL cuts down the time spent on less efficient process like rekeying and re-arranging data, the entire business process now becomes more efficient and productive. XBRL will streamline the preparation of business and financial reports for internal and external decision making. 7. Easy location of data All the information is identified with a unique XBRL tag and this makes locating the data from a vast information repository or from a voluminous report very easy and quick. Since related information is linked (like facts and relevant footnotes), retrieving information is done in no time. 8. Consumer oriented reporting - Consumers can collaborate and share the analytical concepts and are no longer dependent on the reporting concepts embedded in specific software. And consumers can now dynamically design and share their own business reports. 9. Social Analytics - The existing social media like Wikipedia, Facebook, etc, facilitates collaboration of a wide range of participants. XBRL enables a similar social collaboration of analytical and modeling concepts. 10. Real-time data Because of automation and creation of accurate and valid data, the processing of data becomes much faster and so does its dissemination. Thus the information seekers can access the data in real-time. 11. Better Coverage by Analyst community The time required for analysis is quite high because the data is first rekeyed, validated and arranged according to the needs. Since all these activities are no longer required in XBRL based framework and hence the analyst have time to focus on small companies 12. Comparative Analysis XBRL, being a universal standard, facilitates comparison between companies across globe 13. Transparent Data XBRL facilitates better and faster access to information; transparency in the whole information supply chain is increased.

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XBRL An OverviewBeneficiaries of XBRL dataRegulators Greater transparency through ease of analysis of the regulated entities filings Increase data accuracy Dramatically reduced the time to process filings from weeks to days Rise in analyst productivity Validate and review data much more efficiently and usefully than they have hitherto been able to do. Corporate Community Cost savings in preparation, report creation, analysis. High flexibility through the use of dashboard based business rules. This leads to significant savings in man hours and lead time in compliance and consolidation Faster availability of data into standard reports Extracts data from accounting packages and makes it standardized and portable Provides a common framework of definitions Easy data handling due to standardization and automation, centralization of delivery A pioneering status among enterprises in the use of XBRL in India. Image enhancement in the marketplace through Increase of quality and consistency of data Auditors Automate financial statements handling, cutting out time-consuming and costly collation and re-entry of information. Accurate and Quality Data Facilitates audit trail Equity Analyst/Investment Banker/Credit Analyst/Investors Easier access to financial data Easier analysis and comparison of financial data Utilizing a publicly available XBRL database of Risk Return filings or prospectuses, could easily, in a matter of minutes, identify funds for review based upon fund type, return history and expense information Simplify the selection and comparison of data, and deepen their company analysis Time required for analysis, validation and arranging financial information according to the needs is greatly reduced.

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XBRL An OverviewHow XBRL worksXBRL has evolved from XML (extensible mark-up language) which is based on the concept of metadata. This meta-data provides context to the information which makes the data almost selfexplanatory. Wherever the XBRL data moves, it carries along with it the context, which makes it intelligent and thus any software application can interpret and process the data. Information attributes like the period of the information, data structure it will hold (monetary, percentage, text etc) are attached to the data. In addition, labels in any language can be applied to information and also references to the legal or authoritative literature can be added.

DataPrimitive Data Formats

Data with tags hierarchyXML Data Formats

Data with tags, Hierarchy & RelationshipsXBRL Data Formats

XBRL combines hierarchical xml data with relationships and references between the data points It links the data xml files with various other files containing definitions, presentation, calculation, references relationships XBRL data files are a set of XML and XSD files.

XBRL documentsAn XBRL document comprises of taxonomy and instance document. Taxonomy contains description and classification of business & financial terms, while the instance document is made up of the actual facts and figures. Taxonomy and Instance document together make up the XBRL documents.

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XBRL An OverviewTaxonomy Taxonomy can be referred as electronic dictionary of the reporting concepts. Taxonomy consists of all the data definitions, the basic XBRL properties and the interrelationships amongst the concepts. It includes terms such as net income, EPS, cash, etc. Each term has specific attributes that help define it including label and definition and potentially references. Taxonomies may represent hundreds or even thousands of individual business reporting concepts, mathematical and definitional relationships among them, along with text labels in multiple languages, references to authoritative literature, and information about how to display each concept to a user. Schema XBRL Schemas together with linkbases define XBRL taxonomy. The purpose of XBRL schemas is to define taxonomy elements (concepts) and give each concept a name and define its characteristics. It can be regarded as a container where elements and references to linkbase files are defined. Element Name: It specifies the name of the concept which is defined. A style guide has to be followed to define the element name. There are many rules to be followed while defining the element name which is given the LC3 convention. Element ID: This attribute makes the concept defined unique. To make it unique, a prefix is attached to the element name which creates a reference point for the accounting concept, for example, ingaap_CashAndCashEquivalents, which shows that the item CashAndCashEquivalents is from the Indian GAAP.

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XBRL An OverviewData Type: This attribute defines the type of the fact that will be reported against the specified element. The most common data types that appear in financial statements are Monetary Items, String Items, and Decimal Items. Abstract: It helps to determine if the element carries any value against it. Abstract = True or False. It is used as a place holder to bind the elements. Abstract, where Abstract = True, it will not have a value but will be recognized as the heading for all the elements that fall under the head of CashAndCash Equivalents. Period Type: This helps in determining the nature of the element and defines the flow and stock concept of accounting with regard to every element in the taxonomy. Here the elements are distinguished into Instant & Duration where Instant refers to the stock concept (E.g.: Assets & Liabilities as on a particular date) and Duration refers to the flow concept (E.g.: Sales, costs, profits, etc from reporting period start date to reporting period end date). Substitution Group: It defines the association of elements with other elements in the schema. For substitution group set to item, it means that the element is not associated to any other item in the schema and neither is it grouped with other elements in any way Balance Type: This attribute states the balance type of the concept that is being defined in the schema. The elements which are monetary item types are given a balance type of debit or credit depending on the nature of the concept.

Linkbases

XBRL linkbases and XBRL Schemas define together XBRL taxonomy. Taxonomies with only the core elements (concepts) defined in an XBRL Schema would be useless. The purpose of XBRL linkbases is to combine labels and references to the concepts as well as define relationships between those concepts. There are five different kinds of linkbases. Each has a special purpose. The label linkbase: The goal of the XBRL Consortium is to create and develop a world-wide standard for electronic business reporting. This requires the taxonomies to represent business data in multiple languages. Therefore it is possible to create an element (concept) in the taxonomy with labels in different languages and or for different purposes e.g. a short label PPE compared to its long label Property, plant and equipment. Those labels are stored and linked to their respective elements in a label linkbase. The reference linkbase: Most of the elements appearing in taxonomies refer to particular concepts defined by authoritative literature. The reference linkbase stores the relationships between elements and the references e.g. IAS, Para 68. The layer does not store the regulations themselves but the source identification names and paragraphs.

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XBRL An OverviewThe presentation linkbase: Business reports are in general organized into identifiable data structures e.g. a Balance Sheet. The presentation linkbase stores information about relationships between elements in order to properly organize the taxonomy content. This enables a taxonomy user to view a one dimensional representation of the elements. The calculation linkbase: The idea of a calculation linkbase is to improve quality of an XBRL report (XBRL instance). The calculation linkbase defines basic calculation validation rules (addition/subtraction), which must apply for all instances of the taxonomy. The definition linkbase: The definition linkbase stores other pre-defined or self-defined relationships between elements. For example a relationship can be defined that the occurrence of one concept within an XBRL instance mandates the occurrence of other concepts. The formula linkbase: Advanced and user defined mathematical and logical relationships between concepts

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XBRL An OverviewInstance Documents An XBRL instance document is a business report in an electronic format created according to the rules of XBRL. It contains facts that are defined by the elements in the taxonomy it refers to, together with their values and an explanation of the context in which they are placed. XBRL Instances contain the reported data with their values and contexts. Instances must be linked to at least one taxonomy which defines their contexts, labels or references. An instance document contains the "code" for the tags and the structure that belongs to the tagged data. Instance documents are built from a combination of XML specs and XBRL, structured to produce financial statements. The document provides data plus structure for machine recognition, and human readability. The XBRL instance holds the following information: Business Facts Contexts define the entity (e.g. company or individual) to which the fact applies, the period of time the fact is relevant. Date and time information appearing in the period element must conform to ISO. Units define the units used by numeric or fractional facts within the document, such as USD, shares. XBRL allows more complex units to be defined if necessary. Facts of a monetary nature must use a unit from the ISO namespace. Footnotes use link to associate one or more facts with some content. References to XBRL taxonomies

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XBRL An OverviewTo create an XBRL file one need to have Software/Tools, using which each piece of business data is matched with the XBRL concept describing that data in the Taxonomy. The instance documents created should be valid as per XBRL specifications. While validating the instance documents following are considered Checking the instance document with the taxonomy it refers to o The values reported are as per the data properties as defined in taxonomy o The data in reported conforms to the relationships defined in the taxonomy o Mandatory items are necessarily reported etc. Checking the instance as per FRIS (Financial Reporting Instance Standard)

Dimensions in XBRL Dimensions are each of the different aspects by which a fact may be characterized. The dimensions specifications released in 2008 enable storing additional attributes about facts. Need for dimensions: Makes the taxonomies Modular Increases flexibility Enhanced validations Easier to maintain Easy Usability and extensibility

Taxonomy extensions The national taxonomies, like Indian GAAP, IFRS Taxonomy, US-GAAP taxonomy etc define elements and the relationships between them according to particular legislation or standards. However, if companies need to include in their business reports additional concepts (usually related to the area of their activity or the reporting purpose), XBRL, as its name indicates, allows for such extensions. One can create taxonomy extensions by: Adding ones own data elements Creating ones own relationships Or both

There are several rules to be followed while extending taxonomy, the most important being the extensions should be as per the base taxonomy style and architecture. Taxonomy is extended to accommodate items/relationship specific to the owner of the information.

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XBRL An OverviewXBRL around the worldXBRL is quickly spreading across the world, by way of increasing participation from individual countries and international organizations. It is now preferred as a standard for business and financial reporting worldwide. XBRL is managed and promoted by XBRL International, a not-for-profit consortium. XBRL International is comprised of jurisdictions, which represent countries, regions or international bodies and which focus on the progress of XBRL in their area. There are about 28 jurisdictions representing different countries and regions. The US Securities and Exchange Commission has played a vital role in accelerating adoption of XBRL in the US. In December 2008, SEC made it mandatory for companies in a phased manner to file the returns in XBRL format, starting with companies having above USD 5 billion as global float, to file their returns from June 2009 quarter onwards in XBRL format. All companies would come under this mandate by 2011. Japan also is one of the early adopters of XBRL and had started voluntary XBRL reporting program for financial services institutions gradually expanding the range of reports since 2005. Netherlands Taxonomy Project (NTP) and Standard Business Reporting (SBR) are large scale projects for developing a single national taxonomy with the aim of decreasing the regulatory reporting burden on the entities. The IFRS and XBRL also go hand-in-hand. Many countries around the world are slowly and steadily implementing XBRL in their reporting frameworks. Taxonomy projects, designing XBRL compliant filing platforms and systems are usually the initial steps for implementing the XBRL standard in countries.

XBRL in IndiaThe Institute of Chartered Accounts of India (ICAI) is spearheading the XBRL initiative in the country and India is now a provisional jurisdiction of XBRL International. Members of XBRL India are Reserve Bank of India (RBI), Insurance Regulatory and Development Authority (IRDA), Securities and Exchange Board of India (SEBI), Ministry of Corporate Affairs (MCA), stock exchanges like Bombay Stock Exchange Limited (BSE) and National Stock Exchange of India Limited (NSE) and a few private companies. The ICAI has developed the taxonomy based on Indian GAAP for general purpose financial statements for manufacturing and services sector and banking sector. Both the taxonomies are accredited by XBRL international. The taxonomy for NBFC is under development. In order to enhance the quality and reusability of data and to build the flexibility to easily accommodate future regulatory data needs, the monetary authority of India, RBI, was keen to implement the use of XBRL services in their reporting framework. IRIS XBRL enabled workflow solution, IRIS iFile, was implemented as the solution for the requirements of the RBI in October 2008, for the capital adequacy returns. All the scheduled commercial banks which fall under the purview of Basel II use this platform. Page 1112

XBRL An OverviewReturns for fortnightly liquidity position, foreign exchange balances, Form X, and the annual financial statements are in pipeline The Securities Exchange Board of India (SEBI) has mandated the top 100 companies listed on the two major exchanges viz. the Bombay Stock Exchange and the National Stock Exchange, to file their disclosures through XBRL-based Corpfiling. In addition to the mandated companies, many companies are filing voluntarily their financial in XBRL. The Ministry of Company Affairs (MCA) is also looking at mandating XBRL filings for all registered companies from 2011. There is no wonder that the XBRL data standard is setting its foothold around the world since XBRL address the problem of data integrity, timeliness and reusability.

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XBRL An OverviewGlossary1. Abstract Elements Elements with attribute abstract = TRUE are called as Abstract Elements and are used to group a set of elements together. 2. Arc role The function of the arc which is joining the two locators 3. Dimensions Structure that allow data to be organized and presented according to different criteria (such as in a pivot table). 4. Domain The set of different components or criteria of a dimension. 5. Element The financial concepts that are defined in the Schema. Elements and concepts can be used interchangeably 6. Extended link Logical grouping of elements within a linkbase. 7. Extension taxonomy Is Addition to the base taxonomy by creating new elements or customizing content. 8. FRTA Financial Reporting Taxonomies Architecture 9. FRIS Financial Reporting Taxonomies Architecture 10. Fact Usually a value or other information of a financial or a business report, which is mapped to a taxonomy element 11. Hierarchy Tree like structure used to express relationships and make navigation within the taxonomy easier. 12. Hypercube Header and place holder in the case of dimensions 13. Instance document XML file containing business reporting information. 14. Label Human-readable name for an element 15. Linkbase Relationship defining taxonomy elements which are defined in the schema 16. Locator Used to point the elements which are to be related. 17. Primary item A measure which can be broken down into dimensions 18. Schema Part of the taxonomy that consists of set of XBRL elements and their attributes. 19. Specification Detailed description of XML syntax, semantics, and structures, etc. that prescribe how XBRL is constructed. 20. The specifications referred over here are: a) XBRL 2.1 Specification b) XBRL Dimensions 1.0 c) Financial Reporting Taxonomy Architecture d) Financial Reporting Instance Standards 21. Tag Markup information describing a unit of data i.e. Individual elements within taxonomy, e.g., net income. 22. Taxonomy Electronic dictionary of business reporting concepts and is composed of an XML schema (.xsd file) and linkbase files. 23. Validation Process of checking and ensuring consistency in the taxonomy documents based on the XBRL Specifications

Source: Www. Xbrl.org

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Judicial decisions relating to clauses covered in Tax AuditDr. Rakesh Gupta, FCA CA. Annapurna Gupta, FCA Judicial decisions at times throw very interesting propositions of law which are helpful for assessees and tax professionals alike while dealing with tax matters. Below is an attempt to list certain propositions of law expounded by the courts decisions which may be found useful. Section 40A (2) BURDEN OF PROOF ON REVENUEAssessment year 1998-1999 Whether for invoking provision of section 40A(2) onus lies upon Assessing Officer to prove that payment is excessive or unreasonable having regard to fair market value of goods or legitimate needs of business, there is no presumption of unreasonableness Held, Yes S.K. ENGG V. JT CIT 103 ITD 97 (BANG). Business expenditure----Disallowance under s. 40A(2)Payment of commission to sister concern---Department not being able to show as to how 0.5 per cent higher commission paid by assessee company to its sister concern, which was also being assessed at higher rate, resulted in tax evasion, Tribunal was justified in deleting the addition.---CIT vs. Indo Saudi Services (Travel) (P) Ltd. 12 DTR 304(Bom) ---Payment of salary to director----AO having made no enquiry to ascertain whether the payment of remuneration by the assessee company to the director in the relevant year was excessive or unreasonable having regard to the fair market value of the services, no disallowance could be made u/s. 40A(2) on the basis that the remuneration paid in the relevant year was substantially more than that paid in the earlier year.----Jagdamba Rollers Flour Mill Ltd. vs. Asstt. CIT 20 DTR 370 (Nag)(TM)(Tribunal). ---Disallowance under s. 40A(2)----Excessive Interest payment to relatives of directors--AO having no information as to what should be the fair market rate of interest, he could not have treated interest paid by assessee to relatives of directors @ 24 per cent per annum as excessive or unreasonable so as to invoke provisions of s. 40A(2)(b) and disallow part of it by reopening the assessment---Satya Narain Kesho Ra, (P) Ltd. vs. Dy. CIT 21 DTR 1(Lucknow) --Disallowance under s. 40A(2)Trade discountAd hoc disallowance of trade discount to sister concern was not justified especially when bulk sales were made to sister concern and similar discount was allowed in earlier year on lower salesThat apart, trade discount is not any expenditure and therefore s. 40A(2) was not attracted at all. United Exports vs. CIT 28 DTR 315(Del.)25 Aug., 2009

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--Payment of interest at excessive rateIn view of difficulties involved in obtaining loan from bank or financial institution, the interest paid by the assessee on unsecured loans taken from relatives at a rate little higher than the market rate cannot be disallowed under s. 40A(2).Som Dutt Goel & Sons vs. ITO 27 DTR 263(Del.)

Section 41(1) Business income---Profits chargeable to tax under s. 41(1)----Remission or cessation of liability---AO having not brought anything on record to prove that the liabilities ceased to exist as on last date of relevant previous year, same could not be taxed as income under s. 41(1).---Wilson & Co. Ltd. vs. Asstt. CIT 16 DTR 428(Chennai) Business income---Cessation of liability---Unilateral writing off of unclaimed liability---Not statutory but contractual liability---Taxable as income---Income-tax Act, 1961, s. 41(1)---JAY ENGINEERING WORKS LTD. 167 Taxman 130 (Delhi) Income----Business----Waiver of loan taken by assessee for business purposes---Amount transferred to profit and loss account---Amount assessable as business income---Income-tax Act, 1961, s. 41(1)---SOLID CONTAINERS LTD. V. DEPUTY CIT 308 ITR 417(Bom.) S. 41(1) Income Business income Remission of liability Amount shown as liability in balance sheet No evidence of cessation of liability Amount not assessable under section 41 CIT VS. TAMILNADU WAREHOUSING CORPORATION 292 ITR 310 (MAD.) Business income Profits chargeable to tax under section 41(1) Amounts carried forward for years In the absence of any evidence of cessation of liability amount which has been merely carried forward to years in the books of accounts is not assessable under section 41(1) CIT VS. SOUTHERN ROADWAYS LIMITED 202 CTR 279 (MAD). Business incomeProfit chargeable to tax under s. 41(1)Advance against goods to be suppliedIn the absence of any material being brought on record to show that the liability shown in the balance sheet has actually ceased, the amount of such liability cannot be added when the assessee has not written off the liability in the books of account.Asstt. CIT vs. Nirmala Overseas 37 DTR 321 (Del. F) Deemed profitAmount received credited in profit and loss account and adjusted in book profitsFindings by Tribunal that loan liability never claimed or allowed as deduction by way of loss, expenditure or trading liabilityNot to be included as profit chargeable to tax Assessment Order not erroneous or prejudicial to interests of RevenueProceedings under section 263 not properCIT vs. Goyal M G Gases Ltd. 321 ITR 437 (Delhi) Liability outstanding for last six yearsAssessee having shown the impugned liabilities in its balance sheet and filed copies of accounts sundry creditors signed by the concerned creditor, such liabilities cannot be treated to have ceased merely because they are outstanding for six years and, therefore, the addition made by invoking s. 41(1) cannot be sustained, more so when the AO

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has failed to show that deduction has be allowed in respect of any trading liability or that the assessee has obtained any benefit concerning such liabilities by way of remission or cessation thereof in the relevant year.CIT vs. Smt. Sita Devi Juneja 33 DTR 201(P&H) Profits chargeable tax under s. 41(1)Amount payable to creditorAssessee having shown the amount payable by it to another company as an existing liability in its books and not written back the same, it cannot be said that the aforesaid liability has ceased to exist and, therefore, it cannot be treated as income by invoking the provisions of s. 41(1).CIT vs. GP International Ltd. 33 DTR 163(P&H) SECTION 40(a)(i)/(ia) Rejection of books vis--vis amount paid without TDSOnce estimation of income is made, further disallowance under s. 40(a)(ia) for non-deduction of TDS is not warrantedThat apart, if the assessee has paid the impugned amount and the amount is not payable at the end of the year on the date of balance sheet, then the provisions of s. 40(a)(ia) are not applicableTeja Constructions vs. Asstt. CIT 129 TTJ 57 (Hyd. A)(UO)

Disallowance under s.40(a)(i) Applicability of proviso to s.40(a)(i) vis--vis absence of claim for deduction in earlier year Where the tax deducted in respect of any payment has been paid in a subsequent year, the payment has to be allowed as a deduction in that year by virtue of proviso to s.40(a)(i) whether or not the same was claimed as deduction in the earlier year ABN AMRO BANK NV VS. JT.CIT 96 TTJ 1041 (CAL `E) (TM). Disallowance under s. 40(a)(ia) Payment of hire charges for trucksRevenue having no brought any material on record to establish that the hiring of vehicles by the assessee transporter from the truck owners and payments therefore where in consequence of any written or oral agreement, provisions of s. 194C were not applicable to the payments of freight or hiring charges made by the assessee to the trucks owners and the same could not be disallowed under s. 40(a)(ia).Chandrakant Thackar Vs. Asstt. CIT 129 TTJ 1 (Ctk)(UO) Disallowance under s. 40(a)(iii)Overseas maintenance allowanceOverseas maintenance allowance paid to employees, being reimbursement of expenses, did not call for disallowance under s. 40(a)(iii) on account of failure to deduct tax.CIT vs. Information Architects 40 DTR 85 (Bom) Disallowance under s. 40(a)(i)Payment to German parent company for the purchase of asset.Provisions of s. 40(a)(i) are not applicable for claim of deduction of depreciation under s. 32Payment for purchase of capital asset (software) without deduction of tax will not be subject to the provisions of s. 40(a)(i).SMS Demag (P) Ltd. Vs. Dy. CIT 37 DTR 78(Del. G) Reimbursement of expenses to clearing agentAssessee was not obliged to deduct tax at source from the payment made by it to the clearing agent towards customs duty and other expenses paid by the latter while clearing the imported goods on behalf of the assessee as no element of income

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is embedded in reimbursement of expenses and therefore, impugned payments could not be disallowed under s. 40(a)(ia).Asstt. CIT vs. Grandprix Fab. (P) Ltd. 34 DTR 248(Del. D) Disallowance under s. 40(a)(ia)Payment to contractor for civil job vis--vis supply of materialAssessee having made payments to the contractor for the civil work under a composite contract for repairs and maintenance of building, it was required to deduct tax at source in respect of the entire amount relating to the labour charges as well as material and, therefore, payment made by assessee towards cost of material without deducting tax at source is to be disallowed under s. 40(a)(ia).Asstt. CIT vs. Grandprix Fab. (P) Ltd. 34 DTR 248(Del. D) Disallowance under s. 40(a)(ia)Payment of hire charges of trucksIn the absence of any thing on record to suggest existence of any contract between the assessee and other transporters whose vehicles were engaged by assessee for executing various contracts, there was no contractor and sub-contractor relationship between the assessee and said other transporters and therefore assessee was not liable to deduct tax under s. 194C from the payments made to other transporters and therefore, same could not be disallowed under the provisions of s. 40(a)(ia). R.R. Caryying Corporation vs. Asstt. CIT 30 DTR 569(Ctk) Disallowance under s. 40(a)(i)Reimbursement of expenditure to parent non-resident companyNo income accrued or arose to the payee from the payments made by the assessee to its non-resident parent company in respect of the expenditure incurred by the latter in connection with the business activity carried on by assessee in India and thus provisions of s. 195 were not applicable and assessee was not required to deduct tax at source and therefore, the payments could not be disallowed by invoking the provisions of s. 40(a)(i)Disallowance could not be made also for the reason that the income of the assessee is to be computed as per the special provisions of s. 42 which override the general provisions of computation of income.Cairn Energy India Pty. Ltd. vs. Asstt. CIT 30 DTR 258(Chennai D) Payments for hiring trucksAssessee utilizing trucks for own useNo agreement for carrying out any workNot amounting to a contract for carrying out any work under section 194CTax need no be deducted on amount paid as hire chargesIncome-tax Act, 1961, ss. 40(a)(ia), 194CDeputy CIT vs. Satish Aggarwal And Co. 317 ITR 196(Amritsar)

Disallowance under s. 40(a)(ia)Payments made to lorry owners for hiring lorries vis--vis sub-contractAssessee, a transport contractor, having itself executed the whole of the contract for transportation of bitumen by hiring lorries from other lorry owners who simply placed the vehicles at the disposal of the assessee without involving themselves in carrying out any part of the work undertaken by the assessee, it cannot be said that the payments made for hiring of vehicles fell in the category of payments towards sub-contracts and, therefore, assessee was not liable to deduct tax at source as per the provisions of s. 194C(2) from the payments made to the lorry owners and consequently, provisions of s. 194C(2) from the payments made to the lorry owners and consequently, provisions of s. 40(a)(ia) were not applicable to such payments. Mythir Transport Corporation vs. Asstt. CIT 28 DTR 129(Visakha) 9th January, 2009

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Disallowance under s. 40(a)(ia)Payment of consultation fees and rent by hospitalIncome derived by assessee doctor from the running of a multi-facility hospital is to be treated as business income and not professional income and since the total receipts of the assessee did not exceed Rs.40 lacs in the relevant assessment year, he is not liable to get his accounts audited under s. 44AB and, therefore, the provisions of s. 40(a)(ia) are not applicable to the consultation fees paid to the visiting doctors and the rent paid for the hospital premises.Dr. Deepak Assudant vs. ITO 26 DTR 454(Del.E)

Business expenditure----Disallowance under s. 40(a)(ia)---Purchase of goods vis--vis contract for works---Supply of outsourced manufactured goods by contract manufactures constituted outright sale and not contract of work within the scope of s. 194C, hence assessee was not liable to deduct tax at source from the purchase price of goods paid by assessee to contract manufacturers, therefore, such payment could not be disallowed by invoking s. 40(a)(ia)---Tuareg Marketing (P) Ltd. vs. Asstt. CIT 21 DTR 178(Del.) Section 43B/2(24)(x)/36(1)(va) Business expenditure---Disallowance under s. 43B---Contribution to provident fund---Payment of PF contribution made by the assessee after the due date prescribed under the Employees Provident Fund Act and The Rules made thereunder but before the due date of filing of return could not be disallowed under s. 43B--- ---CIT vs. P.M. Electronics Ltd. 15 DTR 258(Del) Disallowance under s. 43BEmployees contribution towards PF and ESIDeduction of payment of employees contribution towards PF and ESI cannot be disallowed under s. 43B if the actual payment is made before the due date of filing of return though beyond the due dated prescribed under the relevant Acts.CIT vs. Aimil Ltd. & Ors. 321 ITR 508 (Del.) Deduction only on actual paymentContribution to provident fundExisting provision creating difficultiesAmendment to remove difficultyHas retrospective effect Finance Act, 2003, making amendment but as if with effect from April 1, 2004To be read as having retrospective effect from April 1, 1988Income-tax Act, 1961, s. 43B CIT vs. Alom Extrusions Ltd. 319 ITR 306(SC) Certain deduction to be only on actual payment Assessment year 1999-2000 Assessee was following mercantile system of accounting Assessee did not deposit part of service tax collections with concerned authorities Assessee neither claimed any deduction in this regard nor did it debit said amount as an expenditure in profit and loss account Assessing Officer after disallowing said amount made addition to assessees income Whether in view of facts any question of disallowing deduction not claimed would arise Held, yes CIT VS. IDEAL SHEET METAL STAMPINGS & PRESSING PVT.LTD. 166 TAXMAN 48 (DEL).

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Disallowance under s. 43BService-tax billed but not received- Service-tax though billed but not received not having become payable to the credit of the Central Government by virtue of s. 68 of the Finance Act, 1994, r/w.r. 6 of the Service-tax Rules, 1994, same could not be disallowed under s. 43B-Further, assessee service provider is merely acting as an agent of the Government and is not entitled to claim deduction on account of service-tax and therefore no disallowance can be made on the analogy of sales-tax, excise duty, ect. ----Asstt. CIT vs. Real Image Media Technologies (P) Ltd. 116 TTJ, 964(Chennai) Section 269 SS and 269 T/271D/271E Penalty under ss. 271D and 271E---Contravention of ss. 269SS and 269T-----Reasonable cause----Family transaction between two independent assessees, based on an act of casualness, specially in a case where the disclosure thereof is contained in the compilation of accounts, and which has no tax effect, establishes reasonable cause under s. 273B for not invoking the penal provisions of ss. 271D and 271E.---CIT vs. Sunil Kumar Goel 21 DTR 43(P&H) --------Deposits and loans in cash in excess of prescribed limit---Finding that amounts were mere book entries and transactions on behalf of family members---No violation of sections 269SS and 269T------Penalty could not be imposed---Income-tax Act, 1961, ss. 269SS, 269T,271D, 271E----CIT v. NATVARLAL PURSHOTTAMDAS PAREKH 303 ITR 5(Guj)

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Validity-Limitation-Penalty under s.271D was invalid as, it was not initiated during any proceedings under the Act and was also initiated after a lapse of 7years.SHARDA EDUCATIONAL TRUST V/S ASSTT. CIT-VOL.99-TTJ-212(AGRA). Penalty Under s. 271 D Leviability Deposit treated as undisclosed income- Revenue having taken the stand that the alleged deposit was undisclosed income of the assessee,it could not resort to penalty proceedings under s. 271D - CIT VS. Standard BRANDS LTD. 204 CTR 48 (DEL). S.271D Penalty Deposit or loan in cash exceeding prescribed limit Amount received by private company from director Not a deposit or loan Penalty cannot be imposed CIT VS. IDHAYAM PUBLICATIONS LTD. 285 ITR 221 (MAD) Section 271DPenaltyAcceptance of loans in cash exceeding specified limitFinding that transactions entered in books of account and amount involved was not very high Penalty cannot be imposedCIT VS RATNA AGENCIES 284 ITR 609 (MAD)

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not be regarded as a loan or deposit within the meaning of ss. 269SS and 269T more so in view of the fact that there was no provision for payment of any interest on the said amount and, therefore penalty levied under ss. 271D and 271E was not sustainable.Bhikabhai Dhanjibhai Patel vs. Asstt. CIT 127 TTJ 479 (Ahd A) Penalty under s. 271DContravention of s. 269SSAcceptance of trade advancesSec. 269SS is applicable only in case of loan or deposit and does not cover cash advance received from the purpose of supply of goodsAssessee having received the amount of Rs.1 lakh in cash from a party as an advance against sale of goods and later supplied goods to it against the said advance, provisions of s. 269SS are not applicable and therefore, penalty under s. 271D is not leviable.CIT & Anr. Vs. Kailash Chandra Deepak Kumar 32 DTR 336(All) Penalty under s. 271EContravention of s. 269TCurrent account transactions vis--vis reasonable causeReceipts and payments on behalf of sister concern being in the nature of current account, there was no violation of s. 269T attracting penalty under s. 271EFurther, assessees bona fide belief that transactions with sister concern involving cash were not hit by s. 269T r/w. s. 273BCanara Housing Development Co. Vs. Addl. CIT 30 DTR 232(Bang B) PenaltyAcceptance and return of loans exceeding specified limit in cashPenalty under section 271D and 271E not mandatoryCash transactions with sister concernFinding that there was not attempt to evade taxDeletion of penaltyValidIncome-tax Act, 1961, ss. 269SS, 271D, 271E, 273BCIT v. Sunil Kumar Goel 315 ITR 163 (P&H) Deposits and loans in cash in excess of prescribed limit---Finding that amounts were mere book entries and transactions on behalf of family members---No violation of sections 269SS and 269T------Penalty could not be imposed---Income-tax Act, 1961, ss. 269SS, 269T,271D, 271E----CIT v. NATVARLAL PURSHOTTAMDAS PAREKH 303 ITR 5(Guj)

SECTION 40A (3) DisallowancePayment otherwise than by crossed cheque or crossed demand draft of sum exceeding prescribed limitPayment by bankers cheques, pay order and call deposit receipts issued in favour of public sector undertakingInstruments within definition of bill of exchangePayments found to be genuinePayments could not be disallowedNegotiable Instruments Act, 1981, ss. 5, 6Income-tax Rules 1962, r . 6DD(d)(iv)Income-tax Act, 1961, s. 40A(3)CIT vs. Vijay Kumar Goel 324 ITR 376 (Chhattisgarh) Disallowance under s. 40A(3)Cash payment vis--vis genuineness of purchases When the Government has chosen to liberalise the operation of s. 40A(3) to augment trade by providing exception under r. 6DD, the Department cannot insist the assessee to get the suppliers confirm to the Department about the supplies made to the assessee and the payments received by themThe assessee should be taken to have discharged burden by furnishing the copies of purchase bills or vouchers issued containing the names and

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addresses of the suppliers with date, value, quantity etc, and where the purchases are not found bogus, they cannot be disallowed.CIT v. Interseas 40 DTR 143 (Ker.) Disallowance under s. 40A(3)Burden of proofThree parties having denied the purchases ostensibly made by assessee from them, there is a clear presumption that such purchases were made from other parties against cash paymentsHowever onus is on the Revenue to show cash payment exceeding Rs. 20,000/- and as there is nothing on record to show, either directly or indirectly that the relevant payments were made in sums exceeding Rs.20,000 each, s. 40A(3) could not be invoked.Sai Construction vs. ITO 127 TTJ 15 (Ctk)(UO) S. 40A(3) Business expenditure Disallowance Payments in cash exceeding prescribed limit Exceptions provided in rule 6DD List given in rule 6DD not exhaustive Rule 6DD must be interpreted liberally Genuineness of transaction and identity of receivers established Payments could not be disallowed CBDT Circular No. 220, dated May 31, 1977 SMT. HARSHILA CHORDIA V. ITO 298 ITR 349 (RAJ). Whether when income of assessee was computed nu applying gross profit rate, provisions of section 40A(3) could not be invoked Held, yes CIT VS. SMT. SANTOSH JAIN 159 TAXMAN 392 (PUNJ. & HAR) Business expenditure Disallowance under section 40A(3) Direct payment into bank account of payee payment made by depositing cash directly into the bank account of the payee is not in violation of provisions of section 40A(3) and, therefore, cannot be disallowed There was no violation of section 40A(3) also for the reason that the payment was made for purchase of agricultural produce to the agent operating in the market yard set up under the State RMC Act, and accordingly fell within the scope of exclusionary cls.(f) and (1) of 6DD SRI RENUKESWARA RICE MILLS VS. ITO 93 TTJ 912 (BANG `B). CONTINGENT LIABILITY Business expenditure Contingent or ascertained liability Provision for future liability under warranty Warranty clause part of sale document Committed liability Can be construed as arising in definite terms in accounting year Though actual quantification deferred to future date Provision for future warranty expenses made on basis of figures for past years Allowable in year of sale Income tax Act, 1961, s.37 CIT VS. VINITEC CORPORATION PVT.LTD. 278 ITR 337 (DEL). Business expenditureAllowability---Increase in revenue liability on account of foreign exchange rate fluctuation---Increase in revenue liability on account of foreign exchange rate fluctuation is not notional or contingent, hence allowable as deduction.---CIT vs. Hughes Escorts Communications Ltd. 14 DTR 346(Del)

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Business expenditure Allowability Provision for warranty claims Liability towards future warranty claim based on past experience not an unascertained liability, deduction of adhoc provision could not be disallowed ROTORK CONTROLS INDIA LTD vs CIT 314 ITR 62 (SC) SECTION 32 GoodwillGoodwill is not an intangible asset within the meaning of s. 32(1)(ii) hence not entitled to depreciation.Modular Infotech (P) Ltd. vs. Dy. CIT 40 DTR 172 (Pune B) New industrial undertakingSpecial deductionCommencement of trial production does not amount to commercial productionPeriod of exemption starts from year of commencement of commercial productionIncome-tax Act, 1961 ss. 80-IA, 80IBCIT v. Nestor Pharmaceuticals Ltd. 322 ITR 631 (Delhi) Tetra pack machineCondition precedentTetra Pack machine neither sold, discarded nor demolished but lying idle covered with a paper and kept locked in a roomTo be assumed as kept in readiness for useEntitled to depreciationCIT vs. Premier Industries (India) Ltd. 323 ITR 672 (MP) DepreciationRateOffice equipments and electric installationsTransformer, control panels, fax machine and CCTV systems which are being used in the business of the assessee are to be treated a part and parcel of plant and machinery and not as office furniture and therefore, same are entitled to depreciation @ 25 per cent.CIT vs. Subrata Dutta Choudhary 33 DTR 259 (P&H) User for businessActive or passive useFor claiming depreciation, it is sufficient if the machinery is kept ready for use during the relevant pervious year, though not actually used due to circumstances beyond the assessees controlGas sweetening plant kept ready for use, though could not be actually used due to lack of raw material, was eligible for depreciation.Asstt. CIT vs. Chennai Petroleum Corporation Ltd. 32 DTR 184(Chennai A)(TM) Non-furnishing of audit reportNon-furnishing of Form No. 3AA i.e. audit report along with original return cannot be a ground for disallowing the claim of additional depreciation under s. 32(1)(iia) made by assessee in the revised return.CIT vs. Sharda Motor Industrial Ltd. 30 DTR 260(Del.) Assessment year 2002-03 Whether, goodwill does not all in category of intangible assets as prescribed by section 32(1)(ii) and, therefore, acquisition cost of goodwill is not entitled for depreciation Held, yes R.G. Keswani v. Asstt. CIT 116 ITD 133(Mum.) Rate---Computer peripherals----Peripherals such as printers, scanners, NT server. Etc. form integral part of the computer and the same, therefore, are eligible for depreciation @

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60 per cent as applicable to a computer.----Expeditors International (India)(P) Ltd. vs. Addl. CIT 13 DTR 435(Del) Depreciation----User for business---No business carried out in particular division--Vehicles, furnitures, fixtures and building forming part of block of assets and used by employees were eligible for depreciation, notwithstanding the fact that no business was carried on in a particular division of assessee.----Goetze (India) Ltd. vs. Dy. CIT 14 DTR 195(Del) Depreciation Additional depreciation - Computers Computer installed by assessee engineering company used for processing raw materials, data, wages and salary payment and for monitoring the details of production was entitled to additional depreciation TRF LIMITED VS. CIT 213 CTR 557 (JHARKHAND). Depreciation Allowability Disallowance on land component of building considering the agreement as a whole assessee had purchased building and proportionate undivided portion of land and A.O. was justified in the absence of valuation of land submitted by assessee to take 1/3rd of total consideration as cost of land and disallowing depreciation thereon Issue whether assessee has used the land and building for less than 180 days having not been raised before A.O. or CIT(A) could not be raised before the Tribunal DY. CIT VS. CAPITAL CARS PVT.LTD. 113 TAXMAN 1120 (DEL `D). Proof of installation of machinery Assessee having produced evidence of installation of the new machinery and also carried out trial production of the machinery in the relevant year, it has to be presumed that the machinery was utilized for the purpose of the business and, therefore, depreciation is allowable B.R. INDUSTRIES VS. ITO 114 TTJ 103 (JP `A). S. 32 Depreciation Land and building Purchase of part of commercial complex Claim to depreciation on entire consideration Agreement clearly providing for sale of land and building That consideration was calculated per square foot of constructed area including common areas, service areas and facilities Does not mean assessee acquired no right in undivided proportionate share of land beneath building Failing to produce separate valuation for land and building Disallowance of one-third consideration estimated to be for land Proper DEPUTY CIT V. CAPITAL CARS P. LTD. 295 ITR 224 (DELHI). Depreciation Use for business Active or passive user Where the machinery is kept ready for use but could not be put to use for non-receipt of orders, the assessee would be entitled to depreciation CIT VS. NAHAR EXPORTS LTD. 213 CTR 20 (P&H) Higher depreciationColour Xerox machine run with help of computerPrinter and scanner are integral part of computer systemColour Xerox machine to be treated as computerEntitled to higher rate of depreciationIncome-tax Act, 19671, s.36(1)(xi), Expln.(a)ITO V/S SAMIRAN MAJUMDAR280-ITR-74 (AT)(KOLKATA).

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SECTION 37 Capital or revenue expenditurePayment for using logo in trade fairsNO enduring benefit was received by the assessee by using the logo of its parent company in trade fairs and, therefore, the payment made by the assessee fro using the logo is allowable as revenue expenditure.---Dy. CIT vs. Messee Dusseldorf India (P) Ltd. 129 TTJ 81 (Del. F)(UO) Overload charges for transportation of goodsPenalty paid by the assessee transporter for carrying excess load under the Gold Card Scheme of the Government of Gujarat was not for infringement of law but in the nature of compensation and an expenditure incurred in the course of business of transportation of goods, hence same is allowable as deduction.Agrawal Roadlines (P) Ltd. 129 TTJ 49 (Ahd C)(UO) Penalty, fine etc.Interest paid on late deposit of service-tax in Government accountInterest paid for delayed payment of service-tax is compensatory and has the same character as service-tax and, therefore, it is allowable as deduction.Dy. CIT vs. Messee Dusseldorf India (P) Ltd. 129 TTJ 81 (Del. F)(UO) Technical know-how feesAssessee did not acquire an asset of a capital nature by obtaining a non-exclusive licence for five years restricted to the territory of India to manufacture and use tube-making machines as the proprietary rights in the patents continued to vest in the licensor and, therefore the technical know-how fees paid by the assessee under the terms of the agreement is allowable as revenue expenditure. CIT vs. Essel Propack Ltd. 40 DTR 26 (Bom.) FirmInsurance premium of Keyman insurance policy to insure life of partner Effect of section 10(10D) and Circular No. 762 dated 18-02-1998Finding that insurance was for benefit of firm benefit of firmInsurance premium deductible Income-tax Act, 1961 ss. 10(10D), 37CIT vs. B.N. Exports 323 ITR 178 (Bom.) Commission paid to directorsDirectors giving guarantee for loan taken by companyCommission deductibleRoyalty payment for use of trade mark Revenue expenditureIncome-tax Act, 1961, s. 37CIT vs. Khemchand and Motilal Jain Tobacco Products P. Ltd. 323 ITR 498 (MP) Capital or revenue expenditureExpenditure on expansion of business vis--vis new businessNew project set up by the assessee company is a part of the existing business as there is unity of control, common management ad funds as well as interlacing of two businesses and, therefore, expenditure incurred on salaries, rent, traveling, etc. in relation to the new project is allowable as revenue expenditure. CIT vs. Honda Siel Power Products Ltd. 36 DTR 456 (Del.)

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Capital or revenue expenditureExpenditure on upgrading computersRevenue expenditureIncome-tax Act, 1961CIT v. Sundaram Clayton Ltd. 321 ITR 69(Mad.) Expenditure on repairsExpenses incurred on granite, tiles hardware, pipe replacement of existing water pump, colour, aluminium sliding, carpentry work, water-proofing and sun control films etc. on repairs of office and the consultancy charges of the architect are allowable as revenue expenditure.Power Build Ltd. vs. Asstt. CIT 126 TTJ 551 (Ahd. D) Premium paid by firm in respect of Keyman insurance policies on the lives of working partnersPremium paid by firm in respect of Keyman insurance policies on the lives of working partners is allowable as business expenditureEmployeremployee relationship is not essential for allowing deduction of premium paid on Keyman insurance policy.ITO vs. Modi Motors 126 TTJ 495 (Mumabi B) Business expenditureAllowabilityDonation made on appeal of the State GovernmentPayment made by assessee on the direction of the State Government to suppliers who supplied fodder to various cattle camps in the wake of severe drought conditions, for maintaining smooth relations with the Government, satisfies the test of commercial expediency and, therefore, it is allowable as deduction under s. 37(1) Surat Electricity Co. Ltd. vs. Asstt. CIT 35 DTR 272 (Ahd D) Penalty, fine, etc.Payment for non-compliance of SEBI RegulationsPayment made under SEBI Regulation Scheme, 2002 for failure to make disclosure as required under SEBI (Substantial Acquisition of Share and Takeovers) Regulations, 1997 could not be treated as penalty as it is a payment for regularizing the default committed under the provisions of the said Regulations and, therefore, such payment cannot be disallowed by invoking Explanation to s. 37(1).Kaira Can Co. Ltd. vs. Dy. CIT 32 DTR 485(Mumbai B) Payment for consultation servicesPayment for consultation services made by the assessee being in connection with expansion of the existing project, same was allowable as revenue expenditure.Jyoti Ltd. Vs. CIT 224 CTR 399(Guj.) Advertisement expenditureAssessee displaying neon sign and glow sign boardsNot of enduring natureTo be treated as revenue expenditureCIT v. Liberty Group Marketing Division 315 ITR 125(P&H)

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FROM: CA RASHMI KHETRAPAL NICASA CHAIRPERSON 1291-92, C BLOCK SUSHANT LOK-1, GURGAON carashmmi@gmail.com

9810101449

VERIFICATION OF VAT :1. First of all, it must be necessary to understand relevant VAT Act applicable in the state . 2. It should verify list of goods mentioned in the Registration Certificate. 3. Examine Registration certificate for liability of assessee under State VAT Act and CST Act. 4. Goods on which input credit is taken is covered under the definition of Input under VAT Act. 5. VAT input is availed only if assessee has bill showing ownership in property of goods. There is proper record of Purchase which specify the name of dealer, TIN of dealer, rate of Vat, Taxable amount and Vat input. Input credit can be availed only on Tax invoice and purchase from registered dealer within the state.

6. Vat Output should be calculated on rate wise. Vat should be calculated inclusive of Excise Duty and exclusive of trade discount normally in practice of business. 7. Net vat amount should be examined and it vat output over vat input. Treasury challan should be verified for payment VAT. 8. There is proper record for Central Sales Tax. There is different treasury challan for Vat payment and CST payment. 9. Sales and purchases records need to be reconciled with books of accounts and VAT Returns. 10. There is proper record for C-Form, E-Form, F-Form, H-Form, I-Form issued under CST Act and Local Form issued under VAT Act. 11. Periodic returns to be verified with books of accounts and annual return submitted under VAT Act.

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12. Generally assessee covered under Work Contract Scheme then input is not allowed to assessee because assessee has the benefit of lower tax payment under WCT Scheme. Therefore it is important to examine that work contractor has not taken input credit. 13. Some VAT Act has provision of entry tax (eg. Karnataka and Tamilnadu etc.) on central purchase from outside the state and this entry tax is allowed as input credit and adjusted against vat payable. Therefore in such case treasury challan for entry tax payment need to be verified. 14. Each state VAT act has its own interest and penalty provisions for late deposit of taxes and returns but it is important that assessee should comply all statutory provisions within time limit prescribed under VAT Act

REPORTING UNDER COMPANIES (AUDITORS REPORT) ORDER, 2003AS PER PARA 4 (ix) (a)

Is the company regular in depositing undisputed statutory dues including Provident fund, Investor Education and Protection Fund, Employees State Insurance, Income-Tax, Sales Tax, VAT, Service Tax, Wealth Tax, Custom Duty, Excise Duty, Cess and any other statutory dues with appropriate authorities and if not, the extent of the arrears of outstanding statutory dues as at the last day of the financial year concerned for a period of more than six months from the date they became payable, shall be indicated by the auditor :

VERIFICATION OF TDS :This clause requires the auditor to report upon the regularity of the company in depositing undisputed statutory dues. The intention of the Government, in this clause is to ascertain how regular the company is in depositing statutory dues with the appropriate authorities. Since the emphasis of the clause is one the regularity, the scope of auditors inquiry is restricted to only those statutory dues which the company is required to deposit regularly to an authority. For the purpose of this clause, the auditor should consider a matter as disputed where there is positive evidence or action on the part of the company to show that it has not accepted the demand for payment of tax or duty, e.g., where it has gone into appeal. It may be noted that penalty and/or interest levied under respective laws would be covered within the term amounts payable. 1. If TDS is not deducted by client then it is necessary to check first that payment to a person is within threshold limit prescribed under relevant section. 2. It should be examine that rate used for deduction of TDS is as per relevant section and covered under the definition of relevant section. 3. TDS should be deducted against a valid PAN and TDS is credited to Valid PAN. 4. TDS should be deducted as per latest amendments, rules, notification and circulars. 5. If TDS is not deducted or short deposited then it must be reported in Audit Report by Auditor as per CARO, 2003. But before reporting it is necessary to check that client has valid certificate of non-deduction or short deduction of TDS under section 197 of Income Tax Act.

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6. All foreign remittances are made under CA Certificate in prescribed form 15CB. Relevant provisions of DTAA is given due consideration in case of Foreign Remittances. 7. Client should furnish the return of TDS within due date prescribed under Income Tax Act otherwise penalty will be levied @ Rs.100 per day from next to due date till the date of return filed. 8. There is penalty of Rs.10000 if wrong TAN mentioned in TDS return.

Some Specific points needs to given due consideration :1. TDS deducted in time, but not deposited on time Interest for late deposit of TDS will be Applicable. 2. TDS not deducted, but deposited TDS become expenditure under Companies Act, but it is disallowed under Income Tax Act. 3. TDS not deducted and not deposited Expenditure on which TDS not deducted is totally disallowed. 4. TDS short deducted Expenditure proportionately disallowed to the extent of short deduction of TDS.

Disqualifications of an employee to claim bonus(sec.9).Every employee of an establishment covered under the Act is entitled to bonus from his employer if he has worked in that establishment for not less than thirty working days in the year on a salary less than Rs. 10,000 per month.

An employee who has been dismissed from service for :1) 2) 3) Fraud Riotous or violent behavior. Theft, misappropriation or sabotage of any property.

If an employee is prevented from working and subsequently reinstated in service, employees statutory liability for bonus arises.

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An employee in the following cases is entitled to bonus: (i) Temporary workman (ii) Part time employee as a sweeper engaged on a regular basis (iii) Retrenched employee (iv) Probationer (v) Dismissed employee reinstated with back wages (vi) Piece-rated worker

Bonus which shall be 8.33% of the salary or wage or Rs. 100, whichever is higher.

PAYMENT OF MAXIMUM BONUS (SEC.11)Maximum 20% of such salary or wages.

An employee in the following cases is not entitled to bonus: 1. An apprentice is not entitled to bonus. 2. An employee employed through contractors on building operation

Bonus expenses will be allowed only on cash basis. However if it is paid till the due date of filling of return i.e. 31st July or 30th September it will be allowed as expenses.

THE EMPLOYEES PROVIDENT FUNDS AND MISCELLANEOUS PROVISIONS ACT, 1952

If it is not paid till the due date of filling of return, and paid after that, then this bonus will be allowed in the financial year in which it is actually paid.

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SCOPE:It extends to the whole of India except the State of Jammu & Kashmir.

RATE OF CONTRIBUTIONSCHEME PROVIDENT FUND SCHEME EMPLOYEES 12% EMPLOYERS AMOUNT>8.33% (IN CASE WHERE CONTRIBUTION IS 12% OF 10%) 0.5% 8.33% (DIVERTED OUT OF PROVIDENT FUND) CENTRAL GOVT. NIL

APPLICABILITY:Establishment which is factory engaged in any industry specified in Schedule 1 and in which 20 or more persons are employed. Any other establishment employing 20 or more persons which Central Government may, by notification, specify in this behalf. Any establishment employing even less than 20 persons can be covered voluntarily under section 1(4) of the Act.

INSURANCE SCHEME PENSION SCHEME

NIL NIL

NIL 1.16%

DUE DATESLast date for deposit PF challan is 15th of every month but grace period is 5. Last date for deposit monthly PF return (Form 12-A) is 25th of every month. Last date for deposit PF yearly return is 25th April of every year.

REPORTINGReporting is to be made by the auditor under CARO, 2003 of:Non payment of undisputed PF and ESI dues, only if more than 6 months old

Reporting under Tax Audit Report:Statutory Auditor needs to disclose amount in Form 3CD in point 16 (b).

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THE EMPLOYEES' STATE INSURANCE ACT, 1948It provides to workers not only accident benefit but also other benefits such as sickness benefit, maternity benefit and medical benefit.

Applicability of the Act & Scheme:Is extended in area-wise to factories using power and employing 10 or more persons and to non-power using manufacturing units and establishments employing 20 or more person upto Rs.15,000/- per month with effect from 01-May-2010. It has also been extend-ed upon shops, hotels, restaurants, roads motor transport undertakings, equipment maintenance staff in the hospitals.

WAGES FOR ESI CONTRIBUTIONSRegisters To be deemed as wages / Files to be maintained by the employers Wages Not to be deemed as

Coverage of Employees:Drawing wages upto Rs. 15000.00 per month engaged either directly or through contractor.

Rate of contribution of the wagesEmployer's 4.75% Employee's 1.75%

Basic pay Dearness Allowance House Rent Allowance City Compensatory Allowance Overtime Wages (but not to be taken into account for determining the coverage of employee) Payment for day of rest Production Incentive Bonus other than statutory bonus Night shift Allowance Heat, Gas & Dust Allowance Payment for unsubstituted holidays Meal / Food Allowance Suspension Allowance Lay off Allowance Children Education Allowance

Contribution paid by the employer to any pension / provident of under ESI Act. Sum paid to defray special expenses entailed by the nature of employment Daily allowance paid for the period spent on tour. Gratuity payable on discharge Pay in lieu of notice of retrenchment compensation Benefits paid under the ESI Scheme Encashment of leave Payment of Inam which does not form part of the term of employment Washing Allowances for livery Conveyance amount towards reimbursement for duty related journey

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DUE DATESFOR DEPOSIT : Due date is 21st of each month for cheque deposit. 48 hrs grace time for collection. FOR RETURN: ESIC Half Yearly Return due date : Within 42 days from the end of the half year. i.e. 12th November for April to September and 12th May for October to March.

REPORTINGReporting is to be made by the auditor under CARO, 2003 of:Non payment of undisputed PF and ESI dues, only if more than 6 months old

Reporting under Tax Audit Report:Statutory Auditor needs to disclose amount in Form 3CD in point 16 (b).

FACTORIES ACT 1948It applies to EVERY industries in which ten or more than ten workers are employed on any day of the preceding twelve months and are engaged in manufacturing process being carried out with the aid of power or twenty or more than twenty workers are employed in manufacturing process being carried out without the aid of power, are covered under the provisions of this Act.

General penalty for offences.in respect of any factory there is any contravention of any of the provisions of this Act or of any rules made there under or of any order in writing given there under, the occupier and manager of the factory shall each be guilty of an offence and punishable with imprisonment for a term which may extend to two years or with fine which may extend to one lakh rupees or with both, and if the contravention is continued after conviction, with a further fine which may extend to one thousand rupees for each day on which the contravention is so continued Provided that where contravention of any of the provisions of Chapter IV or any rule made there under or under section 87 has resulted in an accident causing death or serious bodily injury, the fine shall not be less than 25 thousand rupees in the case of an accident causing death, and 5 thousand rupees in the case of an accident causing serious bodily injury.

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Shop & commercial Establishment Act 1961Applicability & Coverage: It applies to all

LABOUR WELFARE FUNDApplicability: Every employee, including employee through contractor, but not a managerial capacity or supervisor capacity.Payable: For the month of June and December, every year Rates: Every employee contributes Re 1/- per month and employer makes a contribution of Rs 2/- per month

Employee means a person wholly or principally employed whether directly or through any agency, whether for wages or other considerations in connection with any establishment.

Documents required for LWF inspection: a. Paid Challans b. LWF Statement in respect of paid challans

GRATUITY ACT, 1972EXTENT & APPLICABILITY: It extends to the whole of India except Jammu & Kashmir.

The Act applies to: every factory, mine, oilfield, plantation, port and railway company. every shop or establishment, in which 10 or more persons are employed, or were employed, on any day of the preceding twelve months

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WAGES: Means all emoluments which are earned by an employee while on duty or on leave in accordance with the terms and conditions of his employments and which are paid or are payable to him in cash and includes D.A. but does not include any bonus, commission, HRA, overtime wages and any other allowances. EMPLOYEE: means any person (other than an apprentice) employed on wages, in any establishment, factory, mine, oilfield, plantation, port railway company or shop to do any skilled, semi-skilled or u skilled, manual, supervisory, technical or clerical work. but does not include any such person who holds a post under the Central Government or a State Government and is governed by any other Act or by any rules providing for payment of gratuity

CALCULATION OF GRATUITY AMOUNT: (SEC. 4(2))

As prescribed under Accounting Standard 15 , PAYMENT OF GRATUITY

INCOME TAX COMPLIANCE(SEC.43B)

Gratuity expenses will be allowed only on cash basis. However if it is paid till the due date of filling of return i.e. 31st July or 30th September it will be allowed as expenses.

If it is not paid till the due date of filling of return, and paid after that, then this Gratuity will be allowed in the financial year in which it is actually paid.

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WHAT IS THE CEILING?In case the auditor is an individual the ceiling is specified number In case of a firm of auditors the ceiling is specified number for every partner of the firm. Where any partner of the firm is also a partner of any other firm of auditors the ceiling is specified number for such person in all the firms taken together. Where any partner of a firm of auditors is also practicing in his individual capacity the ceiling is specified number for such person in the partnership firm and in his individual capacity taken together.

MEANING OF SPECIFIED NUMBERSpecified number means Not more than 20 companies (public) Of which not more than 10 should be companies having a paid up capital of Rs. 25 lakhs or more.

AUDITS EXCLUDED:Following audits shall not be included while computing specified number:Audit of a private company An audit of a guarantee company having no share capital An audit of a foreign company Audit of cooperative societies, trusts and corporations An internal audit Tax audits under Income tax act, 1961 A branch audit Special audit and investigations

AUDITS INCLUDED:Following audits shall be included while computing specified number:A joint audit An audit of a company licensed u/s 25

MAXIMUM NUMBER OF AUDITSAn auditor can accept a maximum of 30 audits including the audits of private companies (notification issued by ICAI). Non-observance of this ceiling would amount to professional misconduct.

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