Volume 11/14-15 Institute of Chartered Accountants of...

Volume 11/14-15 Institute of Chartered Accountants of IndiaNavi Mumbai Branch of WIRC

Newsletter, February 2015

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News letter February 2015Volume 11/2014-15

Managing CommitteeChairmanCA. Sameer L. Gavli 9821161072

Vice-ChairmanCA. Shrikant Limaye 9819455561

SecretaryCA. Ananthram Rao 9320433833

TreasurerCA. Nawanit Jaipuriyar 9920062526

MembersCA. Sreekumar Nair 9892290909CA. J.D.Tandel 9820192895CA. Santosh Sharma 9323582884CA. Minaxi Rachchh 9820898183

Co-opted MembersCA. Sanjay Nikam 9820446329CA. Suresh Ameria 9821368836CA. Manoj Pandey 9322804994

Inside this issue:

Growth of Financial Sector….…...4 FEMA Update……………….….11 Recent Judgements ………..…....20 Photo Gallery ……….……….…23 Forthcoming programmes…...….29

Respected Seniors & Dear Friends,

As I pen down my last ‘communication’ as Chairman, we receivedthe good news that once again WIRC has been adjudged the BestRegional Council and WICASA has won Best Students AssociationAward, which once again proves that ‘West is the Best’. Mycongratulations to all the Regional Members of our Region on thisglorious occasion. It is one more proud moment for us.

After hectic professional activities throughout the year, we had agood break last month with a refreshing Residential RefresherCourse at Hotel Citrus, Mahabaleshwar. I thank CA MangeshKinare, CA Abhay Arolkar, CA Narendra Mangal, CA SantoshSharma and CA Abhay Sakhalkar for their excellent presentation inRRC.

Our Branch hosted 2nd Orientation Programme for newly qualifiedChartered Accountants on 5th February and it was attended by 58CAs. Central Council Member, CA Tarun Ghia, Regional CouncilMember CA Mahesh Madkholkar, CA Sudhir Joshi and CA GirishNachane guided students during this programme.

With Union Budget in corner, the Branch has organized Live Tele-cast of Union Budget on 28th February at Navi Mumbai Sports As-sociation, followed by Budget Analysis. With Bank Audit seasonnearing, we have planned bank branch audit seminar on 7th Marchwith a new structure in mind. This full day seminar will now havesome advanced features with specific thrust on audit of sensitiveaccounts. We hope that this change in the structure will really helpmembers to sharpen their skills.



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I consider myself fortunate that I could communicate to all our members through this ‘Chairman’sCommunication’. So while I write my last communication, I recollect all the fond memories of theyear in which many of you have encouraged me, helped me with their appreciation and suggestions.All such inputs have brought out an improvement in my personality, for which I am personallygrateful.

As you all know, for achieving high performance standards, the Branch has taken various initiatives byarranging workshops, intensive programmes, skill development programmes, lecture meetingsthroughout the year alongwith new initiatives for students like mock interviews and CampusPlacement Programme.

I am grateful to Chairman WIRC CA Anil Bhandari and Past Chairman WIRC CA Mangesh Kinare andBranch Nominee CA Sunil Patodia for their continuous guidance, co-operation and encouragement.I am thankful to Office Bearers and Managing Committee Members of Branch, Past Chairmen ofBranch, faculties and Branch staff for their unstinted support and relentless efforts in pursuit of allthe above initiatives and achievements.

I bid adieu as Chairman of Navi Mumbai Branch by wishing new team that their tenure, under theable Chairmanship of CA Shrikant, be more exciting and successful and they go from strength tostrength.

With best regards,

CA Sameer Gavli

Chairman



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The financial sector in India commonly known as BFSI (Banking ,Financial Services & Insurance) has grownleaps and bounds in the past decade. The focus of the economic growth is now not merely limited tomanufacturing or agriculture but has also gain grounds in this arena.

The growth of financial sector in India at present is nearly 8.5% per year. The rise in the growth ratesuggests the growth of the economy. The financial policies and the monetary policies are able to sustain astable growth rate.

The reforms pertaining to the monetary policies and the macro economic policies over the last few yearshas influenced the Indian economy to the core. The major step towards opening up of the financial marketfurther was the nullification of the regulations restricting the growth of the financial sector in India. Tomaintain such a growth for a long term the inflation has to come down further.

The financial sector in India had an overall growth of 15%, which has exhibited stability over the last fewyears although several other markets across the Asian region were going through a turmoil. Thedevelopment of the system pertaining to the financial sector was the key to the growth of the same. Withthe opening of the financial market variety of products and services were introduced to suit the need of thecustomer.

The government and its bodies like Reserve Bank of India, Securities Exchange Board of India, InsuranceRegulatory & Development authority and other such regulatory bodies have ensured a stable environmentfor the investors thereby assuring them that the funds put in this sector is safeguarded and therebyboosting the confidence and growth of the sector.

Banking Sector

The banking system in India is the most extensive. The total asset value of the entire banking sector in Indiais nearly US$ 270 billion. The total deposits is nearly US$ 220 billion. Banking sector in India has beentransformed completely. Presently the latest inclusions such as Internet banking and Core banking havemade banking operations more user friendly and easy. With the Pradhanmantri Dhan Jan Yojna the bankingsector has gained the stimulus and the number of accounts have increased many folds

Growth of Financial Sector in India

(Contributed by CA Abhilash Tewari. He is member of the Instituteand can be reached at [email protected])



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Insurance Sector

With the opening of the market, foreign and private Indian players are keen to convert untapped marketpotential into opportunities by providing tailor-made products.The insurance market is filled up with newplayers which has led to the introduction of several innovative insurance based products, value add-ons,and services. Many foreign companies have also entered the arena such as Tokio Marine, Aviva, Allianz,Lombard General, AMP, New York Life, Standard Life, AIG, and Sun Life.The competition among thecompanies has led to aggressive marketing, and distribution techniques.The active part of the InsuranceRegulatory and Development Authority (IRDA) as a regulatory body has provided to the development of thesector.

Mutual Funds

Despite being available in the market less than 10% of Indian households have invested in mutual funds. Arecent report on Mutual Fund Investments in India published by research and analytics firm, BostonAnalytics, suggests investors are holding back from putting their money into mutual funds due to theirperceived high risk and a lack of information on how mutual funds work. However with more investoreducation and awareness the scenario is changing rapidly and the common man has started looking atMutual funds not just as an investement option but also a savings option. The growth of this section of BFSIhas invited many foreign fund houses to set up and operate in India.

Venture Capital

The venture capital sector in India is one of the most active in the financial sector inspite of the hindrancesby the external set up.These venture capitalist come like a blessings to many start ups and company’sintending to expand. The sector not only grows independently but also acts as a stimulus for other sectors.Presently in India there are around 180 SEBI registered venture capital funds.

With the growth of all these sectors individually the growth of BFSI is definetly on the cards and would actas a support to growing Indian Economy and thereby may also convert India to a financial hub of Asia.



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(Contributed by CA Vandana Shah. She is member of the Institute and can be reached at

[email protected])

Background:

The United States (US) legislation has introduced United States Foreign Account Tax Compliance Act (FATCA)

in March 2010 to ensure that the US persons with financial assets outside of the US are tax compliant in the

US. FATCA is US legislation designed to prevent tax evasion by US persons through the use of offshore

accounts directly or via offshore investment vehicles.

FATCA requires US persons including individuals who live outside the United States, to report their financial

accounts held outside of the United States, and requires non-US financial institutions to report details of their

US clients to the US IRS.

FATCA provisions require non-US entities classified as Foreign Financial Institutions (FFI) to register with the

US Internal Revenue Service (IRS). FFIs are required to perform due diligence to identify US accounts and

report certain information about these US account holders to the IRS, either directly or through the home

country tax authority. FATCA provisions also require passive Non-Financial Foreign Entities (NFFE) to disclose

the identity of their substantial (or controlling) US owners to their banking institutions where they hold a

financial account.

In case of non-compliance with FATCA provisions, there will be a withholding of 30% as a penalty in the US in

respect of US sourced payments made to non compliant entities*. Here, it is pertinent to note that the FATCA

provisions apply in respect of withholdable payments. In addition to withholding on withholdable payments,

a withholding will also be applied to 'passthru' payments made by an FFI to non-FATCA compliant FFIs and to

recalcitrant account holders.

*These rules are subject to certain exceptions for certain non US payers, certain category of foreign source payments, etc. One needs to check theapplicability of penalty in detail, depending upon precise facts of the case.

Foreign Account Tax Compliance Act (FATCA)

-Are Indian Entities Adequately Prepared?



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Any entity making a payment of US source income must consider whether it is subject to FATCA provisions.

US entities, both financial and non-financial, that make payments of most types of US source income to

non-US persons will also be impacted as they may now be required to withhold a 30% tax on that income

paid to a non-US person under FATCA.

In general, FATCA does not apply to non US persons. However, in case any of the following US indicia

described below is found, additional information / documentation may be asked upon to determine if the

concerned person is US person under FATCA:

US citizenship or US residence

US place of birth

US address including US P O boxes

US telephone number

Standing instructions to transfer funds to a US address or an account maintained in the US

Current Power of Attorney or signatory authority granted to a person with a US address

If "care of" or "Hold mail" address which is the sole address for the account holder

Some Key Terms:

For the purpose of FATCA regulations, a US account means any financial account held by specified US persons

or US owned foreign entities.

The term ‘US person’ means:

a citizen or resident of the United States

a partnership created or organised in the United States or under the law of the United States or of any

state, or the District of Columbia

a corporation created or organised in the United States or under the law of the United States or of any

state, or the District of Columbia

any estate or trust other than a foreign estate or foreign trust



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a person that meets the substantial presence test

any other person that is not a foreign person.

The term "US owned foreign entity" means any foreign entity with one or more substantial US owners. For

this purpose, substantial US owner means any US person with more than 10% interest by vote or value in

foreign corporation, partnership or trust. For foreign investment vehicles, any percentage of ownership is

reportable.

The FATCA legislation contains an extensive definition of FFI and includes entities such as banks, custodian

institutions, investment funds and certain types of insurance companies.

Exceptions:

Certain category of FFIs and NFFEs are excepted from identification and reporting requirements, if in gen-

eral, they present a relatively low risk of being used for tax evasion by US persons. Deemed compliant FFI

and Excepted FFI / NFFE are excluded from FATCA provisions. Eligible FFIs need to apply to the IRS for

deemed compliant status and comply with certain procedural requirements.

Similarly, FFIs such as foreign government, international organisations, foreign central bank of issue, etc.

and certain category of NFFEs are exempt from compliance of FATCA provisions.

Modus Operandi and Compliance Requirements:

With respect to modus operandi of FATCA regulations, the US has collaborated with other governments to

develop two model intergovernmental agreements (IGAs) to implement FATCA. All IGAs contemplate that a

partner government will require all foreign financial institutions (FFIs) located in its jurisdiction (that are not

otherwise exempt) to identify US accounts and report information about US accounts. The purpose of IGA

with partner jurisdictions is to facilitate the effective and efficient implementation of FATCA as also to re-

move domestic legal impediments to compliance and reduce burdens on FFIs located in partner jurisdic-

tions. Both Model 1 and Model 2 IGAs can be implemented without having in effect a double tax conven-

tion or tax information exchange agreement with the US.



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Model 1 IGA:

The partner jurisdiction agrees to report to the IRS specified information about the US accounts maintained

by all relevant FFIs located in the jurisdiction.

FFIs identify US accounts in accordance with specified due diligence rules.

FFIs report specified information about their US accounts to the partner jurisdiction.

The partner jurisdiction in turn reports such information to the IRS on an automatic basis.

The exchange of information under Model 1 IGA may be on reciprocal or non reciprocal basis.

Model 2 IGA:

The partner jurisdiction agrees to direct and enable all relevant FFIs located in the jurisdiction to report speci-

fied information about their US accounts directly to the IRS.

FFIs identify US accounts in accordance with specified due diligence rules.

FFIs report specified information about their US accounts to the IRS.

FFIs also report to the IRS aggregate information with respect to holders of pre-existing accounts who do not

consent to have their account information reported, on the basis of which the IRS may make a “group re-

quest” to the partner jurisdiction for more specific information.

The reporting requirements generally include Name, address and Taxpayer Identification Number (TIN) of each

account holder, Account Number, Account balance or value at year end. In case of custodial / depository ac-

counts, additional information relating to Gross dividends, interest and other income paid or credited to the ac-

count, etc. is generally insisted upto.

US has already signed IGAs with Australia, Cyprus, Germany, Mauritius, Singapore, United Kingdom Denmark and

many more other countries and the same are already in effect.

India's Position vis a vis FATCA:

India has reached an agreement in substance with US and has adopted Model 1IGA.**

While India is yet to sign a final pact with the US for the FATCA, close to 1,000 Indian financial institutions and

their overseas units are believed to have already registered with the US tax authorities under this new regime.

**http://www.treasury.gov/resource-center/tax-policy/treaties/Pages/FATCA-Archive.aspx



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The tricky situation has arisen because India and the US reached an agreement in substance on the terms of the

Inter Governmental Agreement and India is already treated as having an IGA in effect from April 11, 2014.

At that time, it was agreed that India would sign the IGA by December 31, 2014 - which was the earlier deadline

for many other jurisdictions as well. However, the US has now agreed to extend this deadline.

As per the IGA proposed between India and the US, a financial institution will be required to submit the

necessary information to the regulators and tax authorities in India, which in turn would pass on the details to

the IRS.

With the recent visit of Mr. Barack Obama to India and closer economic times between the two countries, it

seems that IGA would soon be signed between India and US. The reporting entities will have to undertake

suitable identification, incorporate specific due diligence procedures, review existing customer accounts, collate

additional information and documentation, to confirm the customer's FATCA status and to comply with the

reporting requirements as may be defined by RBI / tax authorities in this regard.

Reporting entities in India will have to perform several tasks such as:

Entity classification - Determine if the entity is FFI or NFFE

Comply with verification and due diligence procedure to identify whether an account is maintained directly or

indirectly by US person

Link accounts of US person across all locations, branches, etc.

Collate additional information from the US person

Timely reporting of certain information

Reporting entities will have to put in appropriate due diligence procedures and undertake an assessment on

timely basis to ensure appropriate compliance with the IGA.



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FEMA Updates

- By CA Mitesh Majithia :- [email protected]

Creation of charge over Securities for External Commercial Borrowings (ECB)

A.P. (DIR Series) Circular No.55 dated January 1,2015

Presently, under the ECB guidelines the choice of security to be provided to the overseas lender / supplier for

securing ECB is left to the borrower and Authorised Dealer (AD) Category - I banks have been delegated

powers to convey ‘no objection’ under the Foreign Exchange Management Act, 1999 (FEMA) for creation of

charge on immovable assets, financial securities and issue of corporate or personal guarantees in favour of

overseas lender / security trustee, to secure the ECB to be raised by the borrower.

With a view to liberalising, expanding the options of securities and consolidating various provisions related to

creation of charge over securities for ECB at one place, RBI has permitted AD Category-I banks to allow

creation of charge on immovable assets, movable assets, financial securities and issue of corporate and / or

personal guarantees in favour of overseas lender / security trustee, to secure the ECB to be raised / raised by

the borrower, subject to their satisfaction of certain conditions:

Firstly the underlying ECB should comply with the ECB guidelines;

There exists a security clause in the Loan agreement which creates a charge in favour of overseas lender/

security trustee on the above mentioned assets;

No objection certificate, wherever necessary has been obtained from existing lenders in India.

Once aforesaid stipulations are met, the AD Category-I bank may permit creation of charge on immovable

assets, movable assets, financial securities and issue of corporate and / or personal guarantees, during the

currency of the ECB with security co-terminating with underlying ECB, subject to stipulated conditions.



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Refer the aforesaid circular for the stipulated conditions at:

http://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=9443&Mode=0

Non–resident guarantee for non-fund based facilities entered between two resident entities.

A.P. (DIR Series) Circular No.56 dated January 6,2015

Presently, non-resident guarantee for non-funded facilities such as Letters of Credit/guarantees/Letters of

Undertaking (LoU) /Letter of Comfort (LoC) entered between two persons resident in India is allowed under the

general permission route.

RBI has now clarified that residents that are subsidiaries of multinational companies can also hedge their foreign

currency exposure through permissible derivative contracts executed with an AD Category – I bank in India on

the strength of guarantee of its non-resident group entity. The method of discharge of liability by the non-

resident guarantor under the guarantee and the subsequent repayment of the liability by the principal debtor

shall continue to be governed, as hitherto, by the extant provisions.

Risk Management and Inter Bank Dealings: Hedging under Past Performance Route- Liberalisation of Docu-mentation Requirements in the OTC market.

A.P. (DIR Series) Circular No.58 dated January 14, 2015

In order to further rationalise the documentation process for exporters and importers relating to hedging of

probable exposures based on past performance, RBI has revised the extant guidelines in this regard as under:

Presently,importers and exporters are required to furnish a quarterly declaration duly certified by the Statutory

Auditor, to the AD Category I banks regarding amounts booked with other AD Category I banks under this facility.

RBI has now decided that importers and exporters shall, henceforthbe required to furnish a quarterly declaration

to the same effect signed by the Chief Financial Officer (CFO) and the Company Secretary (CS). In the absence of

a CS, the Chief Executive Officer (CEO) or the Chief Operating Officer (COO) shall co-sign the undertaking along

with the CFO.



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Aggregate outstanding contracts in excess of 50% of the eligible limit may be permitted by AD Category I banks

on being satisfied about the genuine requirements of their customers after examination of the prescribed docu-

ments.

RBI has now decided that, henceforth, AD Category I banks may permit aggregate outstanding contracts in ex-

cess of 50% of the eligible limit on being satisfied about the genuine requirements of their customers after ex-

amination of a document as per the format in Annex 2 to the aforesaid circular, signed by the CFO and CS, con-

taining the following:

A declaration that all guidelines have been adhered to while utilizing this facility; and

A certificate of import/export turnover of the customer during the past three years.

In the absence of a CS, the CEO or the COO shall co-sign the undertaking along with the CFO.

As part of the annual audit exercise, the Statutory Auditor shall also certify the following:

The amounts booked with AD Category-I banks under this facility; and

All guidelines have been adhered to while utilizing this facility over the past financial year.

Overseas Direct Investments by proprietorship concern / unregistered partnership firm in India

A.P. (DIR Series) Circular No.59 dated January 22, 2015 and Notification No. FEMA.325/RB-2014 datedNovember 12, 2014

Keeping in view the changes in the definition / classification of the exporters as per theForeign Trade Policy of

the Ministry of Commerce and Industry issued from time to time, the policy framework for Overseas Direct In-

vestments (ODI) by a proprietorship concern / unregistered partnership firm in India has been reviewed. Accord-

ingly, henceforth, the following revised terms and conditions are required to be complied with for considering

the proposal of ODI, by a proprietorship concern / unregistered partnership firm in India, by the RBI under the

approval route:



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The proprietorship concern / unregistered partnership firm in India is classified as ‘Status Holder’ as per the

Foreign Trade Policy issued by the Ministry of Commerce and Industry, Govt. of India from time to time;

The proprietorship concern / unregistered partnership firm in India has a proven track record, i.e., the export

outstanding does not exceed 10% of the average export realisation of the preceding three years and a

consistently high export performance;

The Authorised Dealer bank is satisfied that the proprietorship concern / unregistered partnership firm in India is

KYC (Know Your Customer) compliant, engaged in the proposed business and has turnover as indicated;

The proprietorship concern / unregistered partnership firm in India has not come under the adverse notice of

any Government agency like the Directorate of Enforcement, Central Bureau of Investigation, Income Tax

Department, etc. and does not appear in the exporters' caution list of the Reserve Bank or in the list of defaulters

to the banking system in India; and

The amount of proposed investment outside India does not exceed 10% of the average of last three years’ export

realisation or 200% of the net owned funds of the proprietorship concern / unregistered partnership firm in

India, whichever is lower.

Consequently, the RBI has amended the Principal Regulations vide Notification No. FEMA.325/RB-2014 dated

November 12, 2014 - Foreign Exchange Management (Transfer or Issue of any Foreign Security) (Fourth

Amendment) Regulations, 2014 to give effect of the above amendments.

Review of Foreign Direct Investment (FDI) in Construction Development sector

A.P. (DIR Series) Circular No.60 dated January 22, 2015 and Notification No. FEMA.329/2014-RB dated Decem-ber 8, 2014

The Government of India has, on October 29, 2014, reviewed the extant FDI policy for Construction Development

sector and approved the amendment to the said policy. Consequently, the Department of Industrial Policy & Pro-

motion(DIPP) issued the Press Note 10 (2014 Series) dated December 3, 2014 amending the FDI Policy on the

Construction Development Sector.



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Accordingly, the RBI has now amended the Foreign Exchange Management (Transfer or Issue of Security by a

Person Resident outside India) Regulations, 2000 through the Foreign Exchange Management (Transfer or Issue

of Security by a Person Resident outside India) (Sixteenth Amendment) Regulations, 2014 notified vide

Notification No.FEMA.329/2014-RB dated December 8, 2014.

Depository Receipts Scheme, 2014

A.P. (DIR Series) Circular No.61 dated January 22, 2015;

Notification No. FEMA330/2014-RB dated December 15, 2014; and

Notification No. F. No.9/1/2013-ECB dated October 21, 2014

The Government of India has, on October 21, 2014 notified a new scheme called ‘Depository Receipts Scheme,

2014’ (DR Scheme, 2014) for investments under ADR/GDR which is effective from December 15, 2014. The said

scheme provides for repeal of extant guidelines for Foreign Currency Convertible Bonds and Ordinary Shares

(Through Depositary Receipt Mechanism) Scheme, 1993 except to the extent relating to foreign currency con-

vertible bonds.

Consequently, the RBI has amended the Foreign Exchange Management (Transfer or Issue of Security by a Per-

son Resident outside India) Regulations, 2000 through the Foreign Exchange Management (Transfer or Issue of

Security by a Person Resident outside India) (Seventeenth Amendment) Regulations, 2014 notified vide Notifica-

tion No. FEMA.330/2014-RB dated December 15, 2014.

For detailed DR scheme, 2014, refer aforesaid circular and notifications available at:



http://finmin.nic.in/the_ministry/dept_eco_affairs/capital_market_div/DepositoryReceiptsScheme2014.pdf



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Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) Regulations,2000 – Remittance of salary

A.P. (DIR Series) Circular No.62 dated January 22, 2015 and Notification No. FEMA. 328/2014-RB dated Decem-ber 3, 2014

Presently, a citizen of a foreign State, resident in India, being an employee of a foreign company or a citizen of

India, employed by a foreign company outside India and in either case on deputation to the office/branch/

subsidiary/joint venture in India of such foreign company may open, hold and maintain a foreign currency

account with a bank outside India and receive the whole salary payable to him for the services rendered to the

office/branch/subsidiary/joint venture in India of such foreign company, by credit to such account, provided that

income-tax chargeable under the Income-tax Act, 1961 is paid on the entire salary as accrued in India.

RBI has now clarified and allowed that the above facility availableto an employee of a company under Regulation

7(8) of FEMA Notification No. 10 shall also be available to an employee who is deputed to a group company in

India. In addition, the term ‘company’ referred to in the said regulation will include ‘Limited Liability Partnership’

as defined in the LLP Act, 2008.

Consequently, the RBI has amended the Foreign Exchange Management (Foreign Currency Account by a person

resident in India) Regulation, 2000 through the Foreign Exchange Management (Foreign Currency Accounts by a

Person Resident in India) (Amendment) Regulations, 2014 notified vide Notification No. FEMA. 328/2014-RB

dated December 3, 2014.

Export and Import of Indian Currency

A.P. (DIR Series) Circular No.63 dated January 22, 2015 and Notification No. FEMA331/2014-RB dated Decem-ber 16, 2014

Presently, a person may take or send out of India to Nepal or Bhutan and bring into India from Nepal or Bhutan,

currency notes of Government of India and RBI for any amount in denominations up to Rs.100/-.



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With a view to mitigating the hardship of individuals visiting from India to Nepal or Bhutan, RBI has now decided

that, an individual may carry to Nepal or Bhutan, currency notes of RBI denominations above Rs.100/-, i.e. cur-

rency notes of Rs.500/- and/or Rs.1000/- denominations, subject to a limit of Rs.25,000/-.

Consequently, the RBI has amended the Foreign Exchange Management (Export and Import of Currency) Regula-

tions 2000 through the Foreign Exchange Management (Export & Import of Currency) (Second Amendment)

Regulations, 2014 vide Notification No. FEMA331/2014-RB dated December 16, 2014.

ECB Policy – Simplification of Procedure

A.P. (DIR Series) Circular No.64 dated January 23, 2015

RBI has vide undernoted A.P. (DIR Series) Circulars delegated powers to AD Category-I banks to deal with cases

related to change in draw down and repayment schedules of ECBs subject to conditions stipulated therein.

1. A.P. (DIR Series) Circular No. 33 dated February 09, 2010

2. A.P. (DIR Series) Circular No. 75 dated February 07, 2012

3. A.P. (DIR Series) Circular No. 128 dated May 09, 2014.

On a review, as a measure of simplification of the existing procedure for rescheduling / restructuring of ECBs and

in supersession of aforesaid provisions, RBI has decided to delegate powers to the designated AD Category-I

banks to allow:

(i) Changes / modifications (irrespective of the number of occasions) in the draw-down and repayment sched-

ules of the ECB whether associated with change in the average maturity period or not and / or with

changes (increase/decrease) in the all-in-cost.

(ii) Reduction in the amount of ECB (irrespective of the number of occasions) along with any changes in draw-

down and repayment schedules, average maturity period and all-in-cost.

(iii) Increase in all-in-cost of ECB, irrespective of the number of occasions.



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This measure is subject to the designated AD Category-I bank ensuring the following:

Revised average maturity period and / or all-in-cost is / are in conformity with the applicable ceilings /

guidelines; and

The changes are effected during the tenure of the ECB.

If the lender is an overseas branch / subsidiary of an Indian bank, the changes shall be subject to the applicable

prudential norms.

It has also been decided to delegate powers to the designated AD Category-I banks to permit changes in the

name of the lender of ECB after satisfying themselves with the bonafides of the transactions and ensuring that

the ECB continues to be in compliance with applicable guidelines. Further, the AD Category-I banks may also

allow the cases requiring transfer of the ECB from one company to another on account of re-organisation at

the borrower’s level in the form of merger / demerger / amalgamation / acquisition duly as per the applicable

laws / rules after satisfying themselves that the company acquiring the ECB is an eligible borrower and ECB

continues to be in compliance with applicable guidelines.

These measures of simplification will be applicable for ECBs raised both under the automatic and approval

routes. However, FCCBs will not be covered within these provisions.

These changes in the terms and conditions of ECB and / or any other changes allowed by the AD Category-I

banks under the powers already delegated and / or changes approved by the RBI should be reported to the

Department of Statistics and Information Management (DSIM) of the RBI through revised Form 83 at the earli-

est, in any case not later than 7 days from the changes effected. While submitting revised Form 83 to the

DSIM, the changes should be specifically mentioned in the communication. Further, these changes should also

get reflected in the ECB 2 returns appropriately.



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Mapping of the sector specific FDI Policy in Consolidated FDI Policy 2014 interms of National IndustrialClassification (NIC)-2008

Press Note 1 (2015 Series)January 5, 2015 issued by DIPP

Chapter VI of the Consolidated FDI Policy 2014 issued vide DIPP Circular dated April 17, 2014 indicates sector spe-

cific FDI policy for industrial and other sectors.

With the objective of improving ease of doing of business, DIPP has undertaken an exercise to map the activities

listed in Chapter VI of the Consolidated FDI Policy, 2014 with the National Industrial Classification (NIC) – 2008 by

issue of aforesaid Press Note.

For a chart indicating mapping of the activities covered under Chapter VI of the Consolidated FDI Policy 2014 with

NIC –2008, refer aforesaid press note available on DIPP website at:

http://dipp.nic.in/English/acts_rules/Press_Notes/pn1_2015.pdf andhttp://dipp.nic.in/English/acts_rules/Press_Notes/Mapping_NIC2008_05January2015.pdf

Review of the policy on FDI in Pharmaceutical Sector – carve out for medical devices.

Press Note 2 (2015 Series) dated January 6, 2015 issued by DIPP

DIPPhas reviewed the extant FDI Policy in Pharmaceutical Sector and decided to carve out the manufacturing of

medical devicesout of Pharmaceutical Sector and accordingly, conditions applicable to FDI in Pharmaceutical

Sector will not be applicable to greenfield as well as brownfield projects in this industry. The term ‘Medical Device’

has accordingly been defined in the aforesaid Press Note.

The above decision is effective from January 21, 2015.



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Source – www.itatonline.org

GTL Limited vs. ACIT (ITAT Mumbai)

Another major discrepancy noticed during the course of arguments is that there is no mention of authorizationof a higher authority to initiate the current reassessment proceedings. Since there is no mention of the approvalsought from the CIT on the reasons, as recorded by the AO to initiate reassessment proceedings, the entire ini-tiation has been vitiated and become bad in law

CIT vs. Hariram Bhambhani (Bombay High Court)

In a survey conducted under Section 133A, it was noticed that the assessee has not accounted some of the salesin the total turnover. In the statement recorded at the time of survey, the Director of the assessee declared asum of Rs.35 lakhs should be offered to tax. However, thereafter, the assessee explained the statement on thebasis that the director was not aware of the intricacies and implications of the statement made by him. The AOrejected the assessee’s explanation and assessed Rs.35 lakhs. On appeal the CIT(A) held that the entire Rs. 35lakhs cannot be assessed as income but only 4% thereof, being the profit earned on sales of Rs.35 lakhs, couldbe added to the net profit. This was upheld by the Tribunal. Before the High Court, the department relied onSection 69C and argued that the entire amount of undisclosed sales had to be brought to tax. HELD by theHigh Court dismissing the appeal

Prema Gopal Rao vs. DCIT (ITAT Mumbai)

Even though the Assessee filed the revised return of income after the receipt of notice u/s 143(2) of the Act,yet the admitted fact remains that the assessing officer did not seek any type of particulars in that notice.Hence the mistake in the Long term Capital gain could not have come to the notice of the AO at that point oftime, meaning thereby, it should be construed that the assessee has declared the higher amount of Long termcapital gain voluntarily upon its detection. Hence, we are unable to agree with the view of the tax authoritiesthat the revised return of income was not voluntary one, but the assessee was constrained to enhance the Longterm capital gain only upon the receipt of notice u/s 143(2) of the Act. Accordingly, we delete the penalty lev-ied (ACIT Vs. Ashok Raj Nath (2013)(33 taxmann.com 588 followed)

S. 147/151: Non-mentioning in the reasons that approval has been obtained from the CIT vitiates thereopening

Unaccounted Sales: The entire unaccounted sales cannot be assessed as undisclosed income particu-larly if the purchases have been accounted for. Only the net profit on such unaccounted sales can betaken as income

S. 271(1)(c): Revised ROI filed after issue of s. 143(2) notice amounts to voluntary disclosure if AOhas not sought specific particulars in the notice



Page 21

Rashmikant Kundalia vs. UOI (Bombay High Court)

S. 234E of the Income-tax Act, 1961 inserted by the Finance Act, 2012 provides for levy of a fee of Rs. 200/- foreach day’s delay in filing the statement of Tax Deducted at Source (TDS) or Tax Collected at Source (TCS). AWrit Petition to challenge the validity of s. 234E has been filed in the Bombay High Court. The Petition claimsthat assessees who are deducting tax at source are discharging an administrative function of the department andthat they are a “honorary agent” of the department. It is stated that this obligation is onerous in nature and thatthere are already numerous penalties prescribed for a default. It is stated that the fee now levied by s. 234E is“exponentially harsh and burdensome” and also “deceitful, atrocious and obnoxious“. It is also claimed that Parlia-ment does not have the jurisdiction or competence to impose such a levy on tax-payers. HELD by the High Courtdismissing the Petition

CIT vs. Fine Jewellery (India) Ltd (Bombay High Court)

The Tribunal records the fact that specific queries were made during the assessment proceedings with regard todetails of expenditure claimed under the head “miscellaneous expenses” aggregating to Rs.2.94 crores. The as-sessee responded to the same and on consideration of response of the assessee, the AO held that of an amount ofRs.17.98 lakhs incurred on account of repairs and maintenance out of Rs.2.94 cores is capital expenditure. Thisitself would be indication of application of mind by the AO while passing the impugned order. The fact that theassessment order itself does not contain any discussion with regard to the balance amount of expenditure ofRs.1.76 crores i.e. Rs.2.94 crores less Rs.17.98 lakhs claimed as revenue expenditure would not by itself indicatenon application of mind to this issue by the AO in view of specific queries made during the assessment proceed-ings and the assessee’s response to it. In fact this Court in the case of “Idea Cellular Ltd. Vs. Deputy Commis-sioner of Income Tax & Ors., [(2008) 301 ITR 407 (Bom.)]” has held that if a query is raised during assessmentproceedings and responded to by the assessee, the mere fact that it is not dealt with in the assessment Order wouldnot lead to a conclusion that no mind had been applied to it.

Daga Global Chemicals Pvt. Ltd vs. ACIT (ITAT Mumbai)

The totality of facts clearly indicates that no borrowed funds were utilized for earning the exempt income by theassessee and further the dividend were directly credited in the bank account of the assessee and no expenditurewas claimed. The assessee only received Rs.1,82,362 as dividend income, therefore, there is no question of disal-lowance of Rs.14,58.412 by invoking section 14A r.w. Rule 8D. At best, if any disallowance could be made thatcan be restricted to Rs. 1,485 which were claimed as demat charges. Disallowance u/s 14A r.w. Rule 8D cannotexceed the exempt income.

S. 234E: The late filing of TDS returns by the deductor causes inconvenience to everyone and s. 234Elevies a fee to regularize the said late filing. The fee is not in the guise of a tax nor is it onerous. The levyis constitutionally valid

S. 263: Fact that assessment order is silent on a point does not mean that there is no application of mindby AO if he has raised a query during the assessment proceedings and assessee has replied

Disallowance u/s 14A r.w. Rule 8D cannot exceed the exempt income



Page 22

M/s. Chakrabarty Medical Centre vs. TRO (ITAT Pune)

Under s. 239 of the Indian Contract Act and s. 14 of the Indian Partnership Act, for the purpose of bringing theseparate properties of a partner into the stock of the firm it is not necessary to have recourse to any writtendocument at all, that as soon as a partner intends that his separate properties should become partnership prop-erties and they are treated as such, then by virtue of the provisions of the Contract Act and the Partnership Act,the properties become the properties of the firm and that this result is not prohibited by any provision in theTransfer of Property Act or the Indian Registration Act.

Property introduced by a partner into firm becomes the asset of the firm even if there is no registereddeed. Though the asset is held by the firm as a depreciable asset and though the investment in s.54EC bonds is made in the names of the partners, the firm is eligible for s. 54EC exemption



Page 23

CA Mangesh Kinare, Past Chairman WIRC, delivering lecture on Service Tax case studies in Residential

Refresher Course at Mahabaleshwar

CA Abhay Arolkar, delivering lecture on Companies Act in Residential Refresher Course at Mahabaleshwar

PHOTO GALLERY



Page 24

CA Narendra Mangal, Past Chairman Branch, delivering lecture on Time Management

in Residential Refresher Course at Mahabaleshwar

CA Santosh Sharma, Faculty and CA Shrikant Limaye, Vice Chairman of Navi Mumbai Branch,

in Residential Refresher Course at Mahabaleshwar



Page 25

Participants in Residential Refresher Course at Mahabaleshwar



Page 26

CA Sudhir Joshi, delivering lecture during Orientation Programme for newly qualified CAs on 05.02.2015

CA Mahesh Madkholkar, RCM, being felicitated during “Orientation Programme” for newly -

qualified CAs on 05.02.2015



Page 27

CA Tarun Ghia, CCM and Chairman of CMII, delivering lecture during Orientation Programme

for newly qualified CAs on 05.02.2015

CA Girish Nachane, faculty during Orientation Programme for newly qualified CAs on 05.02.2015,

with CA Shrikant Limaye, Vice Chairman of the Branch.



Page 28

CA Campus Placement Programme at Navi Mumbai Branch on 16.02.2015

DISCLAIMER :The views and opinion expressed or implied in the Newsletter are those of the authors / contributors and donot necessarily reflect those of Navi Mumbai Branch. Unsolicited matters are sent at the owner's risk and thepublisher accepts no liability for loss or damage. Material in this publication may not be reproduced, whetherin part or in whole, without the consent of Navi Mumbai Branch. Members are requested to kindly send materialof professional interest so that the same may be published in the newsletter subject to availability of space& editorial editing.



Page 29

-: Future Programmes :-

Venue – Navi Mumbai Sports Association, Sector-1A, Vashi

Day Date Particulars Fees

Friday 20th February, 2015 Full Day Students Seminar Free for all

Saturday 28th February, 2015 Live Telecast of Union Budgetfollowed by Budget Analysis andlunch

Rs.250

Saturday 7th March, 2015 Full Day Seminar on BankBranch Audit

Rs.1000 for membersRs.300 for students



Page 30



Page 31

Membership Form

Name of the member ..........................................................................................................

Membership Number ..........................................................................................................

Professional Address ...........................................................................................................

……………………………………………………………………………………………………..

Mobile Number ...........................................................................................................

Office Telephone No. ...........................................................................................................

Mail ID (1) ...........................................................................................................

Mail ID (2) ...........................................................................................................

Residential Address ...........................................................................................................

..........................................................................................................

Topic of Interest ...........................................................................................................

..........................................................................................................

Annual Fees Rs.2,500 for CPE Study Circle Meetings

To,

Navi Mumbai Branch of WIRC of ICAIAddress: Rainbow apartments, F-2/C-3, Near Vijaya Bank, Sector 10, Vashi, Navi Mumbai-400703

Phone: Mr. Bhagwat 9323671721, Mr. Manoj 9773153877

***********

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