For Private Circulation Only • July 2013 • Vol 7 Issue 7
Society of Auditors
Chennai PRECURSOR ISSUE 80th Year Valedictory Celebrations
Inside this Issue... •
From the Edit Pad
2
•
Getting behind the smokescreen
3
•
Auditors - be aware! AMT for non-corporate assesses from AY 2013-14
4
SA 800 – Special Considerations – Audits of Financial Statements prepared in accordance with special purpose frameworks
6
•
80th Year Valedictory Celebrations
7
•
Reminiscences with the Society of Auditors
13
•
Recent Judicial Decisions Reported
15
•
FROM THE EDIT PAD
P.S. Prabhakar
The Society of Auditors is perhaps the seniormost body of accountants in the country and as has been justifiably touted many times, was already in its later half of the teens, when the Parliament sanctioned ICAI was just being conceived. The organization has been proudly th celebrating its 80 anniversary for almost an year now and is planning a grand culmination by August last week. Many of our veterans have had nostalgic memories of the Society and several of our peers do appreciate the silent, conservative but determined work done by the Society in the fields of knowledge dissemination, building up sensitivities and creating awareness to current issues beseeching the profession. It is the earnest desire of the very many well meaning people that the Society should actively play the role of conscience keeper of the profession and proactively be a right 'big brother' to ICAI, even. Of course, there are a few, who, even while conceding that all is not well with the governance of this great profession by ICAI, feel that it is better not to even pass comments, let alone judgments. However, is being ‘honourably’ silent on issues that border marring the image of the profession not running the risk of being construed as a silent approval or perhaps even a tacit encouragement for the rampant misgovernance by the elected representatives, some of whom are simply dictatorial, some meek, some indifferent and some even ignorant? Some ask as to why we should take the cudgels when sister institutions (including some very prestigious ones) confine their periodicals to academic issues, case laws, accounting standards, ethics etc. To them, my simple reply would be DNAs
vary. I would also submit that the agenda was set clearly upfront even while this venture was started. That said, I shall recount the incidents that have been recently happening courtesy: the regional council and its irrepressible office bearers. The Annual General Meeting of SIRC was a nonstarter. First it was ‘cancelled’ at the last minute without assigning any reason and without even an expression of any trace of penitence. The reason that everybody knew and no body wanted to acknowledge was that the accounts of SIRC was reportedly erroneous, that some of the RC members themselves had expressed dissent, that there were plans and moves not to consider some of the validly moved resolutions etc. which created a furore, making Delhi issuing an advisory to have a relook at the various issues and then conduct the AGM. (Let us not go in to the ‘legality’ of the advisory itself at this point of time). The RC met and brushing aside the well meant and well articulated objections to the accounts by some Central council and many Regional Council members, adopted the same accounts ONCE AGAIN by ‘majority’ (since when ‘democratic process’ started ruling the ‘true & fair’ aspect?) and also went against its own decision not to table even those resolutions that were found acceptable by it earlier. The number of resolutions that were ‘permitted’ by RC was reduced from 21 to a mere 5. It is really amazing as to how smugly dismissive those in RC can get. Who gives them the kind of temerity they seem to have in plenty? Perhaps the Chairman, SIRC is of the belief (continued on next page)
AUDITOR
Editorial Board
A periodical from Society of Auditors Chennai
CA P S Prabhakar, Editor
Society of Auditors “Platinum Chambers” 33, TNHB Complex, 4, Luz Church Road, Mylapore, Chennai - 600 004. Phone : 044-2498 6979 E-mail : society.auditor@gmail.com editor@societyofauditors.in Website URL: www.societyofauditors.in
Adv B Ramana Kumar CA P Anand, President, Ex-officio Member CA R Sivakumar, Vice President, Ex-officio Member CA S Ramakrishnan, Vice President, Ex-officio Member CA B K Moorthy, Secretrary, Ex-officio Member
Getting behind the Smokescreen! A BIG FOUR CA FIRM INDICTED BY HON’BLE ITAT S. 40(b): Appointment of an existing partner as representative partner for another party may circumvent the ceiling on number of partners. The assessee, a firm of Chartered Accountants, filed a return offering income of Rs. 17.70 crores which was accepted by the AO u/s 143(3). The CIT then passed an order u/s 263 stating that the assessee had amended its partnership deed pursuant to which Mr. Mukund Dharmadhikari, who was already a partner of the firm, was added once again as a partner in a representative capacity, to represent Deloitte Haskins & Sells, Mumbai. As Mr. Dharmadhikari had the right to share profit, both in the representative capacity as well as in his individual capacity, the CIT held that the number of partners exceeded 20, the maximum allowed under the Partnership Act, 1932, and that the assessee had, therefore, to be treated as an Association of Persons. He held that the assessee was not entitled to claim a deduction u/s 40(b) for the salaries paid to its' partners.On appeal by the assessee to the Tribunal HELD: A study of the partnership deed shows that Deloitte Haskins & Sells, Mumbai, which is the participating firm, is not a stranger to the assessee. The assessee can take policy decisions, which have a policy bearing on such firm, once there is an approval of the majority of the members of the “National Firm”. Mukund Dharmadhikari was representing Deloitte Haskins & Sells, Mumbai, and the endeavour of the
assessee was to bring on board the participating firm, on which it had powers to make policy decision, so that they became entitled for a share of profit. In other words, the effort of the assessee was to bring indirectly into the partnership M/s Deloitte Haskins & Sells, Mumbai, which was already a participating firm. The assessee was a renowned partnership firm and was well aware that number of partners cannot exceed 20. It is a well settled principle of law that what is permissible is tax planning, but not evasion. When an attempt is made by a concern to evade tax using subtle camouflages, bounden duty of the authorities is to find out the real intention. It is the duty of the Court in every case, where ingenuity is expended to avoid taxing and welfare legislations, to get behind the smoke screen and discover the true state of affairs. The Court has to go into substance and not to be satisfied with the form. Though in Rashik Lal 229 ITR 458 (SC) & Bagyalakshmi 55 ITR 660 (SC) it was held that a partner may be a trustee or may enter into a sub-partnership with others, or can be a representative of a group of persons and that qua the partnership, he functions in his personal capacity, these decisions will not apply since the assessee was indirectly trying to bring in M/s Deloitte Haskins & Sells, Mumbai, another firm, which was already a participating firm, as its partner, circumventing the limit of maximum 20 members. The AO did not apply his mind and go into these aspects and so the CIT was justified in directing him to look into the issue.
(continued from previous page)
that by being deferential to two Central Council members serving their last terms, he can cash in on their constituencies and voters, during the next elections. What is perhaps missed is that it is not just in Chennai that such clear voices of dissent are emanating. In Mumbai, Kolkata and Delhi also, members have started questioning roundly, squarely and in all other geometric shapes as well. (Yes, in the AGMs of the Western, Northern and Eastern Regional Councils also, members have moved resolutions questioning accounts and corporate governance issues.)
AUDITOR • July 2013
We l l , n o s o o n e r t h e r e v i s e d d a t e w a s announced, a petition challenging the validity of the notice of the AGM by a member was made before the Hon’ble High Court of Madras. As the institute was relectant to do the remedial acts, the Hon’ble High Court stayed the AGM. The senior counsel who appeared in the High Court for ICAI (during the course of another case) mentioned to the Hon’ble Judge that he has advised the ICAI to take in all the resolutions and conduct the AGM. Now, we have to wait and watch what the SIRC is going to do. They may still believe in the short saying ‘might is right’ but I promise it is not for long. 3
Auditors - be aware! AMT for non-corporate assesses from AY 2013-14 Adv. B. Ramana Kumar LLB., FCA** There was a time when the non corporate assesses lamented that the Government favoured only the corporate India and many a sops were given to them and not to the non corporate assessees. May be the Government listened to this lamentation and decided to bring them at par with the corporate assessees, though not to the exact relief of them by subjecting them to a tax akin to Minimum A l t e r n a t e Ta x ( M AT ) a p p l i c a b l e t o t h e i r Corporate Cousins, calling it with a jumbled acronym AMT, to signify Alternate Minimum Tax. Whether the above is the truth or not, in order to widen the tax base vis-à-vis profit linked deductions, AMT is here to stay for the noncorporate assesses also. MAT in its corporate avatar was effectively used make the companies pay the minimum tax. From being a simple tax, MAT has evolved itself into a complex set of rules and this new sibling of the same is no exception. The Government identified MAT as a milch cow and the intention is clearly reflected in the new section 115 JC amended by the Finance Act, 2013 applicable from the A.Y. 2013-14 to all non-corporate assesses. Section 115 JC was first made applicable from the A.Y. 2012-13 to the LLPs. The section: The provision of the section 115 JC as given in the Act is as under. “115JC. (1) Notwithstanding anything contained in this Act, where the regular income-tax payable for a previous year by a person, other than a company, is less than the alternate minimum tax payable for such previous year, the adjusted total income shall be deemed to be the total income of that person for such previous year and he shall be liable to pay income-tax on such total income at the rate of eighteen and one-half per cent. (2) Adjusted total income referred to in subsection (1) shall be the total income before giving effect to this Chapter as increased by (i) Deductions claimed, if any, under any 4
section (other than section 80P) included in Chapter VI-A under the heading “C.Deductions in respect of certain incomes”; and (ii) Deduction claimed, if any, under section 10AA. (3) Every person to whom this section applies shall obtain a report, in such form as may be prescribed, from an accountant, certifying that the adjusted total income and the alternate minimum tax have been computed in accordance with the provisions of this Chapter and furnish such report on or before the due date of furnishing of return of income under subsection (1) of section 139.” Analysis: From the A.Y. 2013-14 the same has been amended to cover all the non-corporate assessees in its ambit. Similar to the provisions of section 115 JB applicable to corporate assessees, section 115 JC too requires adjustments for certain deductions which are claimed by the non-corporate assesses. These adjustments are mainly under certain sections covered under chapter VI-A and section 10AA. It has been further provided that the provisions of AMT under Chapter XII-BA shall not apply to an individual or a Hindu undivided family or an association of persons or a body of individuals (whether incorporated or not) or an artificial juridical person referred to in section 2(31)(vii) if the adjusted total income of such person does not exceed Rs 20 lakh. Adjustments: The section envisages two types of adjustments. They are a.
Deduction in respect of certain incomes covered under any section by chapter VIA, under part C. The deductions with respect of expenditures covered under 80C to 80GGC are not sought to be covered by the MAT provision. (continued on next page)
AUDITOR • July 2013
(continued from previous page)
and secondary & higher secondary education cess. Calculation of the same is as under.
However any deductions claimed under any section after that i.e. 80H on wards (other than section 80P) are covered and are required to be added to find out adjusted total income.
a.
Calculate tax payable on the total income as per normal provisions of the Act without considering section 115JC.
b.
Calculate adjusted total income as per the provisions of section 115 JC.
c.
MAT Rate: Calculate alternate minimum tax @ 19.055% (18.5%+2%+1%) on the adjusted total income calculated in (“b”) above.
d.
Tax Payable: Where the tax calculated in(“c”) above is higher than the tax calculated in (“a”), then the adjusted total income as calculated in(“ b”) is deemed to be the total income the assessee and alternate minimum tax calculated in(“b”) is required to be paid.
e.
Ta x C r e d i t : E x c e s s o f t a x p a i d , a s calculated in (“c”) over the tax calculated in (“a”), is allowed as credit to the said non-corporate assessee under section 115JD. The same can be utilized within next 10 assessment years against the tax payable under normal provisions of the Act to the extent it exceeds alternate minimum tax payable for that year.
b.
Second part of the provision requires adjustment for deduction claimed under section 10AA.
One straight issue: One straight controversy which would emerge is whether income u/s. 80 TTA would be required to be adjusted. On a plain reading of the section, even deduction claimed for interest on deposits (other than time deposits) under section 80TTA,(which is available to individual and HUF from A.Y. 2013-14), is also required to be adjusted under section 115 JC. Taking clue from Section 115JB, deduction u/s. 80TTA should have been excluded from the provisions of section 115JC as it is a deduction in respect of non-business income. S e c t i o n 8 0 T TA i s i n t r o d u c e d t o p r o v i d e deduction to an individual or a Hindu undivided family in respect of interest received on deposits (not being time deposits) in a savings account held with banks, cooperative banks and post office. The deduction is restricted to Rs 10,000 or actual interest whichever is lower. It is also proposed to provide that where the income referred to in this section is derived from any deposit in a savings account held by, or on behalf of, a firm, an association of persons or a body of individuals, no deduction shall be allowed under this section in respect of such income in computing the total income of any partner of the firm or any member of the association or any individual of the body.
Conclusion Any non-corporate assessee, who is required to pay alternate minimum tax, is required to obtain a report in Form No. 29C from a Chartered Accountant (though, thankfully, it is not necessary to e-file this unlike the 3CA/3CB/3CD/3CEB reports). It is thus important that the professionals educate the clients on this new section and sensitise them on the need to pay the tax (self assessment tax this year and advance tax in the forthcoming years).
Computation mechanism: Alternate minimum tax on such adjusted total income is chargeable @ 18.5% + 3% education
** The author is a practicing advocate and can be reached at ramanaechambers@gmail.com
READERS / MEMBERS OF SOA ARE WELCOME to contribute articles of topical importance for The articles, which have to be original, may be the intention should be to share knowledge discussions and debates within the fraternity on AUDITOR • July 2013
consideration of publication in AUDITOR. opinionated, critical and analytical. In fact, laced with opinions that could open up subjects of professional significance. 5
SA 800 – Special Considerations – Audits of Financial Statements prepared in accordance with special purpose frameworks CA. S. Aditya Kumar Introduction: Financial Statements, which are normally circulated by the entity amongst the stakeholders if for the purpose of communicating the financial health and is expected to be prepared under generally accepted financial reporting framework. SA 700, SA 705 and SA 706 cover the Auditor's Report on such general-purpose financial statements. Any financial statement prepared under a specific financial reporting framework other than the GAAP may be considered as a “Special Purpose Framework (SPF)”. SA 800 deals with the Auditor's Responsibility on reporting of the audit of SPF. Special Purpose Frameworks: Where the financial information are expected to be communicated in a particular fashion or in a particular format with specific contents and normally with limited circulation (or distribution of the financial information is for a particular group or agency), then the guidelines within which the financial statements are prepared are called as Special Purpose Framework. This is so called, since it need not comply with the GAAP. The intention is not to communicate on the true and fair view of the business in accordance with GAAP (which is the fundamental aspect in
General Purpose Financial Statement), but the intention is to communicate on the compliance with a pre-determined guideline, which satisfies the requirement of a specific group. For example: 1. Financial Statements being prepared on cash basis or the existing financial statements are converted with adjustments to non-cash elements. 2. To meet certain regulatory requirements. Where financial statements are prepared under Tax Laws to furnish the information in requisite manner for tax authorities / regulatory authorities. The financial statements prepared under taxation requirements could be different from GAAP, and is meant for a specific purpose i.e., for the ascertainment of tax liability. 3. Where the Contract requires a Company to prepare the accounts based on the parameters laid out in the agreement. In other words, where the financial statements are not prepared in entire conformity with GAAP, in fact they may not even be a fair presentation of the facts, but is meant to be prepared for a specific purpose the guidelines to prepare such financial statements would be Special Purpose Framework (SPF).
Salient Differences in Auditor’s Report: Particulars
Financial Statements prepared under GAAP
Financial Statements prepared under SPF
Adherence to Accounting The Audit Report is addressed to the Members of The Audit Report is addressed to the entity or a Standards. the Company. specific group or as it may be communicated to the Auditor in terms of engagement. Report on Other Legal and Regulatory Requirements
This is paragraph is mandatory since it deals with specific reporting as required by Company Law.
This paragraph need not be reported.
Opinion
Opinion is always given on Balance Sheet, Statement of Profit and Loss and the Cash Flow Statement.
Opinion is always given on the financial information as described / denoted or as identified in the SPF.
Basis of Accounting
There is no mention required about where the financial statements have to be used, etc.,
Specific mention is required by the Auditors describing the purpose of preparation of the financial statements in the SPF.
True and Fair View
Auditor express whether the financial statements Auditor expresses whether the financial show a true and fair view of the accounts which statements or financial information communicated show a true and fair view of the is in line with GAAP / Companies Act. financial accounts / information as required by SPF. (continued on page 11)
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AUDITOR • July 2013
THE SOCIETY OF AUDITORS (REGD.)
80
“PLATINUM CHAMBERS” 33, TNHB Complex, 4 (180), Luz Church Road, Mylapore, Chennai - 600 004. Ph: 24986979
th
Year
Valedictory Celebrations 23rd and 24th August 2013 Venue: M.O.P. VAISHNAV COLLEGE FOR WOMEN IV Lane, M.G. Road, Nungambakkam, Chennai - 600 034.
AUDITOR • July 2013
7
Dear Member, As you are eminently aware, our Society began the year long 80th Anniversary celebrations on the 24th August 2012 and has been conducting several programs, part of the year long celebrations. The time has now come for us to celebrate the culmination of the celebrations and to conduct the valedictory function of the 80th year in a befitting and grand manner. The management committee of the Society has consciously planned to begin the celebrations on the 23rd of August 2013 and end the same on 24th August 2013 with a one day seminar. The Society is extremely delighted to announce that His Excellency Sri E S L Narasimhan, Honourable Governor of Andhra Pradesh has kindly consented to inaugurate the session on the 23rd evening, when, among other things, the Society will be honouring some of our members (Chartered Accountants) who have excelled in fields such as Music, Social Service, Teaching, Theatre and Industry on that day. The inaugural session will be followed by an entertainment program by Dummies Drama. The Seminar on the 24th would focus on some of the important topics. It also includes a special luncheon session. Well known experts from industry and practice have accepted to be the speakers. The full details of the program are given in the next page. All of you made the inaugural session of the 80th year a grand event. We are sure that we will, with your committed and continued cooperation, make the valedictory session also as a memorable one. Hence it is our earnest and special request that you come forward and register as a delegate and enroll as many delegates as possible from your organisations and friends. You owe this to our Society, which is primarily your Society. P. Anand President
8
AUDITOR • July 2013
The Society of Auditors 80th Year Celebration and Seminar on 23rd and 24th August 2013 Venue: M.O.P. VAISHNAV COLLEGE FOR WOMEN IV Lane, M.G. Road, Nungambakkam, Chennai - 600 034.
PROGRAMME Date
Time
Event
23.08.2013 (Friday)
6.00 p.m.
Inauguration His Excellency SRI E S L NARASIMHAN Honourable Governor of Andhra Pradesh
7.15 p.m.
Entertainment Programme by Dummies Drama
8.15 p.m.
Dinner
24.08.2013 (Saturday) 9.30 a.m. 11.00 a.m.
Chartered Accountants’ Role in Managing Great Companies Chairman : Speakers:
SESSION-I
Sri G SRINIVASAN, CMD New India Assurance Company Ltd. Sri CA P B SAMPATH, Chennai Sri ASHISH KUMAR CHAUHAN, MD & CEO Bombay Stock Exchange Ltd.
11.00 11-15 a.m.
Coffee Break
11.15 a.m. 1.15 p.m.
Chartered Accountants’s Role in Unearthing Corporate Frauds and Financial Reporting
SESSION-II
Chairman :
Dr K.V.S. GOPALAKRISHNAN, IPS (Retd.
Speakers:
Sri CA CHETAL DALAL, Mumbai Sri CMA A N RAMAN, Past President, SAFA
1.15 2.15 p.m.
LUNCH
2.15 3.15 p.m.
Luncheon Session Speaker
3.15 4.45 p.m.
Chartered Accountants’ Role in Building Great Financial Institutions & Planning Investments
SESSION III:
Chairman:
Sri PRADEEP KUMAR, DMD State Bank of India
Speakers:
Sri CA VIKAS ARYA, Chennai Sri J HARIHARAN, DGM, Indian Overseas Bank
AUDITOR • July 2013
SWAMI BODHAMAYANANDA Director, Institute of Human Excellence Ramakrishna Math, Hyderabad
9
The Society of Auditors 80th Year Celebration and Seminar on 23rd and 24th August 2013
EXECUTIVE COMMITTEE Sri P Anand
:
President
Sri R Sivakumar
:
Vice President
Sri S Ramakrishnan
:
Vice President
Sri B K Moorthy
:
Secretary
Sri P S Prabhakar
:
Joint Secretary
Sri V Swaminathan
:
Treasurer
Sri S Rajaratnam
:
Director - Education & Research
Sri George Cherian
:
Director - Technical
Committee
Chairman
Vice Chairman
Celebrations Coordination Committee
Sri G Narayanaswamy
Sri G V Raman
Programme Committee
Sr M Naganathan
Sri R Subramanian
Technical Committee
Sri K Ramadurai
Sri N S Srinivasan
Hospitality Committee
Sri S Sankaran
Sri G Balasubramanian
Public Relations Committee
Sri R Balakrishnan
Sri G Subramanian
Finance Committee
Sri K Ananthachari
Sr R Viswanathan
Fund Raising Committee
Sri M Bheema Bhat
Sri Mahesh Krishnan
Delegate Fees : Rs. 2000/- per delegate Cheque / DD should be drawn in favour of “The Society of Auditors” payable at Chennai
10
AUDITOR • July 2013
(continued from page 6)
2.
Audit of Financial Statements prepared under Special Purpose Framework: 1.
It is the duty of the Auditor to ensure that the Terms of Engagement include within which framework are the financial statements prepared and presented for the Audit. This ensures that there is no ambiguity in identifying the financial statements being presented for the audit. Once the framework is determined, the audit methodology, risk assessment, setting up of materiality levels, audit techniques to be used, audit evidence and extent of audit documents is also to be aligned to the requirement of the engagement.
For whom is the financial statement prepared for?: The General Purpose Financial Statements (GPFS) are for the distribution to the shareholders, bankers, bond holders, prospective investors, government agencies etc., The Auditor gives a report which includes whether the entity has complied with the applicable accounting standards and other legal / regulatory requirements. However, in case of SPF, where the intended user(s) is / are limited and the quality of the financials are being ensured for a specific purpose, then SA 800 is applicable. The Govt. Agencies, like in some countries, may require financials be prepared under a specific regulation for example tax laws. The financial statements prepared for the tax laws is to be used by the Tax Department only for the assessment of income, related tax and other compliance requirements. In India, however, we do not have such issues, since the financial statements prepared for the tax purposes are GAAP. In circumstance where Financial Statements are prepared under Tax Laws or under any other law and it is so prepared under a different GAAP and is subject to an Independent Audit, then the Auditor is expected to provide his report clearly mentioning that the GAAP used is as per applicable tax laws / regulation. The ICAI has issued a clarification on applicability of SA 700 on Tax Audit Report u/s 44AB of The Income Tax Act, 1961. As per the clarification, “Considering the fact that all tax audit reports are now mandatorily required to be filed online and that the format of tax audit report is prescribed by the Central Government, the Council in its 325th meeting held from 1st June to 3rd June, 2013 decided to defer the applicability of SA-700 (Revised) on the tax audit report under section 44AB of the Income-tax Act,1961 by one year i.e. the requirements of SA-700(Revised) are not applicable for tax audit reports filed up to 31st March, 2014�
AUDITOR • July 2013
Acceptance of the Engagement(also refer Para 6 of SA 210):
The audit risks in audit of financial statements within the GAAP and within the SPF also vary which is the subject of professional judgment of the auditor. 3.
Can the entity prepare financial statements in more than reporting framework? How should the auditor render his report then? The purpose of financial statements under GAAP is different than under SPF. Yes, an entity can prepare financial statements under two different reporting frameworks. An Auditor will then have to give two different reports, clearly identifying the framework for which the report is rendered. Apart from this in Other Matter paragraph, the Auditor is expected to mention that there is another report rendered for financial statements prepared under another reporting framework.
4.
Planning and Performance of Audit: Likewise is any other audit, the Auditor is expected to comply with all the Standards on Auditing relevant to the Audit. However, in this case, since the financial statements are not prepared in consonance with GAAP; but with specific agreement, there could be issues relating to form and content of the financial statements, disclosure requirements, etc., As part of the acceptance of the engagement itself, it is better to ensure there is a mechanism formulated, with due discussion with the Management (those charged with the Governance) of the Client, as to how the (continued on next page)
11
(continued from previous page)
be ensured. The compliance could either be ensured through additional disclosures in the financials. The Audit Report should also mention about the fact of additional disclosure accordingly.However, it should also be noted that before any regulatory agency issues any financial reporting standards / requirements, including the ICAI, the draft is standard or regulation is circulated and discussed as to how the requirements could be harmonized.
resolve the interpretational issues involved in preparation of financial statements under SPF to avoid any conflicts. 5.
Other Issues: Where the SPF itself provides a level within which the misstatements identified need not be rectified, should there be need of the Auditor to determine the materiality level? The Standard requires the Auditor to determine the materiality level.
6.
Conflict in reporting requirements: The SA envisages a situation wherein there is already a financial reporting framework (Accounting Standards issued by ICAI), which an entity is expected to comply with.However, if there is any regulation, which requires additional information to be provided, and supplements the existing financial reporting framework, then the entity needs to ensure compliance with both the regulations. Therefore, now the auditor has to evaluate whether there would be any conflict between the financial reporting requirements. If there are such conflicts, then the issues are to be discussed with the Management as to how the compliance can
Disclosure of the financial reporting framework in the Independent Auditor's Report: As required by SA 700, the auditor shall describe the purpose for which the financial statements are prepared, the intended users (or may be given in Other Matters paragraph). If the Management has been given a choice to prepare the financials by choosing one or more financial reporting frameworks, the Management's decision to choose on among them and the reasons as to how this is more adequate to the intended user needs to be disclosed. Emphasis of Matter paragraph needs to be included clearly mentioning that the financial statements are prepare in accordance with SPF and is not suitable for any other purpose other than it is intended for.
Society of Auditors takes immense pride in recognizing and honouring the following personalities, who have excelled in other fields, during the valedictory celebrations of th the 80 Anniversary celebrations. 1.
CA Ranga Rao
Teaching
2.
CA Ramamani Ravi
Social Service in the field of special children
3.
CA G.Subramanian
Social Service in the field of Blood donation
4.
CA AlleppeyVenkatesan
Music
5.
CA Sreevathson
Theatre
6.
Mrs Nirmala Prasad
Commerce Education
7.
CA Kimsuka Narasimhan
Business Entrepreneurship
BB NAIDU STUDY CIRCLE MEETING – AUGUST 2013 “Issues in Business Income – impact on Tax Audit”
Topic
:
Speaker
: CA T G Suresh
Date & Time : Friday, the 6th August 2013 at 6.00 p.m. (High Tea: 5.30 p.m.)
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AUDITOR • July 2013
Reminiscences with the Society of Auditors My association with the Society is over four decades that has been memorable and rich an experience one should feel to enjoy. In the early days, I used to attend the meetings at the Authorised chambers of the Income tax Office regularly. The Society was then under the stewardship of Late A.K. Sambasivam, C.S. Hariharan and my teacher B.B. Naidu. I was sure of one participant in Late Sri V. Soundararajan who contributed quite lot with his experience and knowledge for the benefit of youngsters. I became irregular when I took active role in SIRC for six years. My re-entry came when Late Sri D. Rangaswamy took over, who lifted the Society to great heights by celebrating both Golden Jubilee and Diamond Jubilee in style. He involved me in the programmes, designing of mementoes etc and insisted me to be the Master of ceremonies. The society had the good fortune of receiving many high profile dignitaries like Hon'ble Minister of Finance, Supreme court judges and others. He reigned supreme because of his popularity and high level contacts. DR synonymous with Society. He had his dreams of having own premises for the society, News letter and Academy for CA students and young CAs etc. My becoming the President of the Society was something unexpected by me but as it was in the 75th year, I had the good fortune of celebrating Platinum Jubilee of the Society on a grand scale. I wanted to take up the ambitious plans of Late DR. By God's grace and the excellent of cooperation of CA fraternity, I could acquire a decent place for the society and named as Platinum chambers. Secondly I could take steps to re-introduce News Letter. I also initiated Academy for the CA students and collected an initial fund of Rs. 2 lacs. I wish the Society to grow from strength to strength to do an effective service to our fraternity. CA K Ananthachari, Past President, SOA
Reminiscences with the Society of Auditors My association with The Society of Auditors commenced on the day when Revered Brahmayya Garu assumed charge as President. The content and the delivery of his speech in that meeting attracted and motivated me to contribute for its activity. Later Shri D. Rangaswamy took charge as President of the Society of Auditors and the respect which he commanded from members in different age groups created an impact on my approach to deal with all persons with a human touch. The Golden Jubilee celebrations of the Society of Auditors are very fresh in my mind when as Joint Secretary of the Golden Jubilee celebrations, I had the pleasure and privilege of interacting with all important officials, Industrialists, Businessmen and Economists which widened my horizon of thinking and the ability to handle difficult situations. The Golden Jubilee Conference was inaugurated by the then President of India Shri R. Venkataraman and it was an eye opener for me to understand the formalities in organizing such high profile functions. The silent manner in which senior members of our profession responded to the call of Shri D Rangaswamy for financial contributions to celebrate golden jubilee, has to be emulated by all of us. It is always a pleasure to go down the memory lane and recollect the pleasant memories of my association with this great organization the Society of Auditors which is celebrating its 80th year.
Reminiscences with the Society of Auditors I had the good fortune of becoming a member of the prestigious professional body, the Society of Auditors, in the year 1978. To my surprise, I was made the Joint Secretary in the same year. I had the privilege of serving under two illustrious Presidents, the late Sri P Brahmayya and Late Sri D Rangaswamy. I became the Secretary and Treasurer and Vice-President before finally demitting office as the President. The Society carried out many activities like organizing seminars, conferences and conducting classes and model examinations for the benefit of CA students. I also had the great opportunity of being the office-bearer for the celebrations of the Golden, Diamond and Platinum jubilee of the Society. I shall always cherish my association with the Society. CA S SANKARAN Past President, SOA
CA R BUPATHY, Past President, ICAI
AUDITOR • July 2013
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Reminiscences with Society of Auditors It was a great pleasure to have associated with Society of Auditors for the past 45 years (since 1968) and to have served as an office bearer as Secretary and Vice President for more than 12 years. I remember the days when I had the opportunity to serve as Secretary to stalwarts Late CA. S. Hariharan, Late CA. R. Venkatesan, Late CA. B.B. Naidu, Late CA. P. Gopalakrishna Rao and as Vice President to Late CA. P. Brahmayya, Late CA. D. Rangaswamy and Sri. CA. G. Narayanaswamy and from all those giants in profession, I gathered the resolve to serve, to seek, to find and not to yield. It is delightful, even today, to think of the Golden Jubilee Conference in which President of India Late R. Venkataraman participated as also of the subsequent Diamond Jubilee and the Platinum Jubilee celebrations when the new premises was acquired under the Presidentship of Sri. CA. K. Ananthachari. I am happy that many of my deputies in office from Society of Auditors like CA. R. Bupathy, CA. T.N. Monaharan, CA. M. Bheema Bhat and CA. S. Sankaran occupied later higher positions as President of ICAI/ President of Society of Auditors. Now it is the happiest moment for me to see the younger generation CA. P. Anand, CA. R. Sivakumar, CA. S. Ramakrishnan and CA P.S. Prabhakar and many others taking keen and active interest and are celebrating the “80th year celebration” of the Society on a grand manner. I am sure that the Society will attain greater height and Glory. R. Balakrishnan, Past President, ICAI
Reminiscences with the Society of Auditors It was during 1988-89 that I started attending the monthly meetings of The Society of Auditors. Two great personalities inspired me to be regular and participative- then President Late Sri. D. Rangasamy and Sri. S. Rajaratnam who were present in all such meetings that used to be held in the Aayakar Bhavan in the Nungambakkam Road. At the instance of the President, I made presentation on a few topics from time to time, which made me research extensively on the taxation subject and enhance my knowledge base. Those opportunities also strengthened my presentation and articulation skills. Thanks to this great Institution, I could move intimately with senior members of the stature of Mr. G.Narayanasamy, Mr. P.B.Vijayaraghavan, Mr. V.Jagadeesan without any inhibition. Right from the experience of being a delegate of a unique seminar organised on Tirumala Hills in 1990 (with a special permission) up to the association as member of the organising committee of the Diamond Jubilee celebrations in 1993, everything is quite fascinating now to recall. Thereafter, functioning as a Joint secretary of the Society for a while shaped my leadership qualities as the then secretary and renowned teacher Mr. R. Sivakumar guided me on many facets. When the dream of owning a premises for the Society appeared to be a distant one, it became a reality when Sri. K. Ananthachari was the President and I was fortunate to get an opportunity to inaugurate the new premises on 11th December, 2006 as the then President of ICAI. The Institution has succeeded in bringing out a meaningful monthly journal consistently and keeps holding quality programs regularly due to the dedication and dynamism of some of its Members who need to be commended. May the functioning of this oldest Institution of our Profession pave way for the upcoming of many more young professionals.
Reminiscences with the Society of Auditors I am not a Chartered Accountant, but my fiftyyear long association with Society of Auditors began from 1962, when I was first posted at Chennai. It is because of such association, some mistakenly refer me to be an auditor, a mistake I confess I did not correct! I had been fortunate in participating in most of the programmes of the Society, when in services and after enriching my knowledge as I have acknowledged in the prefaces to my books. I have had the privilege of having more than a nodding acquaintance wiht great leaders of the profession, past and present. I believe, that the exposure to programmes and the opportunity of mixing with elite of the profession is a reward and a continuing education. I do hope, that the opportunity would be a availed by more and more members of the profession. S Rajaratnam Retd. Member, Income-tax Appellate Tribunal Advocate & Tax Consultant
T N Manoharan, Past President, ICAI
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AUDITOR • July 2013
Recent Judicial Decisions Reported
P.M. Veeramani, FCA
Statute: Income Tax Act - Sec 4 - Compensation is capital receipt Decision in favour of : Assessee Title: Khanna & Annandanam vs CIT Citation: 85 DTR 164 Bench: Delhi HC Assessee firm of chartered accountants under an informal understanding was getting referred work from Gupta Chaudhary & Ghose, CA firm in Calcutta who were doing the work which was referred to them Delloite Haskins & Sells, a firm of CA based outside India for over a period of thirteen years, compensation received for release of such arrangement was capital receipt not liable for tax. Release amounted to the impairment of the profit making structure or apparatus of the firm and compensation was substitute for the source. It is immaterial that assessee continued as a firm of CAs. Decision of Tribunal reversed. Statute: Income Tax Act - Sec 4 - Family Settlement Decision in favour of : Assessee Title : CIT vs Ashwani Chopra Citation: 85 DTR 40 Bench: Punjab & Haryana HC When a dispute between two groups in a family was settled amicably as a result of which assessee as a member of the group received certain property and amount in cash to settle inequalities in partition, the amount so received could not be taxed as capital gains. Statute: Income Tax Act - Sec.36(v)(a) - Employee contribution Decision in favour of : Assessee Title : CIT vs Nipso Polyfabriks td Citation: 84 DTR 424 Bench: Himachal Pradesh HC Assessee employer having deposited employees contribution towards ESI before due date of filing of return though after due date prescribed under the Act, same had to be allowed deduction; there is no reason to make any distinction between employees contribution or employer contribution. Statute: Income Tax Act - 40A(3), Rule 6DD(k) - catering contractor Decision in favour of : Assessee Title : R.C.Goel vs CIT Citation: 84 DTR 432 Bench: Delhi HC Assessee engaged in executing catering contractors for Railways in trains and used to source food articles from another small concern who insisted on cash payment, assessee case was covered by Rule 6DD(k) and no disallowance was called for. Statute: Income Tax Act - Sec.40b - Book profit for remuneration Decision in favour of: Assessee Title : Suresh A Shroff & Co vs JCIT Citation: 85 DTR Trib 446 Bench: ITAT Mumbai While computing book profit for purpose of computing allowable remuneration to working partner under section 40b, AO was not justified in excluding from net profit, income which he considered to be income from other sources. Statute: Income Tax Act - Sec.54 - Two adjacent flats eligible Decision in favour of: Assessee Title: CIT vs Syed Ali Adil Citation: 352 ITR 418 Bench: Andhra HC Assessee sold ancestral house and out of sale consideration purchased two flats which adjacent to one another and had a common meeting point was eligible for exemption. Statute: Income Tax Act - Sec.143(1), 154, 245 - TDS credit not granted Decision in favour of: Directions Title: Court on its own motion vs CIT Citation: 352 ITR 273 Bench: ITAT Delhi Interim direction issued to Revenue to give notice to assessee before making adjustment of refund against tax arrears, and on reply being filed by assessee, same to be considered by AO and decision of AO to be communicated to CPC for making assessment accordingly; In view of the difficulties faced by tax payers in getting credit for TDS, interim directions issued to the effect that once amount is correctly and rightly reflected in Form 26AS, small or technical mismatch in the return should not be a ground to deny credit and in such cases, if AO feels that benefit of TDS should not be given, he should issue notice to assessee to revise or correct the mistake and only if the necessary correction or rectification is not made, an order under 143(1) should be passed and demand raised. Statute: Income Tax Act - Sec.145 - Accrual of interest on NPA Decision in favour of: Revenue Title : CIT vs Sakhti Finance Ltd Citation: 86 DTR 59 Bench: Madras HC Mere characterization of an account as NPA would not by itself be sufficient to say that there is uncertainty as regards realisability of income or interest thereon; accrual of interest is a matter of fact to be decided separately for each case on the basis of examination of facts and circumstances. Statute: Income Tax Act - Sec.194 J - Modelling is not Prof service Decision in favour of: Assessee Title : Kodak India Private Ltd vs DCIT Citation: 22 ITR Trib 721 Bench: ITAT Mumbai Payments were made for services of modeling which were unconnected with the production of cinematographic films. While modeling was aimed at display of merchandise, the acting was defined to portray a role authored by a story writer with different purposes and objects and certainly not to displace merchandise to boost the sale of manufacturer or trader of product or services. Therefore, payments made by assessee on behalf of Ms.Kartina did not attract the provisions of section 194J.
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AUDITOR • July 2013